Search Results

The financial services sector is under threat and on the top of the list of potential victims are the banks. No one loves their bank. In a world where people tattoo brands like Harley Davidson, Netflix and Apple, why is it that there are no bank logos on body parts? If banks launch a new product, do people call up their friends, arm of a posse of disciples with camping chairs and a basket of sandwiches, and camp overnight outside the branch waiting desperately for it to open so they can storm in and fondle the new service? Do people sneak out of the office early on a Friday, head straight home, storm through the front door and log into their bank accounts so that they can binge-watch the educational video on internet banking? Do people spend hundreds of dollars on hipster leather biker jackets with their bank logos emblazoned on their backs? I think not because banking is as enjoyable as sucking on Gandhi's dusty thong. The Millennial Disruption Index reports 71% of millennials would rather go to the dentist than listen to what banks tell them. That is a monumental kick in the nuts of the banks. Millennials would rather lie flat on their backs, open their mouths and have sharp needles and drills perforate the soft vulnerable skin tissue around their teeth than interact with their banks. You do not need to be Alan Turing (the genius that cracked the German Enigma code) to decipher the takeaway of this nugget of information. Banks suck and technology is going to drive many of them out of business. Why has traditional banking not captured the hearts and imagination of the average man? The answer is simple. In 2008, banks lost their biggest asset and that is trust.  They lost the trust of their clients and technology companies moved rapidly to fill the gap.  Since the financial crisis, the number of financial technology or fintech companies has increased exponentially. They are moving aggressively onto the turf dominated by the traditional banks and cherry-picking the most profitable segments. Before 2008, banks were mildly successful in incorporating technology into their services via online banking and call centers- most of which were located in New Delhi. After the crisis, regulators tightened the rules in an already over-supervized market. The regulators did not realize that the crisis was not caused by the lack of regulation in the banking system but the lack of regulation in the shadow banking system- the opaque world of non-bank financing and derivative structuring. Response in the U.S. to the crisis was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. This Act ran over 2,300 pages (War and Peace boast 1,225 pages) and is used as a natural anesthetic in sleep clinics. It shored up bank balance sheets by raising capital requirements and risk management metrics and requirements. It also provided a laundry list of prohibited activities which meant that banks now had to spend an inordinate amount of time hiring lawyers and compliance officers to ensure the new rules were not broken. The technological innovation that most banks had embarked upon before the crisis was put on the backburner. Banks also stopped lending to riskier small businesses, the entities that most need financing, and increased their lending to large less risky companies that didn’t need the money. While banks were obsessing over compliance, tech companies were entering a phase of mega-innovation. Consumers were exposed to a world of hailing a taxi from their phones, being pampered with same-day delivery on Amazon and being able to order 50 assault rifles on Craigslist without ever having to leave their swastika filled bunkers. Tech companies share an obsession with customer satisfaction.  Banks do not share this obsession. How often have you gone to the bank teller and asked to do a withdrawal and her response is as if you had thrown a dead platypus on the counter? Post-crisis, a gap opened between what people expected from their banks and what was being delivered. How is it possible, in a world where I can download the Joshua Tree album on Spotify while I am plucking my eyebrows, it is not possible to open a bank account without physically going into a  bank branch? Technology companies identified this gap and started to fill it with sweet sweetness. As of 2019 Facebook boasted numerous banking licenses and was experimenting with its own cryptocurrency.  Amazon was experimenting with student loans. Alibaba was running one of the largest money market funds in the world and WeChat (the Chinese version of WhatsApp) was doing 820 million wire transfers during the Chinese New Year. If you trust Facebook with photos of your newborn baby, will you not trust them to handle your finances? Cryptocurrencies, blockchain, and crowdfunding have now made possible a life without banks and the world is rejoicing. If you want to transfer money or pay accounts, crypto accounts allow you to do so. If you want to borrow or invest money, you can go to crowdfunding sites like Moneytree or Lending Club. If you want to buy and sell stocks or mutual funds, you can do so through apps like Robinhood. If you are looking to execute a more complex cross border tax-driven structured transaction, you may need a bank but how often does that come up - Mr. Rockefeller? In this blog, we will explore how fintech is upending the financial services sector. At the core of this disruption is the desire for disintermediation. Financial companies are classic middlemen. You want a loan, go to a bank. You want to pay your lights and water, go to your bank and pay. If you want an insurance contract, go to your insurance broker. If you want to buy and sell stocks, you go to your stockbroker. As people become more informed about the limited value these intermediaries offer, they look for ways in which they can bypass them and go straight to the source. Disintermediation is the Robin to Batman's Fintec. Four Major Trends in Fintech Trend 1: Burn Down the Branches and Dance on the Ashes Banks are inefficient monsters. Have you ever wondered by banks pay you 2 percent on your deposits and then lend money to you at 20 percent? If you can buy something at 2 and then sell at 20, you should be minting money. The reason why they are not is that banks have astronomical overheads. Maintenance of the branch network of traditional banks is one of those costs. Other costs are associated with complying with new regulations. The third is related to litigation. This is especially true in the U.S. where angry customers are suing their banks after realizing that these banks had "stolen" from them. This is reverse bank robbery. The romantic days of Bonnie and Clyde and bank robberies are far behind us. People realized that the banks themselves were the robbers. Trend 2: Just Click Enter Credit is the lifeblood of any economy. Bank regulation has slowed down the credit process. Some glaciers move quicker than banks in the awarding of credit lines. According to a report from McKinsey on traditional banking, the average "time to decision" for small business and corporate lending is between three and five weeks. Average "time to cash" is nearly three months. Magellan circumnavigated the world faster. These turnaround times are becoming unacceptable. Digital banks have embraced the digital-lending revolution, bringing "time to yes" down to five minutes, and time to cash to less than 24 hours. Trend 3: Robo-Advisers – Anything is Better than a Human Can machines be trained to be better investors than human beings? To answer this question, we will make a quick list of what humans do well and a slightly longer list of what they do badly. Humans have opposing thumbs and therefore can grab small objects such as pens, lego toys and in the case of Donald Trump, a big bucket of KFC. Now let's look at the weaknesses of the average homo sapien. Experts say that the average human being uses 8 percent of their brain.  I know people who use considerably less. Humans are not able to process large volumes of information quickly. They get flustered and they are prone to distractions. This is especially acute in the male species when exposed to human matter such as cleavage or any form of silk underwear. Humans are prone to emotions such as fear, greed, and stress – also in the face of the aforementioned cleavage. When stressed, cortisone floods their bloodstream and parts of the brain turn off. Lack of sleep results in diminished brain activity. If you withhold water from the human for more than three days, his brain cell function is impaired. Humans are ill-suited to making rational decisions about money and finance because nothing evokes these negative emotions more. Computers do not have these same emotional limitations. They are not easily distracted, they are quick, they do not need to go to the bathroom and they do not need to rest over weekends. They are perfect employees. The hardest part is to get someone smart enough to train them to think and operate in the desired fashion. In the world of investing there are two important trends - a move towards passive investing and a move towards algorithmic or black-box trading. Both trends lever off the strength of machines to make better investment decisions. We will look at each trend individually. Passive investing – The Present and the Future To understand passive investing, you need to understand its arch-nemesis - active investing.  Active investing is the process of relying on human beings to make investment decisions. In the world of equity investments, active management is also referred to as stock picking. It is the ability to select stocks that go up in price and avoid stocks that go down in price based on rigorous and intensive fundamental and technical analysis. It stems from the belief that the human is smart enough to beat the market. Beating the market means consistently delivering returns that are superior to the market or the benchmark.  That benchmark could be an equity index or it could be a cash reference such as LIBOR. The greatest active manager to walk the face of the earth is Warren Buffett.  Over his career, he has delivered annual returns of 5 percent above the Standard and Poor's 500 Index. This 5 percent per annum may not sound like much but when you annualize it over decades, the difference is like comparing Attila the Hun with Mary Poppins - although some conspiracy theorists say that Mary could have been packing some heat in that carpetbag. Buffett, however, is an outlier. Average stock pickers do not outperform the market because it is just too bloody expensive.  They have MBAs from Harvard and 250 grand in student debt that needs to be serviced. Salaries, however, are just one of the expenses. You need to add the cost of software systems and support staff, computer hardware, corporate travel to meet the management of companies they want to buy, and fen Shui consultants who charge thousands of dollars for telling you to move the chest of drawers away from the bay window. All these costs need to be recovered from the investors in the form of fees. When you deduct these fees from performance, most funds deliver returns that are below the market.  Buffett, in addition to being a genius, also runs a lean shop.  He spends $3.22 on breakfast at McDonald's, does not own a computer, uses an abacus instead of a calculator and is notoriously frugal. Save the pennies and the pounds will look after themselves. Investors are starting to better understand the weakness of active investing and are migrating to passive. Passive investing works on the maxim that if you cannot beat the market, just buy the whole market. But how exactly do you buy the whole market? If you are looking for some Standard and Poor’s 500 Index action, you need to buy 500 stocks. Let's assume that the average price of each stock is 50 dollars. That means that you need to fork out 25,000 dollars - an amount of money that most investors do not have. Then there is the problem of weighting. Not all stocks have the same weight or importance in the market. Apple, which costs north of 200 dollars has a higher weight than Zions Bancorp.  Other stocks cost a lot more than 50 dollars. One share of Buffett's company Berkshire Hathaway costs close to $300,000 (before the coronavirus scare). This discourages the average mortal from buying the market. But that was before the invention of the ETF. Vanguard, under the wise stewardship of the late Jack Bogle, was the pioneer of passive. Jack recognized early the benefits of structuring shares that could replicate the performance of a specific market or sector. Enter the exchange-traded fund or the ETF which has grown into a multi-trillion dollar industry. The ETF is beautiful because it runs on minimal human intervention.  Instead of a highly paid Ivy League-educated polo-playing Kennedy related fund manager picking stocks, you pay Vanguard to hire a pre-pubescent kid in a hoodie to program a computer to buy and sell stocks based on their market weighting. Passive investing is not robo advising in the strictest sense, but it is a useful entry point into the world of machine investing. Algorithmic or black-box trading also takes us closer to the world of the robo-adviser. An algorithm is a process or set of rules that define a decision-making operation.   This is best understood with an example. This example exists in real life. Names have been changed to protect the identity of the participants, the majority of which are minors. No dogs or small animals were hurt in any of the transactions. Once upon a time in Mexico City, an algorithm was created by a young genius who has a canny resemblance to the late great Kurt Cobain. He took a well-known principle and found a way to use technology to exploit the money-making opportunities it offered. In the world of finance, there is a discipline known as corporate finance. Typically populated by lawyers, accountants, and MBAs (a fun bunch of guys), their job is to work with corporate clients to assist in corporate actions such as financing and the acquisition of other companies. Why would one company acquire another? The most common reason is to allow the acquirer to grow their business. In 2017, Amazon wanted to make a strong push into groceries and attack the dominance of Walmart. Amazon did not want to grow this business organically so they looked to partner with an important player already in that market. They ran a beauty pageant and the winner, on account of a convincing performance during the swimsuit contest, was Miss Whole Foods. She was wholesome, healthy, with no genetic modifications and a strong aversion to hormonal intervention. This was where Amazon confronted its first hurdle. The existing shareholders in Miss Whole Foods were perfectly happy in her. She had delivered strong and consistent returns.  If they sold all their shares to Amazon, where would they put their money? Miss Whole Foods is one of a kind gal and not easily replaced.  Jeff Bezos, the intrepid chief executive officer of Amazon and one of the wealthiest men in the world, realized that he would need to find a large juicy organic carrot, cover it with lactose-free, sugar-free and gluten-free ranch dressing, and wave it in front of the Whole Foods shareholders.  Bezos would need to offer a price that the shareholders could not refuse. This is where the corporate financiers come in. Working in stealth mode, they would need to calculate that premium. Markets are notorious gossipers. The financiers would therefore need to work with the utmost discretion. I grew up in South Africa in the 1980s in a conservative Calvinist environment where you were taught that politics was sacred and sex was dirty. When pornography was unbanned in the 1990s, I would sneak into the pharmacy and try to get that magazine off the shelf, to the cashier, and into my leather duffel bank without the cashier even noticing. This same skill is required in corporate finance. The majority of the shareholders agree to the size, shape, and taste of the carrot. Amazon now needs to announce this to the market in the form of an Edgar filing to the Securities and Exchange Commission.  This dissemination is done electronically at a specific time to ensure that everyone receives the information at the same time and no one person or organization is favored. When the news breaks, investors feverishly read the announcement and then decide how the market will react. The typical reaction is that Whole Foods stock will spike up and trend towards the price offered by Amazon. Investors who were endowed with colossal speed-reading skills and nimble fingers will try to buy the stock before it spikes. This is where the computer comes in. My mate, the Cobain look-alike, has spent years teaching his supercomputer to find these opportunities.  He wrote an algo that is designed to analyze every single Edgar filling and look out for keywords - like "acquire", "target price", "merge", “synergies".  