Truth and Lies about Creating Wealth
By Mark Ford (with all due credit to “Michael Masterson” pen name, sold his newsletter to Early to Rise ; Matt Smith and Craig Ballantyne.
[Mark Ford is now with The Palm Beach Letter. ]
Grandpa’s Comments in RED
I’ve been writing about creating wealth for a dozen years. Before then, I wasn’t writing about it. I was doing it.
. . .When I decided to get rich, I didn’t know the first thing about the subject. I was an editor. I wanted to be a novelist. I had never taken a course in finance or economics. Plus, I was broke.
Grandpa’s Comment : I probably had a big advantage over Mark Ford. Ambition. I was the poorest scholarship kid in a rich kid’s prep school. For that reason and others, at an early age, I wanted to become very very rich. At 14, I set myself the goal that I would have $30,000,000 by the time I was 30. I read auto-biographies of the super rich, traded comic books, antiques, cars and anything else that would make a buck. I went out of my way to become the flunky or errand boy of the tycoons of the time, and got accepted on scholarship to the university of the era (and still today) that spawned the most successful executives and «business leaders.».But (Mark Ford said in his article of today) I had a great advantage.
I was working for a human wealth machine – a man who, at 43, had already created three hugely profitable businesses. He decided to adopt me as his surrogate son and taught me everything he knew.I retired 12 years later with a net worth well in excess of $10 million. Grandpa’s Comment : I retired for the first time at the age of 30, with a net worth in today’s money, of well over $100 million. But in fairness to him, I can say that $10 million (well invested) is enough to support a comfortable lifetime lifestyle. Getting a net worth of this amount is an accomplishment achieved by less than 1% of all Americans.
Two years later, I went to work as a business consultant to Agora. Bill Bonner, Agora’s founder, adopted me as his kid brother. He also taught me everything he knew. In the 15 years that have passed since, my wealth has multiplied many times over. Grandpa’s Comment : I had dealings with Bill Bonner and well, it is better that I say nothing about his modus operandi . I don’t need the agravation of being sued for libel –to which truth is often no defense. This leads me to give my own advice about getting rich : « If you can’t say something nice about someone, say nothing. » Don’t make enemies. Thus, I say « Bill Bonner is a warm & wonderful human being.»When I turned 50, I wrote about entrepreneurship (under my pen name Michael Masterson) for 10 years. I wrote close to a dozen books and several thousands of essays. I adopted my readers as my surrogate siblings. I told them everything I knew about starting businesses.
Grandpa’s Note : Overall, I feel the stuff by “Michael Masterson” pen name, and Mark Ford can be quite helpful, but as he admits, his way is not the only way.
Then at 60, I retired the “Michael Masterson” pen name, sold Early to Rise to Matt Smith and Craig Ballantyne, and went to work for The Palm Beach Letter. Since then, I’ve attempted to tell my readers everything I know about creating wealth – which is a bigger and more complicated subject than entrepreneurship.In today’s essay, I want to tell you the most important things I’ve learned about building wealth. I won’t tell them in detail… but I’ll tell you the principles. And I’ll tell you how you can get all the detailed information you need if you want to emulate my experience.Don’t Believe These So-Called “Facts”Let’s begin with some of the lies about creating wealth. At one time or another in my wealth-building career, I foolishly believed in the following so-called “facts”:
Wealthy people are stingy for a reason. The secret to becoming wealthy is to scrimp and save. Grandpa’s Note : It all depends on your point of view. I personally feel I am simply not profligate with my money – unlike many of my newly rich friends. They blow it on cars, boats, mistresses, expensive cruises & vacation, gambling or drugs. They often call me a « stingy tightwad. » But most of them have ended up bankrupt or broke. Especially my show-biz acquaintances. Unlike me. I am now in my 70’s, stress free and quite comfortable. I don’t feel I ever denied myself anything necessary for happiness. I even support a few favorite «causes» .
