Tag Archives: money

Buffett's motivations questioned?

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Last month, as a reader service, I published one of the most important financial statements made in recent years, but it wasn’t made by the Treasury, the Feds, or even the Banks (!)  …

… it was made by Warren Buffett – to give the average US investor confidence by sharing his personal financial strategies for today’s ‘crisis’ market.

Naturally, there were cynics: isn’t it amazing that people who usually have nothing (like one particular financial journalist) like nothing better than to criticize those who have everything (like one particular multi-billionaire investor)?

It’s the same counter-intuitive, yet all-too-human, failing that sees us buy when the market is high and panic/sell when it is low. Sad … but, true.

Here are some comments by Marketwatch.com, where “David Weidner penned an article about Warren Buffett” that Motley Fool thinks is “equal parts sad and stupid”; Motley Fool says:

Weidner responded to Buffett’s article by making the following points/accusations:

  • That because Buffett can get better terms than you, his advice does not apply to you.
  • That Buffett wrote the Times article to talk up shares because his recent investments in General Electric (NYSE: GE) and Goldman Sachs (NYSE: GS) preferred shares were underwater, and he needed to “stir up some buying” to get their prices back up.
  • That the stocks Buffett’s buying for his personal account are irrelevant, since he made his fame with his gains at Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B).

    • I am not going to report here all the reasons why this is short-sighted bunkum, when Motley Fool have already done such a good job for me 🙂

    Deal or No Deal – Part 2 – Reader Poll

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    Gotta love a show that dangles a $1 Million ‘carrot’ in front of people’s noses and all they need to do is make some sensible life choices – on the spot, and in front of millions of people 😉

    Tomorrow Rodriguez (that’s her name … really!) is a sensible girl: married, been in the army, put herself through school, has a Master’s degree in something-or-other (obviously, not math).

    And, she’s made it on to one of those ‘special episodes’ – you know, the ones where they put up 9 suitcases with $1 Million in each of them, rather than the usual single suitcase: that’s 9 chances in 26 … 35% or roughly a 2-to-1 chance of walking away with $1 Million.

    Deal or No Deal?

    OK, but there’s a twist … first you get to pick some suitcases and the ‘Banker’ makes you a take it or leave it offer:

    He’ll give you $43,000 to walk away right now! In fact, that’s exactly what he offered Tomorrow very early on in the show …

    Deal or No Deal?

    You say “No Deal!” (do you?) and pick a few more suitcases … the offer goes up and up, but you keep turning the Banker down, down, down, until the money gets serious.

    Now, more than half the suitcases are gone (and 3 or 4 of the ones with $1 Million in them, as well) but you still have a few ‘million dollar suitcases’ as well as a few lemons left … but, you have chosen well (birthdays, tarot readings, and horoscopes are really working well for you today).

    The Banker offers you $134,000 to walk away, right now!

    Deal or No Deal?

    Of course, you say “No Deal!” (are you sure that you do?) and Howie asks you to pick just two more suitcases … the offer goes up to …

    … the amount in the photo above!

    Deal or No Deal?

    If you haven’t dipped out already, here’s something interesting to note; it may or may not change your mind, but it’s interesting nonetheless:

    There are 6 suitcases left [AJC: one suitcase, also containing ONE MILLION in the bottom right has been cropped in the photo at the top of this post]:

    3 suitcases containing virtually nothing (max. of $400) AND

    3 suitcases containing $1 Million

    So, the odds are exactly 50/50 that’s you’ll pick one of the suitcases that guarantees you $1,000,000 so the banker should offer you $500,000 (give or take a few bucks) …

    … BUT, the Banker’s Offer is only $349,000

    Deal or No Deal?

    Let me know where you stopped … click on one of the options in the poll … if you’re up for it, you can also drop the reason for your vote into the Comments section below … this should be fun!

    In the meantime, do you want to know what Ms Rodriguez did? We’ll talk a little more about that next week 🙂

    Special Announcement!

