Читать книгу The Stock Market Cash Flow - Andy Tanner - Страница 12
ОглавлениеPaper Assets in Your Wealth Plan
Building wealth is a matter of learning to buy or create assets intelligently and is part of a deceptively simple plan:
1. Get financial education.
2. Buy income-producing assets.
3. Build cash flow.
I’m a fan of Dr. Stephen Covey’s The 7 Habits of Highly Effective People. If you’ve read the book, you might recognize that the above sequence of steps is a demonstration of at least two of the seven habits: begin with the end in mind, and put first things first. (If you haven’t read the book, I highly recommend it. But remember: Don’t just read it, study it.)
So if getting financial education is your first goal, then what kinds of things should you begin to study? As a serious student you might begin by studying all of the four income-producing assets classes:
Please understand that different assets and asset classes have different advantages and pitfalls. It is vital to find a combination of assets that will suit your goals and strengths. You might find that you are best suited to focus on one type of asset, such as stocks. Maybe you have what it takes to be successful in business. Perhaps you’ll find that real estate is what revs your engine. Or maybe you want multiple streams of income from all the assets classes. There is no right way, no one-size-fits-all answer, no magic bullet. The way that works for you might not work for your neighbor. But the more you know, the better equipped you’ll be to put together the plan that will work for you.
To figure out what is best for you, you need at least a basic familiarity with all the asset classes. Only then can you find which combination will take you to your dream. Once you understand them, you can start to visualize how they will fit in the assets column of your balance sheet.
Let’s get started by taking a brief look at the four asset classes.
Businesses
“Business” is a huge subject, but let’s narrow it down to just two business topics: taxes and leadership. These are the two areas that most affect business as an asset.
The top financial liability for almost everyone is taxes. This is important to remember as we discuss creating a business as an asset. Growing up in the United States, I was taught about the important ideals of freedom: freedom of speech, of religion, and the right to own property.
I’ve heard it said that you can measure the amount of freedom you enjoy by how much of your stuff the government allows you to keep. I have a friend who likes to say that taxes are just a way for government to legally seize our property. If you choose not to pay your taxes, the government can seize the money from your bank account. And if you don’t have money in your bank account, the government can seize your property.
If you’re like me, your goal is to keep as much of your own money in your own pocket as possible. Reducing your tax burden is a good place to start taking positive action to make this happen.
Many countries offer tax structures with advantages and incentives to business owners. If you have not already done so, pick up a copy of Tom Wheelwright’s book Tax-Free Wealth and you will see that the tax man is much kinder to educated business owners than to average working citizens.
Leadership also affects business as an incoming-producing asset. There are scores of computer programmer-types in the world, but Bill Gates of Microsoft and Steve Jobs of Apple stand out as exceptional leaders. They both left their university schooling to focus on their businesses.
Robert often talks about how “A” students wind up working for “C” students, and I’ve seen that in my own life. I’ve even lived it. It’s funny how little grades and report cards matter once you’re out in the real world. Leadership is a commodity that’s much more valuable, and “A” students don’t always make the best leaders.
Business is about organizing people and their talents. If you are a good leader, then business might be a great place for you. If you are a strong leader, then owning a business allows you to leverage the efforts of other people.
Think about this: An average person works eight hours a day, five days a week, 50 weeks a year. That’s about 2,000 hours each year. Now let’s suppose that as an employer you hire 100 people to work for you. Suddenly, you have 200,000 hours of effort working for you. You are able to magnify your efforts in a way that’s impossible for a single person to accomplish on their own. Imagine what you could achieve if you had 200,000 hours at your disposal each and every year. Imagine the ways you could create cash flow and wealth for yourself!
OPEs
Business owners who are also good leaders benefit from what I call OPEs:
Other people’s EDUCATION
Other people’s EXPERIENCE
Other people’s ENERGY
Other people’s EFFORT
Other people’s EXPERTISE
Other people’s...EVERYTHING!
Think back to the S and B sections of the CASHFLOW Quadrant. What does it take to move from being an S, self-employed, to a B, a business owner? Think of the conductor of an orchestra. He never makes a sound himself. He is a leader. The moment he picks up a horn or a woodwind himself, he is no longer the conductor. In contrast, someone in the S quadrant is a one-man-band operating at his maximum capacity. He might be making lots of noise, but he simply cannot generate enough sounds to become a full orchestra on his own.
