Invest from different quadrants.
Most tax loopholes through being a business owner.
People don’t get rich because they get set in their ways and think there is only one way to do something.
Must have a flexible mindset and will to be more than average.
Three E’s to Becoming a Sophisticated Investor:
1. Education
2. Experience
3. Excess Cash
Becoming an investor is like riding a bike.
Requires risk, trial and error and proper guidance.
Don’t worry about money, if we do the right things, money will come.
Investments are cheaper if you buy them through a business, rather than buying as an individual.
More Security = more scarcity
Need a financial plan for not having enough money, how to get more money and what to do when you have too much money.
Investing is a very personal plan you must make, not a product or procedure.
Think of investments as vehicles - a tool to take you from point A (where you are financially) to point B (where you want to be financially).
Have a plan with multiple options / different vehicles (stocks / real estate).
Don’t fall in love with the stocks or real estate you use to invest in - use them merely as vehicles to get from point A to point B.
Don’t invest without a plan.
Lean one new financial word / vocab per week.
Make a simple plan and stick to it, trust your process and don’t chase money.
Set realistic goals and improve upon them.
Alway walk before you run.
Take your time, don’t let others influence you.
Find people who have done what you want to do and ask for advice.
Learn how to ask for help.
Create a financial Team:
Banker
Accountant
Lawyer
Broker
Book Keeper
Insurance Agent
Mentor
Have lunch meetings with them on a regular basis.
Do not let people with limiting beliefs sway you in regards to money.
Time > money. Don’t short change trading your time for money.
Cash doesn’t have a tangible value, exchange cash for investments with real value.
Many poor people have a lot of money (like my mom and dad) and cling to it like it’s magical, then trade cash for trash.
The rich do not value money, but value what money can bring them.
Don’t be cheap (wasting time coupon cutting).
Invest the time to learn & study about how to mind your own business.
Make time for your business, more important than your “job.”
Invest time to learn about investing.
Make and follow a plan.
Have money work for you.
The best deals are made by legal insider investing.
The more people you know.. The more knowledge there is available.
“If you want to be rich, you have to be closer to the inside than the most professional traders to whom most people entrust their money.”
Come up with security and comfort plans first. Don’t invest before planning.
RULE #1: Always know what kind of income you are working for (3 types):
1. Ordinary Earned (paycheck)
2. Portfolio (stocks)
3. Passive (real estate)
RULE #2: Always convert earned income into portfolio or passive income as efficiently as possible.
Don’t let it sit or waste it on trash.
Due to inflation - saving money is a liability, not an asset.
The poor and middle class struggle because they value money more than assets.
RULE #3: Keep ordinary earned income secure by using it to purchase a security you hope converts earned income into passive / portfolio income.
Security - An investment that will keep your money secure… not all assets are securities.
Asset - Puts money in your pocket.
Liability - Takes money out of your pocket.
RULE #4: The investor is the asset or liability.
Best investors follow behind bad investors (sharks), because that is where the best deals are found. Buy low from bad investors who bought high and are selling low.
Bargains are found where the tails of woe and misery are - look for the captain of the Titanic.
Find securities that are liabilities and turn them into assets.
But only if it is something that could be in high demand.
An investment isn’t risky, an unprepared investor is risky.
Be prepared for whatever happens:
The bull climbs up the stairs, the bear dives out the window.
Don’t make emotional predictions, be mathematical.
If you are prepared and find a good deal, the money will find you or you will find the money. A good deal will attract partner investors / cash.
In any investment, the key is to evaluate risk / reward with accuracy.
Keep It Simple Stupid (KISS):
You should be able to explain your investments at a 10-year-old level.
If you can’t; you don’t understand it well enough to invest.
If you let the ups and downs of the market run your life, you should not be an investor. A true investor will make money either way.
Use logic, not emotion.
STEP 1: Have a plan for security and a plan for comfort.
STEP 2: Learn the skills of a successful business owner - then you will know what to look for in successful businesses - stocks.
The best way to become rich is through business building.
Business owners know to trade excess cash for investments.
Passive and Portfolio income.
Never stop growing / learning!!!
Don’t base your financial decisions on the opinions / expectations of others - Don’t follow the averages!
Don’t fear making mistakes - “The biggest failures I know are people who have never failed.”
When making an investment, look at the business / investment financial statement, then match it with your own to make sure it fits. Include any debt for borrowed investing money.
The best investment opportunities are found:
Understanding accounting, tax codes, business law and corporate law.
A key to becoming wealthy is to keep an updated personal financial statement (balance) and read financial statements on a regular basis.