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    billboard2

    I have been working on a project … call it a labor of love (when you find out what it is, you’ll decide that if this is my idea of ‘love’, I need psychiatric treatment) … and, I want you to participate!

    Let me take you back to where this project had it’s genesis:

    In 1998, I was struggling financially and directionally … I had my two break-even businesses, a lovely wife and two babies, but no money and no major prospects: it would take a miracle to get the businesses above break-even.

    Then I came across the concept of the Number.

    A simple idea: your Number is the amount of money that you need to have set aside (by whatever Date you happen to decide upon) so that you can be financially free to [insert goal of choice: retire; play golf professionally; write a book; volunteer abroad; move into the old-people’s home or Florida, which pretty much amounts to the same thing; etc.].

    At the same time, I found my Life’s Purpose: to be constantly traveling mentally, physically, and spiritually …

    … which means nothing to you, but meant everything to me (which is all that counts, right?).

    Understanding my ‘life after work’ dream (in my case, it meant discovering my Life’s Purpose) told me that I needed $5 Million within 5 years. A major wake-up call considering that, at the time, I was $30,000 in debt!

    If you’ve read my $7 Million Dollar Journey you will know that, because I found my Number, I made it.

    I decided that I had to give back, by helping others to understand, find, and achieve their Numbers, as well …

    … so, to help you figure out your own Number (and, Life’s Purpose … if you so desire) I have created a new web-site.

    I have also created a unique home for you on the Internet, a place where you can Share Your Number with like-minded people … hopefully, you will connect with others who can help you on your way, and you may even be instrumental in helping them!

    Take a look at these sites, then join up and Share Your Number … it’s easy, fun, and could be very, very rewarding for those who actively participate.

    As readers of this blog, and ‘charter members’, your membership will always be free. And, tell your friends, they can be charter members, too 🙂

    The only ‘catch’ is that I have not officially launched this site, yet, so you will be the ‘beta testers’ … try it out and let me know what you think using the form, below (just type then ‘submit’):

    The Art of the Pitch …

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    david-rose-vc1

    “Everybody is selling something all the time” [Anon.]

    I don’t know who said that (probably me!) but it’s true; everything is a sales pitch:

    – asking a girl/guy out on a date

    – a marriage proposal

    – a loan application

    – a job application

    – a promotion request

    – a sales visit

    – a venture capital ‘pitch’

    Guy Kawasaki outlines a great approach to ‘pitching’ for anything in his masterpiece for budding entrepreneurs, The Art of the Start.

    And, consummate VC, Chris Rose, fills in some of the blanks in this great 14 minute video … watch it, bookmark it, you’ll need it (one day) ….

    How to build a conglomerate …

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    I wrote a post a while ago, in response to a reader question, that questioned the sanity of an entrepreur following my path and owning multiple concurrent businesses.

    I said: bad idea!

    However, Diane points to a number of conglomerates (a collection of related or unrelated businesses under common corporate control) that make money because they diversify into multiple businesses and sectors:

    Most conglomerates are good examples of diversified businesses (GE comes to mind). One could also buy complementary businesses. Your risk level is affected the same way as it would be with diversifying any investment.

    Your example of multiplying the management teams (and thereby increasing risk to each business) is interesting, Adrian. This is precisely one a buyer of companies is looking for (like your friend Brad) – inefficient management with an underlying fairly decent business. You buy and consolidate, combining the common management (HR, Acctg, IT) that runs across each company, combine anything else you can “leverage” (logistic chains, purchasing power, for examples), and save money, thereby reducing costs and making it even more attractive to investors (depending on which kind you want).

    And, it’s true: a conglomerate can diversify a company’s risks, just like diversifying a stock portfolio … the problem is – just like any other diversification strategy – you equally ‘wash out’ your successes with your failures.

    My issue is that this may work as a ‘risk mitigation strategy for large companies, but it’s too risky for smaller (e.g. sole, or family) operators.

