All posts by PARKERYL

Here at Investor Place, we like to think that our products and services are more about a unique state of mind and a unique way of life as opposed to collections of stock recommendations.

You might find that idea intriguing, since InvestorPlace features many world-class investment analysts who recommend stocks.

To clarify, stock recommendations can be a wonderful wealth-building tool. But let’s not miss the bigger picture. Our allegiance is to helping our readers and subscribers create a financial life that serves them. To do this, we need to be clear and direct about what really matters when it comes to building wealth.

And the truth?

Stock recommendations are far less impactful on your overall financial situation than what I’m about to share with you. That’s not to say stocks aren’t important – they can be. But they’re further down the list when it comes to helping you design a life of financial independence.

So, in this essay, we’ll focus on a massive “needle changing” factor that can make all the difference in your financial life.

The way of the investor looking to build a financial empire – and the beginning of your path to true wealth – is rooted one critical idea:

If you want to be rich, spend your time acquiring assets. If you want to be poor, spend your time acquiring liabilities.

We believe the best and easiest way to understand this idea is through the lesson of the Great Pyramid.

When it was completed in 2504 BC, everything about Egypt’s Great Pyramid of Giza was stunning.

Built as a tomb for the pharaoh Khufu, the pyramid was 480 feet tall, the equivalent of a 44-story skyscraper. This made it the tallest structure on Earth, a title it held for 3,800 years.

At the base, each side of the pyramid was 756 feet long, more than two football fields in length. Its more than two million limestone blocks weigh over six million tons. This made it also the heaviest structure on the planet, a title it holds today.

The pyramid’s smooth, polished sides gleamed like a jewel in the sun… and could be seen from miles away. To ancient visitors, it was a supernatural vision. People wept in its presence. Humans had never built anything so large and striking.

According to the Greek historian Herodotus, the pyramid took 20 years to build and required the labor of 100,000 men (later estimates peg it around 25,000). Contrary to early claims, the pyramid wasn’t built by slaves. It was built by skilled laborers who were compensated for their work.

These people had a wide variety of skills. Engineers, architects, surveyors, stone masons, and artists all contributed to the structure. Keeping them all clothed, fed, and housed required another army of workers.

Directing the efforts of tens of thousands of people to cut, shape, transport, lift, and place with precision all those massive blocks was greatest coordination of human effort the world had ever seen. It left behind the only surviving member of the Seven Wonders of the World.

When you consider that a manmade structure is lucky to survive just 450 years in our world of constant change, you have to acknowledge building something that lasts 4,500 years is really quite an achievement.

If you can appreciate the manpower that went into building the Great Pyramid, you’re well on your way to understanding one of the great secrets of life…an incredible force, that when harnessed, can make virtually all your dreams come true.

People who harness this force gain an incredible advantage over others. They sprint in the race to success while those around them crawl. They become kings among men.

In fact, if you held a gun to our heads and made us pick one idea that separates the poor from the rich and the sorry from the successful, this is the idea we’d pick. It is the hidden engine that creates lives abundant in wealth and personal power.

Best of all, anyone can use this force. It’s mostly the rich that use this force, but they do not have a monopoly on it.

Despite the power of this force, it’s not taught in school… and most parents never even think about it.

Back to the Great Pyramid…

Remember, it took the effort of tens of thousands of people to build the thing. The world’s greatest engineers and builders spent a good part of their lives making it a reality.

Now… imagine if just one person tried to build the Great Pyramid.

It’s a ludicrous idea, we know. The project would be over before it starts.

Yet… thinking about this ludicrous idea could change your life.

In less than 10 minutes, it could help you acquire one of the greatest advantages anyone can have in life.

You see, every year, hundreds of millions of people around the world try to improve their lot in life through the effort of just one person, themselves.

The office worker has only his efforts behind a keyboard working for him. The plumber has only his efforts with the pipes working for him. The lawyer has only his efforts with documents and juries working for him.

No matter the career, most everyone you meet in life has the measly effort of just one human being directed towards making his or her financial dreams a reality.

Is there a better way to achieve financial freedom and get what you want? What if you could direct 100 times more effort toward the achievement of your goals?

What if you could get thousands of people working on your financial pyramid… instead of just one person?

There is a better way to get what you want in life… and yes, you can massively increase the amount of effort that is put to work every day towards your financial goals.

In fact, it’s possible to get dozens… hundreds – even thousands – of people working towards the goal of making you rich and financially free. Hundreds of thousands of people have done it throughout the years. Those people have ruled the world… and continue to do so.

You might as well join them… by becoming a business owner.

You see, not many business owners and entrepreneurs talk openly about it, but owning a business essentially comes down to harnessing the efforts of others and directing them towards the happy goal of you being rich.

No MBA course and no college professor will describe business ownership in such blunt and politically incorrect terms, but the underlying reason that owning a business is the ultimate path to wealth is because it’s a “neat trick” played on others. It gets other people sweating and toiling to make you rich. In return for agreeing to build your business and make you wealthy, the employees get steady paychecks and the freedom to not have to think all that hard or take big risks.

This agreement isn’t discussed in job interviews, job ads, resumes, or HR materials, but it’s the foundation of the business owner/employee relationship.

An offer from business owner to job candidate never goes like, “I’d like to offer you the chance to work very hard at making me rich,” but that’s really what it boils down to.

