Category: Strategy
April 5, 2010 ·
The path of a micropreneur is one with unique attributes and challenges. With a business that you operate yourself, it may seem that resources for accomplishing your goals are severely limited. However, it is quite possible to leverage business relationships so that you are able to take advantage of vast resources and knowledge. By operating your own shop, it will allow you to maximize the time spent in pursuit of your business goals and personally control the direction of your business. The fundamentals of being a micropreneur are articulated in the four pillars. These four pillars are Passion, Profits, Control and Leverage.
1) Passion
- A primary purpose of becoming a micropreneur is the ability to pursue your life’s passion. In some cases this passion can be a particular line of work or industry, and in other cases this passion can be time with family and freedom to travel. The most important first step is to do some serious soul searching to determine your life’s passion. Generally speaking, a burning passion is something that doesn’t feel like work when you are doing it.
- A famous cliché of the professional world states that “If it was fun, it wouldn’t be called work.” That sentiment is truer than many of us would like to admit. By creating and building an entrepreneurial venture that is oriented around your personal passion, it will help to create the necessary fire for building a business that pushes past failure to cross the line of success.
- It may be that your ventures as a micropreneur start in a small niche that is chosen specifically for its viability in producing immediate profits. As your business ventures continue, you will have opportunities to shift the emphasis of your activities toward your personal passion. You are in total control of the direction your business takes.
2) Profits
- One of the common characteristics of a micropreneur is somebody that is pursuing a personal passion, and in some cases there are more profitable business or employment opportunities available. The hitch is that these other opportunities either require an onerous time commitment, are particularly unpleasant, or both. While it is important for a micropreneur to pursue their passions, it is also critical to generate profits from your entrepreneurial activities.
- In the beginning, many micropreneurs generate very modest revenue, but succeed because their expenses are kept very low. When you engage in a scalable business with expenses that do not increase at the same rate as your revenue grows, it can allow you the opportunity to generate increasingly attractive profits in the future. When you are starting as a micropreneur, it is most important to take action that generates immediate cash flow. There will be time and opportunities to scale-up your revenue in the future, but nothing will happen if you do not take action.
- It is certainly true that many people value lifestyle considerations over money, but it is equally true that money is a necessity of life. As a micropreneur, it is critical to leverage your time and the time of people who you work with. This will allow your business to accommodate your lifestyle, instead of forcing your lifestyle to accommodate your business.
3) Control
- Many people currently feel that their lives are spinning further out of control with each passing day. It is well known that many corporations require employees to ‘play the game’ if they want to succeed and achieve promotions. This frustration has left people with a feeling that their professional lives are being dictated by their company and that they must absorb ever increase time commitments.
- There is also a sizeable population of people who are losing control of their financial life. In many cases, these are people who have been trained in an area of specialty that is not delivering the level of income that is necessary to support their lifestyle. These people are facing a very real choice between lowering their lifestyle and finding a way to increase their income.
- The path of a micropreneur is frequently appealing to both types of person, since it provides financial opportunities to people that do not fit into the mold for traditional corporate employees and provides control over time and work to experienced professionals who have grown tired of the demands placed upon them by their profession.
4) Leverage
- Robert Allen once commented that wealth is when small efforts produce large results and poverty is when large efforts produce small results. Producing large results with small efforts is the fundamental basis of success, since it allows you to multiply the impact of your time. As a micropreneur, one of the primary goals that you will be seeking to accomplish is both business and financial leverage.
- Business leverage allows you to automate your business activities so that a maximum amount of activities are handled by somebody else or something else. Business systems are a typical means by which this kind of leverage is achieved. As a micropreneur, you can attain business leverage without the necessity of hiring employees. This is accomplished by partnering with service agencies that will conduct routine business activities on your behalf in exchange for a negotiated fee. By simplifying business activities, it allows more time for the entrepreneur to focus on the strategy of their venture instead of the day to day operations.