When the machine finds these words, a trade opportunity presents itself. The machine does this in nanoseconds while the human does it in minutes. In addition, he has placed his servers on the floors of the stock exchanges so that he can reduce latency. His computer (called Breogan - character in the Lebor Gabála Érenn, medieval Christian history of Ireland and the Irish) executes the trade and then a human watches the trade evolve and then manually unwinds the trade after running its full course. The average holding time for a position is 56 seconds and the fund has been able to deliver spectacular returns. The fund employs physicists, actuaries, and computer scientists.  He even hired a Ph.D. in meteorology. Weather specialists are exceptionally skilled in finding trends and patterns in large data sets. This fund spends an inordinate amount of money on software - server's switches, data, and network connections.  The last time I heard he was looking at ways to use lasers to transmit information but was coming up against some interesting challenges from Mother Nature. Clouds, apparently are the Lex Luther to lasers Superman. Robo-advisors, as the name suggests, are robots that act as investment advisers. They are trained by way of algorithms to look for keywords in the profile of the investor and design a portfolio that is best suited to meet their investment goals. Not only can robots be trained to act more effectively than humans, but they can service a wider range of people. This is vital in the democratization of financial services. The cost structure of the financial services sector caters to the middle and upper markets.  It is not geared towards the lower market which is in most need of the assistance.  Banks lend money to people who don't need it. Financial advisers swoon over millionaires and billionaires who often know more than the advisors. The masses are marginalized and are caught up in a virtuous cycle of poverty from which they are unlikely to escape unless there is a major overhaul of the status quo.  Robo could be part of that solution. Trend 4: Upending Insurance – The Ugly Cousin of Finance The selling of insurance is the biggest scam since snake oil during the California gold rush. The product is awesome but the way it is sold is the capital of Dodge. There are good reasons for this. No one likes to buy insurance.  It is not an impulse buy. No one is filled with joy and satisfaction when the policy on their car needs to be renewed.  We don’t want insurance but we know that we need it. It is prudent to transfer specific risks to a third party, but prudent does not sell. Insurance companies know their product is unsexy. They, therefore, need to inject it full of collagen and silicone and dress it up in an underwire bra and leather mini skirt.  The job of selling insurance is as attractive as sitting in a toll booth in the middle of a dark tunnel surrounded by incontinent bats. To sweeten the deal, insurance companies need to incentivize these salespeople. I have friends who sell insurance. They spend half their time traveling to exotic locations to attend insurance "conventions". All expenses are paid by the insurance companies. We are talking about three to four trips a year to ski in the Swiss Alps, desert camps in Dubai, island hopping in the Mediterranean on private yachts, and private game reserves in the Serengeti. As Transparent as a Texas Hold’em Champ When you buy an insurance policy, you have no idea how much the policy cost and how much goes to the broker. The controversial billionaire hedge fund manager Ken Fisher said in an interview with Steve Forbes, the founder of Forbes magazine, that if you put $1 million into a retirement annuity- a product frequently peddled by insurance brokers - you are "paying" the broker enough to put his kid through private school. Fisher says that his salespeople would earn 1/30th of that amount for a 1 million investment in his fund. This is a little crazy. One strong trend in fintech is disintermediation. Fintech is not about making changes for the sake of making changes. It is about disrupting industries and disruption can only take place is the existing model is flawed. A flawed model is one in which the needs of the customer are not being fully met. Insurance stands out like the Harlem Globetrotters in a Tokyo subway.  Take the example of Uber. I know that this is not a financial services firm but it serves as a good example. When Uber started, I was living in Latin America - a region where public transportation is riskier than jumping into a phone booth with an ill-tempered spitting cobra. In Mexico City, taxis are a fantastic mechanism to separate your wallet, cell phone and important bodily organs from your person. Uber was a revelation and within a handful of years, Mexico City became the place in which Uber completed the most number of trips per day. Uber worked because the existing taxi system did not. It was unsafe, taxi drivers would only take you to where THEY wanted to go, and taxi meters were often "modified" with a little button known as a "diablito" - the little devil. The driver would tap the diablito with his foot and the fare calculation would accelerate. Insurance is broken because premiums are not based exclusively on the risk of the policy. The premiums are heavily influenced by the commissions paid to the broker. Tesla was the first car maker to sell directly to the public by cutting out the middle man.  In 2013, Ping An, Tencent, and Alibaba joined forces to launch Zhong An, China's first truly digital insurer. The company underwrote over 630 million insurance policies and serviced 150 million clients in its first year of operation. Zhong An aims to reshape traditional insurance by applying internet thinking across the insurance value chain from product design to claims servicing. The online model is based on lower operating and distribution costs. Big data and analytics support ensures accurate product pricing and risk control. It also facilitates disintermediation. Exercise Finding what is broken in the finance industry is not difficult. Make a list of all the things that piss you off about your bank, stockbroker, pension company, insurance company, and financial services company. Then find companies that are working tirelessly to solve these pain points, or start your own company that will focus on filling these gaps.

Paul Samuelson put it best when he said investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. The biggest mistake people make when it comes to investing is looking for sexy stocks. These are stocks that are always in the spotlight and always in the news. Sexy is great if you are looking for lingerie, a mail-order Russian bride or an Italian sportscar – but it has no place in investing. Here are three steps you can apply in order falling into the sexy trap. Step 1: Invest in a Business Any Idiot could Run The more simple the business the better. Peter Lynch in his book "One Up On Wall Street", says you should invest in a company any idiot could run because pretty soon an idiot would be running it. He provides the example of an undertaking business. What could be simpler than collecting dead people, slapping on a little rouge and eyeliner, presenting them to friends and family and then tossing them into the ground or into an incinerator? The beauty of this business is that it is simple (any idiot with a black station wagon and a Mary Kay catalog could do it), it is not cyclical (people die regardless of whether the economy is booming or in recession), and business is always guaranteed (the only certainties in life are death and taxes). Step 2: No-One is Covering the Stocks Buffett is looking for diamonds in the dirt. Are you going to find them alongside the busiest highways or do you need to do some bushwhacking? For the city slickers who think that milk comes from a carton and wild animals roam freely through the streets of big African cities, let me regale you with the definition of bushwacking: to make one's way through the woods by cutting at undergrowth, branches; to travel through woods; to pull a boat upstream from onboard by grasping bushes, or rocks. To find these gems, you need to sharpen that machete and get rid of some bushes. One way to find them is to focus on stocks that have little or no analyst coverage. In other words, very few people cover the stock which means that it is flying below the radar. Analysts prefer to cover sexy stocks because those are the stocks that the unwashed masses want to buy. This comes directly from the playbook of Peter Lynch in "One Up On Wall Street". According to data from Bloomberg as of November 2019, 50 stocks were covered by more than 40 analysts. They were mega large-cap stocks like Apple, Amazon, Google, Facebook, Alibaba, and Tencent. What diamonds are you going to find in these blue chips if they are being analyzed to death by an army of analysts who have collectively spent billions of dollars in Ivy League educations, personal tutoring, and psychoanalysis? We are interested in stocks that have two, one or zero analysts. Of the 91,326 public stocks around the world, more than twenty percent are covered by two analysts or less. On this list, there are many penny stocks – rats and mice companies that are effectively worthless. Some companies are in far-flung regions where we do not understand the language. To weed out the rats and mice, we look at stocks with a minimum market capitalization of $500 million. To avoid the language barrier we limit the search to major English speaking countries (United States, United Kingdom, Canada, South Africa, Australia, and New Zealand). The universe now filters down to 118 companies. One gem that stands out is Amerco. How about this for a boring business (the information is courtesy of Reuters): AMERCO is a do-it-yourself moving and storage operator through its subsidiary, U-Haul International, Inc. (U-Haul). The Company supplies its products and services to help people move and store their household and commercial goods through U-Haul. It sells U-Haul brand boxes, tape, and other moving and self-storage products and services to do-it-yourself moving and storage customers at its distribution outlets and through uhaul.com and eMove Websites. The Company operates through three segments: Moving and Storage; Property and Casualty Insurance, and Life Insurance. As of November 2019, two analysts were covering the stock: Ian Gilson from Zacks and George J Godfrey from CL King and Associates. For the 10 years ending November 5th, 2019, the stock delivered a total return of 966 percent assuming all dividends were reinvested in the stock. This is an annualized return of 26.7 percent which was more than double that of the Standard and Poor 500 Index. This is not an investment recommendation – I am simply singling this stock out as an example candidate. Step 3: Low Institutional Ownership This is another strategy from the Peter Lynch playbook and works in tandem with the analyst coverage metric. It is unlikely that institutions will own large slugs of stock in a company that has little or no coverage. In this case, we have the perfect example – Buffett's very own Berkshire Hathaway. As of November 2019, Berkshire was the sixth biggest company in the world with a market capitalization of half a trillion dollars. Only four analysts were covering the stock and only 21 percent of the shares were held by institutions. The largest institutional holder was Fidelity with 4.25 percent of the shares followed by Capital Group with 3.36 percent. This stands in stark contrast to the ownership and analyst profile of General Electric. As at the beginning of November 2019, 65 percent of the shares were held by institutions and 30 analysts were covering the stock. In terms of performance, Berkshire has destroyed GE delivering 460 percent more total return to shareholders over the 20 years ending 2019. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

At Rebel Finance, we religiously believe that debt is good, provided that it is used to acquire high quality assets that deliver a stream of cash flows in excess of the cost of servicing the debt. At the same time, we understand that at times, through necessity or moments of weakness, we overextend ourselves financially and enter into the deep, dark and murky world of expensive and unproductive debt. If you find yourself in this position, we propose using the snowball method of paying it down. Rebel Finance did not invent this strategy, but (for what it is worth), we fully endorse it. So How does it Work? The strategy assumes that your debt is not consolidated – which means that you owe money to more than one party – more than one bank credit card, a few store cards and possibly even a loan from Shady Larry from around the corner. Point 1: Start with the Smallest Debt First This goes back to the law of the jungle. Predators focus their efforts on separating the weakest member of the herd. You are this predator and the weakest is that debt of a couple of hundred dollars you owe on your Amazon credit card for a village of garden gnomes you bought after a drinking game with your mates. Once the smallest debt is paid off, one proceeds to the next larger debt, and so forth, proceeding to the largest ones last. This method is sometimes contrasted with the debt stacking method, also called the "debt avalanche method", where one pays off accounts on the highest interest rate first. Point 2: Why are we not paying off the most expensive debt? This strategy wants to keep you motivated so that you can build momentum in your debt liberation method. It may be that your largest debt is also your most expensive. Let’s assume you go after this debt like Edmund Hillary went after Everest. If you are not in good financial shape, by the time you reach the base camp, you are going to be suffering from altitude sickness and crying for your mother. So instead of going after Everest, lets start off with Kilimanjaro and then work our way gradually up to the Himalayas. Methodology The basic steps in the debt snowball method are as follows: Step 1: List all debts in ascending order from smallest balance to largest. This is the method's most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list. Step 2: Commit to pay the minimum payment on every debt. Determine how much extra can be applied towards the smallest debt. Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off. Note that some lenders (mortgage lenders, car companies) will apply extra amounts towards the next payment; in order for the method to work the lenders need to be contacted and told that extra payments are to go directly toward principal reduction. Credit cards usually apply the whole payment during the current cycle. Step 3: Once a Debt is Paid in Full.... ....add the old minimum payment (plus any extra amount available) from the first debt to the minimum payment on the second smallest debt, and apply the new sum to repaying the second smallest debt. Step 4: Repeat until all debts are paid in full. In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow, hence the name. Example (taken from Wikipedia) An example of the debt-snowball method in action is shown below. In a real payoff scenario, the different interest rates on debts will affect payoff times and might make the debt-snowball method less efficient than other plans. However, for the sake of illustrating the method, the example ignores accruing interest. Assume you owe the following Credit Card A - $250 balance - $25/month minimum Credit Card B - $500 balance - $26/month minimum Car payment - $2500 balance - $150/month minimum Loan - $5000 balance - $200/month minimum Assume you have an additional $100/month which can be devoted to repayment of debt. First two months - under the debt-snowball method, payments would be made to the blood sucking creditors as follows: Credit Card A - $125 ($25/month minimum + $100 additional available) Credit Card B - $26/month minimum Car payment - $150/month minimum Loan - $200/month minimum Third month balance (presuming the person has not added to the balances, which would defeat the purpose of debt reduction) - Credit Card A would have been paid in full, and the remaining balances as follows: Credit Card B - $448 Car payment - $2200 Loan - $4600 Third month payments - the person would then take the $125 previously used to pay off Credit Card A and apply it as additional payment to the Credit Card B balance, which would make payments for the next three months as follows: Credit Card B - $151 ($26/month minimum + $125 additional available) Car Payment - $150/month minimum Loan - $200/month minimum Three more months (six total) - Credit Card B would be paid in full (the final payment would be $146), and the remaining balances would be as follows: Car Payment - $1750 Loan - $4000 Then the person would take the $151 previously used to pay off Credit Cards A & B and apply it as additional payment to the car loan balance, which would make payments as follows: Car Payment - $301 ($150/month minimum + $151 additional available) Loan - $200/month minimum It would take six months to pay the car loan (the final payment being $240), whereupon the person would then make payments of $501/month toward the loan (which would have a $2800 balance) for six months (with the last payment at $234). Thus in 17 months the person has repaid four loans, with two of them being paid in five months and three within one year.