The founder of Microsoft, Bill Gates, was good at building software. But he became a billionaire because he convinced people to create and sell software for him. His employees got steady paychecks and security. Gates got billions.

The founder of Ford Motor, Henry Ford become one of the world’s richest men not by building cars with his own hands… but by convincing other people to build cars for him. His employees got steady paychecks and security. Ford got more money than he knew what to do with.

And the legendary Steve Jobs? Sure… he was brilliant and creative. But he leveraged his skills more than 10,000-fold by convincing people to make and sell phones for his company. Apples employees received steady paychecks. Steve received truckloads of money.

These very wealthy guys didn’t try to build the Great Pyramid on their own. They convinced others to do it for them.

This mindset is the world’s greatest wealth secret.

The stories of Gates, Ford, and Jobs are exceptional of course. Not every business owner becomes a billionaire. They don’t need to. Convincing just a half dozen people to direct their efforts towards making you rich can build a great small business that generates millions of dollars in profit for you.

For the record, I’m not saying being an employee is a bad thing. Far from it. Being an employee early in your career allows you to learn valuable skills while getting paid. It allows you to make mistakes and learn on someone else’s dime. Some employees, like pro athletes and bankers, can become fabulously wealthy without owning a thing.

Also, there’s no guaranteeing that being a business owner will make you happy. Being a business owner can be a miserable experience. Many employees are far happier than many business owners.

But if you really want to be financially free and have lots of control over your life, you can’t settle for the effort of just one person. You need hundreds… even thousands of people working on your goal for you.

We state again: If you want to be wealthy and financially free, don’t direct the measly efforts of just one person (you) towards building the Great Pyramid. Own one or more businesses and get dozens… hundreds… even thousands of people stacking blocks for you.

At this point, I encourage you to stop reading for a moment. Go back and read the previous three pages. It will only take a few minutes.

I’d like for you to re-read the previous three pages because it’s the single most important lesson on wealth you’ll ever learn. This could be one those “A Ha!” moments that changes your life for the better. I don’t want you to miss it.

Also, you might be like me and learn best through repetition. If that’s the case, please read the section three or four times. I’m not exaggerating when I say it could change your life forever.

After you read it again, think on the idea for a while. It’s simple, but extremely powerful. You can struggle your whole life with the efforts of just one person working towards your financial goals… and stack a small pile of small stones. Or, you can direct the efforts of dozens, hundreds, even thousands of people towards your financial goals… and build pyramids.

The effort of one vs. the effort of thousands. It’s simple math.

The rich do the math and act accordingly.

The poor and middle class never think about it.

It’s the simple difference between always having more than you know what to do with and always struggling to get by.

If you don’t read another word of our materials and just start convincing other people to make you rich by working in a profitable business that you own (wholly or partially), you’ll be way better off than the person who spends thousands of hours reading books and books about wealth and investing.

The five minutes you spend learning the lesson of the Great Pyramid are an extreme shortcut to success.

Next, we’ll explore how knowing there are two sides to every price makes you a better investor.

Regards,

Brian

 

Written by the Market Insights Team

Preemptive moves by Canadians on trade risks

Kevin Ford –FX & Macro Strategist

Wednesday brought its fair share of key updates. The White House rolled out 25% tariffs on steel and aluminum, effective immediately, with zero exemptions. The European Union hit back with tariffs on a range of goods—steel, aluminum, textiles, home appliances, agricultural products, and even iconic American staples like motorcycles, bourbon, peanut butter, and jeans, echoing the trade spats of Trump 45’. On the data front, U.S. CPI cooled slightly to 2.8% YoY. The Bank of Canada (BoC) responded to economic uncertainties with a rate cut to 2.75% as widely expected. And right after the decision, Canada’s Finance Minister announced retaliatory tariffs on U.S. steel, aluminum, and items like computers, sports equipment, and cast-iron products. The Loonie reacted on the hectic day with a 120-pip intraday swing, with a high of 1.448 and a subsequent move down to 1.436 during North American trading hours.

Three key takeaways from the day’s events: 

1. BoC’s Policy Stance: the BoC reiterated that monetary policy alone cannot shield the economy from the fallout of a trade war. However, it remains committed to preventing trade-induced inflation from becoming entrenched. Governor Macklem emphasized a forward-looking approach to navigate the uncertainty around inflation: weaker economic growth may alleviate inflation, but trade uncertainties, a depreciating Loonie, and counter-tariffs could drive it higher. The central bank faces a challenging task ahead, with target rate likely to remain steady at its next meeting on April 16^th.

2. Consumer and Business Sentiments: findings from the BoC’s latest survey reveal that mere threats of trade disruptions have prompted Canadian businesses and households to respond preemptively. Many are saving more, cutting discretionary spending, delaying long-term investments. Also, half of businesses surveyed plan to increase their prices if tariffs are imposed on their inputs or products and inflation expectations among both consumers and businesses are coming up higher.

3. U.S. Treasuries’ Response:  following the U.S. CPI report, yields on 10-year Treasuries rose, but why? This reaction stems from skepticism about whether the weakness in airfares, which brought CPI lower, will influence the Fed’s preferred PCE index. Furthermore, recent upticks in core goods inflation, a key driver of disinflation in 2023, signal that tariffs could intensify price pressures here first.

