Welcome to Part 5 of this multi-part series of blogs where I will teach you a better way to invest in the stock market delving into the concept that It Takes Money To Make Money.
Come back every fortnight for the next instalment. Or, to ensure that you don’t miss any part of it, subscribe to our blogs to be notified of updates by clicking here: Subscribe to Blogs
If you have missed previous parts, please click on one of the links below to read it:
Read Part 1
Read Part 2
Read Part 3
Read Part 4
…………………………………………
In Part 4, we asked you to rethink about how wealth is generated to put you in the right mindset for success. Part 5 picks up right where we left off and we are going to compare investing in properties vs the share market. Heads up – we will refocus on the strategy from Part 6 onwards.
It Takes Money To Make Money
It does indeed take money to make money. You can’t make money out of thin air, at least not legally and not for long. Ponzi schemes and pyramid clubs fall apart just like stock market bubbles eventually burst. If you want to make money in real estate you need a substantial sum to begin with, to obtain the mortgage, cover the deposit, pay the legals and the stamp duty, if in a state where it is charged. It is not something you can do with, say, five thousand dollars. You do have the equity of the property, or rather its value. If you buy a $500,000 property and it remains worth that much, then when you pay it off you have the property less what it has cost to buy and own it; mortgage interest, taxes, fees, rates, maintenance, insurance and so on. Real estate usually increases in value and in Australia this has historically been between 3 – 5% per annum depending on location.
You can do the sums and factor in the increase in value against the cost of owning the property and more than likely after ten, twenty years you will be ahead. If you invested the same amount of money in the stock market, most experts will assert you would have made around the same gain, 8-12% per annum. There would have been some periods of loss, perhaps even great loss, but overall and over time the result would be pretty similar if not better on the stock market.
Whereas you can get into property with, say, $50K on a $500K property, allowing 10% deposit and all your other expenses taken care of, $50K of blue-chip stock isn’t going to get you to the same place ten years down the track. This is one reason many people don’t just buy and hold stock, they speculate with various strategies such as Forex, Commodities, E-minis, Bitcoins, CFD’s, Futures, Options, puts, calls and all sorts of risky products. They gamble, in other words.
If you used that $50K the way I would, you can reasonably expect to bring in on average 20% – 40% per annum in ROI. Yes, that’s $10,000 on 20%. The next year you invest the $60K, generate approximately 20% – 40% per annum, 20% will increase your $60,000 to $72,000 at the end of your second year of covered calls. $86,400 in year three. $103,680 in year 4. As you can see you have the potential to double your money in 4 years. Meanwhile, your sibling who bought that fixer-upper with their $50K is still having tons of fun with the tenants, the repairs and the repayments but hey, they can’t lose. They’re in bricks and mortar, right?
Your other sibling, the one that knows everything about the stock market, lost their $50K within a few months on some options, forex or bitcoin that didn’t work out. Hey, that’s the markets, right?
Before you close this browser window in disgust, let me explain about the 20% ROI. That is just 1.7% a month, every month. If you make 2% on $50,000 in a month, that’s $1,000. Do that 12 times a year and you have $12,000, or 24% of $50K. The numbers don’t lie. Of course, some months you might not make 2%. You might make 4% but I doubt you will make more even though I do see it with my members around the world, it depends on supply and demand. You can achieve somewhere between 1.5% – 4%, a month most months.
You either tell Money where to go, or wonder where it went!
Let’s Look At The Bottom Line
In this case, by the bottom line, I mean the lower ROI, 1%. Let’s compare and look at $30k, not $50k. One percent of $30K is $300. If you make that every month, in a year you will have made $3,600. 12% ROI, the average upper limit most experts claim you can make from real estate or buying and holding on the stock market. Investing in covered calls the way I teach, you are more likely to make the 2% – 4% than the 1% and even if you average it out at 3%, a month, that is an annual ROI of 36%! $10,800 in your first year. If you put that back into the kitty, the next year your $40,800 will bring in $14,688.
The best thing about this method of making money is that you don’t have to slave away at that second job! Your investment in time is minutes a month and there are no tenants to worry about, no rates to be paid and no repairs to be authorised and paid for. If you do take that second job and put away $260 a week it will take you a little over two years to get your $30K together but the great thing about this method is you don’t need that much to begin with. You can begin making a second income with just five thousand U.S. dollars.
Five grand these days isn’t much. I know it is a lot of money if you don’t have it but if we look at this rationally, what does five grand get you in 2021 dollars? Anyone with a credit card is likely to have a limit larger than $5,000. You can borrow that as a personal loan for, say holiday expenses and it will cost you maybe 10% to repay, let’s call it $5,500 all up over 12 months. If you were making 3% ROI, you would make the interest payable on the loan in just over 3 months. Then you have 9 months to make some money for yourself using other people’s money (OPM) and at the end of the year, sell off the stock (preferably for a profit) and repay the loan.