- Financial leverage is the art of using other people’s money to capitalize your investments and ventures. This will allow you to generate passive income, and larger rates of return on attractive investments. By utilizing financial leverage, a micropreneur can minimize the amount of time devoted to work so that more time is available for other interests such as family, education, or personal hobbies.
http://www.CreatingWealthPodcast.com & http://JasonHartman.com
Podcast: Download
March 22, 2010 ·
Most of us are familiar with the notion of income and expenses, gross and net, profit and loss. These terms frequently work themselves into conversations about our financial wellbeing when we describe our income as X or our ‘take home’ as Y. However, there is a somewhat more complex understanding that makes income and expenditures take on a new dimension.
One of the famous quotes by Robert Allen is the observation that “Wealth is when small efforts produce large results, and poverty is when large efforts produce small results.” This sentiment can be extended toward your personal income by asking how much effort you must put forth for each dollar of income that you earn. This will give you a good idea of how far your talents can be leveraged to create income.
Another way of thinking about this concept is to classify your efforts into High Maintenance Income and Low Maintenance Income. High Maintenance Income (HMI) must be worked for with consistent, difficult effort. Low Maintenance Income: (LMI) is earned passively, and requires relatively little direct effort. In many cases, people believe that the key to prosperity is to increase their hourly earnings. However, they eventually find that their ability to increase hourly earnings hits a plateau. Furthermore, many highly compensated occupations require large time commitments and extensive travel.
Conversely, pursuing Low Maintenance Income means that you will be constructing a portfolio of passive investments that do not require direct effort from you to produce earnings. By leveraging your time and effort, it can allow you to continue growing your income without increasing the amount of hours you work. In some cases, you will even be able to increase your income while decreasing the hours of work by cutting or outsourcing low value activities.
Generally speaking, High Maintenance Income can be earned by simply working more hours. This makes it easy in the short-run, but difficult in the long-run. On the other hand, Low Maintenance Income requires significant up-front effort, but produces continual returns once it is set in motion. This makes it difficult in the short-run, and easier in the long-run. Most people have a mix of High and Low maintenance income. The ‘secret’ to building great wealth over time is to systematically replace the High Maintenance Income with Low Maintenance Income so that each month, year, and decade brings you closer to financial freedom.
The art of designing your income can only be employed if you are willing to be decisive and take action. It requires the acquisition of financial intelligence, the courage to fail, and the ability to adapt when new opportunities present themselves. For those who master this art, and create a perpetual machine of investments that produce Low Maintenance Income, there is literally no limit on the wealth that they can accumulate or the opportunities that the wealth will create. The key is continually taking action to design your income so that it takes the shape of your dreams and ambitions.
http://www.CreatingWealthPodcast.com & http://JasonHartman.com
Podcast: Download
January 7, 2010 ·
The “Barbell” strategy of investing
In the marketplace of ideas, there is no shortage of strategies for investing to produce superior returns. These range from the ‘crackpot’ infomercials schemes that infest early morning television to people that are afraid of the stock market altogether, and also include the research of Nobel laureate economists. The key question for an aspiring investor to ask is what they can learn from each method and strategy.
Let’s start with the Nobel economists. There have been many prominent thinkers who have extolled the virtues of portfolio diversification as it relates to investment in the stock market. The analysis and conclusion of their models are very logical and convincing. When combining securities whose price volatility is not highly correlated, the aggregate effect can be to lower the volatility for the total portfolio, while still preserving average returns. The factor that this analysis misses is the impact of rare, but catastrophic events like a total market collapse. While it is true that portfolio diversification can reduce normal volatility, it is also true that this diversification will not protect against a systemic market disruption.
On the other end of the spectrum, we find people who are afraid of the stock market altogether. Many of the people who express this sentiment were heavily influenced by the stock market crash of 1929 and the great depression. Typically, these people gravitate toward the perceived safety of bonds in lieu of stocks. The implicit problem with this strategy can take one of two flavors. The first is if the bonds are conservative low-interest instruments with guaranteed principal values. There is a significant risk that the value of these bonds will not keep pace with inflation. The other side of risk with bonds is if the investor seeks out high-risk bonds that pay out attractive interest rates, but are issued by companies in dangerous financial condition that may default on their debt obligations.