Today markets will be focused on US PPI, expected to drop from 3.5% to 3.3% YoY as well as the discussion within the Senate to approve a government funding bill to avoid a shutdown. In Canada, January’s reading on Building permits will be of relevance.

Inflation data overshadowed by tariff threat

George Vessey – Lead FX & Macro Strategist

There was a brief reprieve in risk sentiment yesterday following some good news on US inflation. But the rally in stocks and bonds fizzled out as the details of the consumer price inflation prints were less rosy, whilst global trade war fears escalated. The US dollar index snapped a 7-day decline but remains close to pre-election levels. Meanwhile, US producer price inflation data today might muddy the disinflation narrative, which could make life harder for the Federal Reserve (Fed).

Canada and the EU are responding to the blanket US tariffs on steel and aluminium in a sign that the global trade war is ratcheting up. The 3.7% decline in the dollar so far this month, coupled with the falls in US stocks and their under-performance relative to other countries, reflect a remarkable turnaround in investors’ views about the economic outlook for America and Europe. However, a surprisingly cool set of February US consumer price inflation prints m/m pulled the annual rate of headline inflation down to 2.8% from 3% while core inflation dips to 3.1% from 3.3%. This halted the stock selloff that had put the S&P 500 on the verge of a correction. The details are less rosy though with a substantial 4% m/m drop in air fares (highly volatile) the main factor driving the softer inflation readings. Moreover, there’s brewing anecdotal evidence of firms pre-emptively raising prices ahead of potential tariffs with this week’s NFIB survey reporting a 10 point jump in the proportion of companies raising prices. The risk here is that core inflation starts to reverse and move higher again in coming months.

Tariff fears are already seeing companies nudging prices higher and risk higher inflation readings over the summer, which would further complicate the Fed’s policy decision making amidst growing recession fears. In addition, key components from the producer price index, published today, that enter into the Fed’s preferred inflation measure, are expected to have accelerated from January. This will make it harder for the Fed to cut despite slowing US economic activity. Thus, the outlook for equities and broader risk appetite remains grim.

Will Trump stop the euro rally?

Boris Kovacevic – Global Macro Strategist

The euro’s rally lost some momentum yesterday, slipping below the $1.09 mark. While broader risk sentiment improved after softer US inflation data, European markets faced renewed trade tensions and political uncertainty. President Trump made it clear that he intends to retaliate against the EU’s countermeasures on his 25% steel and aluminum tariffs. This tit-for-tat will raise the already elevated tensions between both regions and could limit the upside on the euro for now.

Meanwhile, German bond markets continue to send a strong signal. The 10-year Bund yield surged past 2.9%, reaching its highest level in nearly 13 years as negotiations over expanded government borrowing intensified. The Greens remain hesitant to fully back the fiscal expansion proposed by the CDU/CSU-led coalition, but alternative proposals suggest a compromise could be within reach. If secured, this could pave the way for a significant boost to Germany’s defense and infrastructure spending—an economic shift that has already started to reshape investor sentiment toward the Eurozone.

For now, EUR/USD remains supported by the broader shift in sentiment away from the dollar, but trade risks are becoming harder to ignore. If Trump retaliates further, it could weigh on European equities and the euro in the short term. However, if a German fiscal deal comes through, it may provide another boost for European assets, especially as US growth concerns mount. Investors will closely watch any new developments on both fronts in the coming days.

Within a whisker of $1.30

George Vessey – Lead FX & Macro Strategist

Sterling climbed to a fresh 3-month peak of $1.2988 on Wednesday, within a whisker of the key $1.30 level, which it has been below for 60% of the time over the past five years. GBP/USD is up 3% month-to-date, and almost two cents above its 5-year average of $1.28, but is still trading within the overbought zone indicated by the 14-day relative strength index. GBP/EUR also snapped a run of six consecutive daily losses as focus turned to EU-US trade war risks following the EU’s retaliation to US tariffs.

While downside risks for the euro and Eurozone economy have diminished due to hopes of huge fiscal reforms, the tariff theme remains a significant near-term risk for the common currency, which appears to be limiting the euro’s gains against the pound. We’re still keeping a close eye on the 50-week moving average, currently located at €1.1888. If GBP/EUR closes the week below this level, we think a slide towards €1.1740 is feasible over the coming month. Otherwise, the pair might stay bound to a tight range given real rate differentials suggests €1.19 is fair value. We think there may be more scope of the pound to stay resilient against the dollar though as currency traders parse where relative interest rates are likely headed over the next six months. Both the Fed and Bank of England (BoE) meet next week, and whilst there’s little chance that either central bank will cut, markets are pricing in around three cuts by the Fed later this year versus an expectation of just two by the BoE.

Indeed, with UK inflation having bounced back and inflation breakeven rates suggesting that increases in retail prices over the next two years are likely to hover close to 4%, the BoE may well decide to defer its next rate reduction. This has already sent nominal yields in the UK relative to those in the US surging in recent weeks, underpinning GBP/USD. As mentioned above though, the pound is in overbought territory so is vulnerable to traders taking some money off the table in the very short term.

US equities swing 5% in seven days

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: March 10-14

All times are in ET

Have a question? [email protected]

*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.

The warm reception of the first Bitcoin Exchange-Traded Funds or ETFs has highlighted not just the growing acceptance of cryptocurrency in general, but also the intersection of digital assets within the traditional investment space. 

