How to Earn an Extra Million in Your Lifetime the Lazy Way
June 26, 2008 by Vagabond Investors · 12 Comments
How much is €1 worth?
Most people would think that it’s a trick question. It’s not. Not for the new rich, anyway. A dollar is a dollar is a dollar? Guess again. Herein lays the secret to insane wealth. If you follow this advice, you will soon have the cash flow and time to live the life you desire.
First of all, that €1 is a seed. Put it on work and let it grow. How much it is ultimately worth depends on how long you let it grow and what growth rate you get. Let’s suppose you take that single euro and deposit it into a special account that gives you 5% interest. It will take 100 years for it to grow into €1 million. What? Not planning on living 100 years? Relax. We’re not done with this yet. We’ve got to supercharge it. Rather than just planting one seed, you can plant them more often. A euro a day becomes a €1 million in the span of a normal life time, in 34 years.
What makes this happen is the power of compound interest. It means that you re-invest the returns you get on your initial investment. For example, let’s suppose you invest €100 and get a 10% return. You now have €100 plus that 10%, which is €10, for a grand total of €110. You now invest the whole €110. If you get a 10% return again, you re-invest that €121 as well.
This way €1 a day becomes €1 million in 34 years if you get a consistent 20% return on it. In fact, €1 a day becomes €1 billion in 66 years with that 20% interest. Einstein himself said, “The most powerful invention of man is compound interest.”
This is a lazy way to get €1,000,000. You don’t have to become a good investor if you don’t want to. The price, though, is not measured in money. It’s measured in time.
In my opinion, 34 years is a gross price. There is a way to do it much, much faster. You don’t have to wait 20-40 years to reach a questionable pot of gold at the end of your life. There is a way, and we’ll show it to you. From building business that requires no more than 6 hours a week to maintain to buying real estate and paper assets in order to finance your lifestyle, you can reach financial independence in a relatively short period of time.
This is not to say that compounded growth is not important. It is the key to huge financial reserves with little effort. Let’s say you want to reach that goal in 5-10 years and live and exciting life while you’re getting rich. What then?
You have to increase your financial IQ. It’s not difficult. It’s just a matter of learning and the prize is well worth it: 20-40 years of exciting life.
Keep on reading this section and you’ll soon learn the new rich way to do this.
Jaakko
The Leverage of Your Mind (Plus: How to Create Supreme Ideas)
June 26, 2008 by Vagabond Investors · 5 Comments
The greatest leverage of all is the leverage of your mind. The six inches between your ears is definitely your most valuable asset. You have no idea what you are capable at. Your brain is so complex and so powerful that you are only using a small fraction of its capacity. The limit of better quality life is not out there. It is in your mind.
What is reality? Simply, what we think is real, is our reality. It’s not how things actually are, it’s how you perceive them to be. A good example of this is if you think you can’t afford something. We all do this once in a while. The reality is not that you can’t afford it. It’s just that the thing you pursuit is outside of your current reality, i.e. you don’t know how you could afford it.
It’s not money that makes people rich. It is the ability to expand the reality that ultimately makes people richer. Money is not the solution to money problems. The mind is. It is the cure-all. Any constraint in the outside world can be overcome with creativity. The ultimate resource is resourcefulness. The reality is a mind game.
A large part of what we call reality is constructed on our beliefs. A belief is nothing more than a feeling of certainty. We have beliefs of life, ourselves, people around us, money, our abilities, everything. The big realization is, of course, that none of these are true. Belief systems are all fundamentally false. Yet the human mind inevitably constructs beliefs to perceive the world. The good news is you can change your beliefs. You can change your reality.
Many arguments in life are caused by differences in reality. People don’t really argue about things themselves. What they argue about is their realities that collide against one another.
You have to ability to choose your reality. The way that you are constantly doing this is by focusing your mind. At the moment, you are focusing on this. Yet at the same time, your heartbeat in your left ear is just as real. Were you aware of it? Chances are that you weren’t. That’s because you didn’t focus on it. Wherever focus goes, energy flows.