The final piece of the spectrum is the ‘crackpot’ schemes that are pushed by slick-sounding hucksters. Most of these so-called ‘fool proof’ systems promise fabulous returns by following a few over-simplified steps. Typically, these systems are designed for a particular market environment. When the market shifts, the strategies that once produced tremendous wealth can suddenly generate crippling losses. A prime example is the ‘house flipping’ mania that swept across the country during the real estate bubble. One investor after another reported tremendous gains from buying houses, doing modest rehab work, and then re-selling the house for a significant profit. This system seemed to be working great until the market shifted and the speculative buyers disappeared. At that point, there were suddenly a large number of people holding investment properties that they couldn’t afford to pay the mortgage on, could no longer afford to rehab, and were not able to rent out for a sufficient amount of money to pay the mortgage and taxes.
Each of these strategies carries strengths and weaknesses. The optimal way to blend these factors in an advantageous way is what has been affectionately labeled the “barbell” strategy. The basis for this name is based in the notion of combining relatively stable assets such as income real estate with speculative investments such as stock options. Traditional investment theory recommends channeling funds into the middle of the investment spectrum with a diversified stock portfolio. However, the impact of rare events has shown a need for stability that stocks do not adequately provide. Thus, in order to capture upside growth opportunities it is optimal to speculate with a small portion of the total investment portfolio so that the risk of loss is mitigated by the stable portion of your portfolio.
In the end, this style of investing defies almost all of the advice that is popular in the news media. Traditional advice is tilted toward primary investment in the false sense of security that is offered by a ‘diversified’ portfolio of stocks. Unfortunately, this strategy lacks the ability to withstand rare market disruptions, while possessing a limited upside growth opportunity because of the portfolio’s diversified nature. Prudent investors should seek to build a base of returns from assets like income real estate that are spread around in fragmented markets so that speculative opportunities can be pursued without endangering the base portfolio value.
Podcast: Download
October 29, 2009 ·
The Bottom Line: Current Investment Outlook
As with all difficult times, it can be very hard to see glimmers of light in the midst of economic freefall. With the current trajectory of job losses, economic contraction, and government intervention into the economy, there are many people who are on the verge of giving up hope for a brighter future. The most important point to consider in this situation is that national policy is not within the circle of influence for most individuals. What this ultimately means is that we must focus our energy on the things that we can do within the political environment we live in.
Thus, our attention must shift away from the speed in which the economy is being nationalized and move toward the ways we can position ourselves to avoid personal financial disaster from said circumstances. We must proactively direct our focus off of the way financial markets are being manipulated, and shift in the direction of learning how we can structure our portfolio to avoid the market manipulation entirely.
Make no mistake that there are very difficult times ahead. The generations that were swept to wealth on the bull market of the last 25 years will soon realize that the fundamentals driving previous market rallies are no longer present. The notion of comfortable retirement may extend out of reach for ordinary workers who follow the dogma of savings and investment in the stock market, as returns disappoint and consumer prices skyrocket from government monetary policy.
As proactive, astute investors, it is the responsibility of all of us to structure our finances in such a way that our future is not dependent on the actions of a political movement. At the Financial Freedom Report, we recommend accomplishing this goal through investment in rental real estate located in sensible markets, financed by high- quality, long-term debt. By maintaining a keen focus on the actions that are within our sphere of influence, each of us can create a financial future that remains bright in the midst of chaos and uncertainty in the marketplace.
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October 22, 2009 ·
The Creating Wealth Show #105:
Propelling investment success using econometrics and
competitive analytics
In the one hundred and fifth episode of Jason’s extremely popular Creating Wealth show, he interviews David Savlowitz, the head of Competitive Analytics (CA), a niche full-service market intelligence firm. In this show, David explains the way that his firm uses a multiplicity of data to generate more robust information for their clients than can be obtained by the simplistic scorecards that are employed by most of the financial media. The methods that CA employs analyze supply and demand by using statistics, econometrics, predictive modeling, comprehensive research, and applied mathematics.