Times are tough. Incomes are down due to the COVID 19 pandemic so you need to go on the defensive, The hardest part of any savings project is getting started, but once you set the wheels in motion and build up some momentum, it gets a lot easier. Alcoholics anonymous have a 12 step guide and that has helped millions of people to get on the wagon. For savings, I have come up with my own 12 step guide - but I decided to round down to 10 which is an easier number to remember! Step 1: Never Lose Sight of Why you are Doing This Saving money takes work and commitment and it helps to always remind yourself why you are doing it. You are doing this to build a life of financial freedom, independence and fulfillment. This is not going to happen overnight, Get rich quick schemes to do exist – unless you are considering a career in illegal drug or organ donor trafficking. People become rich through hard, continuous and relentless work. The results compound over time. When you decide not to buy that pair of $300 leather boots and invest that money, that small sacrifice will compound into riches over the years and will help you achieve a state of financial freedom. Step 2: Understand how you Spend You need to understand your spending patterns. Given that the majority of modern day spending is done electronically, you have records in the form of bank, credit card and online payment statements. If you pay cash for something, keep a slip or receipt. This sounds like a monumental pain in the arse but you need to see this as an investment in your future financial freedom. Step 3: Categorize Your Spending Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Use your credit card and bank statements to make sure you’re accurate—and don’t forget any. I would recommend the following categories (in alphabetical order) 1) Communication – cellphone, internet, fixed line telephone 2) Education 3) Entertainment – alcohol, betting/lottery, digital subscriptions, going out, movies, other entertainment, software/games, tobacco 4) Fees 5) Food – groceries, other food, restaurants, takeaways 6) Household – electricity, furniture & appliances, garden, gas, home improvements, housekeeping, levies & taxes, municipal bill, other household, rent, security, water 7) Insurance – funeral cover, home insurance, life insurance, other insurance, vehicle insurance 8) Loans & Accounts – credit card payments, home loan payments, loan payments, car payments 9) Medical – doctors & therapists, medical aid, pharmacy, other medical 10) Personal and family – activities, children & dependents, clothing & shoes, donations, gadgets, gifts, holiday, personal care, pets, sports, hobbies, tax 11) Savings and investments 12) Transport – fuel, license, parking, public transport, tolls, vehicle maintenance, vehicle tracking Tip: Look for a free spending tracker to help you get started. Choosing a digital program or app can help automate some of this work. Step 4: Budget for Savings Once you have an idea of what you spend in a month, you can begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income—so you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance. Here you need to calculate what you spend in a year and then divide that by 12. Be on the look out for other expenses that you pay quarterly, semi annually or annually – like college tuition and insurance. If the expense is paid quarterly, divide by 3, divide by 6 if semi annually and 12 if annually. Step 5: Include a Savings Category in Your Budget If we held the Olympic Games for the world's greatest savers, who do you think we would find on the podium? Singapore takes gold , Suriname (the smallest country in South America) silver, and China the bronze. Honorable mentions go to the Philippines, South Korea, Switzerland and Ireland. Singapore boasts a national savings rate of close to 50 percent thanks largely to the fact that residents pay almost no income tax. Singapore is an outlier, so I would suggest you aim to save 10 to 15 percent of your income. Step 6: Find Ways to Cut your Spending Do not let this make you feel like a loser but you may have to learn to say NO to your friends who want to go out partying every night. Identify nonessentials that you can spend less on, such as entertainment and dining out. Look for ways to save on your fixed monthly expenses like television and your cell phone, too. You can also downgrade on the brands that you consume – instead of Johnnie Walker Black, buy Red. You may also want to grow your hear and beard – imagine the savings in razor blades, shaving cream and barbershop visits! Talking about barbers, here are some ideas for trimming everyday expenses: Use resources such as community event listings to find free or low-cost events to reduce entertainment spending Cancel subscriptions and memberships you don’t use—especially if they renew automatically. Commit to eating out only once a month and trying places that fall into the “cheap eats” category. Give yourself a “cooling off period”: When tempted by a nonessential purchase, wait a few days. You may be glad you passed—or ready to save up for it. Step 7: Do it for the Planet Many of the products we buy are exceptionally damaging on the planet. If you are the kind of person that needs additional motivation to save, and are concerned about the future of the planet, consider the following numbers: This is what you can learn from this information: Lesson 1: cut out red meat and each chicken – not only is red meat twice the price, but it uses substantially more water (a scarce and precious resource). Lesson 2: reduce your chocolate intake – it makes you fat and at the same time skrews up the planet. Lesson 3: consider adopting a vegetarian diet half the week – again veggies and pasta are cheaper than meat and pollute less. Step 8: Consider becoming a Minimalist Minimalism is a movement that focuses on reducing the clutter in your life both in physical objects and in other distractions. People who embrace it find ways to eliminate the distractions from their lives and it opens up more opportunities for them in other ways and areas. Embracing minimalism does not mean that you stop spending money, but it can mean that you spend it on other things and your focus may change from making money to enjoying life. This may be a little extreme for some people, but if you have an addictive and extreme personality and are not a psychopath, this could be your new religion. Step 9: Set Savings Targets One of the best ways to save money is to set a goal, and you need to make the goal attainable. Start by thinking of what you might want to save for— then figure out how much money you’ll need and how long it might take you to save it. Be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-term needs. Step 10: Do not Save to Spend, Save to Invest When I hear of people who save money to buy a Louis Vuitton bag, or a skiing vacation to the Swiss Alps, I am horrified. Luxury bags and vacations, in my opinion, are for people that can afford to pay for them cash from their monthly income. I believe the only reason why you save is to invest – or to pay off debt that is keeping your head below water (which makes it a form of negative investing). The objective of saving is to have resources to invest so that you can secure a life of financial freedom in the future. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

Financial advisers will tell you that debt is evil. So just how evil is debt on a scale of 1 to 10 - with 1 being your average politician and 10 being Adolf Hitler? What would you say if I said to you that debt can be a good as a warm ray of sunshine through your window on a cold winter’s morning and as bad as Adolf and his satanic crew of stormtroopers? So, what determines whether debt is good or bad. Here is a quick test to find out exactly where your debt sits on this very broad spectrum of goodness/badness. This test will work on points. There are a series of questions and each answer you select will accrue a fixed number of points, You will need to add up your points at the end and then the rating on your debt will be revealed. Question 1: Who lent you the money? 1) a bank (3 points) 2) a reputable online lender (5 points) 3) some guy I met at the end of a dark alley (1 point) Question 2: The interest rate on the debt/loan (per annum) is: 1) below 10% (7 points) 2) between 10% and 20% (5 points) 3) between 20% and 50% (3 points) 4) more than 50% (1 point) Question 3: Did you spend or invest the money? 1) spent it (1 point) 2) invested it (5 points) Question 4: On what did you spend the money? 1) a new car (3 points) 2) a new nose (1 point) 3) a new house (4 points) 4) a vacation or household appliance (2 points) 5) invested it (7 points) Question 5: Is the debt collateralized (is it backed by some asset like a house or car)? 1) Yes (5 points) 2) No (1 point) Question 6: If you invested the money, is the return on your investment higher than the interest rate on the debt? 1) Yes (7 points) 2) Not yet, but in a few months (5 points) 3) No (1 point) Question 7: When does the debt mature? 1) Less than 12 months (5 points) 2) Between 2 and 3 years (3 points) 3) Between 3 and 5 years (2 points) 4) More than 5 years (1 point) Question 8: Is the interest rate on the debt fixed or variable? 1) fixed (5 points) 2) Variable (3 points) 3) I don’t know (1 point) Question 9: When you applied for the loan/debt, did you have to lie on the application? 1) Yes (1 point) 2) No (5 points) Question 10: Is this loan/debt a source of anguish/concern? 1) No (5 points) 2) Yes (1 point) THE RESULTS Below 20 Your debt is uglier than a junkyard dog. You need to pay it off as quickly as possible because it is going to grab you by the throat and suck the life out of you. Between 20 and 50 Your debt is neither good nor bad – it could go either way. It is taking more out of you than you are taking out of it. You need to look to restructure the most expensive portions, start to consolidate and work on a medium term plan to pay it down. Above 50 This is good debt because it is being used in the production of a stream of income or in high quality assets. You are well on your way towards financial freedom and independence. Debt is Not Lucifer Financial advisers are terrified of debt. Get out of debt NOW is their first word of advice – for which they will happily charge you a few hundred dollars. Let's put the numbers into perspective. The global debt or bond market is three times larger than the global equity market. Debt makes the world go round. The United States Government has issued almost $30 trillion in treasury debt. If the United States treasury had followed the advice of financial advisers, it would be a failed state like Somalia and overrun by pirates and lawyers. In the corporate world, Tesla is revolutionizing the automotive sector thanks largely to Elon Musk's vision and genius, but also thanks to debt.  Tesla has access to the bond market and can fund its ambitious projects making use of other people's money. As of February 2020, Tesla had borrowed close to $8 billion with a weighted average coupon of less than 3 percent. So why has debt been vilified? Sometimes, debt does not help itself out with the language it uses. Mortgage means “death pledge”.  Semantics aside, there is good debt, there is bad debt and there is ugly debt. We will address ugly debt first. In Colombia, there is debt known as "Gota, Gota" which means "Drip, Drip". This debt will suck every drop of blood from your body. Gota, Gota is a form of informal and illegal money lending that started in Colombia and then spread to numerous Latin American countries. Gota, Gota is popular because credit does not flow to all. No credit track record or track records worse than that of the English football team at the world cup exclude many from the credit markets. The loan sharks (the Gota, Gotas – not the English football team) charge interest rates above 30 percent per month which works out to an effective annual rate of 360 percent. These lenders employ creative debt collection techniques.  The most common is the application of baseball bats to knee caps. I saw a picture of a Gota Gota late-payer.  He had been hung off a busy highway bridge. At first I questioned this debt collection strategy. Dead South American men hanging off bridges are not wired to paying their debts on time. It was then explained that bridge hanging was exceptionally efficient debt collection.  It dramatically reduced the probability of living clients missing their payments. Now the bad debt, and it is not what you thinking - credit card debt deserves its own section. Bad debt is debt used to finance activities that do not generate any cash flow. For example, taking out a loan to go on holiday, or remodel your home or to increase/decrease the size of a body part. Finally, we have the good debt. This is the debt that is used to acquire assets that generate cash flows. A loan to buy an apartment or a piece of heavy equipment that is rented out is inordinately good.  Good debt is a powerful tool in the attainment of financial freedom. Special Note on Credit Cards The first thing you learn in financial advisers school is to cut up your credit card. The reasons offered: credit card companies make money out of you, you are setting a bad example for your kids, credit cards are like the apple in the Garden of Eden and you do not need a credit card. Firstly, credit card companies do not always make money from you. There are two payment options on your monthly statement. The first is the minimum payment. Credit card companies pray you choose this. It allows them to charge usurious interest rates disclosed in small print on page 89 of your contract. There is another option which is the payment to avoid interest. This is a thing of beauty. It will settle the balance at the cutoff date of the card.  The cutoff date is normally ten days before the payment date. If your cut of date is the 20th, your payment date will most likely be the 30th. If you buy a Louis Vuitton bag on the 21st, you will only need to pay for that necessity on the 30th of the following month.  You are the recipient of 39 days of FREE MONEY. I don’t care where you from, but that is a great deal. The banks make no money out of you in terms of interest. They may charge an annual membership fee but this is all the blood they will be sucking from your veins. The second argument is you are setting a bad example for your kids. Teach them about the 39 days of free money and that bad example turns into a good example. It is your job as a parent to educate your kids financially because they will not get this at school. Buy them a copy of this book. Every member of every family should have their own copy – books are like swimming trunks, they should not be shared. The third point is one of temptation. Credit cards present too much of a temptation. Whatever happened to self-control? At what point did self-control stop differentiating us from the wild animals? If your credit card is your biggest source of temptation, then you may have bigger problems. The final point is that you do not need a credit card. This is just stark raving mad – you do not need two lungs, but you were born with two. You do not need wisdom teeth – they serve no real purpose – but most people are born with them and are a bloody nuisance to remove. I hate going to the shopping mall. My wife could spend an entire day there.  After half an hour, I want to rip my eyes out of their sockets. Amazon, on the other hand, is god's gift to men like me and is best done with a credit card – add to this list Netflix, Spotify, and Uber.