As to creating a better reality, you have to solve some problems. Problems will never go away. They are a sign of life. Getting rich is a matter of having better quality problems. From too little money you can go to having too much money. Both realities are possible and both problems are real. Yet the difference in quality of those problems is enormous. One comes from scarcity, the other from abundance. Wealth, after all, is all about abundance. It’s about a better reality and better problems.
The question then becomes, how do you change your reality? The answer is, by solving problems. That is, by answering questions. Problems are questions, aren’t they? That’s a question, too. Isn’t it?
To solve better problems ask better questions. Better solutions mean better ideas. Ideas are the doorway to new realities. For example, don’t say “I can’t afford it.” I contend that it’s a sign of mental laziness. Ask “How can I afford this”.
I’ve listed some good and bad questions below to let you see the difference here.
Bad question Good question
Why don’t I have any money? How can I make a ton of money and have fun doing it?
Should I work longer hours? How can I increase the number and size of my assets?
Who’s to blame? How can I turn this around quickly?
What’s wrong with my life? What’s right with my life?
How can I earn more? How can I earn more and work less?
Turn your problems into questions. Focus on finding solutions. Spend a maximum 20% of your time and energy on problems and at least 80% on solutions. This alone will yield supreme results in your reality.
Expand your reality by reading and listening to people who already have achieved what you want to achieve. Raising financial IQ is all about the leverage of your mind. The fastest way to become financially independent is to be able to change your realities faster. If you want to progress quickly, you need to have an open mind to new ideas and have the skill to take on possibilities greater than your current abilities.
Reality is negotiable. Expand the limits of your reality. Earl Nightingale put it eloquently: You become what you think about most of the time.
How do you create superior ideas? I’ll give you a quick guide to something that has worked like a miracle to me. This method is worth its weight in gold.
1. Gather raw material for your ideas. Get specific material as well as general. Try to find quickly as much as you can. Work consistently and don’t give up. File the material to notebook or a computer file. I personally prefer a notebook. I clip pictures and everything that relates to the problem and put them to the pages of my notebook.
2. Work it over in your mind. Ideas are just new combinations. Take one fact and look at it in different angels and lights. Bring two facts together and see how they fit. First you will get partial ideas. Keep on generating new ideas even if you think you can’t find anything more.. Write them all down regardless if they sound a bit silly.
3. Let go and forget your puzzle. Do something totally different that stimulates your imagination and emotions. Take a shower, listen to music or exercise. I like to train muay thai, krav maga, Brazilian jiu-jitsu or some other combat sport to empty my mind.
4. An idea will appear out of nowhere. This will happen when you least expect it. In the middle of something else, you suddenly get the solution or a brilliant partial one.
5. Bring your idea into the reality. Develop your idea with other people. Submit it for criticism. Shape and develop the idea to practical usefulness.
There you have it. The leverage of your mind is the most powerful form of leverage there is. All you need is within you right now. Keep on increasing your financial IQ. You will find that making superior deals to finance your lifestyle and creating automated income streams through all three asset classes become easier and easier. With cash flow and time, everything is possible.
Jaakko
Financial Intelligence & Financial IQ
June 23, 2008 by Vagabond Investors · 7 Comments
Reading this you are gonna learn the basics that will catapult your financial future to the very different level. These are the building block for the long-term financial freedom and LifeStyle design.
The most important common dominator for successful investors and people enjoying financial freedom is high financial IQ. Financial IQ is a measurement of the financial intelligence. We all have money problems. Some of us have a problem of having not enough money same time as some of us are solving the problem of too much money.
Financial intelligence is that part of our intelligence we use to solve financial problems. To get to the next level of the money game we should increase our financial intelligence. That simply means that we are ready to solve different and more complicated money problems. We are ready to learn new strategies and abandon some old believes and habits. Let’s have a look at the five basic financial IQs
- Making more money
- Protecting your money
- Budgeting your money
- Leveraging your money
- Financial knowledge
1. Making More Money
The more money you are capable to make the higher your money making intelligence is. The lowest level is to work for money. Higher solution is to make money and other people work for you. This includes the capability to use different investment strategies and generate automated and portfolio income.
