Wealthology Read online

  Ray Kroc may not have been conscious of the historical factors that made him a giant success, but the leadership of the company he left behind does understand those factors. McDonald‘s is expanding in China just as the Chinese are going through the same mobility boom Squirrelmericans experienced after World War II. The only difference is that China is supersizing its mobility surge to the tune of 13 million cars per year.

  Mastering luck requires an understanding of how history is unfolding from an opportunistic point of view. Before buying the McDonald‘s franchise, Ray Kroc saw growth in much the same way the casino magnate Kirk Kerkorian noticed increased traffic in Las Vegas before he made a decision to buy land on the Strip. Small investors and entrepreneurs need to understand this concept.

  “Nothing is so often irretrievably missed as a daily opportunity.” ~Marie Eschenbach.

  The Man Who Coined “Mastering Luck” We repeatedly see great examples of historical figures that have literally been swept up to success. Of all those who have risen to greatness, Napoleon‘s rise has been the most dramatic and rapid. By the age of 30, he was the most powerful man in France. By the time he was 34, he was an Emperor; by the time he was 37, he ruled most of Europe. And if he had a navy to cross the English Channel, Napoleon would have been the first ruler since the ancient Caesars to establish a universal kingdom. How did he accomplish so much?

  Although he was obviously a genius, he wasn‘t so vain as to say he‘d done it all himself. Genius needs help. Napoleon said he was successful because he always ―moved with the opinion of millions of people.‖

  Napoleon‘s genius was his ability to recognize where people‘s ideas were heading and marching in front of them. He created the idea that he was the symbol and protector of the Revolution sweeping Europe, thereby leveraging the energy of the movement to realize his own ambitions.

  He called that process ―mastering luck.‖ He said, ―Great men become great because they‘ve been able to master luck, but what the commoners call luck is a characteristic of genius.‖

  Being a financial or business genius depends on your ability to master luck. When Warren Buffett buys stocks, he masters luck. He usually waits and watches a business until a crisis occurs before loading up on its stock. When he bought huge stakes in American Express decades ago, it was in the middle of a crisis. When he recently invested $5 billion in Goldman Sachs and billions more in other companies in the middle of a deep financial crisis, he was mastering luck.

  Napoleon is saying that we‘re all lucky in some way because history gives us all a chance to become great at what we love if we open our eyes to opportunity.

  “Ability is of little account without opportunity.” ~Napoleon.

  How to Master Luck: The Story of Bob Pelissier Former truck driver Bob Pelissier understands how to master luck. I came across his story as I was reading the May 2010 edition of a newsletter from the Motley Fool. Here‘s a paraphrased version of the story:

  On a muggy fall night in 1985, Bob Pelissier‘s life changed forever. It was nearly one in the morning, and the 56-year-old truck driver was flipping through the channels when he came across a late-night infomercial advertising ―an unprecedented breakthrough in telecommunications.‖

  Mildly intrigued, Bob listened as the announcer explained that something called a ―cellular telephone‖ was about to ―change the lifestyles of millions‖—and that investing in this technology was the ―business opportunity of the century.‖

  At first, Bob was skeptical. But when he heard that AT&T predicted one day as much as 40% of all calls would come from cell phones, he slowly began to change his mind.

  Now, you probably already know where I‘m going with this, but I urge you to bear with me for just a moment longer...This story has a unique twist that could help you secure a small fortune. Exactly how much are we talking?

  Well, had you invested just $5,000 in the little-known stock I‘m going to tell you about today back when smartphones first hit the market, today you'd be sitting on as much as $295,000.

  Nevertheless, you might be wondering if you wouldn‘t just be better off investing in a well-known giant like Apple or AT&T. Which brings me back to my original story...As you‘ve probably guessed, Bob Pelissier and his wife, Lorraine, went on to retire multi-millionaires—despite the fact that he drove a big rig for the better part of four decades and she worked 12 hours a day selling sandwiches out of the back of a van.

  And it probably comes as no surprise that dozens of other people just like Bob and Lorraine walked away with just as much -- if not more. But here‘s something that I‘m pretty sure WILL surprise you...

  These folks didn"t invest in the companies that made cell phones... or even in the carriers that owned and operated the cellular networks.

  Instead, they invested in something far less obvious--but far more valuable...You see, what they essentially ended up buying was the rights to the radio frequencies that cell phones use to make wireless phone calls (tech types call this ―spectrum‖).

  In fact, Bob Pelissier owned the rights for just two cities: Manchester and Nashua, New Hampshire. I realize that doesn‘t sound all that impressive. But, here‘s the thing...Had Bob invested in a company that made cell phones, the value of his investment would have been directly tied to how many cell phones that company was able to sell.

  Had he invested in a specific cellular carrier, it would have been directly tied to how many subscribers that carrier‘s network was able to attract—and let‘s not forget that the competition was just as fierce back then as it is today.

  Meanwhile, because all cell phones used the same radio frequencies, the value of the spectrum Bob owned increased regardless of what cell phone brands people were buying or carriers they were choosing.

