simple principles that ex-millionaires now wish they had followed
1) whenever surprised, be willing to get clear and re-prioritize boldly.
2) always conservatively protect your finances.
3) be willing to outperform any average results (someone has to do it, so how about you?) and be willing to earn those above-average results with above-average methods and above-average prudence.
Consider that, if neglecting to follow a certain principle results in the loss of a million dollars, then following that principle would have been worth a million dollars. Further, if folllowing a certain principle produces a gain of a million dollars, then following that certain principle would also be worth a million dollars. If a certain principle can both save you a million dollars plus earn an extra million or two, following that certain principle would be better than one that is “only” worth a million dollars. (Then again, one has to start somewhere, right?)
I first published an alert about my investment market analysis in early 2003. By mid-2005, I had given several public talks and also specified several new developments that may have surprised many others, but signaled to me the first stages of the fulfillment of my forecasts. Those 3 pieces of new information were (1) new homes sales data for the US had notably declined, which was rather unusual, (2) the housing sector of the US stock market had also declined (HGX- shown below), and (3) the overall real estate markets in previously leading regional markets, such as Phoenix Arizona and Las Vegas, Nevada, had already turned down as well.
So, by 2006, I first talked to some millionaires about my analysis. I warned them about what I considered to be extremely high risk in their Scottsdale, Arizona high-end real estate. I also warned them about their extreme confidence in the US stock market.
Together, all the people who neglected to follow the course of action indicated by my analysis soon lost millions of dollars of net worth, especially in real estate, but also in US stock market investments. Those people also neglected to access the opportunities to multiply their millions several times over. Let’s say, that for all of the people I talked with but who did not follow what was indicated by my analysis, a difference of about $10 million could have been made, mostly from possible gains that were not accessed.
Frankly, when I consider that estimate, the number does not mean much to me. I had information and a contact network that could have avoided losses of millions of dollars as well as compounded gains of several million more. However, I and those in that contact network failed to produce that benefit of (approximately) $10 million. We simply did other things instead.
Since $10 million is a number that does not mean much to me, let’s do some simple math. Let’s say that there were exactly 100 people in my network of contacts (which is close enough) that were exposed to at least the basic conclusions of my analysis. If there was an average benefit of $100,000 for 100 people, that would be $10 million. Let’s consider what that $100,000 would be worth today.
$100,000 today could buy and furnish a small, modest, decent house in certain neighborhoods of Phoenix Arizona (free and clear), plus a brand new economy car (free and clear), and still have about $50,000 left (seriously) which could cover a year of tuition and expenses at one of those ridiculously expensive colleges. I’m not saying that I would use $100,000 in that way, but that gives a lot more practical sense of what $10 million would be worth.
100 people could have had an extra $100,000 and of course the 100 people would use it in various ways. Some of them would likely continue to invest most of it according to the same investment strategies that had produced those gains.
Now I did not say they would use the same investment methods that had produced those gains, but the same strategies. Unfortunately for the ex-millionaires from Scottsdale, they did not really have an investment strategy at all. They merely had some success in a certain investing method (real estate), though they may have diversified marginally into the mainstream US stock market (which, depending on whther they invested in the financial sector stocks, housing sector stocks, or something else, may or may not have produced net gains or losses since 2006). However, they really did not have anything approaching a strategy. They might have done the same things ten years ago or ten years from now. They had more than one method (if only barely), but perhaps no real strategy at all.
Here is a key thing about having an investment strategy: be willing to earn results that are above average. Someone starting with $100,000 to invest, if they are getting average returns, will eventually have 10 times as much as someone with $10,000 who is getting average returns. No matter how much one starts with, average returns are still average returns.
That is, average returns could be a 5 year gain of 100% (lke in US stocks from late 2002 to late 2007) or an 18 month decline of 50% (like in US stocks from late 2007 to early 2009) , or both combined, a 6.5 year period of no net gain, more or less (from late 2002 to early 2009). Average returns can be gains or losses or neither. However, what average returns can never be are above average.
The key to making above average returns is to consistently invest in the specific investment methods that are currently producing above average gains. That means changing investment methods occasionally or even frequently (or at least entering, exiting, and re-entering a certain investment market strategically based on specific reliable indicators).
Strategic investing always involves changing positions and always involves doing so based on some specific signals, preferably some information that is identifiable in advance as a reliable indicator. What makes a certain indicator into a reliable indicator? That’s simple enough: correlations with a practically-useful chronological gap. If a certain indicator has manifested a particular indication 10 times in a certain time period (the longer, the better) and every single time that indication has been made, some particular development has always (all 10 times) followed, that is what I would call reliable. It does NOT matter what happened all the rest of the time, but only when a particular indication was made, that identifies a particular indicator as reliable.
Now, would you like to know some of the relaible indicators that could have saved those millionaires from being ex-millionaires today? By the way, those are the same reliable indicators by which someone with only $100,000 (or even less) in 2006 could be a millionaire by now.
You might even want to know which of those reliable indicators are currently indicating certain investment methods as the ones relevant to use now to reliably produce earnings that are millions of dollars above average. So, how much would that be worth to you? Well, yeah, that is actually a rather silly question, isn’t it?
First published on: Dec 23, 2009
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