3% of $5,000 is $150. In the 9 months the stocks are working for you and not whoever loaned you the five grand, you will make $1,350 (less brokerage of course). An additional $1,350 a year for say, twelve hours work for the year, isn’t bad and once you are set up it shouldn’t take more than an hour every month to manage your investments. That works out at a rate of $112.50 per/hour. That hourly rate worked out at 40 hours a week over 48 weeks in the year delivers a gross annual income of $216,000. To earn that kind of income you would need an investment of $600,000 earning the average 3% ROI a month. The rental income on a $600,000 property would be around $500 per week, depending on where the property is located; about $26k per year before you pay the rates and all the other expenses incumbent with real estate.
[Article continues after the Masterclass invitation banner below…]
Learn How It Takes Money To Make Money by attending the “Smart Money” Online Masterclass for Free!
Real Estate Risk or Covered Calls?
So if you had $600,000, which would you rather invest in? A house requiring tenants, rates and repairs; or stocks that can be managed an hour a month and bring in ten times the income? If you put it into the stock market, would you be happy making a steady 1-4% (3% average) or would you listen to your broker and go for the big money, the 30% or more ROI per deal gamble through puts, calls and whatever else he can charge a fee to broker for you? Maybe you want to try bitcoin because the expert on Facebook who has no long term track record told you to jump in. BEWARE!
Stockbrokers make their money every time you make a transaction on the market. They charge a brokerage fee for every sale or purchase they handle on behalf of their clients. In Australia, that fee ranges from around $40 to over $100. In the USA, where there are more brokers and more transactions on more boards, the fees are a more reasonable $8.95 – $25 or so. If the broker has one hundred clients on his books, he needs to have as many of them buying and selling every day as he can. He wants them to play the options game and buy puts and calls, trade options and securities and especially ‘day trading’. He loves people who spend their every waking hour online, monitoring the minute fluctuations of stocks trading the markets.
Remember, 95% of people who invest in the stock market do so in one of two ways. They buy stock and do nothing with it, known as buy and hold. This is fine, to a degree. If you choose the right stock it will certainly increase in value over time, most stocks do, fingers crossed though. Good stock, known as ‘blue chip’ stocks, are pretty much always going to increase in value over time. Of course, some blue-chip stocks can crash and stay down but if you have a good, well thought out portfolio you can minimise the risk considerably.
The other way people invest is to speculate, or gamble. They play the options trading game and buy puts and calls and work the odds and the angles, as if they have some special insight into the vagaries of the market. Like gamblers the world over, they win some, they lose some. Some win a lot for a long time, others tend to lose from the outset, and most do a little of both. The only people who win when an investor speculates and gambles on the market are the brokers. They make their money whether you win or lose. The good ones do try to help you win more than you lose but it is not being overly cynical to suggest that is because the more you win, the more you’ll have to spend with them.
The same can be said about real estate agents. They work for both the vendor and the buyer, so surely there has to be a conflict of interest inherent in the relationship right from the start. You can see why some people use their own agent to look after their interests when buying a property, someone who has nothing to do with the vendor and is paid by the buyer. An agent who lists the property wants to sell it for as much as they can because the more they get for the vendor, the bigger their slice. How can they be working in the best interests of the buyer? There are other trips and traps of the game that irk me, like the ‘vendor bid’ used in some states when auctioning a property. The vendor (i.e. the seller), doesn’t like how little is being bid for their property so they put in a ‘vendor bid’. Now the bidding has moved up and the silliest thing is this tactic often works to get bidders going again!
In the stock market, there are brokers who educate their clients, but most prefer to have them rely on them for advice and expertise and that is understandable. Many brokers have invested a lot of time and money in educating themselves and deserve to be fairly compensated for this knowledge, just as any expert or consultant should be. Some, however, do exploit the lack of education in stock market matters of many investors and neglect to tell them of their full range of trading options, such as covered calls. My argument over many years has always been that if a fund manager really knew how to make money, what are they doing in a job?
Getting The Wrong Kind Of Stock Market Education
While I was going through this situation with the bank, deeming me worth lending to for properties #1, #2, #3, #4 and #5 but not for #6, I had one of those light bulb moments. I was on the train going into work and next to me on the empty seat was that free magazine they handed out back in the 90’s called, ‘Nine to Five’. Something drew me to the back page, or perhaps I just picked it up back to front, however it happened, there was a full-page ad on the back page that headlined with, ‘Come to our event, learn about the stock market and cash flow!’ I remember thinking, ‘this is brilliant!’ It was exactly what I was looking for, because I needed more money and I knew it was better to work smarter than harder, and there was no way I was taking my dad’s advice and getting a second job.
