MarkFord
I’d never heard of bromate. Nor shade balls. I didn’t even know that the LA reservoir has millions of black shade balls floating on it. This video explains why.
Principles of Wealth #28*
Every asset class has its own inherent ROI (return on investment) range.History suggests, for example,that it is 8% to 10% for stocks, 5% to 7% for corporate bond, 3% to 4% for municipal bonds, and 5% to 8% for rental real estate. The prudent wealth builder designs his investment strategy accordingly. Rather than trying to beat intrinsic ROIs, he accepts them and, if these do not suffice, finds alternative ways to achieve his goals.
The big mistake most wealth seekers make in regards to return is to try to “beat the market” – i.e., to strive for higher-than-average returns.
This is done for two reasons: ego satisfaction and ignorance. Getting higher ROIs than everyone else is a psychological trophy for those that believe it can be done. And the mainstream financial community does everything it can to encourage investors to believe they can. They themselves are motivated by ego (they have the secrets) and by greed (they make more money when investors pay them for advice on how to do it).
Case in point: Years ago, I made a speech to a room full of affluent investors about an opportunity to make 12% to 25% on a leveraged real estate deal. As early investors, this range of returns was possible.
A large, bald-headed man in the back stood up and interrupted me.
He said he wouldn’t think of investing in my idea. “Unless you can give me a 10-to-1 return, I’m not interested in what you have to say,” he announced.
A few people applauded him.
The coveted “10-bagger.” What investor hasn’t dreamed of that?
The thing is, none of the successful, long-term investors I know advocate or follow this strategy. More importantly, most of the tens of thousands of investors that do chase huge returns live to regret it.
The average stock market return over 100 years is 8% to 10%, depending on how you crunch the numbers. If you accept that and invest conservatively, you can expect to earn that much, over the long run, from stocks. But investors that try to beat at 8% to 10% fail to reach that goal. Countless studies indicate that they get returns of about 3%.
The dream of getting 1000% returns are touted by two groups of people: investment professionals that achieve those numbers very occasionally but make their big money by selling the dream, and inexperienced investors like the man who interrupted me.
Like my bald-headed critic, you may think that 8% to 10% returns are boring. If you do, I can only say this: You are wrong. And this idea will eventually make you poorer than you are today.
But there is a more important reason to accept intrinsic ROIs. It forces you to accept reality. When you calculate the future growth of your investments realistically, you may discover that your current portfolio of stocks and bonds will not get you to where you want to be. Realizing this, you must make a decision: Accept and adjust to a future of lesser wealth or search out other activities – which almost always require more time and effort than stock and bond investments – where you can earn higher intrinsic ROIs.
The intrinsic ROI for real estate in the USA is about 4%. But if you invest in income-producing real estate by buying rental properties at discount prices, you can expect to earn 6% to 8% a year. And if you leverage those investments with mortgages, you can expect to earn 8% to 12%. And if you take it one step further by improving those properties and raising rents accordingly, the intrinsic ROI will be in the 12% to 16% range – sometimes even higher.
Yes, rental income requires more time and work. But if you are willing to take that extra time and do that extra work, you won’t have to abandon your goal of achieving greater wealth in the future.
* In this series of essays, I’m trying to make a book about wealth building that is based on the discoveries and observations I’ve made over the years: What wealth is, what it’s not, how it can be acquired, and how it is usually lost.
10-bagger (noun)
A “10-bagger,” a term coined by Peter Lynch in his book One Up On Wall Street, is an investment that has the potential to return tenfold, if not more. As I used it today: “The coveted ‘10-bagger.’ What investor hasn’t dreamed of that?”
The heat from a nuclear explosion is hotter than the surface of the sun.
“Ignorance more often begets confidence than knowledge does.” – Charles Darwin
The River by Peter Heller
I’ve never read Heller before, although I read a New York Times book review of one of his previous bestselling novels: The Dog Stars. I remember thinking that the author had that Hemingway thing going on. It was with that expectation that I started reading The River– and I must say the book confirmed my suspicion. Hemingway as he might have been had he stayed in Idaho and become a teacher/novelist.
