Do I have a role to play in a team and feel happier in that role?
Can I work well with just one trusted partner?
Do I know where my strengths and weaknesses are and do I know the difference?
Do I know what I am good and bad at?
My business partner says we work well together because we are the ‘brains and brawn’. The only trouble is we both see ourselves as the brains and the other as the brawn. Oh well.
RULE 76
Look for the hidden asset/opportunity
You’ve got to be a vigilant, never-sleeping, never-taking-time-off machine. Always alert, always on the lookout for that opportunity. An old Senegalese proverb says that the opportunities that God sends do not wake up those who are asleep. Wake up! Sleep is for the lazy, the indolent, the poor. Wide awake, restless, prowling is for the hungry, the lean, the opportunity taker, the rich. All around us all of the time there are opportunities to make a fortune. All we have to do is be open to the possibilities, to the magic of such events.
There are only five things you need to take on board if you are going to be a treasure seeker:
Remember that timing is crucial. React too slowly and the opportunity is gone. Too fast and you might startle it. Markets shift, fashions change and products fade.
Be serious. There is no point in being on the ball every other day or only in the mornings. Hidden opportunities only reveal themselves when they feel they want to. I always imagine them as small shy beasts coming down to the waterhole for a drink. If you want to catch one you have to creep up really quietly, really skilfully.
Be quirky. If there are only a few hidden opportunities then you need to stand out. Quirky, unique, special, creative, unusual – name it however you will, but you have to stand out from the herd (to complete the animal analogy).
Know what you’re doing. Wealth, like any other skill, needs to be learnt. To spot opportunities and to be able to take advantage of them you need to give yourself the best chance. You can’t pick up a financial paper and say you are going to understand it from Day 1. It takes time, dedication and commitment. Know your stuff and you’ll see the opportunities much more clearly. There’s a management technique called ‘SWOT analysis’ – an acronym for ‘strengths, weaknesses, opportunities and threats’ – keep looking at all four.
Be attractive. If you smell horrid that shy beast is going to bolt. You have to dress smartly, smell fresh, look good, be well turned out and radiate attractiveness.
THE OPPORTUNITIES GOD
SENDS DO NOT WAKE UP
THOSE WHO ARE ASLEEP
All around us all of the time there are opportunities to make a fortune. All we have to do is be open to the possibilities, to the magic of such events.
Have you ever noticed that when you are thinking of changing cars to another make or model you immediately start noticing hundreds of that make on the roads? Were they there before? Of course. It’s just that you never noticed them. But once your attention is focused like a narrow beam of intense light, it throws them into sharp focus.
Opportunities are a bit like that. Once we start noticing them they are all around us. We just need that kick-start, that beginning of the search. Just like changing cars, we change our focus.
It is essential that we wake up our opportunity detector. Once we do, opportunities will appear as if by magic all around us.
RULE 77
Don’t try to get rich too quickly
We’ve already said you need to think long term. Trying to get rich quick only leads to disappointment and over-anxious hustling. And you do need to build a good base or your financial castle can topple at the first gust of wind. The longer you take to make your money, the more diverse you’ll be with investments and income streams.
The quicker you make your money, the more likely it’ll be a single strand and thus easy to break.
THE LONGER YOU TAKE TO
MAKE YOUR MONEY, THE
MORE DIVERSE YOU’LL BE
WITH INVESTMENTS AND
INCOME STREAMS
Getting rich over time usually means you’ll:
build long-term income streams
be insured against recession or sudden and negative market downturns
have time to have a life as well – that old work/home relationship is less likely to be fractured
be better at making money honestly and decently
have time to make the relevant adjustments and thus not so likely to rush out and spend inappropriately
gain the experience necessary for long-term financial security as you go along.
If you make your money too quickly there is a tendency to:
spend it inappropriately
not have time to learn to handle it well
risk losing it by having your income coming from one area only.
If you really do want to earn a lot quickly you might like to take a leaf out of 79-year-old Stella Liebeck’s book. She sued McDonald’s because she burnt herself with spilt hot coffee and was awarded initially $2.9 million – later knocked down to a mere $640,000.
This may not have been a deliberate game plan but it did pay off – and quickly. Personally I would rather make my money slowly and enjoyably and not have to sue anyone to get it – or win the lottery, or have a close relative die, or have to marry someone inappropriate merely because they had a quid or two. Make your money slowly and you’ll enjoy it more. It will last longer and you’ll sleep nights.
RULE 78
Always ask what’s in it for them
I don’t want you to be paranoid generally but it is OK to be paranoid when it comes to your money. There are a lot of sharks out there looking for easy pickings from the less awake among us. Watch out.
Jeremy Paxman, the UK broadcaster, always interviews politicians with a basic underlying assumption that they are hiding something and he has to find out what and why.