    Large conglomerates build up over time, usually using one successful business to fund the rest. The key is having good management in each … the risk (for a small player, like you and I) is trying to BE that management.

    A great example is Warren Buffett: he started Berkshire Hathaway by buying a controlling interest in a mediocre textile company and raised cash simply by stopping the dividend stream to the shareholders …

    … he used that cash to buy an insurance company, and used policyholder cash from the insurance company to buy more companies.

    The interesting thing is that he does NOT look for companies with poor management; rather he buys GOOD companies with GREAT management and keeps them in place, doing what they do best: creating more cash for his next company purchase … and, so on goes Warren’s $40 Billion – $60 Billion (his personal net worth in Berkshire Hathaway) ‘cash machine’ that owns more than 75 companies!

    The problem is that Warren only got to this point because he couldn’t find one company that ‘did the trick’ … he would, however, put 60% to 80% of his entire net worth in just one investment/business, if he could find it!

    Blogs, blogs, and more [bleep'ing] blogs!

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    blogs-illo

    It seems like I am embroiled in a torrent of writing; even my 11 year old daughter asks why I am working at my computer all day on something that makes me absolutely no money … she suggests that I go out and get a ‘real job’.

    I guess neither my daughter nor I actually understand the concept of ‘retirement’ 🙂

    Which leads me to Dustbusterz’s e-mail opinion, which may be shared by others, hence my posting it here:

    You post on too many places, and it becomes confusing and difficult to keep up with the concept. It seems you go to one site, get a little info, then go to another site, get a little info , then get a bit of info in email. And trying to tie it all together just wracks the mind. I believe it would be much simpler for everybody if you chose one concept(such as video posting every day) instead of this post here post there kind of treatment.

    Thanks for sharing, Dustbusterz!

    If it helps, here’s how it works:

    Blog 1: 7million7years.com – This is my main blog where I share ideas and strategies on Personal Finance. The rough framework is sketched out via the tabs across the top (eg Road Map to Riches; Making Money 101; etc.).

    Blog 2: 7m7y.com – Because blogs (yes, even mine!) can be ‘theoretical’, I thought that I would start a 7 year ‘experiment’ by helping 7 volunteers (and as many of our readers as want to participate) to make their Number (hopefully, in the millions). This is a sequential process, albeit tailored to the needs of each of the 7 … making money takes time, so the ‘lessons’ will inevitably be spaced out over a long period of time.

    Blog 3: ajcfeed.com – This is not really a blog at all, but my live Internet chat show … my son’s idea; not sure why I am doing it, but I enjoy the ‘real time’ aspect. And, my Youtube videos (posted at yet another site: ajcvault.com) get multiple viewings. I guess some people like to hear an Aussie with a funny voice/accent speak!?

    Whereas Blog 1 is random/theoretical, Blog 2 is paced/practical and centered around the needs of each of the 7 MITs.

    Blog 4: findoutifyoucanmakemoneyonline.wordpress.com (which has taken a pause, while I set about launching Blog … actually, Site … 5) – This is purely for fun and to see whether it’s possible to make money online … with this blog it’s ME who is the subject of the ‘experiment’!

    Blog 5: There isn’t one (officially) yet … but, I will be making an announcement very shortly! In the meantime, you can get a ‘sneak peek’ here.

    Read one or all blogs/sites, together or independently … it doesn’t really matter as long as we can all get something out of it.

    Thanks for your suggestions, Dustbusterz, I’ll see what I can do (like this post for example) to make it all easier to navigate!

    Now, hear the word …

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    I don’t normally chain my video-on-Sundays (too much hard work for both you an me on ‘day of rest’ Sunday) …

    … but, I showed a video that explained how important marketing is, to which Scott responded:

    I completely agree that marketing and being a good marketer is one of the most important wealth building tools you can have. A definite and powerful Money Making 201 skill, but one I personally don’t enjoy, lol.