  All that mattered was that more and more people were using cell phones all the time. In other words, it was the ultimate win-win wireless investment.

  “All great work is preparing yourself for the accident to happen.” ~Sidney Lumet.

  Rule #3: Choose Your Environment Carefully How much money we make and how fast we do it depends on the environment in which we choose to grow our investment. Like a good farmer, we want to plant our seeds in fertile soil. Certain economies, like types of soil, will produce very little while others will produce an abundant harvest.

  One fertile patch of land where you can expect an abundant harvest is China. Now, I‘m not optimistic about China‘s prospects because of its enormous population, its location or its past economic performance. I‘m optimistic about China‘s economy because its culture was made for business.

  Instead of borrowing and consuming, they save and invest like true capitalists. Chinese citizens as a group, have more savings than any other economy in the world! As you learn about nutconomics, you‘ll see why this fact is one of the biggest reasons China will be the biggest economy in the world much sooner than we realize.

  Squirrelmerica‘s savings rate has been in the low single digits for a long time—it‘s even dipped below 0% (negative savings rate).

  As the U.S. is mired in a huge mountain of debt, as Europe copes with its debt crisis, as California is on the brink of collapse, as our federal budget deficit has gone past $13 trillion, the Chinese government itself is sitting on a surplus of $2.5 trillion.

  These people are serious, competent and they‘re extremely business minded. One of my students is Chinese and she tells me that ―all they [Chinese] care about is making money.‖ ―Everyone,‖ she said, ―has a business of their own.‖

  Her remarks remind me of one made by Napoleon who once said that Britain was ―a nation of shopkeepers.‖ Perhaps that‘s a sign that China will become a modern day British Empire. The British Empire expanded across the globe because they were obsessed with trade and commerce. Asian culture in general is obsessed with success. Squirrelmerican kids pay to sit next to the Asian students for a reason.

  “A nation"s culture resides in the hearts and in the soul of its people.” ~Ghandi
.

  What We Don’t See The Chinese have another underrated asset—their foreign policy. Like its people, China‘s foreign policy is strangely peaceful, non-ideological and business friendly. Not getting wrapped up in international conflicts gives China a huge advantage in international commerce.

  China‘s foreign policy is focused on creating friends and business relationships while ours is busy creating sanctions and enemies across the globe. When we create sanctions, it limits the places where American companies can do business while increasing China‘s areas of exclusive access.

  If you were to invest in two companies, one that‘s created enemies and one that has none, which would you choose? Venezuela, Brazil, Iran, Saudi Arabia are fairly large, resource rich countries that are doing more business with China than with Squirrelmerica. It seems unbelievable that China, still only one third the size of our economy is doing more business with Brazil than we are!

  The truth is, Latin American countries prefer to do business with China because of our heavy handed foreign policy in the past. China has never been an aggressive nation in their recent history.

  America‘s obsession is to control, create sanctions and wage wars whereas the Chinese care only about one thing: making money. Here‘s the important thing about all of this: The Chinese are building a good brand—that of a friendly superpower. A pragmatic investor would invest in an economy that‘s expanding commerce and creating friends rather than reducing its opportunities abroad.

  “The laziest man I ever met put popcorn in his pancakes so they would turn over by themselves.” ~W.C. Fields.

  Rule #4: Follow the Money (Capital) At one time the United States was the best place to invest and do business. More wealth was being created here than anywhere else in the world. When Warren Buffett began his career, stocks were cheap, Americans saved, and we were exporting products all around the world. Things have changed.

  We need to adjust our frame of mind and start looking outside our borders for investment growth and wealth preservation.

  Developing economies look just like ours did back in the early 1900s. It would be foolish not to invest in some of these other markets. China, Brazil, Asia and India will be great places to invest for a long time precisely because they‘re emerging markets.

  Billions of people are just now discovering the joys of free markets. The entrepreneurial spirit is beginning to kick in on a global scale. A great deal of creativity, drive and innovation will outpace even our rosy growth expectations for these regions.

  I remember reading an article recently about how surprised investment analysts were that Singapore‘s GDP rose by 38%. We‘ll continue to see such surprises.

  “Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.” ~Andrew Carnegie.

  What Forbes Magazine Tells Us The economic explosion that‘s occurring in Asia and around the world can clearly be seen by flipping through Forbes magazine‘s list of the 400 richest people in the world.

  When I read through the 2010 issue and looked at the statistics, I fully grasped the reality of globalization for the first time.

  These are some of the telling facts you should be aware of:

  For the first time , the richest man in the world is from a developing country (Carlos Slim Helu of Mexico).

  The number of Chinese billionaires doubled last year—despite a worldwide economic depression.

  The number of billionaires in 11 other developing countries also doubled last year.

  There are now 89 billionaires in China—the 2nd highest number behind the U.S.

  The number of billionaires in Asia grew by an astounding 80%! Of the 403 billionaires on the Forbes list, 234 reside in the Asia-Pacific region.

  Only 16% of the 97 new billionaires on the Forbes list are from the United States.