Obviously we don’t want to go round believing everybody is out to get us, but there is a good technique here that we can adopt to question anyone offering:
a money-making proposition
to ‘look after’ our money
to invest in our future or schemes
any financial advice
to work for us
a partnership
products or services.
And I do mean ‘offering’. If they come looking for you, rather than waiting for you to approach them for advice, you should be extremely wary.
You have to be suspicious of anyone and anything that could make inroads into your wealth. Be very wary of anybody who:
promises to help you get rich quick, by short-cuts, using tax loopholes or dubiously legal schemes
uses the word ‘offshore’
uses the letters MLM* or pyramid selling
claims to be incredibly wealthy and is offering to share their secrets with you – the secret is they make their money out of people like you (see Rule 68)
offers to increase your wealth by using the internet
asks for money upfront to seed investment, pay for promotional material or carry out a survey.
And three things to always remember:
If it waddles like a duck and quacks like a duck then it is a duck and don’t let anyone tell you it isn’t.
If it looks too good to be true it probably is.
Not all that glitters is gold.
BE SUSPICIOUS OF ANYONE
AND ANYTHING THAT
COULD MAKE INROADS
INTO YOUR WEALTH
Remember also to keep asking ‘What’s in it for this person?’ Don’t trust anyone. Don’t give your money to anyone to look after for you. Check the small print of anything you sign. Be on your guard.
* Multi-level marketing.
RULE 79
Make your money work for you
An awful lot of us are guilty of wasting money by not making the best use of it – whether it’s a small amount or large, long term or short term. From not ca
shing cheques to leaving cash in low interest accounts because you’ve forgotten about it or can’t find the time or be bothered to move it.
Here are a few tips to get you thinking about whether you are making all your money work for you:
Don’t leave money inactive in bank accounts – move it around to high interest accounts, even if it’s only for a few days. Electronic banking means money can be easily and simply switched from one account to another – even for very short periods.
Never be satisfied with the interest rate you are getting – there’s always a better one out there. Keep actively looking.
Shop around for all services you pay for. There are always cheaper options. Don’t just pay for a name, pay for what you are getting.
Don’t leave property empty – it may be increasing in value but you are missing valuable rental income.
If you invest in anything that is appreciating in value, could it also be useful? Would a classic car you can drive be more useful to you as opposed to a painting you can only look at (although that could be regarded as useful in the sense it might be relaxing or therapeutic but let’s not go there).
Explore all options. Don’t be content ever with what you are doing but always be on the lookout for ways to improve, enhance, perk up, progress and advance. This does not mean fiddling of course.
Crack on. Don’t put anything off for tomorrow. Do it today. Do it now. If you take four months to bank a cheque then that’s four months’ interest you’ve lost.
Always remember idle money is wasted money – use it or lose it.
NEVER BE SATISFIED WITH
THE INTEREST RATE YOU
ARE GETTING
RULE 80
Know when to let go of investments
I have my own little calculation which I am happy to pass on to you. I learned it from an internet site a while back and it has stood me in good stead. Basically for an investment to work for me means I am generally looking for a return that will double my money in five years. In a recession I might extend that to, maybe, seven years – of course the higher/faster the return, the higher the risk.
The calculation I use is to divide the interest rate into 72 to find out how long it will take me to double my money. For example, if the interest rate on a particular investment is 6 per cent, then it will take me 12 years (72 ÷ 6 = 12) to double my money. Too long for me. So I would be looking for an interest rate (known as a ‘return’) of around 14.4 per cent (I know, I know, you’d be lucky at the moment but this is only an example). This works for any amount of money incidentally.
So, if you want to know what interest rate to look for divide 72 by the number of years you are prepared to wait. 72 ÷ 5 = 14.4 per cent. Gosh, something useful for you there and I did all the work for you.
For me, therefore, any investment that looks like it won’t double my money in five years I pass on or, if it makes financial sense to get out (i.e. no penalty for doing so), I will let go of. I have my criteria, you need yours.
Perhaps you need to let go when:
you feel in your waters that something is not right
the market has taken a downturn
you read something that makes you curious or suspicious of a particular investment
you need the money for something better, hotter
the investment hasn’t been doing well for a while and is sluggish
you’ve achieved your maximum profit and it’s time to get out
you’ve lost interest in a particular investment and simply can’t be bothered any more
you have changed emotionally or ideologically and need to move on – perhaps you only invested green and now want mainstream or vice versa
the investment isn’t fashionable any more – old hat can be costly if the return isn’t there
you need to spread your portfolio around to minimize losses in a recession or down market
you bought blind and now have more information – and can see your fingers getting burnt
throwing good money after bad will just aggravate the situation – cut your losses and get out (see Rule 81).