In this show, Jason talks with David about the ways that Competitive Analytics uses comprehensive data analysis to drive prediction models for their clients. One of the methods that they frequently employ is an economic composite score that is based on a multiplicity of weighted indicators. When applying this methodology to the general economy, David’s model is predicting the bottom of the economic cycle in Q4, 2009 with a return to equilibrium by Q4, 2011. Furthermore, David’s models are forecasting a U-shaped recovery that will have an extended trough. This stands in sharp contrast to previous V-shaped recoveries that experienced an immediate “bounce back” from the market lows. The reason for this extended trough is because a significant adjustment needs to be made in order to equalize the debt-financed over-consumption that fueled the recent asset bubbles.
The unique part of David’s methodology is the fact that his team uses a very wide variety of input variables in an attempt to capture future items that may become big swing factors. He rightly understands the implicit danger that can be present within quantitative economics for people that do not fully understand the analysis. This danger stems from the fact that econometric analysis uses trends in the past to predict the future, and thus cannot anticipate the impact of events that have never happened before. The importance of this insight comes from the fact that rare events like September 11th, 2001, the Russian Financial Crisis, and the collapse of credit default swaps were never incorporated into any prediction models because they had never happened before.
Each of these events had an unfathomable impact on the marketplace that left people who were blindly following technical trends of the past absorbing unbelievable losses (or pushing those losses onto the taxpayer in the form of a government bailout). As a point of reference; the hedge fund “Long Term Capital Management” was the brainchild of Robert Merton and Myron Scholes. It made heavy use of econometrics to undertake highly leveraged arbitrage trades in the bond market, but nearly collapsed the financial markets after the Russian Financial Crisis in September of 1998. This became the first iteration of a “too big to fail” argument, and is being used as the precedent for the government bailouts of financial institutions that are currently being pushed on the marketplace.
This is not to say that quantitative analysis and econometrics are implicitly dangerous. It is simply to say that it is a tool . . . a very powerful tool that needs to be understood before it is used. When applied by knowledgeable professionals, it can generate valuable insights. When given over to pseudo-intellectual or short-sighted agents, it can become a tool of mass financial destruction as the algorithms become an item of blind faith that drives insane investment decisions. As with all tools, the result depends largely on how it is used. Thankfully, David keeps the scope and limits of his analytics in perspective. A strong dose of this perspective is highly advised for anybody that seeks to incorporate econometric analysis into investment decisions.
Podcast: Download
October 19, 2009 ·
The Business of Life
By Douglas J. Utberg, MBA
Winners Take Action
The world that we live in is not short on information. In fact, the preponderance of information that we are constantly bombarded with can create a state of constant confusion that scares us into inaction. In the martial arts, this phenomenon is referred to as the “chattering monkey mind.” The key to success lies in filtering down to the useful information – and then decisively taking action.
This is especially important to remember since the preponderance of success and financial literature revolves around “systems” and “strategy.” This is especially true if you have ever suffered from insomnia and run across an “infomercial” on late-night television that advertises a “risk-free” system to make profits with “no money down.” It can certainly be fun to laugh at some of these marketing gimmicks, but even the best strategy in the world is completely useless unless you are willing to act.
Action involves incurring the risk of failure and criticism from friends and family. The factor that most financial books and infomercial systems tend to under-emphasize is the importance of taking the leap. The hitch is that the action must be guided by intelligent thought. Thought without action produces no results, because the strategies are never implemented. Action without thought is effectively the same as gambling, and only works if you are in exactly the right place at exactly the right time with exactly the right system . . . and even then, it may not work the next time you try it.
The proverbial “key” lies in being what Bill Fitzpatrick refers to as a “thinking person of action” . . . namely, somebody that thinks actively, absorbs information quickly, and acts decisively when the opportunity presents itself. In order to achieve this kind of coexistence between thought and action, it requires that your mind be constantly trained on thoughts of opportunities so that it is always ready to act.