    It’s not that it’s so bad, it’s just the part of my practice that goes into the “work” category, along with paperwork and dealing with insurance reimbursement, when I would rather be focusing on my ‘life’s purpose’ part of my practice, which is helping patients.

    However, it’s only when I step it up and be more of a marketer and insurance master that my income goes up.

    It’s funny, in school I thought the opposite would be true, that I would be more financially successful if I focused on being a better, more caring and more compassionate doctor.

    Scott, you’re a doctor so, just remember:

    Your marketing bone is connected to your income bone … your income bone is connected to your investing bone … your investing bone is connected to your Number/Date bone … your Number/Date bone is connected to your Life’s Purpose bone …

    … Now, hear the word!

    When you truly understand this (through trying it and beginning to see results), you will magically shift your thinking:

    Marketing will no longer be in the “work” category (along with all of that other boring stuff like “paperwork and dealing with insurance reimbursements”) …

    … it will pop into it’s own “enabling me to truly live my Life’s Purpose” category and you will grow to LOVE it 😉

    Riding in the big boat while carrying the little boat …

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    There was a great article in eLance’s blog today (AJC: I didn’t know they had a blog, but I used the site to find my research assistant, Muhammad, who lives in Pakistan and is doing a great job for me at $4 an hour!) …

    … here is a summary (with my thoughts in italics):

    Tips for Incubating your Small Business Idea While Still Working Full-Time

    Sep 4, 2008 6:38pm

    Have you considered starting a business while still employed?

    My Shanghai-born friend, Annie, says the Chinese have a term for this: “riding in the big boat while carrying the little boat.”

    Some entrepreneurs only launch their business officially once they leave employment. However, they incubate the business concept while employed.

    Other times, they actually launch the business and run it on the side while still employed. They may continue to run it as a side business for a period of months or even years. Only later do they leave their jobs.

    No matter how you do it, I’ve got 6 practical tips for starting a business while you’re still employed:

    1. Consider Your Employer Your Banker
    I am a huge fan of bootstrapping a business, i.e., using personal money to fund growth. One form of using personal funds is to set aside a portion of your salary to fund your business. That means you need to protect your funding source — your job — until you are ready to cut the cord.

    The author of this article suggests that you need to canvass your employer on ‘moonlighting’ otherwise you should wait until you leave your job to start the business – I would suggest that if the business is critical to your financial future (and, if you’re reading this blog, it probably is) then you should take steps to find a replacement job asap – and, let the new employer know that you are “working on a business ‘on the side’ to improve your business skills” … they might even see that as an asset!

    2. Write a Business Plan
    Sure, much of your plan will turn out to be incorrect (same goes for most startup business plans). But it’s not the plan that’s important … it’s the planning.

    I agree – to an extent: as with your Life’s Purpose, having a Plan for your business is a great idea … but, trying to plan every detail is (at least for me) a waste of time … but, don’t let me stop you! If you want to see a practical approach to planning for any business – certainly, fast-moving startups – read Guy Kawasaki’s Art of the Start.

    3. Get your Spouse’s Buy-In
    Your husband or wife needs to be committed to your startup. If it isn’t a shared dream, or if your spouse is resentful of the time you are spending away from family, you’re adding stress on your relationship.

    You want to stay married and have a business that sucks up all of your non-working time?! ‘Nuff said ….

    To secure buy-in from your spouse, talk frequently about your dream. Paint a picture in words. Get him or her involved, too. Nothing creates buy-in better than being actively involved in business decisions.

    4. Choose the Right Business

    Here are some examples of businesses that can be operated on the side indefinitely for years, or eventually taken into full-time businesses:

    • Software development
    • Web design
    • Freelance writing
    • Online businesses
    • Graphics design
    • Consulting
    • eBay business
    • Event planner
    • Any hobby that you can turn into a business

    The author recommends these because you can often be flexible in hours and/or hire outside staff/contractors … the catch is that a number of these businesses aren’t dramatically scalable, which is the #1 criteria that I look for in a business …. remember: scalable = salable.

