Common sense perspectives and finding a way to retire

Archive for the ‘investments’ Category

The Illusion of Knowledge

Posted by Paul on January 8, 2007

“The greatest obstacle to discovery is not ignorance, it is the illusion of knowledge”
Daniel Boorstin, 1984 Librarian of Congress

I am a naturally skeptical person (probably why I am an engineer) and I tend to analyse everything to death before I make a decision. But unlike many people I try to analyse things impartially and do not depend on opinions of the uneducated to form my ideas. Nearly everyone has opinions that are mis-informed about everything whether it is health, sex, marriage, money, business, network marketing, real estate and especially science (its really sad to me how poorly educated we are about science in the US since many of the political decisions of the day are being made based on poor scientific knowldege).

Global Warming is my personal scientific pet peeve. We have less than 100 years of fairly good scientific data on temperatures, yet we try to extrapolate that data over the life of the planet and think we can predict some disaster. Understanding normal variation is not something people seem able to grasp. Every weather event is treated like a unique event. This only demonstrates to me a foolish lack of perspective!

Getting good data is also of paramont importance when evaluating a new business as well. Now when you are investing $1,000,000 into a business you probably will do some due diligence. However, for businesses like Network Marketing with low entry costs, nearly no one does due diligence. So I found that people asked their “expert” friends about the business and they got information on how prices are too high or the market is saturated or whatever. When I got involved in the Amway business I did not ask one unsuccessful person what they thought of it. I investigated the pricing structure, the quality of the products, the payouts, the franchise “system”, and interviewed people that had made the business work.

Likewise, in the real estate business, I’ve investigated lots of different systems, bought several and evaluated how they work. I only like to talk to successful people about what works. I like real knowledge, not theoretical knowledge about what might work.

Know that doesn’t mean I won’t listen to people that have failed at something. Certainly they can provide valuable insights. However, most people really didn’t fail because they really didn’t try. So 99.9% of their opinions are worthless.

Meanwhile thousands of people listen to Barbara Streisand rant about global warming while flying around in her private jet ruining the atmosphere.


Posted in business, finances, investments, money, Network Marketing, real estate, science | 1 Comment »

Is Quixtar/ Amway a good or bad business?

Posted by Paul on January 3, 2007

I read a post linked from Carnival of Personal Finance today by a bloger called Getting Green about the Amway/ Quixtar Network Marketing business. It seems that this blogger has either some grudge about the Quixtar business or they are just closed minded. For someone who claims to be writing “for people who want to be millionaires” he is way off base.

I’ve blogged about my experience in Amway before. I spent over a decade involved with it before they changed their name to Quixtar. Getting Greens big objection to Quixtar is that is “hard work”! Well – duh!!!! (He also thinks the products are expensive – but I’ll get to that.)

This blogger must be a very young person who has no clue about success. (Maybe today with the Internet you don’t need hard work to succeed – I don’t know about that yet.) But any business takes hard work in order to achieve real success. You are fooling yourself if you think you will get rich easily.

As far as business models go, the Amway model has a number of key components that really can help you succeed. The downside is that the cost of entry to this business is so low that people think it will be easy. Among the excellent attributes I saw:

  1. Access to millionaires – I always had the opportunity to listen to and meet and personally talk on the phone to people that were extremely rich. If you want to be rich – you have got to associate with wealthy people. Broke people think like broke people.
  2. A good “franchise” system (see E-Myth Revisited). One of the criticism’s of Quixtar is that people make money on tapes. Well, the tapes are part of the success system that leaders in that business have put together. When you purchase a Franchise, what do you you think you are buying – hamburgers? Heck no, you are buying the system. What does that franchise system cost? From $10,000’s to $1,000,000’s. The Quixtar franchise system is a bargain.
  3. Good quality products. The Green blogger complains about the cost of the products. When I started that business I too was sceptical about the prices. What I found out was that the products are very high quality and very good value for what they did. Now when you start a business you can have a low cost pricing structure like Walmart (My Chinese wife claims the Chinese ship all their “crap” to Walmart – the quality of goods in China is much higher :)). Certainly Walmart makes a lot of money, but so do stores that cater to high-end customers like Neiman-Marcus. When you are in sales is it easier to justify good quality or have to explain poor quality? I always found it very easy to justify the higher quality products to people – much easier than handling complaints.

