Wealth Building

Take a look at this chart.

The party is over, most of that debt simply can not be repaid. Junk sub prime debt was the final crescendo, not the cause of the credit crises. As time goes on each level of debt becomes more difficult to service right down to the good stuff. The math just stops working.

Who holds the debt? Your local bank, money market fund, your state’s retirement pension, and so on.

The only real “solution” involves moving the liabilities to the government, a.k.a everyone. Instead of having your bank account balance go to zero over night or your retirement account dropping in value by 90%, your pay off period will be stretched over a matter of decades (what does this look like?)

This past summer’s advice: Its a great time to get a good deal on a car.

Today’s advice: Save your money.

Markets are self-reinforcing on the upside and down. Unfortunately this one has a very real problem. Right now the world’s central bankers are trying to put back together all the pieces of a very complex puzzle. There is a big problem, the puzzle had moving and unsustainable parts. Many of these parts regulators are working towards ensuring “never happen again.” Instead of a happy solution I suspect we are going to end up with a frankenstein.

The credit super cycle requires increasing amounts of credit not only to grow but to sustain itself. Consumers leverage their consumption. Businessmen and analysts make projections based on that consumption and they themselves use leverage to match it. The leverage and its influences permeate everywhere and are self reinforcing.

If you think that some government official can fix it, I suggest you study more.

I have made a conscious attempt to avoid posting financial advice or predictions. I do not trade stocks or actively invest in any non-digital assets. For me the return online is far too great to be distracted elsewhere.

That being said, I feel that I owe some advice to those still reading this blog.

The details of what has happened will not be covered here. If you read the Wall Street Journal, watch CNBC, or read/watch Bloomberg you know whats going on. If not, your probably in the dark.

Nothing that has happened was unexpected, new, or shocking. Last year I tore an article out of Portfolio magazine in whichthe end of at least one of the major investment banks was predicted. I stuck it in the bottom of my sock drawer. Out of all of the books, newspapers, and magazines I had read, it just made too much sense. It turned out to be conservative.

Here is what matters for you, as a business owner –

You have to ride out the storm. There just is no other option. It might be short, it might be long. It might clean out some of your friends.

In tough times only cash and the lack of debt or other long term liabilities provide the buoyancy that will keep you afloat.

The collapse of the dot com bubble destroyed online businesses and billions in wealth. Yet some, with more stable business models, made it through and came out roaring. In the aftermath, guys like Frank Schilling cherry picked prime dot com assets for dirt cheap. Similar opportunities may appear again. In fact, they are already showing up (start looking.)

A hurricane is here.

The US government’s attempted intervention could be the calm in the eye of the storm. Its not a bad opportunity to tighten ship; that is, if you haven’t already.

I am a picky reader. I prefer to take topics one at a time and study them very closely. Recently I decided to start going through all of Warren Buffet’s Letters to Berkshire Shareholders.

The past few years Warren Buffet has made reference to his partner’s book (Charlie Munger), Poor Charlie’s Almanack: The Wit and Wisdom of Charlie Munger. The book went on my “to read” list. However, after seeing an excellent post on Marc Andreessen’s blog — The Psychology of Entrepreneurial Misjudgment, part 1: Biases 1-6, I immediately ordered two copies of the book.

Charlie Munger preaches the use of multiple mental models when approaching business and investing. I thought that I had a similar approach. That is, until I read Charlie has about 100 (I’ve been using maybe 4 or 5.)

The book gives a run down of Charlie’s life along with a collection of 10 talks he has given. There is a fair bit of repetition in the book’s 500 or so pages, but not so much in a bad way. Other than that, I have nothing bad to say. Do not expect a point-by-point list of what you should exactly do. This is a book about how to think so you can solve problems.

A blog review can’t do this justice. If you want a preview, check out Marc Andreessen’s post I linked to. Like it, you’ll like the book. You can grab a used copy off of Amazon, or get a new copy direct from the publisher.

People want directions. They demand that things be spelled out one step at a time — in the most simplest of terms.

This works out wonderfully for many things. Driving a car. Making a sandwich. Opening a bank account. Creating a Power Point presentation.

In a business environment influenced by rapidly evolving market forces, this does not work out very well at all. Very quickly you’ll discover you are “dumb money.”

Consider this, Bloomberg reports John Paulson is at the top of their best-paid hedge fund managers so far this year. How much has he and his co-manager made this year? $2.69 billion. Thats averages out to about $8 million a day.