DNA tests can tell people about whether they're predisposed to certain traits. They may tell you if you have a tendency towards chopping people into cubes and stuffing them in your basement freezer. In this blog, I want to talk about financial DNA which will determine your spending and saving patterns and habits. With this simple test, it will be possible to predict with a high degree of accuracy the probability that you will be able to achieve a low, medium, or a high degree of financial freedom. Income versus Outflows We all know that financial success is achieved by earning a lot more than you spend. At Rebel Finance University, we focus heavily on making you a master investor which will enable you to optimize your income. This survey, however, is not going to focus on the income aspect of financial freedom. Instead, we are going to focus on the other variable in the equation which is your outflows. I want to determine if you are an investor or a spender. Spender or Saver Quiz Question1: You win the national lottery. What will you do with the prize? 1) it is a prize so you are going to go hog-wild and spend it on gifts, travel, and new cars and houses for the whole family 2) you will invest half and spend the rest 3) you will invest the full prize Question 2: It is payday. You gave paid the rent, the car, and insurance. All you need to pay is your credit card bill. What do you do? 1) pay the minimum balance of your credit card and blow the rest on eating out clothes and entertainment. 2) pay the minimum balance and spend the rest on groceries and a new household appliance (the old ones work fine but you want a change) 3) you pay off the entire debt and use the rest for necessities. Whatever is leftover, you decide to invest. Question 3: An Amazon ad pops up promoting a pair of boots (you already have 10 pairs). 1) you immediately buy them 2) you bookmark them for later 3) you ignore the ad Question 4: Your friends invite you to a hip new expensive nightclub that charges 20 bucks for a coke. 1) you go – after all, it is the hippest joint in town 2) you go, but only order a Coke 3) you decline the invitation Question 5: You run your own business and need to take a business trip that involves flying. 1) you book a business class ticket 2) you book an economy class ticket 3) you take the red-eye because it costs 20% less than the economy class ticket. Question 6: How often do you eat out? 1) almost every day 2) 2-3 times per week 3) seldom if ever Question 7: Your credit card statement arrives. Your first reaction is.. 1) shock, horror, and anguish 2) mild panic and surprise 3) unsurprised and even slightly bored Question 8: How long does it take for you to decide on a major non-essential purchase? 1) a few minutes 2) a few hours/days 3) a few weeks/months/never Question 9: Do you keep a daily track of your expenses? 1) are you insane, of course not. Who has time for that? 2) you keep your receipts, and use your credit card statement to gauge how much you are spending – but only monthly 3) you do so more religiously than a monk - in an excel spreadsheet (or a monastic version of an excel spreadsheet) Question 10: When you go to the grocery store, you…. 1) arrive with no list, grab a cart and fill it with whatever you feel like regardless of the price - much like a wild beast! 2) you have a list but end up buying more than the list and you check the prices on some items 3) you have a list (that has been laminated), you stick to the list and check the price of everything and most often choose the cheapest option. Question 11: When you spend a night at a hotel 1) you raid the minibar like a sailor that has been at sea for three months 2) you treat yourself to a bag of nuts and a bottle of Evian 3) you do everything possible to avoid eye contact with the minibar Question 12: How do you go about buying a car? 1) you find the brand you like (typically German or Italian in origin) and find the monthly payment you think you can afford 2) you buy second hand, low mileage cars – new cars are for suckers 3) you don’t buy a car – you rent or use ride-hailing services like Uber – car ownership is for suckers Question 13: When you buy a house that you are going to live in, you.... 1) it is an emotional decision. You find the house you like and then rely on the mortgage broker to do everything possible to structure the lowest monthly payment for the first 3 years 2) you put down a large deposit and try and pay the mortgage off as quickly as possible 3) you don’t buy, you rent Question 14: When you buy a new item of clothing, you 1) go to the store and buy it 2) go to the store, find the correct size, and then go online to find the best price 3) don’t buy new clothes – only second hand Question 15: What brand of phone do you own? 1) Apple 2) Samsung 3) The cheapest smartphone from China Results Mostly 1s You are clearly a big spender of Olympic proportions. This is perfectly in order if you are earning Olympic proportions of income but history tells us that even these situations can be short-lived. History is filled with examples of sports stars, rock stars, and deviant politicians who, although are endowed with colossal streams of income, their excessive spending soon overtakes them and they end up tattooing their faces and accepting cameo appearances in low-grade porno movies. You need some financial therapy, coaching, and education before it is too late. Mostly 2s The majority of human beings find themselves in this category. While you are not a compulsive spender, you do need to take tighter control of your finances and find ways to improve your financial health. Mostly 3s You are colossal savers, almost monk-like in your approach to money. You have adopted a supreme austere approach to spending and the risk here is that you are going to be the oldest person in the cemetery when you pass away. While your minimalistic tendencies may be applauded in some quarters, if you have secured a solid flow of income, the time has come to live a little. Regardless of who you are in this survey, Rebel Finance can help you achieve financial freedom.

John Keats, in his poem 'A Thing of Beauty' proclaims that a thing of beauty is a joy forever. Beauty never passes into nothingness. Our earth is replete with innumerable natural objects full of beauty. Keats wrote this poem while sitting outside a beautiful block of council houses in Bethnal Green. He was inspired by the flow of rents he could extract from these assets. High-value men are masters of their minds, their bodies and their money. They do not work for money - instead they learn how to make money work for them. One way is through property investment., In this blog, I will look at the twelve cardinal rules of property investing, Rule 1: Develop your Legitimate Cheapness In the cult comedy "Seinfeld", George Costanza says "I'll sniff out a deal. I have a sixth sense" to which Jerry replies "Cheapness is not a sense".  I would argue that cheapness is a gift. The first rule of real estate is the 15-20 percent rule.  You need to find a real estate asset that is 15-20 percent below its market value. This is your margin of safety. If you need to sell the property sooner than expected, that margin of safety helps to cushion any losses.  This instant equity in the property will also improve the return calculations. Your rent will be referenced to the market price and your return to the acquisition price. Rule 2: Lust over Location "Location, location, location" is a real estate cliche. The first is centrality. Cities are land, energy, and water-intensive. City councils are faced with the challenge of optimizing space usage and utilization of resources.  The trend is urban densification is increasing the number of dwelling units and mixed-use spaces per acre.  Densification encourages efficiency and conservation. It makes the city more sustainable and environmentally friendly. Filling vacant lots with shared spaces, cities can deliver water, electricity, and other municipal services to more people using fewer resources and less energy. Real estate investors need to focus on those central locations where densification is most pronounced. The second is the neighborhood.  It needs to be aesthetically pleasing, easily accessible and filled with high-quality amenities.  You need to do a reconnaissance during rush hour to see how traffic flows. Look for green areas and parks that would be attractive to families.  Make a map of the transportation and mobility alternatives. Look for ease of access to a subway or bus route, bike-sharing services or electric scooters. Assess the vibrancy of the suburb.  Go there during an off-peak time of day and order an Uber. If the nearest car is 15 minutes away, the neighborhood may not be desirable or centralized. You also need to look for amenities. How many schools and universities are in the area? Being close to a university indicates that there should be a steady demand for tenants in the form of students – if you don't mind pot-smoking, flag-burning hippies as your tenants. The third factor is development. It is not just existing amenities that matter, but also future ones. Plans for schools, hospitals, public transportation or other public infrastructure can improve property values. Commercial development can do the same. On the flip side, if the city is deciding to convert your nearby park into a legal drug zone where police are not allowed to enter and clean needles are distributed to the public, you want to get the hell out of there. Fourthly you need to consider physical location within that great neighborhood. If your asset is on a busy road, you may pick it up cheaper, but the rent may also decline. Stay away from properties adjacent to commercial locals such as shopping centers and gas stations. You also want to see how many cars are parked on the streets. Streams of cars on the sidewalk may indicate you are close to a Satanic coven or a community center which is not desirable. Finally, be on the lookout for a mass exodus from the neighborhood. Count the number of for-sale signs on the block. If every second house is for sale, jump on your horse and get the puck out of there.  All these factors are key variables in the calculation of expected vacancies. The time the asset stands empty is a crucial variable in rentals. By focusing on these four points above, you can incorporate a margin of safety to ensure that your vacancies are minimized. Rule 3: Do Not Obsess over the House A house is not an appreciating asset. The bricks and mortar are the same as a car – they depreciate. It is the land that represents the underlying value.  Consider the following two real estate assets. Asset one is on a big plot of land, but the house needs some love and attention. Asset two is on a plot of land that is half the size but the house is immaculate – recently refurbished, wooden floors and super modern finishings. Which asset would you buy if both were on sale for the same price? The uncircumcized masses would take the latter.  In reality, the former would be the better investment. The house can be fixed, renovated and improved. The land, on the other hand, cannot. This does not mean that house prices do not go up. They may appreciate in the short to medium term, but over the longer term, it is the land that underpins the investment. Rule 4: Use People’s Money (Loan to Value) OPM or Other People's Money is an important driver of real estate returns. Take an apartment costing $100,000. You pay cash and rent it out for $7,000 per year net of costs and expenses. The return on investment is 7 percent. Now, using your wily charms, you convince your local bank to lend you 80 percent of the value of the asset at an interest rate of 5 percent over 20 years.  You put $20,000 down on the apartment. Your net rent after interest (which is potentially deductible) is $2,000. The return on investment on your initial investment of $20,000 is 10 percent. Ten percent versus 7 percent does not sound like much but you need to consider the power of compounding. A $20,000 investment over 20 years at an interest rate of 7 percent will deliver $77,393. That same money invested at 10 percent would balloon to $134,550.  This is almost double ignoring the tax benefits of writing off the interest on the OPM. The loan to value ratio, which is the percentage of the value of the property against which the bank is prepared to lend, is a key variable in profitability calculations. More equity in the property means less risk. More equity also means more of your own money tied up in the deal and a higher calculation base. Less equity means more risk, but more potential return.  You need to find a happy equilibrium between risk and return. Rule 5: Understand NOI In the world of millennial speak, NOI means No Offense Intended. In real estate speak, it means Net Operating Income and is used to analyze the profitability of income-generating real estate investments. NOI = Total Revenue from the Asset - Total Operating Expenses. Total revenue would include rents, parking fees, on-site laundry costs, fines from rule violations such as defecating dogs, disturbance of the peace, public nudity and anyone with a mullet. Total Operating Expenses include the costs of running and maintaining the building, including insurance premiums, legal fees, utilities, property taxes, repair costs, and janitorial fees.  If you want to go ultra-passive, you can pay a third party to manage the asset or assets and that would be included in the operating expenses.  Operating expenses DO NOT include principal and interest payments on loans, capital expenditures (such as the installation of a new heating system throughout the building), depreciation, and amortization. Rule 6: Calculate the Debt Service Coverage Ratio Debt Service Coverage Ratio (DSCR) is the ratio of a property’s Net Operating Income (NOI) to its Annual Debt Service. DSCR= NOI/Annual Debt Service A DSCR of 1 means that you are breaking even.  You are generating just enough free cash flow to cover your annual debt service. You are not generating any free cash flow. Experts will talk of a minimum hurdle rate of 1.2, which means that your NOI is 20 percent above your annual debt service. The honey pot will be located between 1.3 and 1.4. Rule 7: Cracking the CAP Rate The capitalization rate (cap rate) is the NOI divided by the  market value of the asset.  You know the NOI. You will need to cozy up with appraisers or property brokers for the market value. Your schmoozing strategy should be dictated by the generational profile of the appraisers.  For baby boomers,  a bottle of single malt scotch and a box of Cubans (cigars, not humans) should do the trick. Generation Xs can be bought with concert tickets to U2 or a yearlong subscription to ESPN Plus. For Millennials, any item of clothing from Lulu Lemon or any product that promotes multitasking or minimalism.  For generation Z, anything from emoji makeup brushes to influencer-branded clothing lines will hit the spot. This capitalization rate is going to move around depending on the volatility of the market. During economic downturns, cap rates can fall to between 3 and 5 percent while during market upswings, they rise to the mid-teens. Seven to nine percent is the long-term market average. A lower run rate hardly seems worth the effort.  You will need to do your homework on the cap rates in your area. It is also a good idea to scratch around the internet to get a better idea of economic activity in the region. You want to focus on growth rate projections, political agendas if you are approaching an election and broader macro or country trends. Rule 8: Elvis is Dead – Cash is Now King The intrinsic value of a financial asset is the present value of its cash flows.  Negative cash flow means you need to dig into your pocketbook to make up the shortfall. High positive cash flow will help you weather the market downturns. A key metric that will determine your cash flows is the aggression of your leverage.  High loan to value means that your service costs are high, your margins are lower and you are treading a fine line between solvency and insolvency. Rule 9: C C R (Credence Clearwater Revival and Cash-on-Cash Returns) This is a big one. It is the John Fogerty of real estate investing rules because it defines the real return on your investment. How much cash are you generating in any given year divided by the total cash you invested in the assets? The less capital you put in, the higher the potential returns.  With this metric, you are looking for double-digit percentage returns. Rule 10: Do Not Trust the Numbers from the Salesperson Salespeople are by nature preppy and bubbly.  They have been known to err on the positive when presenting rental and expense numbers to prospective investors. Their primary objective is to move the property and will do everything within their ethical wheelhouse to achieve this. You need to analyze the investment with real numbers, and not the pro forma "happy gas" numbers from the agent. Rule 11: 50 Percent for Expenses In a comedy skit, Chris Rock spoke out in defense of red meat: “Everyone says that red meat will kill ya. Red meat won’t kill ya. Green meat will kill ya.” In real estate investing, it is the expenses that are going to kill you, or more accurately, it is the underestimation of your expenses that will kill you.  You should work on non-mortgage expenses being 50 percent of the rent charged. This sounds high, but it is prudent to err on the side of conservatism.  This rule goes back to the Net Operating Income calculation. Rule 12:  The One Percent Rule This is a quick and dirty calculation you do on the fly to separate the wheat from the chaff. The asset should generate 1 percent of the total purchase price per month. This means that if the total cost of the asset is $100,000 it should generate $1,000 per month in gross rent. Exercise Real estate investing is all about common sense. You need to hone this skill. Get out into the neighborhoods and sharpen you Sherlock Holmesian skills of observation and deduction. Hang out in the coffee shops. Speak to the barbers - the real people with real jobs. Go out and understand the market and sniff out the best deals. #financetips #moneytips #businesstip #investingtips #richandfamous #cryptocoin #stockstowatch #smallbusinessgrowth #moneycoach #wealthymen #moneypower #millennialmoney #moneyfreedom #rebelmoney #rebel #lifecoach #motivation #lifecoaching #coaching #love #mindset #coach #inspiration #selflove #life #success #selfcare #lifestyle #mentalhealth #mindfulness #personaldevelopment #entrepreneur #goals #happiness #meditation #loveyourself #healing #motivationalquotes #lifequotes #positivevibes #fitness #businesscoach #motivationalspeaker #business