Best Wishes, Doug
Please feel welcome to subscribe by
following the link below:
www.BusinessOfLifeLlc.com
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September 28, 2009 ·
A recent article published by Matt Tiabbi in Rolling Stone magazine articulated the role that Goldman Sachs is believed to have played in market manipulations since the Great Depression. The thesis of this article is that Goldman Sachs places itself in the middle of speculative bubbles by selling financial instruments that it knows are of low quality, and then re-purchasing them at depressed prices after the market bubble collapses. In the midst of the populist political rhetoric and conspiracy theories peppered throughout the article, there are some important points that can be taken away by those who are astute enough to see them.
The most important point is that investment banks and financial institutions have an incentive to drive up asset bubbles, and then pick up the pieces after a collapse and repeat the process. The reason why such nefarious activities perpetually persist is because financial companies tend to have very strong lobbying influence with both political parties. As an aside, it is important to divorce ourselves from the foolish notion that “Wall Street” is for or against Republicans or Democrats. Wall Street is in favor of whoever is in power, and politicians are typically in favor of whoever gives them the most money.
Regardless of the inherent morality (or lack thereof) in the actions of financial institutions, it is important to understand that simply complaining about their despised actions will do absolutely nothing to remedy the situation. The only way that corrupt brokerage houses will be held to task is when a market movement away from their financial products dries up their river of capital. The reason for this is because political restrictions will always be laced with loopholes, and even extreme financial malfeasance will be bailed out by the reigning political powers under the notion that said institutions are “too big to fail.”
Thus, it becomes clear that the only way to side step the ”Bubble Machine” of Wall Street is to develop a portfolio of direct investments that you personally control. The reason for this strategy is because direct control allows you to determine when assets are bought, sold, refinanced, etc. For example, if you own a portfolio of rental properties, you can personally make the call when to raise rents, refinance the properties, buy new investments, and sell to trade up to larger deals.
Whenever your investment assets are outsourced to Wall Street, fund managers get placed in control of all these decisions. Thus, it should not come as much of a surprise when these same fund managers funnel your resources into a speculative bubble in the hopes of capturing large bonuses on the returns generated while the bubble is inflating, and then take those returns to the bank after the bubble pops and your investment assets experience a sharp reduction in value. Direct investment allows an individual to select investment areas that are less susceptible to the effect of speculative bubbles through prudent analysis and due diligence.
Over the coming decades, it is likely that many more bubbles will expand and pop as the government attempts to use monetary expansion and market manipulation to mask the fact that it is unable to meet its entitlement promises that have been used by politicians to secure elected office. Unfortunately, many people will be taken along for the ride, and have their wealth systematically destroyed by the bubble machine. As prudent investors, each of us needs to be aware of this market reality and actively step around the manipulations of government and Wall Street so that the bubble machine passes us by while unleashing its path of destruction on the financial world.
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September 16, 2009 ·
Jason Hartman’s 10 Commandments of Holistic Survival (Part 2)
#6 – Thou Shalt Control What Is Put Into Your Body
#7 – Thou Shalt Defend Yourself
#8 – Thou Shalt Possess and Control Universally Needed Goods And Resources
#9 – Thou Shalt Protect Your Own FIR
Finances, Identity & Records
#10 – Thou Shalt Have A Support Network
http://HolisticSurvival.com
6. Thou shalt control what is put into thy own body
Health and nutrition are an important part of survival in a catastrophe. Thus, it is extremely important that you control what you put into your body so that it can work at top performance and heal itself adequately in a crisis situation. This is doubly important if you have a family to take care of, because crisis situations will require extensive manual labor and may also see you needing to care for small children who do not have the capacity to care for themselves. One thing that can be done as a regular form of practice is to prepare meals without processed or packaged ingredients. Processed food is certainly convenient, but it is not likely to be available in a crisis situation.