90/10 investor question - Focus on creating your own assets for the asset column, rather than buying assets.
Not just creating companies, but content that brings in money (books, internet, etc.)
Your real job is to create assets.
Ten Investor Controls:
1. Yourself
2. Income / Expense, Asset / Liability Ratios
3. Management of Investment
4. Taxes
5. When you Buy / Sell
6. Brokerage Transactions
7. ETC (Entity, Timing, Characteristics)
8. Terms and Conditions of Agreement
9. Access to Information
10. Giving money / knowledge back to the community
Levels of Investing:
1. Accredited Investor - Earns a lot of money or has a high net worth.
2. Qualified Investor - Knows fundamental and technical investing.
3. Sophisticated Investor - Understands investing and the law.
4. Inside Investor - Creates the investment. Invests in his/her own company.
5. Ultimate Investor - Becomes selling shareholder.
Anyone can start as an inside investor, by building your own business - you can create your own assets.
IPO - Initial Public Offering - A great way to get rich, first by opening a company and opening bidding on stakes / shares of the company.
Two Types of Investing:
1. Fundamental Investing - Seek value and growth by looking at financials of the company… future earning potential is what you look for.
ie: Warren Buffet - Track economy / industry of company.
Study financial statements and balance sheets.
2. Technical Investing - Invests on the emotions of the market and with insurance from catastrophic loss.
Studies patterns of supply / demand of company stock and fluctuations of the stock market. (market trends and stock prices).
One day the stick is in the news, next it isn’t.
All markets go up and all markets come down.
Don’t invest heavily into a bull market while it’s hot. Keep cash reserves for when the market comes crashing down. Markets are cyclical.
Bull climbs up the stairs, the bear falls out the window.
Never invest in stocks with borrowed money.
Use a stop loss when investing, better safe than sorry.
Have an exit strategy in every investment.
Learn investment terminology (one word per day).
Short sales, call options, put options, straddle.
Study P/E of the current year and compare with P/E of the past years to track growth… EPS CAGR.
The Sophisticated Investor:
Familiar with tax law, corporate law and securities law.
Investments based just as much on the law, as on investment product and potential returns.
ETC - Entity (control over choice of business - never form partnerships), Timing (control when you pay your taxes… ie: C-corp can pay taxes at any month of the year - extensions) and Character.
Business Structures:
C-Corporation:
Non-Professional (no doctors, architects, dentists, etc.) has a 15% tax rate… professional is 35% tax rate.
Operate from the B “business” quadrant, not the E “employee” quadrant.
Own your own business, the E quadrant gets screwed by taxes.
C-Corp benefits of S-Corp or partnership - those things are an extension of yourself. The C-Corp is a different entity than yourself - better protection / liability.
If you want to be rich, your private citizen should be poor and penniless on paper. Assets in the name of your companies.
Don’t own assets or liabilities in your name, or you become a target for thieves and lawyers - have the corporation own everything.
Do not strive to own things, but to control them through a corporation.
Make sure you have a team for your business (lawyer, accountant, etc.)
Passive and portfolio income are not subject to mediocre or social security taxes.
The purpose of a business is to buy assets.
McDonalds is a real estate company - has the most valuable real estate in the world.
The rich pay for things through their company using pre-tax dollars.
Buy assets first, pay taxes later.
Employees pay taxes first, then buy assets last.
Most big companies start as part-time businesses.
Don’t quit your day job, keep it and use extra time to start your own part-time business.
Don’t bother with making a great product - buy one from someone else and build better systems.
Don’t concentrate on one business, build many businesses - develop, then sell them.
Must have the entrepreneurial spirit - you are the business, not the product.
Build a successful business and sell it, then build another one.
Don’t settle. Don’t let yourself become your hardest working employee.
Six Priceless Skills For Building Your Own Business:
1. Communication Skills
2. Leadership Skills
3. Team-Building Skills
4. Tax Law
5. Corporate Law
6. Securities Law
Three Reasons to Create a Business Other Than to Simply Create an Asset
1. To provide excess cash flow
2. To sell the business for profit
3. To build a business and take it public
Traits of a Successful Entreprenuer:
Vision
Courage
Creativity
Ability to Withstand Criticism
Ability to Delay Gratification
B-I Triangle
***Keys to Business Success
#1 Mission:
Every business needs a spiritual and a business mission to be successful - no matter how big a company gets it can’t forget it’s mission.
“To make money” is not a good enough mission.
The mission of a business should fill a need that customers want.