When I was involved with that business, I probably had about 500 people pass through my organization. Probably 90% of the people did nothing but buy some products – no work at all. Like any business it is a numbers game. It is also a people business (my great failing). Success requires hard work, good people skills, perseverance and adherence to the system. Is it saturated? Hardly – the potential opportunity is worldwide and they have fractions of a percent of market share. In fact, I have never been contacted about it by anyone in my 54 years ( I sought it out).

Disclaimer: I am not now affiliated with Amway or Quixtar or know of anyone who is. I have not been involved with that business since 1995.

Posted in investments, Network Marketing | 1 Comment »

The Courage to Be Rich

Posted by Paul on December 21, 2006

I was reading an article titled The Courage to Live Consciously by Steve Pavlina and was reminded (again) of the root reason for my current financial state -living too much in my fears.

How would I live if I had no fear at all? Have you ever asked yourself that question? When I was involved with Amway I often asked myself this, but had long forgotten about the question or my answer. Recalling back to the days I used to travel long distances to show the Amway business plan to prospects, I often would be driving home late at night listening to self-improvement tapes and sometimes would catch a glimpse of this awesome lifestyle that I could lead should I succeed – great friends, financial security, wonderful family and spiritually connected. But by the next day, trying to do my job with only 4 hours sleep, I slipped back into negative thoughts about why I would not succeed (fatigue can kill dreams).

Now I’m not totally a wuss. In some areas of my life I have a lot of courage. I relish heights and have no fear of dropping off the side of a mountain, I’ve had 20′ boa constrictors crawl over my back. I love speaking in front of large crowds (I’ve given speeches before 10,000 people) and I have never had a fear of investing money. I don’t really have a fear of failure, but I do have a fear of success. And I have had a very real fear of being rejected by other people in one-on-one situations.

Life shrinks or expands in proportion to one’s courage”.

Anais Nin

The word courage is derived from the Latin “cor” which means heart. Steve Pavlina seems to think that courage is more about mental decisions. However, for battlefield decisions the Marine that falls on a grenade is not making an intellectual decision, but a very real emotional one. He (Steve) thinks that our decisions are not “fight or flight” based because the real danger to most of us is mostly in our mind – not life or death decisions our ancestors (or today’s soldiers) faced.

Steve lists lots of practical advice to overcoming your fears (making list of possible negative aspects of you decision, breaking them down and setting goals to overcome them, becoming more educated, etc.). Maybe this helps some people, but I have tried this logic with only limited success.

So how do I gain the courage to be rich? My only good analogy is when I am at the top of a very steep ski slope and can’t see the trail past the edge of my skis. I simply push forward over the edge and trust in my ability, God and my instincts that I will make it down the slope. I am totally immersed in the moment, not worrying about falling, breaking a leg or anything negative.

I think that business success will take a similar route. When I was in Amway I was 99% committed to my success. I invested heavily in tools, seminars, travel. I would drive anywhere to show the plan to people, but I withheld myself in one critical area out of my comfort zone – I wouldn’t drop off that cliff when I was in the presence of a stranger. I have a colleague I work with who I admire greatly for that quality. For him everyone is a friend whether a CEO or the girl at the drive-through window. In seconds this man establishes rapport with strangers, a trait I envy.

So is becoming rich just about courage? To a large degree it is and a very emotional decision. It is about putting yourself on the line, about immersing yourself 100% into what you are going to achieve and blowing up the bridges that would allow you to retreat. That retreat has for me been too easy ( I make a six figure income at a job). But my job will never allow me to get rich.

“Successful people expect the best, and they generally get it, because
expectations have a way of attracting to us their material equivalent,”

Tom Butler-Bowdon

When I started in real estate the first time 20 years ago, I didn’t have a plan, wasn’t organized and invested based on poor information. But I also failed to commit myself 100% to making it work, so I retreated to my job and let it bail me out. This time I am better organized, have good market data, have a planned exit strategy, know what I want to buy and am not letting emotion drive my purchase or selling decisions. But I still have the opportunity to give up – I’ve got 4 teenagers to care for with associated activities, a wife who wants my time and still have that 8 hours every day to exchange with my employer. I don’t have time to do this ( I could reason).

I’m 53 and I have no hope of retiring before my late sixties based on my financial position. I had not planned to be in this position, but that’s because I never did stick with a plan to do it. So its going to take relentless persistence to succeed. And ultimately, the courage to push myself over the edge.