Which one of the following guys has higher financial IQ? Patric works 50 hours a week and earns respectable 8 grand per month and Mystery Mike works 10 hours a week and earns huge 3 grand per month. Is Patric more intelligence than Mike? if we focus on absolute returns the answer is expectable yes. How about relative income? Mike has 40 extra weekly hours and earns 68 per hour compared to Patric’s 36 per hour. In case of relative income Mike’s financial intelligence is a lot higher.
2. Protecting Your Money
It is never about how much money you make but how much money you keep. This is absolutely true in everyday money habits as well as tax planing and investment strategies. It is crucial how much you keep when you make a wrong investment decision. It is only a mater of time when mister market will fool you. It is a part of the game.
3. Budgeting Your Money
Taking control of your spending habits will jump start you wealth accumulation. Spend less than you earn and invest the difference. Isn’t it SEXY? The life won’t get any better than that. Look carefully your expenses to recognize the good expenses and to eliminate the bad ones. Pay always your self first. Put aside 10 to 30 % of your income and live with rest. Having surplus is something you have to actively budget for.
Let’s have an example. Person A earns 60 000 annually and his expenses are 55 000. His surplus is 5 grand. Not bad at all. Let’s have a look at the person B. She earns 43 000 annually and her expenses are just 22 000. Her surplus is 21 000 per year.
If both of them invest the surplus and get 10 % p.a next 10 years Person A have a portfolio of respectable 79 687. That is a great start but a way from financial freedom. To keep the calculation simple we forget inflation. Portfolio represents 17 moths of expenses of current life style.
Person B has a portfolio of 350 623. If she continues to get 10 % return on capital she doesn’t need to work anymore.
Which one of these has a higher financial intelligence? Not a tricky question.
4. Leveraging Your Money
This is absolutely my favorite. After getting a surplus the next thing is to leverage the money to earn higher return on investment. A person who earns 25 % p.a on investment have higher financial IQ than person who gets only 7 %.
I can already hear you screaming that no one can accumulate over time such a high return on investment. If you believe so, it is true for you. In my world it is possible. Let’s live in my world for a while. I guarantee it is more fun anyway.
5. Financial Knowledge
It is true in life that you should first learn the basics to move one. The money game is not anyhow different. To make your money game more predictable you have to improve your financial knowledge and capabilities to understand financial information. This includes all different investment strategies you are gonna learn later from Vagabond Investors.
I can’t guarantee that the strategies we tell you will necessary work for you and they definitely don’t work every single time but we have been very successful among many others using these.
One thing I can guarantee is that increasing your financial IQ is the only 100 % secure investment you can do. You can’t learn less. Reading our E-Books, watching our videos and DVD seminars you are gonna know more about making money than 98 % of people who are working in the financial industry. Think about that the next time you give money to experts aka. put money in the mutual funds.
Matias
P.S. You don’t have to be a millionaire to live exiting and fulfilling life. Just in case you might still wanna be one, watch the following video clip.
Changes in the Investment Environment, Part 1 June 19th 2008
June 19, 2008 by Vagabond Investors · 25 Comments
Dear fellow Vagabond Investors,
We have made some market and investment observations that we would like to share with you. Over the past few weeks there has been a significant change in the investment environment, which could have important consequences for the near future. Let’s take a look.
As some of you know, US mortgages are no-recourse loans. This means that lenders have no recourse to the house’s owner beyond the value of the house. Therefore, individuals with negative equity (loan amount exceeds value of the house) have an incentive to default.
A downward spiral in the house prices would cause a fall in household wealth and in the capital of financial institutions. This could lead to a deeper and longer recession than those seen in the past several decades. Many people are just becoming to realize this.
The current crisis is of course the result of governments and their agencies around the world that have created asset bubbles by keeping interest rates artificially low. This has encouraged the purchase of all sorts of assets – not just real estate and not just in the US – with high leverage. In inflated asset markets, it is expensive and difficult for first-time buyers to purchase assets without leverage. We presume that over time, the housing market, S&P 500 and other asset markets will adjust to the downside and become affordable again, or that inflation will increase earnings significantly.