It has been just over a year since the first Bitcoin ETFs went live in January 2024, and during that time they experienced growth that’s unprecedented by any other financial instrument. 

That much was made clear by the next-generation hybrid crypto exchange GRVT, which revealed in a recent blog post that the world’s Bitcoin ETFs now manage over $130 billion worth of assets. 

Leading the way is BlackRock’s iShares Bitcoin Trust, which has grown like wildfire over the last year, with almost $60 billion worth of assets now under management. As institutional investors have poured money into these ETFs, their operators have bought up millions of Bitcoins from the open market to support those investments, helping the price of BTC to reach a record-breaking $109,000 earlier this year. 

GRVT notes a stark contrast between the first-year performance of Bitcoin ETFs and the first gold-backed ETFs that became available in 2004. Gold has long enjoyed an almost unrivaled status as a kind of investor haven or island of stability during economic downturns, becoming the de facto vehicle for riding out the volatility of the financial markets. 

However, the Bitcoin ETFs have emerged as viable alternatives, and their debut year saw them accumulate value far faster than the first Gold ETFs ever did. Back in their first year, Gold ETFs pulled in $3.45 billion in investor capital, a drop in the ocean compared to the amount raked in by the Bitcoin ETFs, underlining their positioning as an alternative store of value. 

This astonishing growth shows us that Bitcoin ETFs are most definitely not a bubble, as traditional institutions recognize how they’re transforming the fundamental nature of financial markets. 

Impact On Financial Markets

BlackRock has been joined by Franklin Templeton, Fidelity, and several other traditional financial powerhouses in creating Bitcoin ETFs, making the world’s top cryptocurrency accessible to mainstream investors through regulated stock markets. And they have had a profound impact on both Bitcoin itself, and the wider investment landscape. 

One of the most noticeable changes was the effect Bitcoin ETFs had on the amount of liquidity in crypto markets. By making it easier for institutional investors to jump into and out of Bitcoin, the ETFs have exposed the cryptocurrency to a much wider and richer audience of investors, including many who have previously always avoided traditional crypto exchanges due to fears over asset security and the lack of regulation in the industry. As a result, Bitcoin has become more liquid, making it easier than ever for people to buy and sell these assets. 

In addition, Bitcoin ETFs are reshaping the behavior of traditional hedge funds and asset managers. By providing them with crypto-based competition, they’ve forced these older asset managers into a rethink, and many have responded by adding Bitcoin ETFs into their portfolios to keep up with the times. 

In addition to asset managers, we’re seeing pension funds and hedge funds dip their toes into the crypto markets for the first time as well. These kinds of investors had long been holdouts, wary of investing in crypto due to the lack of regulatory clarity and their volatile nature. ETFs, in contrast, offer the safety of regulation and have helped to bring greater stability to digital assets, meeting the requirements of more institutions. 

That explains why Bitcoin ETFs have scrambled to buy more than 500,000 Bitcoins from the open market, which amounts to approximately 2.5% of all of the BTC in circulation on public exchanges. This helps to strengthen the value of Bitcoin as it removes more supply from circulation, increasing its scarcity. 

At the same time, the legitimacy of Bitcoin ETFs has paved the way for a growing number of institutions to explore the option of holding digital assets directly. GRVT reports that it has signed up a growing number of institutional investors as customers in the last year, including the likes of Galaxy Trading Asia, QCP, Arbelos, Ampersan, Amber Group, IMC, Flow Traders, Pulsar and Selini, to name just a few. 

What’s Next For Bitcoin ETFs?

Despite their rapid adoption, experts say Bitcoin ETFs still face some significant challenges, most notably around the fluid regulatory landscape of crypto in general. Any changes to the legalities of crypto could seriously undermine the value of Bitcoin ETFs, which is why the SEC was originally so cautious about approving them. 

The general volatility of crypto also remains a concern, and that explains why some funds – particularly retirement accounts – have so far shied away from Bitcoin ETFs. Of course, that’s one area where real gold still has a strong advantage, as its price is far more stable than Bitcoin’s. 

The positive market reception of Bitcoin ETFs and the optimism around new U.S. President Donald Trump’s favorable stance on crypto has led to increased speculation that more crypto ETFs could win approval in the coming years. Recently, the SEC approved its first-ever Bitcoin and Ethereum combination ETF, and there is lots of talk about a Solana ETF, among others. New crypto ETF products should find it much easier to gain SEC approval given that there’s already a model in place. 

As more crypto ETFs are approved, we can expect to see the crypto markets flooded with even more institutional capital, as they will expand the available opportunity, giving rise to more complex financial strategies and options for portfolio diversification and risk management. This would likely lead to even further integration of Bitcoin and other digital assets within traditional finance, with positive impacts on their growing adoption. 

Bitcoin ETFs & The Future Of Finance

As GRVT points out, there’s a rising consensus that Bitcoin ETFs are not just some flash in the pan, but rather a key milestone that helps to cement the legitimacy of cryptocurrency assets in the eyes of institutional investors. 

No longer is Bitcoin seen as a highly volatile and speculative asset, or dismissed as “fool’s gold”. Instead, it sits alongside gold itself on some of the world’s biggest exchanges, where it’s increasingly seen as a driving force in financial innovation. 