7. Thou shalt defend thyself
It is entirely likely that a crisis situation will invoke looting and rioting. It is also likely that these activities will be heavily concentrated in urban areas with large populations of people who will be simultaneously without resources. Desperate people tend to do desperate things. Similarly, desperate measures will create lots of chaos, and this chaos is frequently concentrated in the areas where there is the most desperation. The principal areas expected to be the target of chaos are metropolitan urban areas with high levels of population density. The more remote suburban, exurban, and rural areas are not expected to be in much danger from riots, due to the difficult of organizing a mob sufficient for it to move out into the suburbs. Since it is not practical to move out of the city for the express purpose of being safe from riots, it is highly advisable for people living in dense cities to engage in very careful preparations for the contingency of a descent into chaos.
It is also possible that you will need to defend your family from attackers, even if prudent preparations have been made. Precautions such as security systems, martial arts training, and access to weapons may help to ward off attackers if conditions turn desperate. It is important to note that many items that are not typically considered as “weapons” can be used to defend your family if necessary. Regular household items such as steak knives, tire irons, mop handles, and frying pans can be the difference between keeping your family safe and being looted by rioters.
8. Thou shalt possess and control universally needed goods and resources
The current economy depends upon currency-based exchanges. In practical terms, this means that everybody accepts dollars in exchange for goods and services. Consider what will happen in the event of severe inflation. What if dollars decline in value, and are no longer accepted in exchange for food, gas, or clothing? In the event that commerce regresses back to barter and trade, you will want to control goods and resources that are universally needed so that you can trade them for other things that your family requires. Typical barter items are things like non-perishable food, gasoline, medical supplies, over-the-counter medication, and maybe even gold, silver, cigarettes, alcohol, or ammunition. This strategy can also be extended to your investment portfolio. The most effective way is by shifting your investments away from “paper assets” such as stocks, bonds, or mutual funds, and purchasing items of universal need, such as rental housing. By denominating your investments assets in “things” that everybody needs, it will place you in control of critical resources when they are needed the most. For more information on this strategy, visit www.JasonHartman.com.
9. Thou shalt protect thine own FIR (Finances/Identity/Records)
One of the first things to happen during times of chaos is a drastic rise in crime and theft. Not surprisingly, identity theft is one of the fastest-growing classes of crime. Keeping your identity safe requires that some prudent precautions be taken so that you do not become an easy target.
One of the first things to do is limit your internet footprint to only the providers that you fully trust, and check your credit report regularly to see if anybody is accessing your information. In addition to this, it is important to keep all personal documents and information locked away where it cannot be easily accessed or stolen. Also make sure to shred any documents you are throwing away that contain personal information or account numbers. When safeguarding your identity, consider the fact that times of chaos may be dealt with by the government in a very oppressive fashion. It may become necessary to drop “off the grid” in order to protect your family. Take some time to consider what you will do if this course of action becomes necessary.
10. Thou shalt have a support network
Consider who you will be depending on for support in a time of chaos. Also consider who will be depending on you. If a rapid deterioration of economic and societal norms emerges, it will be very important to have a strong community of people in your local vicinity. Creating and maintaining this community is one of the strongest defenses that you can build against a crisis or catastrophe. By pulling together the skills, resources, and expertise of people in your general vicinity, it will help to organize your efforts, undertake larger tasks, and make you a less attractive target for looters. Make sure to keep networking . . . of all the commandments, this may be the most important for protecting your family.
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September 15, 2009 ·
Jason Hartman’s 10 Commandments of Holistic Survival, Part 1
#1 – Thou Shalt Think Independently, Understand the Threats And Become Educated
#2 – Thou Shalt Be Prepared To Do Without
#3 – Thou Shalt Maintain Control
#4 – Thou Shalt Be Self-Sufficient
#5 – Thou Shalt Practice The Primitive Annually
http://HolisticSurvival.com
The notion of Holistic Survival is based on the idea that survival in uncertain times requires an all-encompassing or “holistic” approach to be successful. As a way to articulate this principle, we have prepared “The Ten Commandments” of Holistic Survival as a guide for preserving your personal and financial wellbeing in the current volatile environment. The importance of these guidelines is found in the fact that the world is becoming more complex and uncertain at a frighteningly fast pace. Thus, the strategies of yesterday are no longer suited for the environment of tomorrow.