    5. Set Aside Dedicated Schedule for Your Startup

    Many entrepreneurs who have successfully started a side business do it by setting aside dedicated hours each day for their startup. I’ve known budding entrepreneurs speak about going home to “start the second shift.” That’s exactly how you have to think of it. Commit to spending X hours per weekday and/or on weekends on your business. Stick to a regular schedule – it makes it easier. P.D. James, the novelist, worked for years as a hospital administrator, arising early to write for 2 hours each morning before work.

    This is the best piece of advice in this already excellent post … it is hard to come home from work, only to have to go to ‘work’ … but, it must be done (hence, the prior discussion with spouses and bosses).

    6. Turn Your Employer Into Your First Customer
    Think of your employer as your first big sales target (assuming your product or service is relevant to your employer). Many a business has gotten off to a great start when the owner’s former employer became the first customer.

    Good luck on this one! Still if you CAN get your employer to become your first big customer, it’s a great start: not sure how the whole employee/supplier co-existence thing will actually pan out … I think it will be better if you are able to transition from employee to supplier …

    If yuor objective is to build a second income stream to support your investing activities – or, perhaps to build up capital to start That Big Business of yours [AJC: I would never let a little issue of capital stop me from starting that one NOW 😉 ] – then this article provides some great suggestions …

    … however, if you want to build a ton of money, fast, then you may have building the next Facebook in mind and this article (along with this one) presents a way to get off the ground with minimal risk.

    They don't want a drill …

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    drill

    I came across this neat summary of a great quote by Perry Marshall the other day … a quote is as good as a post, so here is one of the greatest pieces of advice about marketing your business that I have ever come across:

    “Nobody who bought a drill actually wanted a drill. They wanted a hole. Therefore, if you want to sell drills, you should advertise information about making holes – NOT information about drills!” – Perry Marshall

    What that means is that people do not care about your opportunity, what they care about is a solution to their problems.

    So, what you need to do instead of pitching your [whatever it is that you sell] to your prospects, sell them inexpensive or free information on how to solve their problems, on how to drill that “hole.”

    If you can show them how to make that hole, your prospects will come to the conclusion that they need a drill from you because you gave them free knowledge or inexpensive information on how to accomplish their goal, and therefore earning their trust in you.

    Put simply: education sells!

    In fact, this is the way to sell ANY client ANYTHING … it’s what I did to make my businesses a success. If there is anything that neatly encapsulates the reason for my business successes, this is it. Really.

    The correct way to look at debt …

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    BradOK asks:

    What’s a better use of my money – pay down debt or invest it in the market?

    To which JillyBean responded:

    At what rate of interest is your debt? How much debt do you have? Do you have an emergency fund? If you invest your money, what is the purpose for the money — short term or long term? The markets are on a downward spiral and very volatile — it might be more prudent to answer the above questions to determine the answer for the actual question.

    You could always compromise and do both! It never is bad to pay down debt.

    But, I am always working from the assumption that you want to get rich /stay rich …

    … if that’s also your mindset, you might have more clarity if you rephrased the original question as “what’s better, to INVEST in debt or INVEST in the market?”

    Once it’s clear that you are making an INVESTMENT every time you pay off debt – even personal debt – or, decide not to, then you will realize that you simply need to consider relative returns.

    Then it will suddenly become clear that INVESTING in debt returns you a guaranteed rate equivalent to the interest rate (plus ongoing fees, if any) being charged. On the other hand, investing elsewhere MIGHT return more, over the long-term.

    So, your real question that you need to answer is: “What investment will give me a greater AFTER TAX return than my highest interest rate currently outstanding debt?”

    If you can find one (and, you have the required skills/interest/knowledge/stamina) then invest in that, otherwise pay down some debt.

    Naturally, start with the highest interest rate debts first and work your way down (remember the ‘debt avalanch’?)