The future for Bitcoin ETFs looks bright. As they become more established, they will continue to chip away at traditional gold’s status as the asset of choice for riding out economic uncertainty. Bitcoin’s built-in deflationary mechanisms should ensure that the value of its ETFs grows along the way, creating a virtuous cycle that reinforces its growing role in the traditional investment landscape.

An index measuring wholesale prices was unchanged in February from January, as falling gas prices and rising egg prices canceled each other out. 

The Producer Price Index stayed flat in February after rising a revised 0.6% in January, as gas prices fell 4.7% and egg prices rose 53.6%. Forecasters had expected a 0.3% increase, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

The data shows inflation pressures simmering down faster than expected just before President Donald Trump roiled the inflation outlook in March by imposing, revoking, and promising an array of tariffs against U.S. trading partners that could push up prices if they are actually put into effect. Producer prices influence what consumers pay once products reach the shelves and are considered a leading indicator of consumer price changes.

“The moderation in February conforms with expectations that inflation is set to cool in the coming months before trade tensions start pushing prices upward, though next month’s report will confirm whether February’s softness was a one-off,” Justin Begley, an economist at Moody’s Analytics, wrote in a commentary.

Evidence of cooling inflation could influence officials at the Federal Reserve, who meet next week to set the key fed funds rate, which influences borrowing costs on all kinds of loans.

The Fed has held rates high to discourage spending and stifle inflation but also aims to prevent a severe rise in unemployment. Cooling inflation gives the Fed more leeway to cut rates and boost the economy if Trump’s trade wars start to damage the job market.

Financial markets expect the Fed to hold interest rates steady at the policy committee’s meeting next week, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

Prices.

You can’t make a move in today’s world without seeing the price for something.

You’ve got prices for cars, homes, gas, food, insurance, medical care, appliances, and services. You’ve got prices for financial assets like stocks and bonds.

Most people view a price as having just one side. A stock’s price is $42, a home’s price is $350,000, a car’s price is $27,000. For most people, the thinking stops there.

Yet, there’s a very different, very powerful way to view prices beyond them having just one side. Not many people use this way of seeing things, but it’s one of the great secrets of the financial markets. It’s something that lets you to see what others do not.

Once you learn and start using this idea, you’ll ascend to a higher level of understanding the markets even a higher understanding of everyday life.

Those are bold statements. Below, I follow through on them.

Rather than seeing a price as having just one side, an enlightened individual sees a price as having two sides. He understands there is great power in knowing that “there are always two sides to a price.”

Here’s how “two sides to a price” works:

On one side of a price, you have the asset, product, or service being measured.

On the other side, you have your “measuring unit.”

This is the currency you’re measuring the other side with, like dollars, euros, Swiss francs, Bitcoin, Japanese yen, or “hard money,” gold.

If you keep these two sides in mind, a whole new world of opportunities will open up to you. When you realize there are always two sides to a price, you’ll start viewing the stock, bond, and commodity markets in a much more useful way.

Both sides of a price can fluctuate wildly. They can boom and bust. They can enter long-term bull markets and long-term bear markets.

Most people panic during stock crashes and bear markets, but someone who knows there are always two sides to a price thinks and acts differently.

This is because he knows a bear market in stocks is also a bull market in cash.

He knows that when asset prices go down, his power to accumulate assets goes up.

For example, let’s take a hypothetical company, Broward Breweries. With its suite of popular beers, Broward is one of the country’s top beer makers. It has a large and loyal customer base.

Because of these qualities, Broward Breweries is a great business that rewards its shareholders. It has increased its dividend payment every year for the past 18 years. The current annual dividend payment is $2 per share. Since Broward’s share price is currently $50, the dividend yield is 4%.

Now, let’s say stocks enter a terrible bear market. During this bear market, Broward continues to sell beer. Its customers remain loyal and the fundamentals of the business itself remain strong. Given this, Broward continues to pay its dividend, but since stocks are out of favor with investors, Broward’s share price falls to $25 per share.

In this example, one can say Broward’s share priced dropped by 50%. For most folks, the thinking stops there.

Since we are enlightened investors, we go a step further. We say the amount of this great business we can acquire with our investment dollar has increased, not by 50%, but instead, by 100%!

To illustrate, let’s say we wanted to spend $5,000 on Broward’s stock. At a share price of $50, that would have bought us 100 shares, but then Broward’s stock fell 50% to $25. Our same $5,000 now buys us 200 shares, 100% more than before, even though the stock itself only fell 50%!

Thanks to Broward’s lower stock price, we can own a larger share of the business’s assets – per dollar invested – than we could before.

We can also claim a larger share of Broward’s dividend stream per dollar invested. The falling share price translates into us getting a much larger cash yield on our investment. Buying Broward at $25 per share instead of $50 per share means we earn an 8% yield on our investment instead of a 4% yield.

This simple example shows how the mirror image of a bear market in stocks is a bull market in the value of your cash.

Said another way, as asset prices go down, your ability to employ cash in the acquisition of assets goes up.

You can also see this idea at work in the real estate market.

Say there’s a well-built single-family home in your neighborhood. It’s capable of generating $12,000 in annual rental income (before factoring in expenses like maintenance and insurance). Imagine it would sell on the current market for $120,000, or 10 times rent.

Now, let’s say that housing in your area enters a bear market. That home declines in value and sells for $90,000.