"A small business is an amazing way to serve and leave an impact on the world you live in" - Nicole Snow Small businesses are the backbone of any economy. You need to abandon the secure environment of monthly paychecks, employee health care plans, and paid vacations, and lunge into an environment where you are the boss and you become the provider of this security to your employees. Seven Steps to Starting a Business Step 1: Do Your Research Businesses and sectors are being disrupted like never before. Technology, disintermediation and the climate are making previously dominant companies vulnerable, while startup companies run by millennials in hoodies are becoming increasingly dominant. While all this is happening on a micro level, on a macro level we are also seeing a shift in global power from the west to the east. Failure to identify, understand and exploit these changes will be fatal to any entrepreneur. Businesses fail due to their inability to anticipate changes. According to Charles Darwin, it was not the strongest of the species that survives, nor the most intelligent. It is the species most adaptable to change. Between 2011 and 2013, three great brands went out of business. Eastman Kodak, Blockbuster, and Borders failed to adapt to the changing world and are now extinct. The twenty-first century has been fascinating from an investment perspective. We have witnessed three mega stock market crashes.  The dot.com bubble burst in 2000, the subprime mortgage crisis in 2007/2008 and the coronavirus pandemic in 2020.  In parallel, the meteoric rise of China has set up a battle for world domination. Major corporations and countries have gone bankrupt and companies that did not exist twenty-five years ago are worth hundreds of billions of dollars. Facebook, founded in 2004, is worth half a trillion dollars, Alibaba in 1999 worth $450 billion, Tencent in 1998 worth $400 billion, Netflix and Paypal in 1998 worth more than $100 billion. Tesla which was founded in 2003 is now bigger than four automakers which have collectively been around for 400 years - Audi, Nissan, Ford, and Ferrari. Which industries are going to dominate the future? I divide the landscape into four categories: economy and finance, technology, energy and environment, and healthcare. Economy and Finance - Peak Paranoia Finance and banking have changed dramatically this century. Regulators have always been concerned about bank risk. After Lehman Brothers ripped up the textbooks, this concern morphed into outright paranoia. The phrase "too big to fail" entered our lexicon, as did Basel and all its sequels. The Basel Committee for Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1974. The committee expanded its membership in 2009 and then again in 2014. In 2019, the BCBS comprised 45 members from 28 jurisdictions, consisting of Central Banks and authorities with responsibility for banking regulation. This committee is the global policeman of banks - a cooler bunch of people would be impossible to find. It is currently working to implement the Basel III Accord. Implementation was planned for 2013 but it is running a little behind schedule. The new date is 2022. This accord requires banks to hold inordinate amounts of capital to mitigate risks. Basel III forces banks to lend money to people that least need it – the corporations and individuals with little or no risk. This opens opportunities for disintermediation. Capital is not reaching the small to medium-sized businesses and the retail investors who do not boast pristine credit records. Opportunities exist in the area of microloans, asset-backed financing, and consumer finance. These are capital intensive businesses and the same rules of other people's money applies. If your access to capital is limited, you can also look at financial coaching. Levels of financial literacy are low globally. Clients are crying out for high-quality education and honest objective advice. Technology - The Kids in Hoodies are Taking Over Technology is disrupting everything. Robots are replacing accountants, tax advisers, travel agents, farmers, and taxi drivers.  Greater connectivity through technology is also changing the way that resources are used and allocated.  Technology is at the center of the sharing economy. The sharing economy is a radical new way to distribute goods and services. In the past, the economy focused on ownership or uninterrupted rent. People would leave university and get a job. Then they would buy or lease a motor vehicle to get to this job. At the same time, they would buy or rent a house as close to this new job as possible to avoid spending inordinate amounts of time in the newly acquired car. They would then start a family and require a bigger house and a bigger car and so the velocity of the spiral accelerates. Millennials and generation Zs are rejecting this evolution. Firstly, a car is the worst investment. It sits in the parking lot for 22 hours per day collecting dust. Also, if you buy it new, it loses 25-30 percent of its value the moment it leaves the agency. You need to ensure it, fill it with gas, wash it, wax it, license it, finance it and if you drive like me, pay fines on it. It needs to be frequently serviced, tires need to be rotated and shock absorbers replaced.  If you live in a large city, you need to factor in the stress of sharing the road with hundreds of cold-blooded psychopaths who want to drive in your lane. Uber, Lyft and ride-hailing services are an elegant solution to this cauldron of hell. When 5G allows for autonomous driving, perfection will be attained. There will be no need to make small talk with the driver to maintain your Uber score. Energy and the Environment - Green is the New Black Oil is dirty. It has caused more wars than beautiful women and short men combined. In the 1980s, the countries against whom the United States ran the biggest trade deficits were Libya, Algeria, Saudi Arabia, and Venezuela. These countries had the black gold and the United States were devoted junkies. John Paul Getty made billions out of oil, but the party is getting boring and the cool kids are starting to leave. Ten years ago we were obsessed over peak oil – the theory that oil is a finite resource. We were locked in the phobia of running out of oil and being left stranded on the side of the freeway with our thumbs stuck out and in danger of being picked up by a serial killer or a Jehovah’s Witness.  This stress was unwarranted.  By 2050, renewables will dominate the grid. The younger generation is driving this rejection of fossils. They are concerned about a Mad Max-esque dystopian future of polluted rivers, water scarcity, acid rain, global warming and the extinction of animal species. They are pressurizing corporations to reduce greenhouse gas emissions, total energy use, water use,  and waste generation and increase the amount of water they recycle.  Millennials are buying more second-hand clothes to reduce the demand for new clothes. Clothing factories are notorious polluters.  Then there is the plague of plastic. Nothing exemplifies modernity more than plastic. It is cheap, flexible and durable. The problem, however, is that it does not rot and decompose. Eighty percent of all plastic is either buried in landfills or stuck in the nasal passages of sea turtles.  Only 9 percent of plastic is recycled. The solution lies either in slashing plastic use or finding better and more efficient ways to manage and dispose of it. Future of Health - Gene Editing and POT Global population pyramids are being upended as the elderly start to outnumber the youngsters. Japan sells more adult diapers than infant diapers. China is reaping the whirlwind of its one-child policy and its population is expected to stop growing in 2024. Apart from the strain that the world's aging population is going to place on unfunded pension liabilities, it is also going to place a burden on the healthcare systems unless we can find a way to live healthier lives. The coronavirus pandemic in 2020 highlighted the fragility of global healthcare. Biohacking is the desire to understand the body and mind and utilize everything at our disposal to become the best version of ourselves. There are two fields under the umbrella of biohacking. Implantation is the placement of non-phalic digital devices inside the body and gene-modification is the alteration of DNA to produce favorable genetic traits. We could be decades away from a world populated by 3.5 billion Brad Pitts and 3.5 billion Jennifer Anistons, but the future is closer than ever.    CRISPR is a gene-editing system so cheap, effective and easy to use that it promises to change our relationship with genetics.  Cannabis is also going mainstream. Companies are exploring the health benefits of cannabis as the global trend towards legalization gains momentum. Health is also starting to intersect with concern over the environment. People are eating less meat. Concerns about the environment, personal health, and animal welfare are driving the change. It takes 16,000 liters of water to produce one kilogram of meat. As water scarcity increases, millennials are migrating to a vegan diet and eating their way to a healthier body and planet. Step 2: Identify the Need Before launching your business, you need to identify the need. Jeff Bezos says you should start with the customer and work backward. You need to understand the needs and desires of the user and ensure that your product or service meets that.  Many entrepreneurs start with the product or service and then work to deliver that to the market. Recall the scene in Cinderella when the ugly sisters are trying to force the glass slipper onto their fat feet. That business strategy is not going to cut it in the 21st century. You need to spend time profiling your potential customers and you need to be ultra-specific. When I started Rebel Finance, my financial coaching firm, the mission was to shake up the financial industry.  I wanted to give it a good old kick up the buttocks. For decades, financial services have been in the business of serving their own interests at the expense of its customers. Instead of offering financial solutions, the industry has been selling products.  It has no interest in financially educating its clients or providing them with the tools they need to achieve financial freedom. The relationship has been one of master and servant and I wanted to turn this around.  This is the profiling I did for Rebel Finance. In this case "you" is the potential client. What is your age? The core of Rebel Finance is financial freedom. To seek freedom, you would need to have experienced bondage.  Most kids coming out of school do not know what it is like to work for a paycheck, to feel the pressure of saving for retirement and the need to budget. They probably would not be potential clients. The older generation, on the other hand, understands the limitations of working for money, having to pay bills and facing financial obligations. You have been working for 5-10 years and are looking for an alternative. It is unlikely you will be younger than 30 unless you are a certified genius and graduated from college before you started shaving. What does your family look like? You are married with kids. You are concerned about the future of your kids in a world that is being overtaken by automation. You want to start a business and leave a financial legacy. You want to educate your kids financially and give them the tools they need to be free. What level of education have you completed? You are university educated. Financial freedom comes through the mastery of investments. You need to dominate capital markets, accounting, tax, business law, and marketing. This process of financial literacy and education is facilitated by a tertiary undergraduate degree. A master's degree is not necessary but would not be wasted. How big is the company you work for? You work in a relatively large company that does not allow tax flexibility on your compensation. This means that you have paid an unconscionable amount of tax over your lifetime. This intensifies your desire to find an alternative. What is your job? You have worked in a job that requires a fair degree of human interaction both internally and with clients. This means that you are outgoing and ambitious. How long have you worked there? You have worked in that job for at least five years but not more than twenty. We have found that if you have been laboring for more than two decades in the same or similar job you have achieved a level of comfort and you really do not want to change – better the devil you know. What is a typical day like for you? There is minimal flexibility in your workday. This does not necessarily mean that you are a clock puncher, but it means that you work for a boss and you need to account for every hour of your day. You don't have the flexibility to leave the office midday on Friday for a round of golf with your mates. What does success mean for you? Success is not defined in terms of money. Success is defined in terms of fulfillment and making a difference in this world. Money is not your "why". You are driven by a higher purpose. This could be providing for your family or your community. You are attracted to work with people who share your values. How do you learn about new information? You love to learn and have an inherent curiosity about the world around you.  You a frequently faced with "why" questions and you are driven to find the answers. You are self-aware. You want to understand why you do things and why you react the way you do.  You are also looking for meaning in your life. What do you read? You are curious about history. You read biographies of great men from the past. You want to understand the past to get a better understanding of the future. You revere great men and aspire to learn from them. What are your deepest values? You are driven by the desire to give back and make your family, community, city, and country a better place. You are generous with your time and resources, you are kind and compassionate, you are grateful and not envious and you are moved by a concern for others. What are your deepest fears? You fear a life of quiet desperation and dying with your song still inside of you. You are afraid of living a safe life and not taking the road less traveled. You are afraid of lying on your death bed and regretting all the things you have not done, all the relationships you did not forge and all the opportunities you did not take. Step 3: Make a Business Plan You need to have a plan but at the same time, you need to be flexible. I have come across aspiring entrepreneurs that spend months on the plan. They do exhaustive research, plan for every possible eventuality (the D day invasion was executed with less planning), and try to cover every detail up to the color of the mousepad that they wanted to use. The best businesses are simple to explain and simple to plan for. If your business plan is longer than "War and Peace", it is too complicated and you need to simplify. Don't spend too much time on the plan and be sufficiently flexible to re-tilt or re-tool your business. Once your plan is ready, do not take out a ring, don't fall to your knee and do not propose marriage to it. Date it casually at first. Nurture it and commit yourself to it but always be open to modifications and refinements. Keep it fresh and exciting – do not get into a routine. Step 4: Plan Your Finances In the old days, financing options were limited. The most common option was your local bank.  