I knew, even back then, that most people simply don’t do anything. They bemoan all sorts of issues and problems plaguing their lives but do they do anything to change things? No. They procrastinate. They make excuses, what I call ‘excusitis’. They will happily find one hundred reasons why something wont work rather than just one way it will. Like the 95% of stock market investors being nothing more than speculators/gamblers, the same ratio applies to taking action and changing your status quo. 95% of success is simply turning up. Doing something, anything, taking action. That leads to change and, while sometimes it might be the wrong change or the wrong action, so long as you keep taking action you will eventually get where you want to be. At the very least, you will no longer be back there in the middle of all those problems!
So I took action. I called the number on the ad and I made a reservation for the training seminar they were offering. Not only that, I actually attended. It was huge, a three-day event with numerous powerful, motivated and motivating speakers up there on the stage, extolling the virtues of the stock market and how you can make huge fortunes if you learn what to do. They assure the audience that anyone who undertakes their training program can make 20%, 30% ROI overnight! Some even showed examples of how they made 100% and more, overnight! I was going to be rich! A millionaire. Overnight. Well, not quite. I had to buy the program, then learn it and of course, most importantly of all, apply it. Do it, in other words.
We Will Do Nothing To Avoid Failure
Once again the 95% rule can be applied, because I imagine 95% of those who attended the seminar never bought the program. They would have gone home to speak to the spouse, parent, sibling, friend whoever. They would have dreamed themselves unworthy of success and denied themselves the chance to make their dreams come true. It is so much easier, so much less risky and so much more certain to not try, to not take action and to not risk failing and just not do anything. If you do nothing, that’s not failing, surely? You can only fail if you try and we are conditioned from early childhood that failure is bad. So we fear it. You can look at yourself in the mirror when you make a decision to not do something and feel good about yourself, however you haven’t solved the problem.
It is a maxim of Neuro Linguistic Programming (NLP) that we will do more to avoid pain than to receive pleasure. Failure is programmed into us as being pain and it is more of a stimulus than the pleasure of success. Hence we will do more to avoid failing than we will to achieve success. By simply not doing anything, not taking any action at all, we avoid failure. I know, we succeed at not failing by not succeeding… it is bizarre but that is human nature in a nutshell. For most of us. For 95% of us. But when we take action, we join the other 5%. As I have already said, taking action is better than doing nothing, but that doesn’t guarantee the action you take will be the correct action. What you do need to realise is the biggest risk in life, is doing nothing at all.
I spent $10,000 in 1999 and began learning all about the stock market and how you can make a fortune. I was hooked on learning about this ‘sure-fire’ way to make money. I was so hooked, I signed up for another event. Then another, then another. In less than six months I had attended four major stock market training seminars and invested $40,000 in training. I then went ahead and applied all I knew and lost $70,000 in the first twelve months of trading.
Basically, I had purchased a very expensive education in how to lose money on the stock market. I was being trained to speculate, to gamble and so that is what I did. I gambled my money away. I traded options, Forex (foreign currency exchange) and commodities and I lost the lot. At this time I was building a house and in the process of getting married, so you can easily imagine how impressed my future wife was with my stock market activities!
Sound Advice Finally Makes Sense
What finally dawned on me was that I was doing what someone very wise in the ways of the market once told me most people do: I was trying to predict where the stock would go when I should have been ‘creating’ the market. Sound advice I had been given some time before finally made sense. Rather than react to what had already happened and try and guess what that would do going forward, I needed to put myself in a position where I created the market for my stock. Let me explain.
I had met Rene Rivkin through my job and attended seminars where he presented information about making money, mostly through the stock market. There is no doubt in my mind Rene was one of the sharpest business minds this country, if not the world, has ever known at the time. There was some controversy at the end of his life but I for one refuse to judge this man on one incident, but rather on a lifetime of achievement and philanthropy.
Rene said that approximately 95% of the people involved in the stock market are speculators. They speculate the stock will go up or down and then gamble accordingly. What you needed to be, if you were to make money from the stock market, was one of those that made the market. By that he meant, you create the options for others to speculate on. You buy good stock, create an option and then sell that option. You make your money on the sale of the option regardless of what happens to the stock itself. You make the market. You profit from the entry, not the exit.
I realised, at last, what he was telling me and it made perfect sense. I had my ‘epiphany’ after the fourth seminar I attended and paid big money for.