In this instance, we could say the home’s value decreased by 25%. Or, we could say your dollars increased in value relative to the home. You can now buy the home that throws off $12,000 in rental income for $90,000 instead of $120,000. It was a bear market in housing, but also a bull market in your ability to acquire real estate with your cash.

Let’s go to the commodity market for another example. We’ll use copper, one of Earth’s most useful natural resources. Copper is used in cars, homes, appliances, electronics, power lines, construction, and a thousand other things.

In 2007, copper traded for around $3.50 per pound. During the 2008 financial crisis, it plunged in 57% in value.  By early 2009, it traded for around $1.50 per pound.

By now, you know the other way to view this situation.

Copper’s massive price decline increased the amount of this useful natural resource you could accumulate with your investment dollars. In 2009, your investment dollar bought you a lot more copper than it did in 2007. (And by 2011, the dollar price of copper had recovered more than 150%.)

We’ll go to the currency market for one last example.

The financial media often runs articles about big moves in the currency market. You might read how the Canadian dollar has dropped 10% in the past year, or how Russia’s currency, the ruble, is crashing.

But when a currency crashes in price, another currency, like the dollar, soars in price relative to that currency.

That’s exactly what happened in 2014 when Russia’s economy struggled badly. The Russian ruble lost more than 50% of its value relative to the U.S. dollar, but you know there are two sides to this story.

On one side of the price, you had a currency crash. On the other side, you had a currency rally. During this rally, the dollar holder’s ability to buy Russian assets skyrocketed. (By the way, this knowledge is useful for taking vacations. Your buying power goes a lot further in a country that has experienced a big currency decline.)

“There are always two sides to a price.”

When you know a bear market in stocks or commodities or real estate is also a bull market in cash, you’ll be more comfortable keeping a large portion of your wealth in cash, knowing the whole time that it’s increasing in value and will eventually allow you to accumulate valuable assets at bargain prices.

Keep this in mind the next time a market crashes. You’ll see what others don’t. You’ll start considering your cash as “returns in waiting.”

You’ll know your cash is enjoying a bull market in purchasing power, and you’ll be ready to buy valuable assets at fire sale prices.

Next, we will examine the “butterfly effect” of spent money and how it hurts your financial freedom.

Regards,

Brian

 

 

 

 

New CuNi collectors’ type:

“900 years of Ponte de Lima charter“

TECHNICAL DATA
Composition: CuNi
Diameter: 33.00 mm
Weight: 18.50 g
Designer: Isabel Carriço and Fernando Branco
Mint: Imprensa Nacional-Casa da Moeda (Portugal)
Mintage: 30,000


LINK: Imprensa Nacional-Casa da Moeda

Dollar General (DG) on Thursday reported better-than-expected fourth-quarter sales, but profit missed estimates due to costs from a review of the retailer’s store portfolio.

The chain posted earnings per share (EPS) of $0.87 on revenue of $10.30 billion. Analysts polled by Visible Alpha estimated $1.52 and $10.26 billion, respectively. The retailer said the profit figure included a $0.81-per-share negative impact from an “optimization review” of its stores. After the review, the company “plans to close 96 Dollar General stores and 45 pOpshelf stores, and convert an additional six pOpshelf stores to Dollar General stores in the first quarter.”

“While the number of closings represents less than one percent of our overall store base, we believe this decision better positions us to serve our customers and communities,” CEO Todd Vasos said.

Same-store sales rose 1.2% year-over-year, above analysts’ 0.93% growth projection.

Dollar General expects fiscal 2025 EPS of $5.10 to $5.80, net sales to grow by 3.4% to 4.4%, and same-store sales to increase by 1.2% to 2.2%. Analysts were expecting full-year EPS of $5.94, revenue growth of 3.96%, and same-store sales growth of 1.77%.

Oppenheimer analysts said Tuesday they expected Dollar General’s 2025 projections to come in below consensus, adding they think the company’s ongoing turnaround effort has so far been “masked by both macro and competitive headwinds.”

Shares of the retailer were up 4% immediately following Thursday’s report. They entered the day down more than 50% over the past year.

Have you ever known someone who got rich even though they didn’t seem very smart, didn’t work hard, or both?

Almost everyone I know has someone they’d place in this category.

The mortgage broker during the 2002 -2007 real estate boom, the guy involved with gold mining during the historic gold bull market from 2002 – 2011, the website designer during the 1990s Internet boom, all made millions despite not working or thinking very hard.

There’s also the easy money made during the 2017 Bitcoin boom, the 2016 marijuana stock boom, the post-2008 Silicon Valley boom, the 1980s boom in Wall Street profit, and the list goes on and on.

There’s a powerful secret –a set of knowledge – behind most of the “easy” or “accidental” fortunes you see in the world. This knowledge is one of the key differences between the rich and the poor.

When you put this secret to work, it’s easy to make a fortune without trying or thinking very hard. Below, I’ll tell you how this secret works and how you can start using its enormous power immediately.

In the business and investment world, the boom times I described above (favorable conditions where practically anyone can make a ton of money) are often called “tailwinds.”

If you’ve ever come across someone who got rich without trying or thinking very hard, chances are they got into an industry with a strong tailwind blowing at its back. A tailwind of robust industry growth that lasted for years.

Achieving success in these situations can be like hopping on a boat that is headed down river. You can practically float your way to success.