Another advantage of a business is that it can simply start as an idea. If a person builds a business plan with strong leadership, a strong mission, and a strong team, that person has created an asset. The business plan in and of itself can attract the people and capital to make it grow.
If you are a good leader and have a creative mind to solve problems, you might have what it takes to be a business owner. If you are resilient and good at raising capital and love bringing value to the lives of others, then you will likely enjoy business even though it is by far the most difficult of all the asset classes and has the lowest rate of success.
Real Estate
My friend Ken McElroy, Rich Dad Advisor for real estate, always mentions three things when he teaches real estate:
Partners - Financing - Management
I’ll leave most of this to Kenny to explain on another day. But to make it simple, while business is about OPE, real estate is about OPM: Other people’s money. It’s about financing, management, partners, and structuring the deal—which is really all about going into debt. It’s ironic that while most people are trying to stay out of debt, Kenny is actively trying to go into debt. (And it’s working for him.) Like the fear of fire, many people are scared of getting burned by debt, so they prefer to stay away from the flames. But fire can be both good and bad. It can be used to heat your house or it can burn your house down.
Successful real estate investors like Kenny have replaced fear with respect. They study debt; they master it. They know the difference between good debt and bad debt
Real estate is attractive to many investors because it uses debt as a lever. It is a very popular way for someone to literally use other people’s money to create cash flow and wealth.
If I go to a bank and ask for a loan for a business, they will typically have me jump through a series of hoops as they try to evaluate whether I’m worth the risk. Borrowing money for real estate, however, is a very different story. Banks or private investors will loan money for real estate because the real estate itself can act as collateral. If I’m not able to repay the loan, the bank will simply take back the property and sell it. That’s why lending money on real estate is much less risky.
With real estate, the investor has control and can actually increase the value of the property, as well. It’s one of the biggest advantages real estate has when compared to other assets, such as stocks. For example, if you buy an apartment building, you can renovate the building, update the appliances, raise the rents, and so forth. This is called forced appreciation. And the ways to do it are almost limitless.
Commodities
Commodities are about the hedge. Currency loses value; commodities retain value.
Commodities are used by investors in many ways. For example, you might receive monthly cash flow from your ownership in an oil well. Or you might receive a capital gain if you see a trend in the supply and demand of corn. You might buy some precious metals to hedge against a falling currency.
Commodities are those essential things we need in order to live, or the things we hold most valuable in society. So a person who owns commodities is in a position to trade. For example, if you own a lot of oil and people want to drive their cars, you have what they want. By owning an in-demand commodity, you are in a position of power.
If I have four strips of bacon and you have four eggs, we can trade with each other and both have breakfast without ever having to exchange regular currency. Currency is simply a way to make trading easier. But when a currency breaks down, we have to revert back to basic bartering.
How does this trading work? It’s simple. You can take an ounce of gold anywhere in the world and trade it for things that you want or need. It’s an in-demand commodity with real value. You trade that value for other things of value.
Paper Assets
This book focuses on the stock and options market. While there are other kinds of paper assets available to investors, we are limiting our discussion here to stocks and options.
A stock is a share of ownership in a company that is publicly traded on the stock market. The ownership of every publicly traded company is divided up into a specific number of these shares, and the number of shares is different for each company. So when you buy a stock, you are essentially buying a share of ownership in that company.
An option is the right to buy or sell a stock for a particular amount within a set amount of time.
Stocks Are Liquid
When investing in stocks, we can choose how we want to get profits. The two primary approaches are to seek capital gains (selling our stocks at a higher price than we paid for them) and to generate cash flow (creating new money). Seeking cash flow is my personal favorite because it allows me to control the situation better than just buying stocks. Either way, the stock market offers us the ability to easily buy and sell our paper assets.
By comparison, right now there are many people who would love to sell their real estate. But there’s just one problem—not as many people can get the financing to buy real estate today. As an investor, when you face a situation where it’s difficult to sell an asset because of market conditions, it is said that the asset lacks liquidity. Liquidity is the ease with which an asset can be converted to cash. It is important for us to consider the liquidity of an investment so we can always have a beneficial exit strategy. That’s one thing you will love about the stock market—it generally offers investors good liquidity. If one of your stocks begins to go down, the market liquidity means you can sell it quickly before you have sustained a damaging loss. It also allows you to go from a good investment to a better investment in the blink of an eye.
