Wealthology Read online

  “Take calculated risks. That is quite different from being rash.” ~George Patton.

  Natural Selection Principle Have you ever wondered why some people are more successful than others? Why do some companies make it? Why do others fail? There‘s a simple answer to that.

  Entrepreneurs who make accurate predictions earn more money. Entrepreneurs who keep making lousy predictions end up working for the better predictors. There‘s a kind of ―natural selection‖ process that weeds out the good predictors from the bad ones.

  Many people want to work for themselves, set their own hours, and become financially free in our society. What they may not know is that the only thing separating them from their boss is forecasting ability (smart work).

  “The secret of success is to know something nobody else knows.” ~Aristotle Onassis.

  Investors are Entrepreneurs

  One of the best ways to become financially independent is to be a good investor. But what makes someone a good investor? We‘ve answered that question: Good investors are good entrepreneurs. They‘re just passive entrepreneurs. Instead of working for money, they have their money work for them.

  Even if we‘re not independent investors, we‘re still paying someone else to do the predicting and are therefore still making an educated guess on how well that money manager will do. We‘re outsourcing the role of a nutpreneur. Money managers and investment advisers make bets in your place. That‘s all they get paid for.

  “Decision is a risk rooted in the courage of being free.” ~Paul Tillich.

  A Billion Dollar Blackjack Lesson

  Bill Gross is a well known, respected money manager; he‘s become a billionaire because of his ability to make good bets. He regularly appears on CNBC and Bloomberg; he‘s quoted by numerous financial publications, followed by thousands of investors and he manages one of the biggest bond funds in the world. He lives in a beautiful $23 million Newport Beach mansion. It‘s good to be Bill Gross. How did Bill gain all this fame, respect, and wealth?

  Bill began his illustrious career by making bets in a casino. He was a professional blackjack player before he began his career as a money manager—it was in a casino that he learned how to make bets and spread risk.

  “Risk comes from not knowing what you"re doing.” ~Warren Buffett.

  How Warren Does It Let‘s take a look at one American I admire. How does, Warren Buffett, the greatest investor of all time, make his bets? Of the top ten billionaires on Forbes magazine‘s annual list, Buffett is the only one to have made his money from investing.

  I came across a book titled, “The Warren Buffett Way: Investment Strategies of the World"s Greatest Investor” that helped me understand how he invests. We can get a glimpse just by reading the forward written by legendary money manager Peter Lynch:

  Warren looks for investments with as little risk as possible.

  He‘s very good at understanding probability and being a great oddsmaker.

  According to Lynch, Warren‘s a good oddsmaker for three reasons: 1) a love of math computations, 2) a devotion to the game of bridge, and 3) a lifetime‘s worth of experience in underwriting risk in his insurance and reinsurance businesses.

  Warren only takes risks if the odds of complete loss are nil and when potential gain is significant.

  Lynch‘s explanation reinforces what we‘ve been saying all along: The most successful people on earth are great oddsmakers, educated economic guessers. They‘re brain workers.

  “If we do what is necessary, all the odds are in our favor.” ~Charles Buxton.

  The Best Way to Make a Good Bet Clearly understanding the role of a nutpreneur as a forecaster of future nut demand helps us hedge our bets. Let‘s assume we want to manage our own investments. What stocks should we buy? What industry? Cashews? Almonds? Peanuts?

  The answer is in industries in which we can best make a good bet. We should stick with what we know best. All the great investors from Jim Rogers to Warren Buffett say this same thing continuously. The simpler an investment, the better our odds that we‘ll win because there‘s less to know about it; we reduce the risk of losing money because we can better understand where that market is headed.

  “An investment in knowledge always pays the best interest.” ~Benjamin Franklin.

  Workers are Entrepreneurs I repeatedly tell my students wage workers are entrepreneurs. When I assign a business plan, someone in my class will say, ―But I don‘t want to own my business.‖

  But workers make bets too. Their bet is that their company (or industry) will be around for awhile. They‘re also betting that the company they wish to work for will pay well. Different jobs have different potential.

  Throughout most of my life, Microsoft has not only paid some of the highest wages in the country but has also created over 2,000 millionaires. Microsoft employees made the bet that enrolling in computer technology programs in college, working for a tech startup and trading wages for stock options would lead to a life of financial abundance.

  Squirrelmericans mistakenly believe we can escape the risks of nutpreneurship. In the hope of avoiding risk, they get jobs without realizing they‘re taking on more risk. After all, wage workers don‘t learn the higher aspects of making money. Learning how to make money doesn‘t happen overnight. The learning process takes awhile but the sooner we get started the better.

  Workers have the disadvantage of not learning how to make money on the job, the worker just stands still. We must never stand still, we must empower ourselves by accumulating all the necessary knowledge, experience and skills we need to create a prosperous life.

  “Before everything else, getting ready is the secret to success.” ~Henry Ford.

  Case Study: Kirk Kerkorian Stories help us understand what a million words can‘t. Let‘s see how the law of entrepreneurship (prediction) plays out in the real world. The story of billionaire investor Kirk Kerkorian is a great illustration.