  The increase in wealth isn‘t restricted to just the super wealthy. According to the Merrill Lynch-Capgemini World Wealth Report, Asian millionaires are, for the first time, wealthier than their European counterparts.

  Commitment is the ignitor of momentum. ~Peg Wood.

  Why Capital Is Important All this growth in Asian economies has an unseen, yet to be realized effect. First, driven people in developed countries such as the U.S. are being

  attracted to these emerging markets for work. We‘re seeing Chinese immigrants

  return home for better opportunities. The Chinese have a name for them: ―The

  Returning Turtles.‖

  We should expect this to continue for various reasons. This ―gold

  rush‖ mentality to get a piece of the action will result in a brain drain from U.S.

  and European economies. We must not underestimate the vital importance of

  the movement of capital to Asia.

  Money and intellectual capital, two of the most important causes of

  prosperity, always rush to where opportunity exists, where wealth is being

  created. Entrepreneurs are always attracted to predictable and profitable

  opportunities. And in the age of information, relocating is very easy. America‘s greatest asset, the one thing that‘s helped it grow more than

  anything else, has been its national prosperity consciousness. America has always been

  seen by the world as the land of opportunity. That ideology has driven ambitious

  entrepreneurs to our shores for decades and reinforced that initial belief. It‘s

  been a self-fulfilling prophecy. China has created this same prosperity

  consciousness. The average man on the street believes that this is their century.

  China Inc., has become a spiritual brand.

  What we must realize is that the effects of this movement of human

  capital, spiritual optimism and money will intensify wealth accumulation in the East. This should tell us where and how we should invest our money if we‘d like it to grow.

  “Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.” ~Helen Keller.

  Everyone Who Has It Will Have More There‘s a Bible passage that illustrates my point: ―For to everyone who has will more be given, and he will have an abundance. But from the one who has not, even what he has will be taken away.‖ Capital works like that. If you‘ve got it, you‘ll get more. If ya ain‘t got it, you‘ll lose what you‘ve got left.

  In May 2010, for example, more capital investment flowed into China than in any other month on record. That same month, their exports rose 50% from the previous year despite the European debt crisis and a major recession in the United States. Think about the significance of a 50% rise in exports for the largest exporter in the world. The growth is a result of capital accumulation in China.

  When capital accumulates in a given economy, it‘s like coil springs tightening up which will soon uncoil and release all of its pent up energy. As capital flows to Asian economies, growth will intensify in the coming years. The boom will continue. It may have its hiccups but it will grow dramatically.

  Any hiccups their economies experience will be from the irrational fear that what happens in Squirrelmerica and Europe affects Asia. It‘s not true. Investors are beginning to see that Asia can stand on its own. We‘ve finally seen proof of something called ―decoupling‖—the West is no longer necessary to maintain global economic growth.

  The flow of capital is just another reason we can expect Asia to grow at a rapid pace. To put that growth in perspective, China is the largest car market and the second largest market for Rolls Royce—a luxury car company that sells its models at a price tag of $400,000.

  “He who gathers money little by little makes it grow.” ~Proverbs 13:11.

  Business and Professional Strategies So how does a small business owner, investor or a professional take advantage of this huge growth trend? The most obvious way to take advantage of the growth is to simply start a business in one of these booming economies. Relocating mi
ght not be the easiest way to do it, but it‘s probably the most profitable.

  A more passive way to take advantage of the growth is to place the bulk of our money in dividend paying companies located in some of these developing economies. We can also invest in developed economies like Japan, Australia, South Korea and New Zealand that will gain tremendously by supplying China with finished goods or natural resources.

  “Debt, n. An ingenious substitute for the chain and whip of the slave driver.” ~Ambrose Bierce (The Devil's Dictionary, 1911).

  Rule #5: Follow the Leaders To make good investment decisions, you must follow people who‘ve been good predictors in the past. Some of the people I follow (Warren Buffett, Jim Rogers, Marc Faber and Peter Schiff) have made great predictions in the past and I‘m sure they‘ll make great ones in the future.

  If they‘re good predictors, they‘re great entrepreneurs in the true sense of the word. An entrepreneur not only makes good predictions but also puts her money where her mouth is. That‘s the difference between entrepreneurs and nutconomists—one group risks capital whereas the second doesn‘t.

  Entrepreneurs always know more about their industry than economists do. As a general rule, Kidus, you want to follow successful entrepreneurs (forecasters) and rely less on economists in building your business. We‘ve got other reasons not to rely on economists‘ predictions than that they‘re inherently less reliable than entrepreneurs.

  As I was listening to a lecture by economist Murray Rothbard, I found out that economists in the professional forecasting business call each other up to check their forecasts with each other! Apparently, when their economic forecasts are wrong, they have a great excuse: ―Well, don‘t blame me. I predicted the same thing all the other leading economists did.‖

  In other words, they collude with one another; don‘t be fooled by experts or authorities when you get here. Their collusion may explain why so many of them failed to see the scale and scope of the current economic crisis. This just goes to show that we‘re all in the thick jungle of global commerce with machetes in hand—we must clear our own path.