Another advantage of liquidity is that a person doesn’t need to have tremendous sales and negotiation skills. In business, those skills are vital. And developing those sales skills takes time and practice.
There’s some irony to the liquidity of the stock market, because very few people actually take advantage of it. Many investors hold the same stocks and mutual funds year in and year out, and never think about selling a good stock for a better one or using any kind of exit strategy to maximize their profits. There is also a little hypocrisy here on the part of the big institutions that tell you to buy and hold. Stocks only fall when there are more sellers than buyers. While you are holding, the large institutions are often the ones selling!
Another thing to consider is that the liquidity of the market can bring an increase in volatility. The ability to buy and sell quickly can cause huge swings in supply and demand. Depending upon your situation and investing goals, this can be either a huge negative or a huge positive. There is not a one-size-fits-all answer. I predict there will be even more volatility in our market in the years ahead. But your investing strategy can use that volatility to your advantage.
Stocks Are Agile
When most people think about profiting from movement in the stock market, they think of one direction of movement: up. They don’t understand the concept that stocks are agile. We can learn to profit from a stock no matter if it goes up, down, or sideways. That’s very tough to do in business, but in the stock market, it doesn’t matter—because there are profit strategies for movement in any direction. We will look at these strategies in detail in later chapters of this book.
Of all the asset classes, the stock market is probably one of the least difficult in which to earn a profit in relationship to the economy. When the stock market goes up we can buy stock, and when the stock market goes down we can short stocks. Shorting a stock is positioning yourself to make money when the price falls. If we use the stock market and the options market in harmony with each other, there are many income strategies that can provide cash flow even when the stock market is stagnant or going down.
Stocks Give Us the Ability to Scale
There is a common misconception that you need a lot of money before you can begin to invest. Perhaps that’s why so many people put off their investing for so long. Some people never get around to it. Fortunately, investing in stocks allows almost anyone to begin their investing sooner rather than later.
Because buying stock is buying only a share of a company, buying stock is more affordable for the average person than buying an entire company or starting a business. But the beauty of this is that you can own exactly the same stocks as a famous investor like Warren Buffett. The difference is that, as a new investor, you’ll probably buy a smaller number of shares than Buffett. A company you want to invest in may be a multi-billion-dollar enterprise, but you may be able to get a single share of its stock for just $25. The cost effectiveness of stock allows you to scale up into your investing as you gain the means to go bigger. For the average person, this is a faster way to invest than saving up for decades to purchase a franchise or some other business.
I frequently have students in my classes who love to talk about investing, but who have not yet actually bought any assets. They read a lot of investing books and listen to informative audio courses on building wealth. Yet their asset column is blank. They are making the mistake of waiting until they have a lot of money to begin investing. It’s like the person who spends years reading every book they can find on how to play the piano, yet keeps putting off actually sitting down and playing a note. It’s just not necessary. There is room for everyone at every level to sit down and play. Education is key, but remember that part of your education includes doing something.
Another avenue of profitable stock market investing is the options market. An option is the right to buy or sell a particular thing at a specified price within a set time frame. Just as we saw with stocks, options are also a very affordable way for anyone to begin their investing. As you advance in your knowledge and experience with options, you might be surprised to find just how much stock you can take control of for relatively small amounts of money and risk. In my view, this scalability is very attractive. It permits almost anyone to quickly place an asset on his or her financial statement. In fact, acquiring an asset with stocks can be done faster than any other asset class. Plus, the lessons learned from researching in the stock market are skills that will carry over into both real estate and general business. The stock market is a great place to learn about the concepts of exit strategy, hedging, and capital gains versus cash flow.
Leveraging with Debt
Like the real estate market, the stock market allows ample opportunity to use OPM. As stock investors we can take advantage of something that is called a margin account. Buying stock on margin allows you to leverage your money in a way that’s a little different than how a real estate investor would use a bank loan. In my opinion, intelligently leveraging money with good debt is something that should be respected rather than something that should be feared. The debt that people should fear is debt that must be paid off by working at a job.