In any case, The River is a “guy” story – about two bookish but outdoorsy friends, Jack and Wynn, that take a canoe trip on the Maskwa River in northern Canada. What they hope will be an idyllic trip of eating blueberries and gazing at the stars turns into a race to save their lives.
The plot works. The other elements of fiction work too. It did feel a tad formulaic, but that might not bother you. I’d recommend it.
An email from BWS:
Mark Ford,
I have always thought of you as a genius but I am now convinced. I will be sending copies of your book to those I know and respect in business….
The basic truisms included should be written on the inside of the eyelids of every business person so each can be constantly reminded of the truly important versus the seemingly important factors that are crucial to financial success.
Your biggest fan,
BWS
Ever wanted to read Infinite Jest? Here‘s how…
8 Other Things That Money Can’t Buy
”Money can’t buy happiness.” A cliché? Sure. But as is usually the case with clichés, it’s true. Problem is, because we hear them so often, the mind filters them out and we ignore them.
This cliché, in particular, deserves our full attention. So instead of ignoring it, let’s expand it… starting with the following list of 8 things – other than happiness – that money can’t buy.
- Love. When you attempt to buy love with money, you do not get love. You get someone who cares only about the promise you are making. Try as you might, you will never be able to make them love you for anything else.
- Trust. When you attempt to buy trust with money, you attract people that trust nothing but money. The moment your money runs out, or they find another source of it, they will betray you.
- Respect. When you attempt to buy respect with money, you attract people who respect your money. They will pretend to respect you – but behind your back, they will mock you.
- Self-respect. When you attempt to feel good about yourself by achieving a certain income level, you will be surprised to find that the good feeling you get when you achieve your goal will be gone the next morning.
- A reputation for kindness. When you attempt to acquire a reputation for kindness by donating money to good causes, you attract people that value their causes above all else. They will never give you the esteem you think you paid for.
- Success. When you attempt to accomplish anything whose value is measured by money, the pleasure you get from it – if you get any at all – will be temporary at best. Others may see value in your success, but you will know, from experience, that they are wrong.
- Admiration. When you attempt to win admiration or approval by displaying your wealth, you win only jealousy and resentment disguised in flattering terms.
- A meaningful life. When you attempt to give your life purpose by dedicating yourself to the pursuit of money, you will be sorely disappointed. Eventually, perhaps at the end of your life, you will realize that you have wasted your time.
Facts About D-Day
* D-Day commemorates the Battle of Normandy in WWII, which began on June 6, 1944 and resulted in the liberation of Western Europe from Nazi Germany’s control.
* It was the largest amphibious (land and water) invasion in history.
* The exact number of Allied casualties is not known. It is estimated that about 10,000 Allied soldiers were killed or went missing in action, including 6,603 Americans, 2,700 British, and 946 Canadians.
* The code name for the invasion was Operation Overlord. It became known as D-Day (which stands for “Departure Day”) because that was a common term used to describe the start of any significant military action.
* The Allies knew that Germany was expecting an invasion, so they came up with an ingenious plan (which included phony radio transmissions, dummy airfields, etc.) to fool the Germans into thinking that it would take place in Calais, not Normandy. Duped by the charade, the Germans left Normandy relatively under-defended.
* On the eve of D-Day, Hitler was entertaining Joseph Goebbels and some other guests at his home in the Alps. When he finally got news of the invasion, it was almost 6 hours old. He didn’t take it seriously, and was slow to authorize requests for reinforcements. A fatal mistake.
* While Hitler was partying in the Alps, General Dwight D. Eisenhower, commander of all the Allied forces, was drafting a statement that he was prepared to read if the invasion failed:“My decision to attack at this time and place was based upon the best information available. The troops, the air and the Navy did all that bravery and devotion to duty could do. If any blame or fault attaches to the attempt it is mine alone.”