You would draw up your business plan, extract urine, blood and DNA samples, put your pride in your pocket and walk into the branch. After hours of humiliation and relentless begging, the bank manager’s secretary would let you go into his office and pitch your business. Another avenue was tapping into the kindness and generosity of friends, family and your millionaire great aunt who lives alone in a cold mansion surrounded by 39 cats. They would either loan you the money or invest in the capital of your business. These traditional channels are still available. Technology, however, has opened new avenues: 1) Social Media - Not as Frivolous as you may Think Entrepreneurs can leverage their network on LinkedIn to raise capital. You need to treat capital raising like a sales pipeline.  You need to develop your sales pitch, prepare the supporting documentation, find the gap into which you can sell (meet the needs of the investors), and follow up. 2) Crowdfunding - Tapping into the Masses Interest rates are low to negative and this makes debt attractive. Technology is being deployed to disintermediate the banks and allow borrowers and lenders to interact directly.  Popular platforms for business-related crowdsourcing include Kickstarter and Indiegogo. Some platforms will let you keep all the cash raised even if you don't make your goal. Others will not allow you to collect any money if goals aren't reached. One of the many beauties of crowdfunding and digital currencies is that you have access to a larger pool of capital. Investors in China can lend money to startups in Mexico. Small businesses are no longer limited by geography.  It is now easier to find like-minded investors who are prepared to take a chance on you. 3) Cryptocurrencies and Blockchain Creative entrepreneurs are using crypto and blockchain technology to raise funds.  In 2018, Bloomberg reported a story on a cryptocurrency called Agrocoin which was giving buyers a chance to invest in some of the world’s spiciest peppers. Mexico’s Amar Hidroponia, which grows only habanero chilis, started selling digital tokens in September 2017 as a way to raise capital from smaller investors. Each 500 pesos Agrocoin is backed by a square meter of hydroponic production in the state of Quintana Roo, Mexico. The company says it expects to pay a yearly dividend equal to about 30 percent of the cost, depending on output and demand. One of the benefits of funding through ICO (Initial Coin Offerings) is that blockchain takes control of all the transaction verifications and record keeping. Also, this is the perfect example of disintermediation. There are no banks, brokers, custodians or regulators involved which means that time to market is quicker and the cost of funding is optimized. Step 5: Choose Your Accounting and Payroll System Technology is disrupting the accounting industry which means that small businesses can run without accountants and payroll managers. This is appealing for startup businesses that want to keep their overhead structure lean and mean.  QuickBooks is an accounting software package developed and marketed by Intuit. QuickBooks products are geared mainly toward small and medium-sized businesses and offer on-premises accounting applications as well as cloud-based versions that accept business payments, manage and pay bills, and payroll functions. Step 6:  Set up your Business Location Far behind us are the days when new businesses needed to go out and enter into a 12 month rental for office space. The sharing economy has created office sharing. WeWork is the Uber of office rental. With a couple of hundred bucks per month, you can secure modern and equipped office space.  You only pay for what you need and the contract is on a month-to-month basis.  You are not committed to a long term rental agreement.  The work environment is young and lively which will keep you motivated and driven.  Office sharing does not work for everyone and you may need to enter into a long term rental. You will also need to weigh up buying or leasing your commercial space. Step 8: Scale Your Business Scaling a business means setting the stage to enable and support growth in your company. It means having the ability to grow without being hampered. It requires planning, some funding, and the right systems, staff, processes, technology, and partners. Let me share with you how I went about scaling my financial coaching business Rebel Finance. 1) Commitment to Grow I started Rebel Finance with a desire to coach people to financial freedom. Being a native English speaker and being fluent in Spanish after living and traveling almost 20 years in Latin America, I wanted to reach as broad a market as possible.  I believe my message resonates with millions of people. But, given the limitations of time and geography, how do you reach this target market? I had a commitment to grow and scale. 2) Identify Core Competence Over the past 25 years, I have built a solid knowledge base in financial markets covering a wide range of assets from equities, bonds, hedge funds, and derivatives. I have also worked within the financial system which means I understand how banks, brokers, pension funds and investment funds work. I also understand how the financial system exploits customer weakness, insecurities, and ignorance. Overlaying all this is my love of teaching and the fact that I have spent the last 20 years of my life giving seminars, presenting at conferences and teaching at universities. I also love to write. Back in South Africa when I embarked on my career in investment banking in 1997, I started to write a daily market report that I sent out on email to a distribution list that grew to numerous thousands. This was my first exposure to blogging and the feedback I received from the recipients was mostly positive. All these competencies lead me to believe that I had the building blocks for a scalable business. 3) What exactly is Your Competitive Advantage? There is no lack of financial advisers and coaches in the world. We are like Starbucks coffee shops – there is one on every corner. What could I do to differentiate myself from the sea of competition?  I focused on three pillars. Firstly, a desire to challenge conventional finance and money paradigms. I wanted to rebel against the existing financial system and show people that all the rules by which they were managing their money were wrong. I wanted to be a contrarian swimming against the tide of conventional wisdom. Secondly, not many financial coaches can take complex topics and express them in simple, everyday language. Financial literacy is low because there is no desire to explain complex financial structures in simple intelligible language. Finally, finance and humor typically do not go hand in hand. Bankers have never learned how to laugh at themselves. They take themselves too seriously. I wanted to take a comical and irreverent look at finance. The financial industry does provide a substantial body of comic material. 4) Develop a Plan and Execute I decided to execute on this plan by making use of four channels that would enable me to extend my reach and scale the business of Rebel Finance. a) Books Rebel Finance books are written to provide people with the tools necessary to attain financial freedom. These books are written in English and translated into Spanish. They are written to educate and entertain. They are designed to be rebellious and irreverent.  I have written them in a style never before seen in the financial and money self-help genre. I take complex issues and break them down into simple components that even the most financially illiterate will be able to understand and dominate.  These books will be delivered in the form of eBooks and print on demand through the Amazon Kindle platform. b) Video Downloads Content in the books will be broken down into short video tutorials with a duration of between 10 and 20 minutes and will be available on a subscription basis through our website rebel-finance.com. c) Real-Time Webinars and Podcasts These will be run every week in both English and Spanish again covering aspects covered in the series of Rebel Finance books. d) Coaching This will be done on a 1x1 basis in person or remotely and billed on an hourly basis.

Everyone tells you to save for retirement. This is the biggest lie since fidelity was introduced into the French wedding vows. You should INVEST for retirement. If you haven’t started yet, it is not too late to start. This is what you need to do TODAY. SAVING is a Losers Game The blunt definition of saving is putting money aside into a bank or pension plan. While this is a noble idea, the biggest mistake people make is to put this money into a low risk, low return fund, or instrument. After all, this is your nest egg – the money that you will be using in your twilight years when you have more hair growing out of your ears and nose than growing out of your head. Advisers encourage you to be conservative and play it safe. This is the worst suggestion since Abe Lincoln's suggested they go out for dinner and a show. While it is true that as you approach retirement you need to ratchet down your risk, in the years and decade leading up to retirement you need to strap on the turbocharger and grab your helmet. To understand the implications of saving for retirement, let us do the numbers. Savers normally invest in funds and instruments where the returns are linked to interest rates. In the 1980s, long term interest rates in the United States were around 15 percent. Today, this rate has plummeted to around 1 percent. Let us now understand the impact of this structural downward shift in interest rates on the returns for savers. If you had saved $100 per month, at an interest rate of 15 percent for 30 years, how much would your savings be worth? The answer is $692,328 ignoring tax and inflation. If you save $100 per month, at an interest rate of 1 percent, how much will your savings be worth in 30 years? The answer is $41,962 ignoring tax and inflation. That is brutal! Imagine saving religiously for 30 years and barely having enough money to buy the bottom of the range Tesla! You need to INVEST for Retirement At Rebel Finance, one of the objectives is to train you on how to become a master investor replicating the strategies of market gurus like Warren Buffett. But let’s assume you do not have the time or the inclination to embark on this quest. Let me share with you a simple strategy that you can implement today. Step 1: Cool Your Jets and Take a Deep Breathe The stock market brings out the worst in us because people think they can use it to get rich quick. Most people are terrified of the stock market because it exhibits wild and volatile swings and this is true – in the short term. The stock market, over the longer term, tends to be more predictable and benign. Your first step is to recalibrate your opinion of the stock market and take a long-term view. You need to be patient and you need to be religiously disciplined in your investment. Step 2: Monthly Contributions – Annual Consultations Every month, you need to commit to investing a minimum amount of cash into the stock market and you are only allowed to check your account statement once per year. Step 3: Choose a Low-Cost ETF I hate ETFs because they are too diversified and at Rebel Finance we discourage investors from committing their money to overly diversified instruments (https://www.rebel-finance.com/post/three-reasons-you-should-never-invest-in-a-well-diversified-portfolio). But we also understand that not everyone has the desire or time to analyze individual stocks, which means an ETFs can be a powerful financial tool. I would recommend a broad-based country or global ETF such as the SPY or IVV. Step 4: At Least $100 a Month All you need to do is invest $100 per month. To understand how extremely attainable $100 per month is, I did a quick Google search on what $100 can buy you these days: Eight or ten movie tickets, 10 months of Netflix, four or five new movies on DVD, fifteen used DVDs at a yard sale, lunch for four at a fairly nice restaurant, 40 cheap burgers or 90 candy bars. Over the past 30 years, the Standard and Poors 500 Index has delivered compounded returns of approximately 10 percent. This is better than a poke in the eye with a blunt stick and one needs to take into account that this return includes three major stock market crashes – the dot.com bubble bursting in 1999/2000, the collapse of Lehman Brothers and the Great Recession of 2008, and the Coronavirus pandemic of 2020. So how much would your 30-year religious investment in this broad-based US stock index yield? The answer is $226,048. That is inordinately better than investing in a savings account or Treasury bonds. How much would you need to invest every month to be a millionaire in 30 years, 20 years, 10 years and 5 years Assuming the same total returns of the Standard and Poors 500 index, here are the monthly investments that will yield $1 million after the stipulated period 30 years: $442 20 years: $1,316 10 years: $4,881 5 years: $12,913 Are You Ready for the Greatest Thing in Finance? The world is full of wonders. You have the Great Pyramids of Giza remain, the Hanging Gardens of Babylon, the Lighthouse of Alexandria, the Temple of Artemis, and the Colossus of Rhodes. In finance, there is one single wonder that stands out head and shoulders above the rest – and that is COMPOUNDING. The reason why the majority of humans are not aware of this modern wonder is that it is built on a trait that most humans do not have – PATIENCE. Post a video on Youtube entitled “How to Become a Millionaire in 30 Years”. How many views do you think it will get? I would wager that a video of a dripping tap would get more views. We are impatient. Everyone wants to get rich quick. The reality is that getting rich requires compounding and patience. Let me explain. If investing $100 per month at a return of 10 percent will deliver $226,048, how much would I have if I found an investment that yields 20 percent? The human brain in all its feebleness would reason like this – if I am earning double the return (20 percent instead of 10 percent), it should earn double the return. In other words, I should be the proud owner of an investment worth $450,000. What would you say if I said that by doubling the annualized return you would earn TEN times more? You would say that I have gone bonkers – that I have donned a bright red honker and size 75 loafers, and am bouncing jelly beans off my belly and pulled live pigeons out of my ear. Your $100 investment at 20 percent per annum will yield $2,297,783 in 30 years!! So where do you find an investment that delivers 20 percent annualized returns? Berkshire Hathaway is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. The company wholly owns GEICO, Duracell, Dairy Queen, BNSF, Lubrizol, Fruit of the Loom, Helzberg Diamonds, Long & Foster, FlightSafety International, Pampered Chef, Forest River, and NetJets, and also owns 38.6% of Pilot Flying J; and significant minority holdings in U.S. public companies Kraft Heinz Company (26.7%), American Express (17.6%), Wells Fargo (9.9%), The Coca-Cola Company (9.32%), Bank of America (6.8%), and Apple (5.22%). It has delivered returns close to 20 percent per annum over the past 30 years. So what is compounding? Albert Einstein is said to have called the power of compound interest "the most powerful force in the universe" and went on to say..." he who understands it earns it; he who doesn't pays it." The reason why you earn 10 times more with twice the return over 30 years is simply that you are reinvesting your returns. You are earning returns on your returns. This may sound like Greek, but let me explain with a simple example. You invest $100 on day 1 at 20 percent. In one year, that $100 has grown into $120 which means you made $20 return. In year 2, again you earn 20%, but at $120. This means that you made $24 which is actually 24 percent in the original $100 invested. Look at how the returns take off the longer you invest. Year 1: $20 (20 percent on $100) Year 2: $24 (24 percent on $100) Year 3: $28.8 (28.8 percent on $100) ……. Year 10: $103 (103 percent on $100) …… Year 20: $638 (638 percent on $100 ……. Year 30: $3,956 (3,956 percent on $100). By year 30, you are earning an astronomical return on you’re your initial $100 because the investment has snowballed as you reinvest your returns. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