Posted in finances, investments, money, Network Marketing, personal, real estate | Leave a Comment »

How to get rich

Posted by Paul on December 15, 2006

One question that many people ponder over throughout their lives is the question of how to get rich or least financially independent. The vast majority of us have been schooled in the time-honored wisdom that the best route is to go to a good college and get a good job. Then we spend our lives exploring the stock market or real estate or network marketing or a business or buying lottery tickets or suing someone if all else fails, without really understanding the basic concepts that will realize our dreams.

I’m going to give you the secret (I sound like a salesman here, but I’m not selling anything) and it is so simple, welll….duh!

There are two immutable’s in getting rich:

  1. Leverage
  2. compounding (also known as interest or the time value of money)

If you understand these two concepts and use them positively, I can guarantee that you will be rich. Now most people spend their lives either not using these or using them in reverse. For example:

  • they work at a job (trade their hours for fixed dollars) and spend all that they make
  • they incur bad debt (reverse compounding)
  • they use leverage with extremely high risk/reward ratios (for example, lottery tickets)

Many of us have read stories of poor ministers or spinsters that die and have millions of dollars in their estate – these people lived on meager incomes but used compounding( the time value of money) in their favor to accumulate wealth. In WV I lived across the street from a 92 year old spinster who had several million dollars in AT&T stock. She had purchased some small amounts from her employer when she was working a summer job in high school and 70 years later – voila!

I want to distinguish between bad debt and good debt. My Chinese wife believes that all debt is bad, but I think it is correct to say that investment debt that has a reasonable risk/reward ratio is acceptable (think of your home). Debt incurred to buy that HDTV is bad debt (but damn do I want one 😦 Guess I’ll have to achieve some financial goals first!)

So what is leverage? Basically it is when you use a tool to allow you to be more financially productive. There are many tools that you can use:

  • starting a business and hiring employees to get more work done (good risk/reward)
  • franchising your business (good risk/reward)
  • using the Internet to leverage your efforts (good risk/reward)
  • buying real estate with small down payment (good risk/reward)
  • investing in commodity futures (poor risk/reward)
  • using margin accounts to buy stocks (poor risk/reward)
  • investing in a college education (may be a poor risk if you choose the wrong major!)

What about ways to use the time value of money or compounding to your advantage:

  • saving 10-15% of your income -especially in a IRA or 401k (excellent risk/reward)
  • investing in stocks (could be good or poor risk depending on your diversification)
  • owning a completely paid for piece of real estate (good risk/reward)

I’m not so sure that college is the best use of investment dollars. With a typical education costing $40k/yr, the $160k invested at 9% for 35 years will yield $3,266,000.

So what should you do? Here’s my list:

  • put some money into an emergency fund
  • pay off all bad debt – use a snowball formula
  • accumulate 3 to 6 months of expenses into very liquid savings
  • invest 15% of your earnings into a Roth IRA or 401k (especially if its is matched)
  • buy a house from a motivated seller – don’t make an emotional purchase
  • start a business (our tax laws provide magnificent deductions for businesses not employees)
  • systematize your business (see E-Myth Revisted) so it doesn’t run you
  • invest in real estate

And stop buying lottery tickets! That’s my perspective.

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The Entrepreneurial Mindset

Posted by Paul on December 5, 2006

I’ve been re-reading “The E-Myth Revisited” this week. The premise of the book is that in order to have a successful business you need to have a balance of 3 business skills – The Entrepreneur, The Manager & The Technician. Most people that start a small business are skilled in only one of these three (often the technician) and consequently their business fails.

Most of what Gerber says rings pretty true to me. However, for me, I probably have more of an entrepreneurial mindset than the other two. In my work I am involved in R&D and have lots of vision about future product concepts. Most of my career I have been way ahead of where management wants to be. I have many patents but no real world applications. I don’t lack the other two skills completely as I have strong technician skills (getting the job done). I’m weakest at management of the task. I tried a management position for a couple of years and just hated it.

The outside business interests that I have tried have been completely unrelated to my engineering job and as such I have not been caught up in the technician dominant problem that Gerber thinks is the most common problem. In both real estate and network marketing I have had lots of vision and many creative ideas. I thought of multitudes of ways to change the network marketing business but when it came to execution, I just didn’t do the work as I discussed previously. When I had purchased over 10 buildings in the 1980’s I just could not manage the many problems the properties had and just got too bogged down to get anything done.