The Ten Commandments:
1. Thou shalt think independently
Being prepared for the unexpected requires people to develop an aptitude for thinking outside the box. It is important to think about the types of disasters that can occur in the area where you live, and what you would do in response. In crafting your plans, it is also important to anticipate the response of other people who are not prepared. It is very likely that people who have not adequately prepared for disruptions or problems will resort to rather drastic measures such as looting or rioting. Thinking independently includes adequate preparation to provide for your family, along with proactively avoiding the likely focal points of increased chaos. Another important part of being prepared is to learn the emergency plans that have been established for your community. This will enable you to gain a preview of how events are likely to unfold in response to a state of chaos.
2. Thou shalt be prepared to do without
This commandment revolves around having an emergency plan for your family. This emergency plan should be inclusive of planning for going without supplies such as food and water, along with going without information or direction from the political authorities. It is also important to understand that your family may not be at the same place when a chaotic situation unfolds. Furthermore, contemporary means of communication like the internet and cell phones may not be available. In this kind of a situation, communication through Citizens Band (CB) radio and ham radio may become the only reliable means of communication. Of these options, ham radio is the only broad-reach communication option that is outside of the traditional communication grid. Each family should develop a holistic emergency plan and be prepared for the chaos that frequently results from crisis situations.
3. Thou shalt maintain control
The crux of this commandment is to stay cool and calm in a crisis situation . . . similar to our Creating Wealth commandment to maintain control of your investments. Stay positive and avoid excessive stress or panic. Panic only places extra stress on top of a highly stressful situation. Controlling your emotions will allow you to keep a level perspective, and place yourself in a position of strength. Staying positive is doubly important because of the high likelihood for panic to spread out to other people in crisis. Many social problems can result when panic becomes a pandemic and people make rash, emotional decisions out of fear. Many downcast people eat, spend money excessively or become addicted to abusive substances during difficult times. These kinds of self-destructive behaviors need to be proactively avoided so that you will be able to maintain a cool head and clear mind.
4. Thou shalt be self-sufficient
Self-sufficiency is primarily about having the ability to provide for your own food, clothing, water, shelter, medicine, transportation, communication, power and plumbing over an extended period of time.
ost families prepare for this contingency by assembling an emergency kit. You should seek to have sufficient supplies for you and your family to survive for up to 3 months on your own without doctors, grocery stores, or other modern amenities. Consider what you will do if there is no medical care available in your area, or if all of the hospitals are swamped. In the event that a disaster occurs, it is likely that all of the local grocery stores will be out of stock within a few hours. It is important to ensure that your family is prepared for this contingency.
5. Thou shalt practice the primitive
Every year you should prepare by drill or practice to return to the primitive. This means intentionally depriving yourself of the conveniences that we have become accustomed to. The easiest way to practice this is to go on a yearly camping trip and live in the wilderness. Other ways to practice are turning off your power or water for an extended period of time. The importance of these drills is to help your family to develop the skills of rapid adaptation to abrupt changes in the amount of contemporary comforts available.
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September 10, 2009 ·
This http://JasonHartman.com video as you to “take stock” of the stock market during this economy. It explains how the stock market works, what it was intended to be, and how it has changed into a gambling casino. http://CreatingWealthPodcast.com.
Conventional wisdom has long held that the way to become wealthy over the long term is by compounded investment in the stock market. The reason for this was quite clear when one looked at the chart of historical returns. By making very modest investments at regular intervals over a long period of time, small investors could create very large amounts of wealth. This line of thinking is what has prompted most employers to source their 401k retirement plans with mutual funds that invest in the stock market.
Unfortunately, the movement of stock market investment into the ‘main stream’ of America has caused it to become less of an investment vehicle and more of a gambling casino. The primary purpose of the stock market is to provide companies with a means to raise capital for business investment by selling a partial ownership stake (also known as a ‘share’ of ownership). Typically, investors were rewarded for their investment by the payment of dividends from the company profits. Thus, stock market investing was originally based on the notion of finding a company that was likely to make sufficient profits to pay healthy dividends.