This one offered attendees all sorts of great support and advice, but the reality was we never got to talk to the ‘guru’. Like all courses, all we got was a 1-300 phone number and the direction to call them only after we had read all the material and educated ourselves on the system. Basically we were made to feel all excited and special, then fobbed off to a call centre where people who knew less than I did, read off a script for all I know and pretty much told us nothing worth a fraction of what we had paid. You can imagine then, the reaction of my wife to be when, after another train journey to work and another copy of Nine To Five, I discovered a fifth training seminar I just had to attend!
This one was written differently, used different fonts and colours and said ‘Cashflow, come to our seminar, learn about the stock market.’ By the time I got to work I couldn’t wait to pick up the telephone and register for the event to be held in two weeks time. When I got home that evening I asked my fiancée what we were doing in 3 weeks time. She asked me why. I explained I have 2 tickets to another seminar. You can just imagine the anger building up when she heard that. I had been to 4 seminars, outlaid $40,000 to lose over $70,000 within 12 months. Her response was “Over my dead body!” I persuaded her to let me go.
“Honey! This is different! I just want to do this.”
“Okay, but promise me one thing.”
“What’s that, honey?”
“Promise me you’re not going to invest in anything.”
“Honey, I promise.”
When I arrived at the seminar it was all singing, all dancing with highly energized speakers leaping around the stage selling speculative strategies. The same old, same old in other words. It was while I was sitting there, on day 2 at this event with 3000 people in the room like me from 9am in the morning listening to all different speakers wondering what was right for me if any. At 10pm on day 2 Rene Rivkin got up on stage with his son to discuss the markets and what he had to say made crystal clear sense. Forget trying to guess what was going to happen, create the market. Own the stock people want to option and get paid for creating the market with options no matter what happens to the stock. It was another investment I made in myself, $10,000 for another educational program.
I raced home to tell my fiancée that night how I had had an epiphany, a ‘lightbulb’ moment. I knew what I had to do and how I had to do it, and I was going to begin the very next day. She was not impressed to say the least. I made the decision to do it. No one was going to stop me.
I invested $10,000 and bought some stock, then I created the options and sold them. I made the market. That was in late 1999 and by 2003, now married and just 28 years old, I semi-retired. In the four years in between, I still had my regular job because I knew this was going to take time to do properly. I knew this time round slow and steady will win the race. I still had to eat and keep myself and my wife, and pretty soon our kids, fed, clothed, housed and happy. I also invested in other businesses to diversify my income streams and build my various pillars of income.
Some Truths About J.O.B.s
Don’t get me wrong. Jobs are a good thing. We need people working in the public service. We need people in private enterprise. We need everyone doing what they do to make our world turn, to keep our society working as it is. Everyone has a role to play and we need to keep very much in mind that whatever it is that person next to you on the train does to earn their income, someone thinks it is important enough to pay them to do it.
As an employee, what you do must, in some way, is contribute to the success of the company. If you don’t, then it won’t be long before you lose your job. Let’s face it, if the role you fulfill isn’t helping, it must be hurting. You are a cost to the business and therefore you need to justify that cost by contributing to revenue, somehow. It is clear for some; sales people can quantify their contribution by how much they sell. Even factory production line workers can claim they are contributing to profitability based on how many items they make every hour, or however their productivity is measured.
Your tenure is not something you have complete control over. You might make five times the number of widgets per hour than anyone else, but if the other workers aren’t doing their job, it could come back and bite you. If the sales department isn’t selling enough or the market simply moves to a new product from a competitor, you could be laid off, made redundant, down-sized, whatever term they use… out of a job. It is a dog eat dog world, after all. If you are not contributing to profit then you are an expense. Even if you are contributing to profit, something might change and your services become no longer affordable or cost-effective through no fault of your own.
Think about all the manufacturing companies in this country that no longer exist because they have been moved offshore. It is cheaper to make the products overseas and freight them back here than it is to manufacture in Australia. Corporations look at the bottom line and decide if they are making enough profit or not. If not, they are only too happy to restructure operations to get back into the black, despite what that means to you, the loyal employee.
Fear of the Unknown Makes You Risk Averse
If you learn how to invest your surplus income to generate more value (make you some money in other words), then your J-O-B becomes a pillar of income. It is one income source. The returns on your investing the surplus income from that pillar form another pillar. In time you can have a third pillar when you, say, buy an investment property and rent it out and so on. Nowhere does it say you have to get a second J-O-B, but you can if you really want to. Not because you have to. Now perhaps you can see the value of an education that teaches the value of a dollar and how to earn lots of them. A lot of people with high paying jobs are time poor.