The widespread abolition of human slavery in the 19th century was a giant leap forward for mankind. The 20th century, however, saw the rise of a new form of slavery. Instead of chains, the modern-day shackle is not physical. It is our relationship with a monster that goes by many names – lucre, bread, dough, gravy, greenback, loot, pesos, and wad. This beast has caused more struggles, battles, clashes, wars, divorces, fratricides, parricides and suicides than male testosterone, alcohol, drugs, and religion combined. Money is the modern god (or devil) to whom we serve. It is the religion of the 21st century and is the root of income inequality and financial exploitation. Like all religions, it feeds off ignorance and illiteracy. And its priests never get their fill. There is never enough wealth. It always wants more at whatever cost. We have become greed`s whores. Most people are in an abusive relationship with money. It controls them, makes them miserable and is a source of anxiety. Money is the master that rules their emotions and is the subject of irrational and stupid decisions. The first step towards financial independence and freedom is to change your relationship with money. Follow these SIX steps to change your relationship with money. Step 1: Define Your Relationship with Money The biggest issue here is defining whether you control your money or whether money controls you. Is money your master or is money your servant? Does it control your moods? Do you use money as a measure of your self-worth? Do you define success in monetary terms? Do you think that rich people are better than poor people? What is your happiest money memory? Step 2: Seek to Understand How Money Affects Your Moods The human brain does not react well to stress and money is the source of inordinate stress. Neuroscientists have discovered how chronic stress and cortisol can damage the brain and hamper the decision-making process. This could explain a curious phenomenon that often presents itself in our relationship with money. It has been discovered that the fear of losing $100 is far greater than the joy of winning $100. This curious assymetrical relationship frequently manifests itself in stock market investing. People tend to sell their winners and hold onto their losers. They buy a stock, it goes up 10 percent, they think they are geniuses and take profits. When the stock goes down 10 percent, they hold onto it and pray that it recovers. It then goes down another 10 percent and they start going to mass, lighting candles and sprinkling holy water on their computers. After another 10 percent decline, they hire a priest to do an exorcism but refuse to sell. The stress associated with market loss causes short circuits in parts of the brain dedicated to making rational decisions. This inertia also stems from the fear of realizing a loss. Step 3: Understand that Money Should Not be Your Why Financial freedom requires changing your relationship with money. When you work for money, money becomes your master. It rules your mind, your actions, and your desires. When money works for you, you are flipping that relationship. You are now the master. You are in control. Money works for you and you in turn work for a higher purpose. You need to find that higher purpose. It could be to provide for your family or give back to your community or your country. It could be to free up your time to pursue what you find meaningful. In addition, you want to do business with people that share your values. If money is your why, it will become an endless source of anxiety. You will never have enough. I have traveled to several Central American countries and I love speaking to taxi drivers. There is always an election somewhere and I like to understand how the taxi drivers select their candidates. They often choose the wealthy candidate under the belief they will steal less. In reality, the rich almost always steal more. If you have one million, you want another million. If you have one billion, you want another billion. The thirst for money is insatiable. If money is your why, you will never be satisfied. Step 4: Don’t Be Envious Don't compare yourself to someone else or try and be someone else. Jordan Peterson suggests that you should compare yourself today with who you were yesterday and focus on small incremental changes. Set numerous small achievable goals. A fraction of a percent changed every day, compounded over many months and years will yield outstanding results. Envy is an illusion you have created in your imagination. The people you envy are not as successful as you think. I have friends who on the surface had the perfect marriage. The wife was exceptional. She was a concert pianist, an artist, she had four amazing kids. She was generous, intelligent, sensitive and funny. She is also gorgeous. They lived in this breathtaking home in an old established neighborhood in Mexico City that was made up of narrow interconnecting cobbled streets. On the surface, the husband was the perfect spouse. Good looking, charismatic, financially very successful. They would ski in Vail over December, Paris in the summer and New York over long weekends. This was the perfect marriage. They then separated and divorced and all the ugly was released. I don't want to go into the details but suffice to say they are not in a good place. The best antidote for envy is gratitude. Focus on everything you have in life as opposed to focusing on what you don’t. This recalibration will yield exceptional results. Envy and gratitude cannot coexist. Step 5: Give More than Your Take There was a severe drought in the Indian state of Kerala in the early 2000s. The drought brought suffering to local villagers and farmers. The Coca Cola bottling plant near the village of Plachimada, however, was ramping up its output. The villagers would see the heavily laden trucks come out of the plant and so decided to stage a protest which continued over numerous years. Coca Cola eventually pledged to put more water back into the local aquifer than it extracted. It is important to give more than you take.  Studies in the United States show that entrepreneurs are twice as likely to donate to charities as salaried employees. In 1999, the Wall Street Journal coined the term "philantropreneur" to describe entrepreneurs that donate to charities regularly. Here are six reasons why you should donate: 1. Experience More Pleasure – the Bible says that it is more blessed to give than to receive. 2. Help Others in Need – there is no lack of people in need in this world. 3. Get a Tax Deduction if donating to a registered charity - pay less tax and help others in the process - this is a win-win. 4. Bring More Meaning to Your Life – there is more to life than working and paying bills. 5. Promote Generosity in Your Children - reinforcing positive traits in your kids is always good. 6. Improve Personal Money Management – anything that gets you to pay closer attention to your bank account is a good thing. Step 6: Get Educated Maximilien Robespierre, before his head was separated from his body by the guillotine in the French Revolution, said: "The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant". The world is financially ignorant and the tyrants are exploiting this ignorance. Yes, folks, they are skrewing you every day and you are so used to it that you do not even realize it. Sometimes, you even thank them. According to a 2015 Standard & Poor's Global Financial Literacy Survey, only 33 percent of adults worldwide are financially literate. The bar on this survey was not set high. Respondents were not asked to build complex econometric models or use Markowitz to find the efficient frontier on an investment portfolio. Simple questions about inflation, compound interest and diversification were asked. The notable laggard in the survey was a rising economic power. China's citizens recorded an abysmal financial literacy score of 28 percent. Moreover, literacy scores were not going up. The Financial Industry Regulatory Authority Inc.'s Investor Education Foundation's 2016 report found that 37 percent of individuals correctly answered four out of five financial questions. This was below the 42 percent reported in 2009. Humans are getting financially dumber, not smarter. Financially speaking, they are becoming more inbred than a redneck at a Trump rally. They have parked their seventy-four wheel mobile home, moved the livingroom furniture onto the front porch and eased into a lifestyle of beer-swigging, finger pulling, tobacco chewing, and weasel hunting. Low levels of literacy are alarming as governments incentivize banks to make financial services available to a wider audience. Moreover, in the last 30 years, the retirement savings landscape has shifted. Decision-making responsibilities have been transferred to financially illiterate participants who previously relied on their employers or governments for financial security and guidance after retirement. One question that vexes me is why the formal education system has never focused on financial literacy? At school, I was rewarded for translating Livy’s report of the First Punic War from Latin to English and memorizing the difference between igneous, metamorphic and sedimentary rocks. Education methods have not evolved in over a hundred years when schools were created as receptacles of information. Teachers stand in front of the class dressed in their tweed jackets and comfortable loafers. They orally transfer their knowledge into the heads of their devoted scribes. Standardized testing is then used to assess short-term knowledge retention of subjects that are useless in the real world. School boards control the narrative and ensure that no renegade teachers break rank from the program. The 1989 movie "Dead Poets Society" portrays the impact of a free-spirited teacher who tries to encourage his students to think, feel and seize the day. The movie ends tragically. This education system is engineered to produce uncreative and loyal employees, not free-thinking entrepreneurs. As in most systems, however, imperfections exist. A minority fringe exit the system before graduating with their entrepreneurial fire unextinguished. Some spend their lives checking in and out of rehab, while others set up multi-billion dollar companies. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

People are always going to go shopping. A lot of our effort is just ‘how do we make the retail experience a great one? Phillip Green, Chairman, Arcadia Group The only things that I hate more than shopping are root canal and slow internet. I, however, come from a family where the women are obsessed with shopping. In the weeks leading up to Christmas, you can drop them off at the mall at 10 am and when you offer to pick them up at 6 pm they look at you as if you have taken leave of all your senses. Eight hours is not nearly enough time to do all that they need to do. For me, shopping is a military operation. You get a plan of the shopping mall. You then look at the weather to forecast the potential foot traffic in the mall. Rain means higher than usual flow. If the flow is expected to be high, you investigate the opening hours. You then find the parking entrance closest to the store – find the closest parking spot, secure the perimeter and then make a full-scale assault on the store. You need to limit civilian casualties but if someone has to be sacrificed, that is the cost of war. You locate and then liberate the merchandise, pay with cash (credit card delays are too much of a risk) and then head for the exits. The entire operation is done within the 15-minute parking tolerance and you are out in the clear.  Door to door you are looking at 30 minutes tops – you are back in the man cave watching rugby and drinking beer before the wife has chosen the pumps she is going to wear for the day. Five Major Retail Trends Trend 1: Cheapness is the New Black Traditional retailing is under threat and thank heavens for that. Physical stores are under pressure as people migrate online. Amazon is the greatest thing since 30-minute guaranteed pie delivery at Dominos. It has irrevocably changed the life of the simple man and to you, Mr. Bezos, we are all eternally grateful. Even shopaholics are welcoming e-commerce with arms wide open.  They go to the store, find what they want and then go online to find the best deal.  Paying less for more and bragging about it has become a trend in itself. Consumers are educated on pricing strategies and are now prioritizing value. With more options and information at their disposal, consumers prefer to do their product research and then execute on the best price. ShopSavvy is an American app developed to target the price-savvy customer. It allows users to scan the barcode of any product and compare all the best prices on the internet and at nearby stores. It also alerts you if the retailer follows a price matching policy. The app claims to have the largest database of retailers, products, and prices in the market. ShopSavvy has now become the world's most popular shopping application with more than 100 million downloads and over 50 million product scans a month. Long live consumerism, materialism and all the other –isms that were thorns in Lenin's crotch. Trend 2: CAP the Hell out of It CAP stands for Customization, Accessorization, and Personalization. Millennials are looking for unique and customizable fashion and are shunning large retailers in favor of boutique stores. They want to be able to accessorize. I had to Google the word accessorize. It involves making the garment your own through the addition of numerous dozens of sequins artistically configured in the face of one of the guys from One Direction. I don't judge. I once had a massive man-crush on the lead singer from The Smashing Pumpkins. I was, however, able to restrain myself from silk-screening his bald head onto a pair of my underpants. This high level of customization is also known as "from we to me". How often have you gone to Google, typed the letter "h" and Google's autocompleting spits out "holiday in Caribbean all-inclusive adults-only strippers included" and you get blown away. That is exactly what you were looking for – except the strippers obviously – you were thinking "slippers included". Today it is possible that retailers know exactly what you want before you know it. We know that your smartphone is collecting data on you every second, but that is so 2020. The future goes beyond analyzing your Google searches and Amazon purchases. The new frontier will analyze emotional data, eye movements, and DNA in addition to the searches and purchases.  When your phone senses that your biorhythms are down, it will know exactly the retail therapy you require – a new pair of Manolo Blahnik heels. Trend 3: Let Your Voice be Heard, Sister! The number of people with smart speakers with voice-activated virtual assistants has almost doubled from 2017 to 2018, to 27 percent. Voice-controlled shopping is set to explode over the next four years to $40 billion by 2022. At the core of this trend is the need to make life easier as we hurtle towards total passivity. Technology is turning us into a bunch of lazy idiots. Before cell phones, you had to work out mentally the amount of an 18 percent tip on a bill of $100. Now the first thing that we do when the bill arrives is lunge for the phone as the left side of our brain falls into our chest cavities and starts to calcify. Sixty-five percent of Americans think conversational assistants will make their lives easier. The interactive nature of this experience makes it possible for the smart speaker to become the central technology in our home.  Who does not rely on Siri to resolve factual disputes, provide marriage counseling and assist in the completion of tax returns? Case study: HelloAva Can a chatbot replace a dermatologist's recommendation for skincare products? I damn well hope so. That's the idea behind American start-up, HelloAva. HelloAva helps consumers determine their skin type through a 12-question SMS or Facebook Messenger conversation. The bot then recommends skin products and regimens based on the person's answers. Mattie Khan, a beauty blogger for Elle claimed Ava made her skin regime much easier. "It's not hard to trust the bot. Like a good first date, Ava seems interested in me, invested, even".  