The Fed fund rate was increased between June 2004 and August 2006 from 1% to 5.25%. It seems that no actual tightening of monetary conditions really occurred. Lending standards were eased and leverage increased in all asset classes. On the other hand, when the Fed cuts its fund rate since September 2007 from 5.25% to 2%, the impact of the interest rate cut was limited because of tighter lending standards from the private sector.
In inflation-adjusted terms, the sharp decline in home prices is likely to negatively affect the commercial real estate market because of tighter lending standards and declining consumption. It is our observation that whereas in the past residential and commercial real estate booms were usually local or in a specific market, at the present there seems to be a construction boom on a global scale. If this construction activity slows down meaningfully, prices could come down everywhere, although with different intensities.
Both commercial and residential property prices could be vulnerable to a significant downturn in the financial sector. This holds true in other financial centers than US as well. It is our view, though, that these changes are problematic primarily in the West, but less so in Asia.
We are concerned that investors haven’t paid sufficient attention to the problems that could arise if asset classes should decline meaningfully. This is exactly why proper asset allocation is so important. Please see our Financial IQ section for further advice and specific strategies.
We would like to underline that at the moment it would seem that both the US trade deficit and the US current account deficit are now contracting. The US current account deficit was the primary source of global excess liquidity, and it is now contracting because the US trade deficit is contracting. This is the result of weakening domestic consumption. Therefore the US dollar may have some upside potential from its current level. We are expecting global economic growth to slow down and commodity prices to disappoint in the near term.
Nothing goes down in a straight line, though. Intermediate strong rallies should be expected to interrupt the downtrends. The question then becomes, which assets would gain the most if commodity prices (especially oil) declined?
A significant slowdown in economic growth would be negative for currencies of countries that have benefited from rising commodity prices (i.e. Australia, Canada, New Zealand). Therefore, for the next few months, US and perhaps Japanese equities could outperform the emerging stock markets in commodity-rich countries. Yet we believe that the S&P 500 is somewhat overbought at the moment. Therefore significant gains should not be expected.
Declining oil prices could be beneficial for airline companies’ shares. You might want to consider Singapore Airlines, Lufthansa and Thai International. Lower oil prices are generally perceived to be a good thing in the investment community. It is our view that declining oil prices through economic weakness would hurt the entire material and metal sector. Therefore we believe that stocks like US Steel have significant downside potential.
What about the bond market? If commodity prices were to decline due to a weak global economy, it would seem rational to expect bond yields to decline. However, this is not certain. Economic weakness would be an incentive for central banks around the world to ease their monetary policy. The bond market might not like it and sell off. Of course, higher bond yields would be supportive for the US dollar.
The only reason we think that commodity prices could significantly decline is a widespread economic weakness. This is not just in the US but where the demand is the strongest, that is, in the emerging economies. Therefore, we suggest you pay close attention to the US housing market and its ripple effects on the global economy.
Happy asset allocation and, as always, successful investing!
Jaakko
An astonishing 24% annualized return since 1998
June 5, 2008 by Vagabond Investors · 1 Comment
I’m a big fan of Ken Heebner. That’s the man behind Capital Growth Management. Heebner is definitely one of the very best mutual fund managers on this planet. It’s not just the hefty returns that get me going. It’s his true contrarian style that gets my unshared attention and deep respect. I’m truly madly deeply in love with this guy’s way of investing. He has placed some of the same bets I did back in 2004-2005. Despite that, I really adore Heebner’s incredible capability to see things coming before anybody else.
So how well has he performed compared to the other big names in the industry? Let’s compare his results to a well-known, now-retired money manager Peter Lynch. Lynch’s 14-year tenure at Fidelity Magellan fund has long been the benchmark for mutual fund excellence. During his best ten years from August 1997 to August 1987 he recorded an average annual return of 36 points. That’s am amazing achievement. Over the same period, the S&P 500 returned a remarkable 19 % per annum. So what? So, he over-performed the market by 17 points a year. Not a bad job at all! That’s something to pay for!