Gerber talks alot about creating a system. In my mind that was one of the strengths of the Amway business (at least in Dexter Yeagers groups). There are lots of people with their own systems trying to teach Network Marketing. The same is true in real estate. Every time I go to a REI club meeting a new guru has a new way to market or purchase or sell. And of course each one wants $800 to buy the complete details of their course.

So the idea that has been fomenting in my mind is can I use a wiki to create a real estate guide that doesn’t cost the average person thousands of dollars.

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Are wikis the next big thing?

Posted by Paul on December 4, 2006

One of the web tools that has me intrigued is the wiki. Now most of us are familiar with Wikipedia which was built using a wiki but few people I have spoken with have actually used one. I have been trying to figure out how they work and how to go about building one. I have been reading a blog IwillTeachYouToBeRich and stumbled across an interview by the author who started a wiki website PBwiki.com.

I took a few minutes to read the introduction and started a wiki. It was not too technically intimidating, but I’m not sure if the average person can easily use it (how would I get my family to plan the family vacation using a wiki when some have difficulty with email?).

On the other hand, I can see how it could be very useful to create collaborative books. For example, suppose you wanted to put all the information about investing in the stock market in one place. Right now people sell lots of books about investing. Could the collective genius of the Internet create a better book using wikis? In fact, a similar effort is underway to collectively write a book on Best Management Practices. Over a million people have been asked to collaborate on the book by the top two business schools.

I’ve been mulling this idea over since I read about that effort on Management and wondered if I could do something with some other topics. Do you really need to invite millions to be successful? Is anyone aware of other successful wiki projects?

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What’s luck got to do with it?

Posted by Paul on November 30, 2006

“you make your own luck”

“the harder I work, the luckier I get”

“except for bad luck, I wouldn’t have any luck at all”

After posting about Casey Serin, I spent most of the night thinking about the role of luck in my life and whether I should believe in it at all.  All of the successful people I have met have outwardly stated that they believe their success is due to hard work, persistence, good organization, etc. Few seem to think that they were just lucky. On the other hand, nearly every poor person I have known (between having rental property for 10 years and trying to recruit people into Amway for an equivalent length of time, I met literally hundreds and hundreds) blames his or her lack of success on bad luck.

My wife is from mainland China and it seems that the Chinese have a strong belief in luck. She seems to think she always has bad luck. She grew up during the cultural revolution was very poor and remembers not having much food to eat, standing in line long hours to get an egg or some meat. (Even today in the US she goes to great lengths to make sure she doesn’t leave the slightest trace of raw egg in a mixing bowl.)  Her first husband abandoned her when their daughter was born and she was left alone in the Northwest province of China a thousand miles from her family. So she sent her baby home to her mom and lived alone, studying long hours to get an accounting certificate. She finally got her certificate and found a job on Hainan Island in the South China sea. But the bank was corrupt and went out of business. So she found a new job in a large city only a 10 hour trip away from her parents. She somehow managed to buy a house, marry a budding entrepreneur and pay off the house completely in few years. But the entrepreneur cheated on her and left her, taking his share of the business (worth a lot of money) without giving her anything. Still, through her frugality she had saved enough to buy a house for her parents and pay for it in cash. So she owns two homes in China completely paid for worth nearly 2 million yuan – a hefty sum for an average person in China.

A few years ago she decided she wanted to emigrate to America and found a man to marry (me!). But it was her bad luck to find someone who wasn’t rich. After all, all the other Chinese women she know had married rich Americans!  So has my wife had “bad luck” all her life as she claims? On the one hand she represents some one who sets goals  (although she doesnt’t write them down) and diligently works towards them and inevitably achieves them. But she seems to focus on all the bad breaks she thinks she has gotten.

What about me?  My outward demeaner is always optomistic. I was always telling the people I sponsored in Amway one of the first two quotes above. I have constantly tried to sell my wives that with a just a little more time we are going to be successful at _____ (fill in the blank- real estate, Amway, commodity futures, stocks, etc.). Initially in all my ventures I believed I really would be successful. But as they flopped I most often blamed (internally) my bad luck.  Even today I feel that I have the worst sense of timing. I moved all my 401k savings into stocks in late 1999, I bought real estate in the 1980’s just before the market crashed. E-gad – I am getting into real estate now again after it has peaked!