This sentiment changed as the secondary market for trading stocks became more popular. A ‘primary’ issue of stock happens when a company issues more ownership shares.
A ‘secondary’ stock transaction happens when one investor exchanges an existing ownership share with another investor. This is where the stock market turns into a casino. When the focus of investment shifts away from the ability of the company to viably pay dividends on a consistent basis toward the probability that the secondary market will pay more for the company stock at a future date, stock investment becomes much more akin to gambling. When returns are primarily based on price appreciation, continued growth in market value requires a perpetual stream of new buyers. This phenomenon is true for both stocks and real estate, and explains the recent booms/busts very thoroughly.
The only factor that can push up the entire stock market is if there is an aggregate increase in investment capital (similar to how increases in the money supply from the Federal Reserve drive price inflation). When corporate profits grow, it is natural to assume that more capital will be attracted to the market. However, when market values rise faster than corporate profits, the only cause can be a net influx of investment capital.
In the United States, there were two ‘Sledge Hammer’ events that sparked a colossal 25-year bull market for stocks. The first was the passage of the Employee Retirement Income Security Act (ERISA) in 1974, which created standards and stability for company-sponsored stock market investment plans that dramatically increased the supply of equity capital. The second was the pairing of tax cuts in the 1980s and a significant reduction in the cost of debt capital that spurred a rapid growth in corporate profitability. These two events combined to generate a massive increase in stock market investment that pushed values sky-high.
However, these massive gains came with a bit of a shadow. This problem has been created as investors stopped directly buying stocks of individual companies and started investing in funds where a manager buys and sells the stocks. Now these brokers and managers have control over incredible amounts of other people’s capital. This control gives them the power to create or destroy tremendous amounts of value based on the decisions that they make. It also channels market activity more and more toward ‘gambling’ as managers seek to maximize value appreciation. (This set of incentives is very adverse to investor interests, as managers have incentives to take insane risks, since big gains mean tremendous bonuses and losses only mean that they get fired.) Furthermore, most managers charge very hefty fees for their services, which cut into the net investor returns. (Thus far, we have assumed that the fund managers are honest . . . when the ‘crook’ dynamic is factored in, the risks increase significantly.)
Fundamentally, there are four principal risks implicit in this kind of stock market investing:
1) Your broker may be a crook.
2) Your broker may be incompetent.
3) Even if your broker is honest and competent, he will take a big slice of your profits in the form of fees and commissions.
4) These problems are not limited to your brokers . . . all of the middlemen like stock promoters, CEOs, bankers, and all other flavors of hucksters or salesmen.
On top of all these risks, there is a bigger dynamic to consider. Currently, corporate profits are taking a very steep tumble relative to their prior levels. In addition to this, most of the working population is already invested in the stock market, so there is no large pool of capital to attract so that valuation can continue to inflate. Finally, the current market Price/Earnings ratio is well above its historical average. This means that the market is discounting-in a future increase in corporate earnings. If that increase does not come, or takes longer than expected, it will most likely result in market values decreasing.
Finally, there is a longer-term risk of very average performance. Even if the anticipated recovery happens as expected, there is no looming influx of capital to push the market up at explosive growth rates. This means that future market appreciation will look very average by historical standards. (Granted, nominal values will be pushed up by inflation, but real returns will still be very much in the ‘average’ category.)
Ultimately, the stock market is in the midst of a ‘return to reality’ from the large rates of return in prior years. The fundamentals are pointing toward difficulty in maintaining prior growth rates out into the future, including the risk of more near-term price compression if the forecasted economic recovery does not materialize as expected. Granted, there is a probability that the stock market will recover better than expected and produce favorable returns. However, prudent investors should seek to diversify their investment activities into other emerging areas of opportunity to limit exposure to the stock market.
Situations such as prudent real estate investing with a small to negligible downside and significant to infinite upside are what economists call a ‘free option’ . . .principally because the investment volatility runs mostly in the ‘up’ direction because of the downside risk mitigation. Needless to say, these are the investments that we would like to create.
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