The stock market is the most efficient way to invest. You can’t become wealthy unless you understand and master the stock market. Grandpa’s Note : Depending on trading the stock/metals/commodity/securities market is about as dependable as going to a casino with a few hunded Euros to gamble every night and expecting to earn a good living from those visits. It won’t work unless you are a very good poker player or card-counter at « 21. »
Geopolitics determines investment outcomes. You can’t become wealthy unless you understand politics and economics. Grandpa’s Note : Most rich people have become rich because of a product or service they sell to a local market. What goes on abroad is of no concern whatsoever. A very few individuals will find that a certain geographic area lacks a product or service provided somewhere else. They get rich by bringing something to an area where it can be marketed profitably. I did this once when I discovered in the 1960’s that Warsaw had not a single coin-operated laundry while similar sized cities had dozens. Someone I knew brought Dairy Queens to Mexico, and made out like a bandit. Another friend started the first «Gloom & Doom» newsletter which attracted loyal subscribers for 50 years– even though his annually predicted « end of the world as we knew it» never materialized.
The general public is always wrong about economic and financial trends. The fastest way to acquire wealth is to invest as a contrarian (i.e. against market sentiment).
Grandpa’s Note : The key word is « always. » I would substitute « usually. » But like a styopped clock, it is right twice a day !
Do any of these “truths” sound familiar? Have you been following any gurus who advocate these “facts”?If so, pay attention. I’m not the only person in the world who went from broke to rich. There are many, many people who have done so. And some (very few)
of those people have written books about it. Actually an ex-buddy of mine (the legendary W.G. Hill) wrote –& I edited–what is arguably the best book – on getting rich in real estate. His common sense techniques will help in any other endeaver. It was called Think Like A Tycoon. It is out of print but you can buy a digital download copy from this site. The Early To Rise newsletter and Mark Ford’s stuff are a few cuts above the usual.
I don’t read all the popular books on wealth-building, because I feel comfortable with the system I’ve developed myself, through my own experience. I don’t follow the advice of others, except when it dovetails with my own experience.But that’s not to say that my system is the only system that works. Nor do I want to argue that it is the right system for you. All I can do is to report my own experiences to you as honestly as I possibly can. Grandpa’s Note: A very good and honest statement! Most get rich books are fiction. They don’t work, and the author’s make money only from the sale of their lousy advice.
You are my surrogate siblings. I want you to succeed. The only way I can help you is to tell you what I know to be true. And this is what I know – from my own experience – to be true about creating wealth:Truth No. 1
You’ll never get rich unless you understand some fundamentals about saving, spending, and investing. Grandpa’s Note : The only thing you as an « opportunity seeker » have to understand is «Find a need & fill it.» Maybe, also «When you start making money don’t blow much on consumer items. Re-Invest for profit, preferably in your own business, & things you know well or can learn about– including real estate.»Truth No. 2
The single most important factor in avoiding the spending spiral that kills wealth is to stay in the house you have now. Nobody else that I know of has made this simple point. But I can tell you that it is true. Grandpa’s Note : Yes and no. If you have a profitable business like Warren Buffet’s, it might be better to stay where you are. Why ? Because moving house & always looking to trade up takes time and energy. My business did not absorb all my time so I had time for real estate deals. I kept « trading up » on houses I lived in, seeking out bargains and getting 110% or more financing. Ultimately, I sold my last few (250) properties for millions more than I had paid, and the profits on my houses amounted to over half my wealth—which by the way is probably several magnitudes more than this author’s. I ended up in a modest but very comfortable seafront place in the safest & most cultured community in the world.Twenty years later, as of today, I am very satisfied to live here as long as I last. My dependable middle class Japanese car is eight years old. Trading up, running a business or flipping properties is no longer of any interest to me. I just travel 6 months annually & write whatever I feel like writing. Watch a DVD every night, I try to have a stress free life. My goals at 70+ are now pretty laid back –different than when I was 20 and looking to be sitting on personal assets of $30 million before I was 30.Truth No. 3
Stock investing (or even bond investing) is an inadequate strategy for building wealth. It won’t get you rich or make you wealthy, however much you wish it would.Grandpa’s Note: 100% Correct! More on this, below.