While my kids are at school they have a J-O-B: school. They are professional school children and their job is to learn as much as they can and to be a proficient and diligent employee (student). If they want multiple pillars of learning, I’ll get them a tutor. If they want another pillar of ‘income’ then they can get that J-O-B at McDonalds. But is that the best way for them to earn extra income? Sure they will learn a lot about life, people, working for your living and many more of life’s lessons working there. They will be trained to take orders and fill them, follow a system and a program and they will be rewarded for their time and effort.
But I thought, instead of having to go work at McDonald’s for $8 an hour and get abused by people like me, how about I teach them how to invest on the stock market? Don’t get me wrong, I’ve got nothing against children working at McDonald’s or any other fast food chain. If they’re getting off their backsides to do something, that’s good, but it’s not the only solution, nor is it the best one. In fact I started teaching my son when he was 12. For 1 year he paper traded and learnt the education I have been providing all around the world since 2005. When he turned 13 I opened up a live trading account, put a small amount of money in it and I said to him, you invest it as per the education, follow step by step the system and over the first 12 months was earning someones monthly income in 10 minutes clicking 10 buttons to enter the market. For the rest of the month he was at school and he built an income stream that others are working 40 hours a week for, in 10 minutes of his time because he educated himself. The agreement I had with him was, he will touch non of the profits until he turns 18, he will compound the profits and when he turns 18, he can either take the profits out or reinvest it and at 18, I will get my 100k capital back that I invested originally when he was 13. Is that a good deal for a 13 year old?
I thought, instead of me going out to other countries and doing anything outside of Australia, let’s educate our own kids here in our own backyard. And that’s what this is about and that is what I’m doing right now. I am starting with the parents because if I can get the parents to see the value and truth in what I am doing, then I will have their support. If I have the support of the parents then there will be no problem teaching the kids, because they will get the message reinforced from Mum and Dad when they go home. If I can get this message of mine out there to the current generation and the next, there is surely a great deal of hope and positive thinking for our future in so many ways, and not just economically. People who have little fear of losing their job, getting ill or being in an accident that prevents them from working and of being unable to afford to live in retirement, are far more positive and productive throughout their lives. They will achieve more simply because they are more willing to take risks. People living in fear tend to stick to what they know won’t cause any more harm or hardship rather than do anything that might change their situation for the better. It is human nature.
Fear of the unknown makes you risk averse and that is a sensible survival based strategy. If you have a job you hang on to it, even if the boss is exploiting you and not paying award rates. You know if you spoke up he would pay you then never give you anther shift because he can hire a hundred people happy to work for less than the minimum stipulated wage. Having just one pillar of income leaves you vulnerable to such exploitation. If you are armed with knowledge and the ability to generate income through multiple pillars, such as investing on the stock market, you are more confident you can find a better paying J-O-B and you can leave that exploitative employer to his fate.
Are We Ready To Investigate How We Do This?
Hopefully by now you will have formed the opinion that you need to educate yourself on how to make multiple pillars of income and that one way is through sensible investment on the stock market. You accept that income from a single J-O-B is not the best option and that by educating yourself as to other ways to make a living you are giving yourself freedom. Freedom to build your wealth and be able to make choices. Choices that simply are not available to anyone who is chained to a single source of income, a J-O-B. You want options, but you realise trading and speculating on the markets trying to predict which way it will move, is NOT the way forward. I think we have you on the right page now, so let us get into the strategy in the next blog.
Greed Isn’t Good Or Bad, It’s What You Do With It
Greed is one of the driving forces of human nature. It is present in all of us to some extent and in varying aspects. We are all greedy to an extent about something, and greed is not necessarily a negative thing. It is, as with everything, what you do with it that counts. How you apply your natural greed makes all the difference. Some of us are greedy for a better world and do all we can to help others while making sure we don’t do any harm, or at least as little harm as possible.
Greed is a relative of ambition, which in turn knows determination, motivation and persistence. Some people are ambitious in ways that are self-centered and all about what’s in it for them. Others are altruistic and do what they do for the good of others. Most of us are somewhere in between. We neither have the ambition to be in power like a prime ministerial hopeful, nor do we want to save the world and live in a Third World drain pipe while helping the sick. Moderation is the key, and there is nothing wrong with being ambitious, or even greedy for success and improvement… so long as you achieve your goals ethically, morally and without harming others.
…………………………………………
Congratulations if you reached this point! You are determined to put in the effort to make it. I will make it worth your while. We are going to refocus on the strategy from the next part onwards.
Remember It Takes Money To Make Money!
Learn How It Takes Money To Make Money by attending the “Smart Money” Online Masterclass for Free!