  After serving as a pilot in World War II, Kerkorian came back to the states and stuck with what he knew—he got into the airline business. Just as Las Vegas was starting to develop, he started his career as a pilot, transporting California gamblers to casinos.

  After years of saving, he noticed demand for flights was growing. So he started his own airline. At the time, commercial aviation was a new and growing business. When he bought a small airline company for $60,000, he made a bet that the industry would grow.

  He was right. 20 years later, he sold the airline business for $104 million. Then he made another bet that paid off big. He looked around and saw that the casino business was growing. So he started to buy up land on the Strip, the most famous and valuable part of Las Vegas. One lot cost him about $1 million. By renting the space to a casino operator, he ended up netting $9 million per year from that one lot alone.

  As he learned a little bit more about the casino business, he put up his own casinos on the lots he‘d bought. In 1986, he sold some of his casinos for about $600 million.

  “If a window of opportunity appears, don"t pull down the shade. ~Thomas J. Peters

  How Kerkorian Created His Fortune

  Nothing about Kerkorian‘s story is strange or unbelievable. Luck only played a part in that he served as an airline pilot in World War II. The gamblers who flew on Kerkorian‘s planes saw the same casinos, the same economic development and the same Strip he did. Many of these people were probably Hollywood movie stars who had the money to buy a piece of the strip at the time. But they didn‘t.

  Opportunities are all about us. We need only start where we are, with what we know most about, notice trends and start making predictions. We can all make good bets with practice. In fact, we can make better bets than the Wall Street analysts who do it for a living.

  I remember reading a book written by the famous fund manager Peter Lynch titled, ―One up on Wall Street.‖ His main point was that the average investor has a decisive edge on Wall Street because we can see trends rising from the ground, from the street. We‘
re closer to the action.

  “Opportunity is often difficult to recognize; we usually expect it to beckon us with beepers and billboards.” ~William Arthur Ward.

  How to Look at Failure

  Experienced entrepreneurs know how to make failure pay because they‘re the only group of people who understand what it is. Failure just teaches us that the bet we‘ve made wasn‘t based on good assumptions. Failure shows us what didn‘t work and in that way, brings us closer to what will work. So, in reality, there‘s no such thing as failure. This isn‘t wishful thinking, it‘s accurate economic insight.

  The famous inventor, Thomas Edison, understood this because he failed thousands of times. His attitude was that every failure just showed him what didn‘t work and therefore, put him just one step closer to finding what did work.

  This process of approximating your way to success explains the ―magic of persistence.‖ A lot of business coaches and motivational speakers preach this idea of persistence but usually don‘t explain why it pays off.

  Persistence is not doing the same thing repetitively expecting a different result—that‘s the definition of insanity. Persistence makes you a better entrepreneur by building your forecasting ability. If one plan doesn‘t work, try another. With every plan, we get closer to our basket of nuts. That‘s why persistence is so valuable.

  When I failed at different business ventures in the past, I didn‘t learn everything I could‘ve learned because I didn‘t have a conscious and accurate concept of entrepreneurship. But now that I have a clear concept of it, I know what to do with prior failures. I can make failure pay.

  “He who never made a mistake never made a discovery.” ~Samuel Smiles.

  Conversation with a Venture Capitalist Lenders to business startups know the value of failure. I once talked to a vice president of a venture capital firm based in Canada about how they figure out whom to lend money to. ―So do you guys basically use credit scores?‖ I asked.

  ―No, we don‘t care about credit so much,‖ he replied. I was confused—in the world of real estate, credit scores are the biggest of factors.

  ―So you guys must rely heavily on assets then.‖

  ―No, not as much as you may think.‖

  ―So what‘s left? Do their pets have to co-sign for the loan?‖ I asked.

  He laughed and said, ―Actually, one of the biggest requirements we have for lending money is that the person applying must have failed at a prior business.‖

  “Failure is nature"s plan to prepare you for great responsibilities.” ~Napoleon Hill.

  How to Make Failure Pay The key to learning from failure is to let it speak—to give it a voice. Most people mistakenly think that failure is just something to ―get over‖ or a hurdle to get past, so they become ashamed of it.

  When we feel ashamed of failure, we lose what benefit we could‘ve received from it. If you think about it accurately, the only failures in life are those who don"t fail. I urge you, therefore, to start experimenting if you make it to Squirrelmerica or stay in Squirrelthopia.

  Experiencing an economic depression at a young age has been the luckiest break of my life. As a result, I‘ve learned a great deal about entrepreneurial calculation—the gateway to enduring, meaningful prosperity.

  “Failure is in a sense the highway to success, as each discovery of what is false leads us to seek earnestly after what is true.” ~John Keats.

  The Greatest Gift Based on what I‘ve said, you should be able to figure out why the current nutconomic recession is the best thing that could‘ve happened to our generation, a fortune in disguise for investors, entrepreneurs, voters—for everybody. See if you can figure it out.

  Here‘s a hint: ―Truth sooner emerges from error than confusion.‖ – Borden P. Bowne. Here‘s a bigger hint: Systematic economic truth is more easily found in the aftermath of systematic economic errors.