Whats the big secret? “Rather than depend on evaluations of mortgage- backed assets by rating companies such as Moody’s Investors Service and Standard & Poor’s, he and his staff dig into the securities and look at thousands of individual loans.”

Each one of us owns and runs a unique business. We build a body of knowledge, skills, and assets that enable us to approach our market differently from everyone else. In order to discover what works for your business and what doesn’t you need to experience things first hand.

Personally, looking back at my various business ventures, my most profitable ones have involved things everyone said were “worthless”, “too difficult”, or “too much competition.” If I listened to everyone, I would have a college diploma right now

One of my friends recently launched a forum, The Fastlane To Millions. The forum is for entrepreneurs, real estate investors, and stock traders who enjoy making lots money.

For the skeptics, the owner and a good chunk of the user base are already very successful, high net worth individuals. Multi-level Marketing and other rip-off scams are not allowed.

Why a forum? First, most new money had something to do with the internet. Secondly, many investors are spread out around the world and lack the traditional networking options used in the past. (I think that the book the owner is writing is a big reason as well — and not an e-book, for those who jump to conclusions.)

The fact is, low interest rates, globalization, and rapid internet growth have created a lot of multi-millionaires in just the past five years. Reaching this point quickly just isn’t that crazy or unrealistic. In fact, to retire into a modest middle class lifestyle today, you have to be a millionaire.

Taking that one step further, if you are my age, in your twenties, you will have to be a multi-millionaire to retire modestly by 65. Modestly means no Ferraris or round the world jet set traveling. This is not a goal to procrastinate.

Most of your are already doing quite well (according to the last poll, over 60% of you own your own business that is your primary source of income.) If you are like me, you have been focusing closely on your business and may have been ignoring the investment side a bit.

Here are a few direct links to the forum’s sub sections:

> Multi-Millionaire Stories

> General Business Discussion

> Entrepreneurs & Business Building

> Residential Real Estate Investment

> Commercial Real Estate Investment

> Stock Options, Currency, & Trading

Some people are wondering how a bad economy could affect internet publishing and affiliate marketing.

There is no doubt now that specific regions are being hit very hard by the unravelling sub prime lending market — as I write this. There is not much need to discuss possibilities or causes here. The business cycle is very real and it will happen several times throughout your life. Thats reality.

Here is what you need to know:

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So the latest fad in the world of self help is this movie called The Secret and book called The Law of Attraction. A big US talkshow host, Oprah, has jumped on board and the thing has really taken off.

People seem to have one of two reactions to The Secret. Reaction one: “This is BS.” Reaction two: “This just cleared up everything for me, I feel a new beginning in my life.”

I’m watching this on Google Video, and man, what a load of garbage. They keep flashing back and forth between experts.. hm, who is this guy, Dr. Joe Vitale MSC.D… Metaphysician? I know I’ve only been out of college for one year, but what the heck is a metaphysician, or an MSC.D for that matter? This guy has a Doctorate in Metaphysical studies?

If your crackpot alarm hasn’t gone off yet, I have a tin foil hat for you to wear.

“Thank God theres a time delay — that all of your thoughts don’t come true instantly. You’d be in trouble if they did. The time delay serves you, it allows you to reassess, and make a new choice.” Does this even deserve a response?

The movie talks about feeling good and happy thoughts. At the same time, the video infers that by being positive bad things won’t happen to you, bad things like getting a parking ticket, having your bike stolen, or getting a snag on your nylon pantyhose (I hope this is not an issue for any of my male readers.)

The Secret is supposedly made up of 3 steps — “Ask, Believe, Receive.”

Are you F#$@ing kidding me? How about a dose of reality for a change.

If you want something, you, and you alone must work for it. Blood, sweat, and tears. Or for webmasters, bloodshot eyes, an extra 20 pounds, and carpel tunnel. Your mind is step one — and positive feelings have nothing to do with it — its about will. Its nothing but will power and a little bit of chance that gets a marine through Navy Seals BUDS training. Happy supercalifragilisticexpialidocious thoughts aren’t going to help you here anymore than they will help you win the state lottery.

Self help is a cookie-butter business. Its all about making customers feel good. Thus the positive reaction by many of the “un-initiated” to “The Secret.” Pump the audience up first and then sell them. The Secret is nothing more than a carefully crafted execution in marketing.

You want to know what the real secret is? The real secret is hard work. Its hard work that gets you into the position where you can leverage large amounts capital and other human labor to your own profit. Its hard work that keeps a family together and puts children on the right track. Its hard work that landed men on the moon. If you think its anything other than hard work that will get you through life, Joel Comm has an ebook to sell you.

Achievement comes at a price. If you want to float through life, happy thoughts and avoiding the supidest mistakes will probably get you there. Spend your time telling your friends what you are going to do with all that money when you win the lottery. Me, well, I’ll be keeping things interesting.

When you are self employeed, you alone motivate yourself. There is nothing stopping me from getting out of my chair and doing any damn thing I please. I could watch a movie, go to a party, or hop on a plane to Miami. Whats going to keep you working when other people are practically dragging you away to do these things?

First, ask yourself — what part of the business frustrates me the most? Frustration is the fast track to burn out. You need to isolate specific tasks that make you irritated, angry, or unhappy. Is it creating CSS designs? Programming Java? Updating your software? Writing?

If eveything about the business frustrates you, stop. You are in the wrong field, you need to find something else to do.

Your best solution for combating frustration is delegating the task. Hire an employee. If you can’t hire an employee, bring on a business partner that loves doing the part you hate.

Repeated Failure to produce measurable results is the next cause of burnout. Two years ago I worked on a site for a full month. I researched, I wrote, I tried building links. Ultimately, the site ended up making a couple of dollars a day.

Had I repeated that process again 12 times that year, I would likely not be in this business today. Instead, I learned from my mistakes, cut down my site development time to a week, and made sites that did not have the stopping points of the first project. Instead of chasing the high cost-per-click words, I built sites for niches with minimal keyphrase competition that I knew I could get backlinks to.

As a self-employed business owner you control your direction. Employee burn out is different. As a subordinate you have to figure out how to cope with a confined set of circumstances or quit. If your or an employee or student I can not help you, but you might want to check out this list.

In order to flourish, you need to create an enabling environment around you. This is just as important as evolving around factors which you can not control.

Perhaps this is anecdotal, but the most successful people find work to be an object of desire rather than a means of survival. It attracts them because they do the things they specifically enjoy, and let others handle the rest.

Do not let burn out kill your dreams. Fight it, just as you would any other obstacle.

When I first decided to start my own business a few years ago I was pretty much broke. I was a moderately good painter and writer, but I had never done anything very remarkable.

I am happy to say things have changed in some very big ways. The spark first started when I helped a stranger out. A quick thank you note the next saying my suggestion had already made him $100. Thats when I realised where my future would be.

Here are a few of the critical lessons I’ve learned, and I think you should too:

1. Take your business seriously. Scrap the dreams of making six figures working an hour a day 5 days a week. That day can come, but until then, set your goals and work, sleep, work until they happen. Everything else takes a back seat. A perfect quote from Quadzilla — “You’re in the right industry. You’re in it at the right time. You’re in it while search is still in its infancy.” Don’t pass up on the biggest opportunity of generations because your school guidance counselor says this isn’t real.

2. Read between the lines, but don’t read into them. In other words, try to figure out what is really there, but don’t fantasize things that aren’t really there. In your mind you want an accurate and functioning image of how all the other companies in your industry (and outside of it) function and make their profits.

3. Test, test, and test some more. My first 3 businesses were flops. The next few were pretty mediocre. I’ve tested different industries, business partners, monetization methods and so on. The more you test the more you understand what works and what doesn’t. Sometimes you discover those things that didn’t work, actually work really well, you just had a few things wrong with the technical implementation. If you insist on believing its luck, then its the testing which tips the odds in your favor.

4. Scale up and scale out. The difference between the guy making $70,000 a year and the guy making $7,000,000 a year is scale. Additionally you can stretch your knowledge into different markets to magnify your profits through redundant systems.

5. Read a lot, but more importantly test what you read. Warren Buffet likes to read, but I’m guessing Rich Dad Poor Dad isn’t on his bedstand. All of these marketing business self-help e-book, seminars, and so on are great — once. Too many people are addicted to them and they never get anywhere. This leads into number 6.

6. Diversify your knowledge base. Contacts are critical. Many of those 20 page sales-letter people are have created a closed sub-culture. Its asphyxiating your future by being around them all day. Go to conferences for unrelated industries, network with entrepreneurs in NYC, find out what businesses are doing in the Southern hemisphere, talk to outsourced workers in Manila. Instead of reading just Business 2.0, go pick up a copy of the Economist. You can make a damn good living just knowing the right people.

7. You have to like doing it. If you hate it, you look for reasons not to work rather than reasons to work. Life is too short to be miserable. If you are miserable it is not because your don’t have enough money — it is because you don’t do what you love.