Leveraging without Debt
The options market offers us something more interesting than we can get with stocks alone. With options, we have the ability to leverage our money without going into debt at all. This type of leverage is very important because it can also act as something called a hedge. We will learn more about what hedges are and how you can use options to actually protect your stocks against loss in later chapters of this book.
One Asset Class Is Not Better than Another
One of the things you’ll never hear me do is bash any particular asset class. I have often heard real estate teachers who bash the stock market and stock market teachers who bash the real estate market. Having a business is not “better” than owning real estate. Investing in real estate is not “worse” than investing in stock. Wise investors simply consider what they want to achieve with their investments, and then invest accordingly. I think many successful investors enjoy the diversification of owning assets across all the asset classes.
A person who invests exclusively in stocks is going to miss out on many of the tax advantages that the business owner will enjoy. A real estate investor may like the idea of having a portion of his wealth invested in assets that are liquid. An investor who believes the stock market will fall due to a bubble may be interested in exploiting that situation by seeking a capital gain that is available because of the agility of the stock market.
Here is a basic comparison table of what the different asset classes offer to investors. This table is not comprehensive, but it does illustrate the fact that investors can use different asset classes to achieve different investing goals:
Remember: this table doesn’t show “better” and “worse” investment options. Instead, it shows you a simple comparison of just a few of the attributes of each asset class. Depending on your situation, liquidity can be good or bad. Being able to negotiate the price of an asset can be good or bad. Everything is relative. Everything is subjective.
Sometimes it’s more important for you to ask new questions than to have new answers. Pause for a moment and consider which questions you are asking:
“What stock should I buy?”
Or… “Where do paper assets fit into my overall financial plan, my financial statement?”
The difference, of course, is your context. And that can make all the difference.
If we understand the various benefits and drawbacks of stocks, we will have an intelligent way of deciding how we can use them to achieve our investing goals. Conversely, the less a person understands about stocks the more likely a person is to fail when they use them in their strategy for investing.
Sales
If you’re in business and you have inventory and you want to turn it back into cash, what do you need? Sales. If you have real estate and you want to cash out, what do you need? Sales. Not everyone likes putting on a smile and turning on the charm and making the sale. Stocks allow you to make sales without being a salesman. That’s a huge advantage for a lot of people. Just click a button and...sold! I once had a business with a million dollars tied up in inventory. I guarantee there were days when I wished I could just click the mouse and make the sale. And I like sales.
While there is no good or bad asset class, business is my favorite because I am best suited to sales. I like people. Business is fun to me. That’s the sandbox I like to play in. But I love the agility of paper. The stock market is the place I see where I can make money even if the economy completely crashes. There’s a lot of fun in that too, let me tell you.
Chapter Summary
Let’s review some of the important points of Chapter Two:
1. There is no “right” or “wrong” (“better” or “worse”) when it comes to asset classes or investing options...it just depends what you enjoy and what fits into your investing strategy.
2. Wealth building is learning to buy assets intelligently.
Wealth building is about making purchases and adding to the asset column of your balance sheet.
3. There are four primary classes of assets.
You can expand the asset column of your balance sheet by adding any of these types of assets: businesses, real estate, commodities, and paper assets.
4. Business is about taxes and leadership.
When you think about starting or buying a business, you can take advantage of tax laws. A business requires leadership. In business you’ll be using other people’s energy, other people’s education, other people’s experience, other people’s effort, and other people’s everything!
5. Real estate is about other people’s money.
The three most important things you can gain in your real estate education are: learning how to find and select the right partners, learning about creative financing, and learning about management. One of the great advantages of real estate is that it uses debt as a lever.
6. Commodities are about hedging.
Commodities are those basic items that people want or need, such as corn, soybeans, pork bellies, oil, precious metals, lumber, and cotton. These items tend to retain their value because there is typically a strong demand for them, even when a currency fails.
7. Paper assets can be effective for all levels of investors.
Most paper assets are liquid, which means they can be quickly and easily converted to cash. Paper assets are traditionally very agile and can be used to make money, no matter if the markets go up, down, or sideways. Paper assets also allow scalability, meaning that a person can begin with a very small investment. Some paper assets also allow for leverage without the use of debt.
To strengthen your understanding of these concepts, consider teaching them in your own words to a friend or family member. Good luck!