Ex: Perkins Roofing - A trustworthy, efficient, reliable roofing contractor who is personable, has the client’s interest at heart and responds quickly.
Spiritual and business missions need to be strong and alligned.
Ex: Perkins Roofing - “Provide jobs and livelihoods for hard working, blue collar guys and their families.”
The entrepreneur must believe the mission for the duration of the life of the business.
When the entrepreneur forgets the mission, the company must be sold or dies.
Steve Jobs example: Apple went downhill until they brought Steve Jobs back.
Invest with and in the spirit of a company and the entrepreneur.
Focus of the company must be on the mission - this mission must serve customer’s needs.
#2 Team:
Business and Investing are team sports.
Team of Investors, every investor needs a team working for them:
Accountants
Attorneys
Brokers
Financial Advisors
Insurance Agents
Bankers
Dream of Success - not of money, of things you want.
How could someone minding other people’s business completely focusing on their own business?
Prioritize on building your successful team.
As an outside investor, look at the team behind the business.
Don’t invest in a company where those running it pay themselves fat salaries.
It shows their focus isn’t in growing the business, but in paying themselves.
Look for experience, passion and commitment.
Tetrahedron of Business:
This is a stable business structure, without any of these - the business can NOT work.
1. Business Owners
2. Employees
3. Investors
4. Specialists
#3. Leadership:
Need leadership skills - more teams / businesses fail from the inside than from the outside.
Five Essential Building Blocks to a strong business:
1. Cash Flow
2. Communication
3. Systems
4. Legal
5. Product
The ability to run a business from financial statements is the difference between a small business owner and a big business owner.
Do not make a purchase without a justifiable rise in sales.
CASH FLOW TIPS:
Cash flow is the life blood of the company.
In the development phase do NOT take a salary or keep salary low.
Start your business part-time, keep your full-time job.
Invoice quickly
Require payments up front.
Require credit applications - if needed.
Establish late payment penalties and ENFORCE them.
Keep OH to a minimum.
Have an investment plan for cash on hand to maximize earning potential (personally and as a business).
Review cash position, funding needs and expenses daily.
COMMUNICATION MANAGEMENT
The better at communications you are and the more people you communicate with / to, the better your cash flow will be.
Listen - To what clients want.
Internal and external communications are directly related to cash flow.
Raising capital is the most important job of an entrepreneur - keep cash flowing in until a stable structure / system is built.
Sales skills are insanely important, as an entrepreneur. Also, being an extrovert with no fear of rejection.
Defeat your fears and your world will open up, give in and your world will shrink every year.
TWO most important skills for the B quadrant:
1. Sales - overcome the fear of rejection.
2. Public Speaking - “toast masters”
Must dress the part - only one chance to make a first impression.
Marketing - Selling through a system.
3 Ingredients to Marketing / Sales:
1. Identify a need.
2. Provide a solution.
3. Communicate a sense of urgency to customers, “What’s in it for me?” and special offers.
SYSTEMS MANAGEMENT:
Many small businesses fail because the operator has too many systems to monitor - delegate tasks. Spread management duties out to responsible managers.
Real estate is the best investment to start with - fairly stable market.
Banks loan money for business if you have a stable system and can demonstrate the money will be paid back.
Look at McDonalds - run by teens all over the world, but it’s still successful because of the superior system.
Systems are the business, without proper systems, a business can NOT be successful.
The more you can formulate and define the specifics and systems of your business, the more efficient it will become - and the more of a saleable business asset the business will become.
Inside of the B-I Triangle from most important to least important:
Cash Flow
Communications
Systems
Legal
Product
Most investors thing the product is the most important aspect of the business, but it’s not. A product can also be a service.
“Most of us can cook a better burger than McDonalds, but few have a better business system.”
“True happiness is not attained through self-gratification, but through fidelity to a worthy purchase.”
If your company and B-I triangle (systems) are successful, the company should be able to operate without you or your hard work and make more money.
Being too “hands on” keeps you poor.
The success of business is through building systems, not keeping busy.
If one part of the triangle is weak or falters, the entire company can falter.
Before you build a business, have a solid plan on what you want to get out of the business and how to get out - sell it? IPO?
The key to keeping your wealth is to constantly evolve - don’t be an old stubborn dog. Stay ahead of the curve and learn new tricks.
You don’t need new ideas to become rich, just need to improve on old ideas and have a better B-I triangle.
Always challenge your own business and ideas.
Old ideas don’t make money - continually refresh your business plan.
If you don’t risk failure - you will never succeed.