During my time in Amway I read hundred’s of books, listened to thousands of tapes and heard hundred’s of successful business people speak (both from inside and outside of Amway). They all espoused a thinking process similar to Steve Pavlina. Basically, our thoughts are like magnets and we can literally “Think and Grow Rich“.  Steve Pavlina has an experiment he is running to try to attract $1million.  Can success be this easy?  It is both inspiring and frustrating to read about how easy it is for others to make a lot of money such as this college student.  I also know very personally my sister-in-law’s success has a lot to do with extreme hard work. Her business InOutSouce.com is one of the fastest growing firms in Philadelphia and she is well on her way to riches. But she thinks luck has nothing to do with her success.

I remember when I first saw the Amway marketing plan. I was absolutely convinced that I would be a millionaire in 2 years. I felt certain that anyone would have to be an idiot to turn down the idea. The first two months I sponsored every one I talked with. I believe that they bought into my belief. One night I had an awful realization that I was going to be responsible for hundreds of people when I became successful, I would have to deal with so much money, etc. and I literally became scared. Doubt started to creep into my thought pattern and I started to have trouble sponsoring.  That doubt has stayed with me in every venture since that time.

So is it luck or hard work that generates success? Or is it a combination? Or is it just my mental thought pattern that attracts or repulses wealth? I just do not know the answer and am really not sure that successful people know what made them successful. Just like when the news media interviews someone over 100 years old and asks their secret to long life. It’s all anecdotal evidence and means nothing. More women and whiskey or more vegetables?  Who knows really?

So I am jumping into real estate again. Just hoping really that this time I will figure it out.

Posted in finances, investments, Network Marketing, personal, real estate | 2 Comments »

Commodity Futures

Posted by Paul on November 28, 2006

I once thought that I would get rich buying and selling commodity futures. On the surface it seems like a great way to get rich. Small amounts of cash can control large quantities of a commodity. So I subscribed to one of these services that performed “technical analysis” of a number of commodities. I borrowed (great idea!!) $10K and opened up a low cost account much like you do for buying and selling stocks. I tried to follow the trendlines and buy when a commodity was on the upswing. On occasion I made (on paper) large sums of money. But over a three month period my lack of knowledge (fundamentals) caught me short. I ended up selling during a rapid downturn and lost not just my original $10K but had to write a check for over $2K. I guess not everyone can be George Soros.

I think investing in futures is a lot like day-trading stocks. A very high intensity venture where you have to be on top of fundamentals as well as know something about technical analysis.  My problems with both day-trading and futures is that I just did not take the time to do my homework.  Another one of my life’s expensive lessons.

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Another Leap

Posted by Paul on November 23, 2006

At this point in my life I am about to leap off the cliff again. This will be my second go-round with real estate. At age 53, after going through numerous financial and personal trials I have no liquid cash, so college savings and am woefully under prepared for retirement. Three years ago I underwent a costly divorce that took much of my retirement and all of my liquid assets and added to my debt substantially. Now I have 4 children between the ages of 13-16 who will be reaching college age when I am in my late 50’s.

I have tried a multitude of investments and some businesses in the past. I had a fifteen year fore-way into network marketing, I’ve invested unsuccessfully in the stock market and commodity futures. In the early 1980’s I purchased 10 rental properties and lost money on all but one. At that time I was buying properties in WV. They seemed like a good deal – owners were desperate to sell. Unfortunately, the population was at the beginning of a downward spiral which deflated real estate prices.

I ended losing money on every property but one. I gave 5 back to the original owner and sold others at a loss. I had to sell my primary residence and moved into one of the rentals ( a triplex). While living in that we converted it to a single family home. Unfortunately, do to personal situation I had to leave WV and sold the house to my company. I had purchased it for $35,000, put $65,ooo in rehab and sold it for $122,000. One year later it sold for $199,000, but someone else made most of the profit.

Now I am going to try real estate again. Again I am in an area of decling population (Buffalo). So, I hope to be a little smarter. We bought a house last spring for $81,000 and put $17,000 in rehab in. Now it is being lease-optioned (rent-to-own) for $1050 per month with a sales price of $135,000. So my strategy is to buy, rehab and try to hold only for a short time. I’ve invested over $2500 in real estate courses, formed an LLC, bought a website www.jinnaproperties.com . I have purchased some online real estate information from FirstAmerical Real Estate and am gong to go gung-ho into this.

While my wife and I have been setting this up, she learned her mother had a severe stroke. So today (Thanksgiving) she got on a plan to return to China, leaving me with her daughter. Looks like the next few months will be more extreme

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