  Remember, although it‘s generally thought entrepreneurs take risks, they‘re actually people who progressively eliminate risk, and as they do, their profits increase. Knowing this will help you understand everything else about the economy.

  Your Loving Uncle, Akinaw

  The Rules of the Money Game

  Dear Kidus, Every day, we‘re faced with life and death decisions. When a man hears, ―Does this dress make me look fat?‖ he‘s on the edge of ruin. Of course, no man in his right mind would say, ―kind of‖ or ―just a tad.‖ But even if he says, ―No, of course not‖, he‘s got to make it believable. And guess what? A man never knows if he‘ll succeed in making it believable and like Russian roulette, he may only have one chance at getting it right.

  Fortunately making money is a lot more predictable and you get more than one chance. As I‘ve said, being an entrepreneur requires that we risk making mistakes. Making money is an approximating process. The rules I‘ve outlined below are designed to make the process of making money a bit shorter.

  “During the first period of a man"s life the greatest danger is not to take the risk.” ~Soren Kierkegaard.

  Rule #1: Learn from History

  When deciding to make a certain investment, start a new business or a new career, it‘s important to remember that history always repeats itself. Our financial status is just the total or cumulative effects of past decisions; the present is really the past, today‘s circumstances are really the result of yesterday‘s choices. What we see, hear, know and experience is really an echo of the past.

  In order to learn the financial lessons history has to teach us Squirrelmericans, we need to ask this question: ―Which types of financial principles produce a prosperous life and which ones create a life of poverty?‖ All you must do then is follow the principles that work and avoid the ones that don‘t.

  Whether you want to be a great investor, fashion designer, actor, industrialist, lawyer or anything else, you can best learn how to do it right by finding out what others have done to gain their success. There‘s no need to reinvent the wheel.

  “Experience is the school of mankind, and they will learn at no other.” ~Edmund Burke

  The Ghost in History’s Machine So how do we learn from history? How can we become better nutpreneurs using this rule? People give lip service about learning from history but few understand how to do so.

  If we want to learn from other people‘s successes and failures, we want to look at the ideas that caused them to succeed or fail. Don‘t look at successful people, look past them. If it‘s been done before, it can be done again. Some falsely believe that those who have experienced dramatic success are either ―just smart‖ or they‘re ―go-getters.‖ When I tell my students selling is a necessary business skill, I‘ll invariably hear someone say, ―But I‘m not the sales type.‖

  I dislike that word ―just‖ because it tells me the people who use it don‘t want to change. The truth is, nothing just happens—everything has a cause and when looking to learn from the past, you want to look at causes. The causes of either success or failure are always ideas, thoughts. Learning from history is, therefore, tracing the consequences of thoughts or ideas.

  One of the best ways to learn from history is to learn as much as we can about successful people we want to be like. We want to know enough about our heroes to get inside their heads, to pick their brains, and to even joke and argue with them as if they were your buddy. And once we understand as much as we can about them, before making a big financial decision, ask ourselves, ―What would they do?‖

  I read biographies of successful business people I respect in order to acquire the ideas and habits that have made them successful. This is something all successful squirrels do. Warren Buffett, for example, read the biographies of all the great captains of industry from Carnegie to Vanderbilt early on in his life.

  If you go on YouTube.com, you can find a five part speech he gave to MBA students in which he says that all we must do to be successful is look at what people we admire have done and just copy them. People, like animals, learn by imitation. The opportuniti
es the hand of history has dealt, it will deal again. Our job is to be ready to put time tested ideas to use the next time we‘re given an opportunity that resembles something that‘s happened to someone else before.

  I‘ll finish this rule with this: I‘ve read lots of books and listened to lots of experts on success—almost all of them stress the importance of having great people guide our lives. Great people are great ideas—nothing more, nothing less. Ideas, like viruses, can inhabit the bodies of different people—they are transpersonal.

  In the words of one of my favorite philosophers, ―A person is a proposition.‖ All you must do to get the life you want is to think the thoughts great people have thought.

  “A man is but the product of his thoughts, what he thinks, he becomes.” ~Ghandi.

  Rule #2: Master Luck The second tool the entrepreneur can use to make good decisions is to master luck. This idea of mastering luck, as you‘ll see, is based on understanding how history unfolds.

  One of the main reasons I‘m interested in psychology, history and nutconomics is that I‘ve noticed early adaptation to big historical trends is one of the most important factors that make people very successful in a relatively short amount of time. We must get into a habit of projecting big, historical movements.

  Bill Gates was obviously an early adapter—he got into computers and software in high school before most of the world had ever heard the word, ―personal computer.‖ By the time he was 30 years old, his company was worth more than the McDonald‘s corporation, which brings me to my next example.

  Ray Kroc, the founder of McDonald‘s Corporation, was also an early adapter in a less obvious way. Kroc‘s success resulted from the booming postwar economy, the baby boomer generation who became teenage fast food junkies and to increased mobility. More cars equaled more drive thru sales.

  Twenty six years after Kroc‘s death, McDonald‘s has over 32,000 locations and serves at least a billion customers every month. He mastered luck and shows us all that getting swept up to success is a much simpler path to success than luck, hard work or experimentation.