Even Warren Buffett, the world’s most successful investor, knows this. His wealth has come not from being an individual investor but from being the principal of Berkshire Hathaway. Keep that thought in mind every time you hear his name quoted. Grandpa’s Note : Exactly ! All the great
«legendary investors » got rich only by investing other people’s money and taking a cut from the profits thereof. The richest people in the world abhor publicity. You will never see their names on any « rich lists ». They don’t write about their experiences either. In comparison to them, I am small peanuts. Which leads to another truth : No matter how much money you make, or how desireable your material possesions may be, someone else will always have more money and better toys. So don’t ever let envy get in the way of your happiness. Be grateful for things like health, love, and the financial status to enjoy great food, travel, and whatever your favorite vices may be . I mean stuff like cigars, Scotch, etc.Truth No. 4The single most important factor in wealth-building is the size of your investible income. Investible income is what you have left over each month after you’ve taken care of your lifestyle expenses.
Grandpa’s Comment : Very True.Again, nobody else I’ve ever read had the courage to say this before I did. (Now I see one of my protégés saying this and, of course, I am flattered to hear him pretending it is his own idea.)
Grandpa’s Comment : It is not exactly a secret. In books about getting wealthy dating back 2,000 years, they talk about growing your flock of goats, sheep, cattle or whatever. When the goldsmiths of London learned they could lend out « paper gold » at interest, it was elementary that you did not spend all your profits. TRUE! « The single most important factor in wealth-building is the size of your investible income » –The Rothschild Family financial empire was built on the premise of re-investing profits. When their profits reached immense proportions they bought castles and art at knock-down prices, or took them in exchange on defaulted loans. They lived high but probably spent under 2% of their annual investible income.Actually, that’s the second-most important factor in building wealth. The No. 1 strategy is acquiring equity in a startup business. There are many ways to do this. The most commonly talked-about ways are downright foolish. But there are smart ways to do this, even if you are a novice to business. Grandpa’s Comment : The business doesn’t need to be a start up. Warren Buffet always buys going, successful businesses. Owning & growing any business by running it (or hiring competents to do it) is the way most wealthy people get rich. Professionals like Lawyers and M.D.s can also get rich, but seldom by the same magnitude.
Truth No. 5Investing in rental real estate is unique – it stands halfway between active income and passive income. Next to entrepreneurship, it provides the highest return you can get from any financial endeavor. Grandpa’s Comment : Until people like Bill Gates & Information Technology came along, more money was made in real estate than in all other industrial investments combined. Leveraged Income Property investment and management is still the way non-technical people can make a great deal of money.Truth No. 6The biggest mistake retirees make is giving up their active incomes. I know that this is exactly what you hope to do some day. But I’m warning you, it’s a big mistake. Grandpa’s Comment : 100% Right ! Don’t quit your day job until you know your next, new enterprise is generating more than you need to live on and prosper.If you are already retired, you are probably hoping you can replace that income with passive investment strategies. I’m here to tell you that they won’t work. Grandpa’s Comment : Indeed ! It is much harder to hold on to capital, than to make it. Especially in a very low interest world, it is almost impossible not to dip into your savings and capital for day-to-day living expenses. Thus, no matter how old you are, it is best to generate some kind of income from your expertise or what you know how to do. Perhaps writing or consulting.To keep your wealth for a lifetime, you need multiple streams of passive income. Your goal should be to build each stream of income to a level at which you can live on that and that alone. Grandpa’s Comment : I call that « Diversification » and we agree, that is a good goal.Do these statements make sense to you? If so, how are you doing?
Grandpa’s Comment : The most important thing is to get off your butt, have a business plan A and a Plan B, and move ahead. You won’t get anywhere by holding down a job, or “investing” in what a stockbroker or banker tells you is a hot deal. A high paying profession where you are your own boss or at least a partner is OK too. But it will never make you a billionaire.
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