Take the mid-to-late 1990s Internet and wireless communications boom. It was an incredible time for tech entrepreneurs, investors, and employees. Gale-force tailwinds of wealth creation were blowing.

The benchmark technology stock index, the Nasdaq, gained 40% in 1995, then 22.7% in 1996, 21.6% in 1997, 39.8% in 1998, and then an incredible 85.6% in 1999.

During these boom years, top technology firms like Microsoft, Cisco, and Qualcomm doubled and tripled in value in just months. Annual stock gains of 1,000% were commonplace in the technology sector. Company founders made billions of dollars. “Regular” employees also made millions. Many were simply floating along giant rivers of wealth creation.

A strong business tailwind may come in various shapes and sizes. Perhaps in the form of a huge rally in the price of a commodity like corn (makes farmers rich), or crude oil (makes oil drillers rich).

A strong business tailwind can be the result of a new technology reshaping the world, like what the Internet and wireless communications have been doing since the 1990s. New government laws may cause strong tailwinds to blow, such as the legalization of marijuana.

Most books on wealth don’t emphasize it, but I believe knowing how to spot and harness tailwinds is one of the great secrets of getting what you want in life.

Whether you want money, respect, freedom, or good press, few forces in this world can help you more than a strong tailwind.

Want to retire rich at 40? Get a tailwind blowing in your favor.

Want to build a multi-billion dollar business? Get a tailwind blowing in your favor.

Want to grow your savings through smart investment? Get a tailwind flowing in your favor.

Want to make a large annual income without working or thinking very hard? Get a tailwind blowing in your favor.

Too often in life, smart, hard working people struggle to get what they want. It’s often because they’re not working with tailwinds at their backs, or worse, headwinds blowing in their faces.

For example, you could have been one of America’s best clothing manufacturers back in the mid-1990s, but vast amounts of cheap clothing coming from China was a powerful headwind working against you.

Take bricks and mortar retailers in the Internet age. Many retailers who do many things right are currently getting killed by the gale force headwind that is Amazon.

Consider how small mom and pop retailers, even the best ones, have struggled to compete against Wal-Mart’s ultra-low-cost headwinds for the past 30 years.

If you’re contemplating taking a new job, starting a new business, or making a substantial investment in a business (public or private), it makes sense to study the tailwinds and headwinds that are affecting, or could affect, the business in the future.

Think of it this way: You don’t want to spend five years of your life becoming a top-shelf buggy maker right before Henry Ford introduces the Model T and you don’t want to own the neighborhood’s best movie rental store right before Netflix rolls out its home streaming service.

People can and do make lots of money in declining industries, but making big money is a hell of a lot easier and your chances of doing so are a hell of a lot higher if you focus on industries with powerful, long-term tailwinds at their backs.

When you do this, you can get rich without trying or thinking very hard.

As I write in mid-2018, some businesses that I believe will enjoy strong tailwinds for many years are:

• Health care for Baby Boomers
• Virtual reality/augmented reality
• Autonomous vehicles
• Robotics/Artificial Intelligence
• Genetic editing and personalized medicine
• Cybersecurity
• Renewable energy
• Selling high quality organic food

There are plenty of industries that should enjoy strong tailwinds for years, but this is a good place to start. Becoming an expert in any one or several of these fields will get strong tailwinds blowing at your back. You’ll stand a good chance of getting rich without trying or thinking very hard.

And if you’re willing to think and try hard? Well, it’s scary what you could accomplish. Good luck!

Next time will discuss a simple realization about people that increase your chance of investment success!

Regards,

Brian

 

 

Intel (INTC) shares soared in extended trading Wednesday after the company named former board member and chip industry veteran Lip-Bu Tan as its new CEO.

Tan, who is the former CEO of chip software company Cadence Design Systems (CDNS), will succeed interim Co-CEOs David Zinsner and Michelle Johnston Holthaus, who have shared the position since Pat Gelsinger retired in December. Tan will assume the roll next Tuesday.

The development follows a report earlier Wednesday that Taiwan Semiconductor Manufacturing Company (TSM) has approached Nvidia (NVDA), Advanced Micro Devices (AMD) and Broadcom (AVGO) about forming a joint venture to own and run Intel’s foundry division — a unit that manufactures chips for third party customers.

Intel shares have lost more than half their value over the past 12 months, weighed down by the company’s inability to capture a greater share of the lucrative AI chip market and months of restructuring and deal rumors. The stock jumped 10% to $22.84 in the after-hours session Wednesday following news of the CEO appointment.

Below, we break down the technicals on Intel’s chart and identify crucial price levels that investors may be watching.

Potential Rangebound Bottom

Since gapping sharply lower in early August last year, Intel shares have remained mostly rangebound, potentially carving out a market bottom. 

More recently, the stock staged a short-lived rally to the closely followed 200-day moving average (MA) before retracing towards its trading floor of the past seven months.

However, the shares moved higher in Wednesday’s regular trading session and look set for further gains on Thursday.

Let’s locate three crucial overhead areas to watch on Intel’s chart amid the potential for a new trend higher and also identify a major support level worth monitoring if the stock retraces to multi-month lows.

Crucial Overhead Areas to Watch

The first overhead area to watch sits around $22. While the stock is currently projected to open above this price on Thursday, it’s worth looking if bulls can hold this level into tomorrow’s close, given its proximity to a horizontal line that links a range of comparable trading action on the chart from August last year to March this year.