It remains to be seen if HelloAva can be taught to differentiate between basal cell carcinoma, squamous cell carcinoma, and melanoma – although skin cancer is a topic that should be left for the second date, along with crossdressing and gender reassignment surgery. Trend 4: Experiences – and Nothing Else Matters Millennials are obsessed with new experiences. Gone are the days when you could pack your kids into the Chrysler minivan with five liters of coke, a basket full of sandwiches and head over to Aunt Mavis dirt farm for the summer. They are looking for unique experiences that they can post on Instagram. Social media is as important as the vacation itself. They want to bushwhack through the Malaysian jungle, stumble across a virgin beach that only Leo Di Caprio knows about, catch a ride on a green sea turtle that whisks them through to a secret cave where they find a never before seen sketch by Pablo Picasso on the cave wall dedicated to them – and Metallica is playing in the background. More than 75 percent of millennials would rather spend money on an experience or event, than on an item or asset. Sixty-nine percent of respondents said they believe attending live experiences helps them connect better with their friends, community, and people around the world. Retailers are now looking to find ways to monetize this. IKEA hosted a sleepover in one of its stores for 100 customers. In addition to all the features you would typically associate with a sleepover (gossiping over boys, complaining about other girls and detailed wedding planning), sleep experts were on hand to provide tips on achieving that perfect night's rest in addition to how to find optimal sleeping positions and partners. I wonder if the Ikea sleep manual will replace the Karma Sutra - saucy Swedes. Trend 5:  Let the Healing of the Planet Begin Shoppers are starting to pay attention to the environmental footprint of the articles they buy.  In Mexico City, mounting pollution in the early 1990s lead to a curious decision from the government. They decided to give the Beetle taxi cabs their first official facelift. All cabs were required to be painted green. This would lead people to believe they were more environmentally friendly. They even went so far as to call the cabs "Ecological Taxis" even though Mexican built Beetles were still carbureted. They did not have catalytic converters until 1991, and fuel injection was introduced two years later. Despite the "eco" paint jobs, the VW's were the same cars that had always been contributing to Mexico City's ever-growing pollution problems. The fact that a product looks green or says that it's green is no longer enough.  Today's discerning consumer can see through clever tactics and demand more. Nowadays, retailers cannot just say they have a goal, they need to show the consumer that they are acting upon it. The younger generation is concerned about the environment and avoids retailers that sell the products of serial polluters.  Linked to the environment is the increased demand for second-hand and rental clothing. Clothing companies place a heavy strain on the environment. The trend in rental clothing forms part of the shared economy. Instead of buying and article, using it once and then condemning it to collect dust in your closet, why not just rent it, take it out for a good time and then return it (dry cleaning depending on how good the night was). By 2028, 13 percent of the clothes in women's closets are likely to be secondhand, up from 6 percent in 2018 according to ThredUp. The secondhand market, which includes resale, thrift, and donations, has grown 21 times faster than the retail apparel market between 2016 and 2018, to a $28 billion industry in 2018. It is projected to be $51 billion by 2023. The main growth driver is the resale market, which is expected to quadruple between 2018 and 2023. Sales in the apparel rental market have also surged, becoming a $1 billion industry in 2018 that could reach $4.4 billion by 2028, according to GlobalData. By 2028, 4 percent of a women's closet will consist of subscription and rental products. For those deviants out there, second-hand underwear in unlikely to go mainstream – you will need to go into the dark web for that. Exercise My wife loves to spend, but she has great taste in all things except in men. In her closet, she has Louis Vuitton bags with the tags still attached. My back-of-the-envelope calculations would suggest I have enough bags to fund a small South American war and still have some change for a second hand Tesla. The question is how to monetize these bags. Unless you have been living in a cave for the past decade, you would have heard of Amazon, eBay, Bonanza, eBid, MercadoLibre (in Latin America), Craigslist, Facebook, and Instagram – tell me when to stop. We have never been more connected. Instead of fannying around Facebook watching cats dressed up as rappers, the time has come to use your network to monetize used merchandise. And once I am finished with my wife's bags, I am going to make a start on her Imelda Marcos shoe collection. Bring on the Benjamins. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

In the previous century, after a company had maxed out all its private funding sources, it would tap into the large pool of public funding by listing on a stock exchange. The company then needed to summon all its strength to keep shareholders happy. There are several strategies employed to maximize shareholder happiness. Strategy 1: Growing the Revenue of the Company There are two ways to grow a company. The first is organically. For Whole Foods shoppers, organic means the absence of pesticides and genetically modified organisms. In finance, it means internal growth. The masters of internal growth are Steve Jobs, Elon Musk and Jeff Bezos. All three plowed their excess cash back into their businesses. Jobs invented the iPhone, iPad and all the other "i" products that millions of people around the world obsess over. Musk invented the model S, X and Model 3 cars that are redefining electric vehicles. Bezos invented Amazon, one of the biggest, best and greatest companies in the world. The second way to grow is through acquisitions. The two are not mutually exclusive. Great entrepreneurs combine the two. Bezos bought Whole Food to take on Wal-Mart. Musk bought Solar City so customers could charge their cars off the tiles on their roofs. Some CEOs make smart acquisitions while others succumb to the bladder syndrome. They have access to too much cash or credit and embark on a strategy of pissing it away. The bladder syndrome champion was Jack Welch. Once proclaimed as a genius, Jack is now blamed for the majority of GE's problems. The stock reached its summit of $55 in September 2000 and has been sliding down ever since. GE makes everything from lightbulbs, microwaves, and washing machines to jet engines and turbines for the running of hydroelectric plants. It also dabbles in finance and insurance. Thomas Edison is turning in his grave at the indiscriminate mismatch of acquisitions executed by Welch. You can now pick up Welch's books on Amazon for next to nothing. Strategy 2: Share Buybacks The world is full of cheap money and banks are throwing this money at the entities that least need it. Listed companies can borrow bucket loads of cash at 2,3 or 4 percent and there is a limit to the number of photocopiers you can buy. Companies, therefore, have started to buy back their own shares. This pushes share prices up and helped to sustain the bull market in U.S. equities that started in March 2009 and ended in February 2020 with the coronavirus pandemic. Buybacks make sense. Firstly, it reduces the number of shareholders. This means the pool of potential complainers is reduced and less cash needs to be spent on umbrellas, pens, and keychains from China at their next investor day. Secondly, it reduces the number of shares outstanding which boosts earnings per share. If a company posts net income of $10 million on 10 million shares, that is earnings per share of $1. If the company halves the number of shares outstanding, earnings per share doubles to $2. A Deeper and Dirtier look into why Companies Buy Back their Stocks Some companies have too much cash. This is a happy place. It is also where streets are paved with Belgian chocolate, Rolex watches grow on trees and noisy neighbors are flogged religiously at noon. To the end of October 2019, nine non-banking companies had cash and marketable securities of more than $50 billion according to data from Bloomberg. Apple leads the pack with more than $200 billion, followed by Microsoft, Google, Samsung, General Electric, China Mobile, Toyota, Alibaba, and Facebook. Of these nine companies, only five paid a dividend: Apple, Microsoft, Samsung, GE, and China Mobile. Normally, companies with excess cash return it to their shareholders in the form of dividends. Today, however, there is a growing affinity for the buyback, because it has a direct impact on the stock price. So what are the Benefits of Buy Backs? Companies issue shares because they need cash to grow. The downside of this is that they are inviting strangers to take a stake in their company. If a business has a managing owner and 1,000 shareholders, there are actually 1,001 shareholders. Capitalists do not like to share. So when they reach terminal velocity and are swimming in cash, they reduce the size of the shareholder pool. Fewer people in the pool means cleaner water and more space for the top-dog on his floating lounge chair. In addition to reducing the number of shareholders, buybacks boost the share price. This is especially cunning when the stock is undervalued. Shareholders are bitching about the performance of the stock. The company swoops in like a Marvel superhero, and buys up the stock at these low levels. The stock then rerates and the shareholder's wheel out the glazed pig and tankards of beer, and throw a banquet that would make Caligula's look like a preschool birthday party. Then, when the stock is higher, the company could reissue stock at a higher level and raise even more cash than they had before. The cost of money has boosted buybacks. After the Lehman Brothers collapse, cash became cheaper than a middle-aged hooker at 4 am on a Tuesday. Even if companies do not have large stockpiles, they can go to the credit markets and borrow at 2 percent. They buy back their shares, the stock rallies 20 percent. They then issue new stock, pay back the bonds, and kill two very large predatory birds with one stone. It's a Quick Fix for the Financial Statement Buying back stock is an easy way to make a business look more attractive to investors. If you put makeup on a pig it is still a pig. This is not true in equity markets. Most equity investors are lazy and ignorant and cannot differentiate between a fake Chinese Rolexx and a genuine Swiss Rolex. They are ignorant of how companies slap lipstick onto their ugly numbers. By reducing the number of outstanding shares, a company's earnings per share (EPS) is automatically increased. Annual earnings are now divided by a lower number of outstanding shares. For example, a company that earns $50 million in a year with 500,000 outstanding shares has an EPS of $100. If it repurchases 100,000 of those shares, reducing its total outstanding shares to 400,000, its EPS increases to $125 without any actual increase in earnings. This is a branch of finance known as cosmetic engineering proudly sponsored by Mary Kay and Estee Lauder. Another benefit to the company is that before a share buyback, the company will do a pretty good job in publishing their intentions. They will shout from the rooftops on every business network like CNBC, CNN Money, and Bloomberg. This will cause the short term traders to jump onto the stock, drive it up and this momentum will be continued when the company enters. This higher stock price will make the company's price-earnings (PE) ratio more attractive and boost its Return on Equity. This will add eyeliner and lipstick to the little porker. What is really happening? Everything seems hunky-dory. If however, you look below the surface, you will see that the market is suffering from a nervous disorder, chronic irritability, and moderate depression. The average investor does not see this because they are too infatuated with the sexy pigs in the miniskirts and pumps. Let's look at the Dow Jones Industrial Average. It is an archaic price-weighted index but only has thirty stocks and therefore easier to work with. I did some behind-the-matchbook calculations. Step 1: I calculated how the number of shares outstanding had changed in these companies over the ten years from the time of the financial crash in 2008/2009. I assumed if the number of shares declined, the company had bought back stock and if the number of shares had increased, they had issued stock. Of the thirty companies, only two (Verizon and Merck) had issued shares. The other 28 had embarked on massive share buybacks. The most aggressive on a percentage basis was Travelers who registered a 55 percent decline in their shares outstanding, followed by Visa with 42 percent and Home Depot with 35 percent. Apple, IBM, and Costco had all bought back one-third of their own shares. Step 2: To get an idea of the size of these buybacks, I then calculated the average market capitalization of each stock over that period. The dollar value of these buybacks was slightly south of 1 trillion dollars. That is one with twelve zeros. Where did this obscene amount of money come from? Everyone knows that Apple is sitting on a brick shithouse full of cash. The only problem is that most of this cash is in Dublin - waking up late and spending its time drinking Guinness at the Temple Bar and hitting on girls who look like Courtney Cox. My agricultural calculations indicate Apple bought back around $160 billion in stock. I then charted the evolution of its debt over that period. In 2008, it had $15 billion in total liabilities. By 2019, this number had mushroomed to $250 billion. Of that $250 billion, a total of $101 billion was borrowed in the bond market via 70 issuances with a weighted average maturity of 9 years and an average coupon of 2.7 percent. Why should you care about Buybacks? Granny used to teach you that money does not grow on trees. With low and negative interest rates in the U.S., the Eurozone, and Japan, it looks like granny could have been mistaken. Imagine a world in which money is free. Banks and investors are throwing cheap money at corporations. Siemens, the German engineering and manufacturing giant, had borrowings of 7.6 billion euros with a weighted average coupon of 0.38 percent and a weighted average maturity of 4.25 years. This is according to data from Bloomberg as of November 2019. Siemens would need to pay 29 million euros per year in interest to service this debt. In 2018, Siemens generated revenue of 83 billion euros. Assuming 250 business days in a year, that works out to 332 million euros per day. Assume, like most efficient Germans, they work 8 hours a day. That means they make approximately 41.5 million per hour. They can cover the annual cost of this money in 42 minutes. That, granny, is tree-money. So what are companies doing with all this dinero? A large chunk is being used by companies to buy back their own shares. The obvious question is whether this is dumb money? Not exactly, because who knows a company better than that very same company? That, however, is not the point. This massive flood of corporate money into the market creates a bull market that is not based on fundamentals. Stock buybacks boost stock prices, lifts the stock market and sucks more dumb money into the market. This helps to distort valuations. At Rebel Finance, we love market distortions. Conclusion You either love it or hate it. It is impossible to ignore it. It was romanticized in movies like "Wall Street" and "Barbarians at the Gate". It was vilified in the "Wolf of Wall Street" and "Rogue Trader". It is the conflux of animal spirits. It is the embodiment of capitalism. It brings out the best and worst human emotions. It is the stock market and for many, it is one giant casino. Studies have shown that the average human spends more time researching the purchase of a washing machine than a stock. For these "investors", there is no difference between buying Amazon stock and shooting craps. Also, humans are horrible investors - they are led by their emotions and are easily influenced. The potential to make and lose large quantities of money causes greed, fear, panic, and anxiety to bubble to the surface in a stressful cauldron. Add to this the fact that most investors are like sheep and easily lead astray, and you create a fertile breeding ground for exploitation. In 2016, one of the greatest traders ever, the Hungarian George Soros, was interviewed on CNBC. He was strongly advising the audience to buy gold. Two weeks later, it was revealed in a regulatory filing, that Soros's flagship fund was selling gold. Was this a case of dishonesty or foxlike cunning? Economics 101 teaches that a market is a place where buyers and sellers interact. If you are a seller, you need to find a buyer. Soros was doing exactly that – he was a seller and was inviting the world to take the other side of his trade. So how do we approach this market? Dominating the stock market is not difficult. All you need to do is disconnect your emotions and follow the stupid money. Everyone tells you to follow the “smart money.” That is horrible advice. You should follow the dumb money. Why compete with the smart guys when you can compete with the dumb asses? The equity market is the dumbest market in town. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals