Monday, July 13, 2015

Why Becoming Wealthy is More Difficult Today than Becoming Rich

Source: NY Times Syndicate.  Circa 1973, Donald Trump with his father, Fred.  Donald Trump's grandparents were German immigrants, leaving Germany prior to the start of WW1.  Donald Trump's mother, Mary Ann McLeod, was, ironically, an immigrant from Scotland.  

Trump is a loose canon helping to swing my Latino-Mexican-Immigrant Moderate vote toward the left.  Not what the Republican party wants to hear, as I imagine there are many like me who would vote Republican.  Seeing only Jeb Bush stand-up to him out of an entire party of leaders and potential presidential candidates is really disappointing.  Hearing a few of them agree with Trump's generalized comments on Mexicans is even more disappointing.

Trump, unfortunately, does have something to do with the remainder of today's blog post.  You see, Trump is a Baby boomer that came of age as an investor during a Golden era, the good money times of the late 20th Century.  This is when knowing how to invest wasn't as easy as getting on a computer and reading scores of blog articles, seminar advertisements, free eBooks, etc.  This is when there were fewer books on investing to check out at the library, and when a small segment of the U.S. population would buy the Wall Street Journal.  This is when stocks were actual pieces of paper you kept in an actual portfolio/briefcase.  In 1990, my old-fart pre-Algebra teacher brought his stock certificate portfolio to class and showed us all what owning shares looked like.  Got me thinking I wanted to be like him one day.  And what do you know...I am a teacher and I do own stocks today!

Unless you are willing to speculate, make serious bets on a few companies, and risk everything, stock investing will not make you a full-fledged member of Camp Wealthy one day, as is Trump.  Sorry, most of us end-up joining the ranks of Camp Rich this way.

Becoming wealthy today is far more difficult.  Why?  As I alluded to earlier, knowledge of investing has saturated all of the available information channels.

People are paying to learn from gurus at seminars or via a series of online videos they have access to; they're paying for personal phone calls or video chat conversations where mentoring is involved.

And this is bad.  It's bad because it creates inefficiencies that, unlike the stock market, where inefficiencies and more players are welcomed by the pros, make profiting extremely difficult to do in other investment arenas.

If Trump where to be a young Millennial today, would he become a billionaire using real estate as his wealth creation vehicle?  He would of course say, yes.  Sure, he had a father, Fred, that owned a successful real estate company, The Trump Organization, to get his hands on after college.  But let's make him into a hypothetical Millennial today, without a rich dad to springboard him into the elite wealthy.  Would he end-up a billionaire?  Hell no!

Everyone is a real estate flipper and investor these days.  My father-in-law, Travis, who made millions investing in real estate, rehabbing and reselling, and turned even higher profits from building developments, told me there were times he'd go to the courthouse steps or title company foreclosure auctions...walk up and see maybe one or two other people there.

Today, you may be at an auction where there are a hundred people there, all willing to bid.  And many of them don't know what they're doing!  They never checked the home they were thinking of buying, talked to neighbors to extract additional intelligence on their target property, etc.  Just plain blind bidding, squeezing true investors out of potential deals with their ridiculous up-bidding, making retail purchases out of wholesale ones.  See 12 Tips on Buying a Foreclosure...


Continuing, in the 70's and 80's buyers had to make 20% down payments and actually qualify for mortgages!  And interest rates were higher.  The Housing boom of the late 90's and early 2000's allowed too many unqualified borrowers to get in on a home with almost nothing down, and when they defaulted, there was no equity (they weren't in the home making payments for very long) for an investor to come to the rescue, so to speak.  The margins are tight out there for an investor to risk his/her capital on something that could surely end-up being a negative.  And the competition for foreclosed homes with $100K in equity or more is fierce!  Real estate, in sum, is not the wealth building machine it once used to be.

Start-ups/Non-Information Product Companies/Inventions 

With RE no longer a surefire way of building wealth quickly, there leaves very few alternatives.  Let's talk gurus, first.

Gurus out there are building their wealth offering information products, like a series of videos, seminars, trainings, etc.  They made their money in real estate, the stock market, writing best-sellers, and they want to convince you to follow in their footsteps.  All you have to do is buy their information products they created to teach you, of course, and you'll be on your way.  Many of them want you to start an online business where you sell your own information products or consulting services.  Ramit Sethi is one such Guru.  Selling someone else's products with an online store is also an alternative.  I prefer the method, Steve, at champions.  Still, these ways of generating income will not make you wealthy; they will make you rich.

You want to be wealthy?

  • Learn code.  Create a tech product (program/App) that you can build into a company.  Sell it for 50 million or more.
  • Invent a product that catches like wildfire in any given retail segment, and use the proceeds to create a company that continues to design other consumable products.
  • Buy a small profitable company at a discount, use the free cash flow to buy other companies and leave capable managers running them.  Take the free cash flow from all your companies to buy other profitable companies, and stocks of value companies with competitive moats, and repeat the pattern about 60 times successfully!  This is the Warren Buffett wealth creation strategy.
  • Get in on the ground floor of a start-up, get your hands on some shares, and work your butt off so that private equity funds growth all the way to IPO.
  • Go to Wharton, Stanford, or Harvard and major in Business.  Go work for a major corporation.  Climb the ladder until reaching CEO.  Get paid millions to run the company.
  • Stand out!  Don't do the same thing over and over and expect results.  Don't copy what others are doing.   

The 21st Century has narrowed the trail to becoming wealthy, but expanded the trail to becoming rich.  This does not mean becoming rich is easy.  With more players all trying to do the same things, build a massively followed blog, a successful online niche business, a well-known consulting service, etc., there is an over-supply of offerings, resulting in too many options for consumers.  The career, combined with frugal living, saving, and conservative investing is the long way home to riches.  We're living in a Spartan era, despite the Romans (Zuckerberg, Buffett, Icahn, Slim, Boone Pickens, etc.) getting all the media attention.  Tech is to both blame and celebrate for this.

And Trump would have no chance in hell of becoming the wealthy loud-mouth he is today were he to be a young Millennial without a rich father.  He grouped 90-95% of Mexican immigrants and Mexican-Americans (some with roots as far back as the Alamo and CA missions), with 5-10% of any typical large U.S. ethnic group.  He insulted the memory of my grandfather, Jose Gomez, a farmworker and farmhand who lived in the U.S. (Colorado, California, Washington) during the depression until 1954.  He insulted my late Uncle, Mario Gomez, a U.S. born Mexican-American who worked hard to become a teacher in the Coachella Valley until cancer took his life prematurely in the 80's.  He insulted me, and all of my family, and what we've accomplished in just one generation!  He insulted millions of others like me and my family.

For that, he loses my vote and all other Republican candidates not named, Jeb Bush, who I'm still on the fence about.  Republican leadership: I represent the vote you need and want.  But you constantly let me down in one area: Race relations.  Ann Coulture...Donald Trump...Sara Palin...Rush Limbaugh...making it hard for Republicans to get the full Black or Latino vote.      

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