9-21-09

The Art of Doing Nothing

"I just wait for people to throw money in the corner, then I go and pick it up."-Jim Rogers.
 
    One of the hardest things to do when it comes to making money is to just sit still. We're trained since school that if we want to get a reward, we must work. Indeed, this is where the work ethic mentality comes from- the 'per hour' payment system.

    Even those people who go it alone without an employer still fall into the same trap; doctors, lawyers, tradesmen... they are all essentially 'by-the-hour' people. If they don't DO SOMETHING, they won't make any money.

    One of the hardest barriers people have to overcome with the sort of home business opportunity we offer, is this mindset; they find it hard to comprehend that once you've set things up, you can simply sit back and just bank checks! (click here for some of our approved products).

    But you see, EVERY business venture I get involved with, I start off with a very simple underlying goal: how much day-to-day involvement from me will be required? How fast could I get this in autopilot. I want my precious time to be LEVERAGED in short, not to be paid by the hour. If I can't set things up so they run without much involvement from me so I just bank checks, I'm not interested.

    Get out of the 'by-the-hour' mindset.

    If you carry this mentality into investing it can be especially problematic. Take a re-read of that quote I started with from Jim Rogers. This guy is one of the world's most respected traders and yet... he doesn't trade that often.

    Rogers isn't in the 'by-the-hour' mindset. He only plays the game when the odds are overwhelmingly in his favor. For example, if a company has zero debt, cash and/or resources that are worth more than the stock price, he'll buy a truckload. In that instance, the market has "thrown money into the corner" and he goes and picks it up.

    These trades don't come up that often of course, but when they do, he gets in heavily and waits. If there's nothing appealing at that time, he just sits in cash.

    He doesn't get impatient and feel like he has to just make a trade to justify his existence.

    This 'do something' mindset is firmly ingrained into the American psyche. We have a tendency to overcomplicate things. As an example, I remember selling a commercial property to this man back in 2006 (poor guy) that was already fully leased out. He had just sold a property himself for a profit and wanted to reinvest straight away so he avoided paying tax on the gain through the 1031 exemption (never invest primarily for tax reasons).

    Anyway, he says: "Yes, I'll take it."

    "Great," says I. "Just think of all that tax you'll be saving!"

    "Yes, my wife really needs a part-time job to keep her busy. She'll run this property," said this 'investor'.

    I gave him a triumphant look. "The way I've set this up to run on autopilot, you'll be lucky if your wife spends an hour a week doing this!"

    I could see the cogs turning. It just didn't compute in his mind that you could get all this money coming in and not do much to get it. Despite this terrible 'disadvantage' of the property, he bought it anyway.

    If you are self-employed or have a business, start thinking about how it could be run without you or with minimal presence through systemization. Get a copy of "The E-Myth" and read it.

    It gets better. When you properly systemize your business, it can become a franchise! You have a blueprint you can sell for a lot of money potentially. Hey, if Subway, Quizno's etc. can do it by systemizing subs, you can see you hardly need to have a revolutionary product to sell!

    Time is your most precious commodity. On any given day, you have a limit of usable hours to make money, have fun and spend time with the ones you love. The stuff you don't particularly enjoy but is necessary should be systemized.

    Get the most bang for your buck for every minute of the day. Leverage your time.
 
    As we watch this market climb ever higher, it gets increasingly hard to just do nothing, especially if peers are bragging about how much they're making. But always think like Rogers does.

    Would you say that stocks at these prices are the equivalent of money being tossed into a corner?

    It's bounced back recently, but natural gas selling for less than what it costs to extract it in a money-printing world keen on clean, alternate energy was the equivalent of money being tossed in a corner waiting to be picked up.

    Same went for $30 oil when I nagged you about it over last winter. Oil can't go to zero and it's running out.

    Remember, the first rule of investing is NOT TO LOSE MONEY, so with that in mind, doesn't Rogers' golden rule make sense?

    There are 3 ways of making money: business, property and markets. Apply the 'art of doing nothing' to each.

    Another consideration when investing in anything and indeed, when VALUING anything: how fast will you get your money back? A good strategy is to get your money off the table as quickly as possible while still retaining the asset.

    For example, if a stock you bought doubles in price, sell HALF. Now you're in the game for FREE. You have your cash back and the shares you still own may still rise, but even if they go to zero, you won't have lost money. So you could really let those shares ride forever, couldn't you?

    If a property throws off $50,000 a year and your risk capital was $200,000, in 4 years, that property would be FREE by the same principle.

    Business, especially a new business, is more tricky because we have less idea of knowing what the income will be tomorrow, and we should get paid for that risk, but the potential income is also a lot higher than real estate and stocks. But again, consider when it would be most likely that you'd be able to get your money out.

    You can't be speculative here by estimating what the CAPITAL GAIN will be; you have to work on what is a relative certainty, like INCOME.

    That's why commercial property isn't so susceptible to booms and busts as residential property; commercial property isn't emotional (if it's done right!)- it's just a numbers analysis of what income the property is throwing off in relation to what the investment would be, just like shopping for a savings account.

    Any time you invest, ask yourself these questions. When you do, the fog clears and you suddenly realize that a really good investment doesn't come along that often.

    So master the art of doing nothing.

    Until next time,

    Mark Patricks

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