PERHAPS YOU ONLY
INVESTED GREEN AND
NOW WANT MAINSTREAM
OR VICE VERSA
RULE 81
Know your own style
We all have a tendency to buy on tips from other people, buy on a whim, buy glamorous, invest too much in one thing, ride a winner to death and, most fatally of all, fail to quit a loser. This is the one habit we must really learn to let go of.
There are different approaches to investing of course, and you need to recognize your own style. Otherwise you can’t learn to curb your worst tendencies. So I’m going to give you a few examples, and I want you to be brutally honest about recognizing which one is you.
Are you competitive? If so, you’re likely to have plenty of enthusiasm and get in early. You’ve probably taken the trouble to learn about your investments. However, you may be over-confident and optimistic, and prone to chase a losing streak.
Of course you may be more solid – careful, secure and long-termist. A wise approach, but again still prone to chase a bad luck run.
Then there are the investors who aren’t really sure they want to be there. If you’re this type, you probably use an adviser, and take a long time (maybe too long) to decide to invest. You’re good at letting go of losers. The chief downside is that while you probably won’t sustain huge losses, you may not make the big bucks others do.
Some investors don’t prepare themselves well. They invest too little, too late, they are likely to put too many eggs in one basket (maybe following a tip) and take too long to let go when things go downhill.
The trouble is that emotions and personality can get in the way of successful investing. Characteristics such as optimism, over-cautiousness, competitiveness, impatience, fear, desperation and all the rest can easily sway you. But this is your retirement, your house, your luxury holiday, your kids’ inheritance you’re gambling with, and you need to make sure that you do it in a clinical, calculated, risk-assessed fashion.
It is imperative that you know what type of investor you are – and when to quit riding a losing streak. Nothing clouds your judgement more than throwing good money after bad. You have to learn to cut your losses and walk away. And yes, I do know how hard that can be.
EMOTIONS AND PERSONALITY
CAN GET IN THE WAY OF
SUCCESSFUL INVESTING
RULE 82
Know why you should be able to read a balance sheet – and how
If you are going to run a company or invest in companies, you need to be able to read a balance sheet. This is different to knowing what profit or loss a company has made (i.e. reading a profit and loss account). Why? Because a profit and loss account only shows you half the picture.
For instance, Company X might have a turnover of 1 million and expenses of 500,000, thus it has made a profit of 500,000 and must be doing really well, n’est-ce pas? No, actually. Because what you can’t see from this simple profit and loss account is that it owes the bank 2 million, the 1 million in turnover is very dodgy and there is a 4 million tax bill hanging over its head from previous years’ accounts, a franchise expiring, a tax loophole about to close and a powerful competitor about to start up. Invest in Company X? I don’t think so. It’s bankrupt and fraudulently trading and not worth a pig’s ear. Stay away. So you need to see a balance sheet. Without fail. And because of what it is not telling you.
A balance sheet has to balance. That’s why it’s called a balance sheet.* The basic formula you need to know is assets minus liabilities = equity or A – B = C. Into even simpler terms: what you own less what you owe equals what you are worth. This applies to yourself, companies you work for/own and companies you intend investing in. Let’s have a closer look.
What you own – your assets. This includes current assets, including cash and anything that can be realized (i.e. turned into cash) within say a three-month period (this
might include cast-iron debtors, money in transit etc.); stock (stuff ready to be sold and raw materials that have value and can be made into products); any property you or the company may own; equipment and goodwill.
What you owe – your liabilities. This includes your creditors, long-term loans and bank loans. Basically what you would have to find in cash if everyone called in what you owed them.
What you are worth – your equity. This is A minus B. It tells us what you or your company is really worth. There is a formula that says that you take your current assets and divide it by your liabilities and if the answer is bigger than 1.5 you’re doing OK. Obviously you need to adjust this for different industries and businesses but it serves as a basic indicator. I also take the equity and divide it by the assets as a percentage. And if the answer is higher than 50, I feel confident. For instance, equity 35 million ÷ by assets (capital employed) of 70 million as a percentage = 35,000,000 ÷ 70,000,000% = 50 which is fine. But assets of 120 million and equity of 35 million is not so hot – around 29.
So if you just hear about a company that has made a profit of 1 million and are offered the chance to invest, don’t be impressed by that single figure. Ask to see the balance sheet. Read it thoroughly. In fact, don’t just read the balance sheet, important as it is – there are other things you need to know, such as a company’s financial statements in total. The more information you can get (and should get), the more solid your decision will be.
A BALANCE SHEET
HAS TO BALANCE
* The actual balance is equity + liabilities = assets, thus balancing. You get assets on one side and liabilities and equity on the other.
The Rules of Wealth Page 12