What about Heebner? Ken Heebner’s Focus fund has beaten the market by 20 points a year during his glamorous period. This was from May 1998 to May 2008.
It’s characteristic for Heebner’s style to find emerging trends and play big games with them. He’s open to all new ideas, the kind of possibilities that the masses aren’t even aware of. He seems to be the happiest when everyone else thinks he’s nuts. He is a happy-finger-trader so his positions can change in a heart-beat from long to short.
I lively remember the time when I got a wakeup call for commodities in 2004 after reading Jim Rogers’ fabulous book entitled Hot Commodities. I tried to rush into the commodities market with little hope. The only way for me was to buy commodities-related stocks and some emerging market funds. I finally ended up trading PCU (Southern Copper Corporation). What started as a channeling game became a momentum leap trade. Soon after came APA (Oil Producers Apache), NOV (National Oil Well Varco), and MRO (Marathon Oil) which I enjoyed playing with covered calls, deep in-the-money leaps and calendar spreads along with some marginal equity placements. So far my only uranium bet has been CCJ (Cameco Corporation) since 2004. I also put some of my eggs to mutual funds like FIM Russia Fund , which is under Glitnir bank today.
At the time most money managers burst out laughing when I mentioned my (stolen) ideas of a rising bull in commodities. Heck did I let their comments hurt me at the time. Well, I don’t have to argue about that opportunity anymore. I have to admit, though, that I totally missed the big gold train that my dear brother Vagabond Investor Jaakko was happily riding back then. I thought it was somewhat unorthodox but what the hell – can’t blame him for that ride, can I?
As I said, I really admire Heebner’s capability to see the upcoming trends. I give him enormous credit for seeing the fertilized and agricultural trend (which I had doubts on and didn’t invest in). His philosophy is to simply find a trend and place big bets on it. That has brought enormous success for his funds and the courage to sell short doomed trends.
I wanted to share my enthusiasm of this guy because I think it would be beneficial for you to be interested in his philosophy and actions. Study his moves and try to learn his way of thinking. He is such a brilliant trader in so many ways.
Trade with passion!
Matias
Three Inner Obstacles to Building the Wealth You Desire
June 2, 2008 by Vagabond Investors · 1 Comment
I have good news for you. There are only three basic obstacles to our indefinite success. So what’s holding us back on a daily basis?
First, there’s impatience. The antidote to this is patience. Second, we doubt. The antidote to this is belief. In the Bible it says, upon to your belief it is done unto you. The third, disappointment is not being grateful for what we get. Disappointment can be overcome by gratitude. The moment we choose to live by these virtues will be the greatest moment of our lives. We have within us the power to beat our inner demons. We have to be patient, believe and be grateful.
All growth is growth towards our inner selves. That’s what life is about. We have to turn these three stones to make them our friends, not our enemies.
One of the greatest pains in life comes from not knowing that we always get more than we give. Time after time we feel confused, because what we are asking for is not always given to us or it’s not coming in the form that we had hoped. It’s typical that we don’t know when we get what we ask for. It may come in many forms, sometimes confusing us even more.
It is wise to be careful for what we ask for. When you know what it is that you truly want, ask a bit more than that. You see, you get what you settle for. Everything that we need is given to us. In most cases, we get even more than that.
Focus on what you want and don’t think of the things that you do not want. You become what you think about most of the time. You’re not what you think you are, but what you think… you are. You will see it manifest in your everyday life. Right after you bought your car, you immediately began to notice those cars come around every street corner. Isn’t that right?
Seek good and beautiful and that is what you will find. Focus on misery and you can rest assured that you will find it grow in your life. This is simple but not necessarily easy.
Life is a weird adventure filled with paradoxes. Whenever we feel scarcity, we should give for that is what we get. We get whatever it is that we are trying to give other people. You get what you give, be it money, respect or friendship.
It’s not so hard after all.
Matias