A successful close above this level could see the shares rally to the $26 area. Investors who have bought recent lows may look to lock in profits near the prominent November and March peaks.

Buying above this region could propel a move to around $30. This area would likely provide resistance near the psychological round number and the low of a prior trading range on the chart that preceded the early-August gap lower.

Major Support Level Worth Monitoring

Further selling in Intel shares could see the price revisit multi-month lows around $19. Bargain hunters may seek to scoop up shares in this location near a trendline that connects multiple troughs in the stock between August and February.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above securities.

For the 210-year period from 1802 to 2012, investment returns in U.S. stocks averaged 6.7% per year.

The excellent returns in stocks came during a time marked by booms, depressions, world wars, stock crashes, amazing innovation, and financial panics.

At that rate of appreciation, you’d double your investment stake (aka “make a 100% return”) in about 11 years… and you’d triple your stake (a 200% return) in about 17 years.

But thanks to a unique type of market event, there are times when entire groups of stocks climb 100% in a year… and 200% – 300% in two years.

These events lead to “warp speed” wealth generation for shareholders.

These unique events aren’t just great for generating awesome short-term results. They create opportunities to lay the foundations of financial empires that last for generations.

When this kind of event occurs, the world’s greatest investors see it as the “Super Bowl” of investing… something you work and train for your whole career… a time to build dynastic wealth and a legendary reputation.

As powerful as this event is, the average joe runs away from it. That marks a critical distinction between naïve investors and wise investors.

In fact, how a person views these events is one of the defining differences between the rich and the poor. The poor are bewildered and angered by these events. The rich see them simply as how the world works… and as the creators of huge opportunities.

What is this event that creates “investment magic”?

A crisis.

A time of great fear, plummeting prices, uncertainty, upheaval, and panic.

A crisis can take many forms. But some traditional things that happen during a financial crisis include: stock market crashes, bear markets, bank runs, mass loan defaults, huge bankruptcies, currency crashes, wars, and incredible swings in asset prices.

Every 5 to 8 years, there’s a major financial crisis somewhere in the world. They can happen in individual countries and specific industries. Or they can be global in scope (like the worldwide financial crisis of 2008).

To the poor, a crisis is something totally new and unexpected. This is because one of the defining characteristics of the poor mentality is a reluctance to study and learn from history. Since the poor have no historical context, a crisis is utterly baffling to them. They act as if each one is the first crisis in human history.

This is why the poor see a financial crisis as a time to panic or simply freeze up… a time to focus on a laundry list of boogiemen who should get the blame. Their familiar targets are speculators, corporate executives, and the government.

The rich, on the other hand, learn to appreciate a good crisis.

They certainly aren’t surprised by them.

After all, even a quick and shallow study of history shows financial panics are a common part of life. It’s just the nature of things.

For example, here’s a short list of crisis events from recent history…

***The worldwide financial crisis of 2008/2009.

***The implosion of the U.S. auto sector in 2008.

***The Nasdaq bubble bursting and subsequent bear market from 2000 – 2002.

***The Greek government debt crisis in the aftermath of the 2008 global financial crisis (2010 – 2016).

***The implosion of Argentina’s economy and subsequent depression from 1998 – 2002.

***The implosion of Russia’s economy and currency in 1998.

***The Mexican economic and currency crisis of 1994.

***The U.S. savings and loan crisis of the late 1980s/early 1990s.

A study of the past 100 years reveals near-constant crisis. In addition to the events above, you have World War I, World War II, the Vietnam War, the 1970s energy crisis, the Great Depression, the 1987 stock crash, and the 1997 Asian financial crisis.

People are capable of great acts of kindness and intelligence, but we’re also capable of great acts of stupidity, dishonesty, and villainy. These ingrained human traits ensure crisis events will always be with us.

And while there’s plenty of blame to go around during a crisis, the wise investors who’s building his financial empire doesn’t spend his time and energy playing the blame game. He’s far too busy with far more important, far more useful things.

He knows a crisis is a unique event that creates unique opportunities.

Here’s why…

About the Only Time You Can Get a Real Bargain

One of the major goals of an investor focused on asset accumulation (one of the most surefire ways to build a financial empire) is to buy assets for less than they are worth. This goes for businesses, resource deposits, real estate properties, bonds, and every other kind of asset.

Put another way, the goal is to buy bargains.

However, finding real bargains is difficult… and you rarely get the opportunity to buy them.

This is because financial markets correctly price most assets the majority of the time. Most of the time, stocks, real estate, bonds, and commodities like gold and oil, trade for approximately what they are worth.

The key words in that last sentence for empire builders are “most of the time.”

Assets trade for what they are worth “most of the time”… not “all of the time.

And there are fortunes to be made from the difference between “most” of the time and “all” of the time.

Mainstream financial books and professors say the market accurately prices assets all of the time. They say people always make rational financial decisions.

This is the basis for an idea universities began promoting in the 1960s. It’s called the “efficient market hypothesis”

The efficient market hypothesis says the financial markets take their cues from rational people who always make rational decisions. So, all those rational people making all those rational decisions always produces rational asset prices.

It sounds clean and orderly. And for years, this was academic gospel. Anyone who said otherwise was attacked by an army of “scholars” who spouted lots of convincing statistics. These academics declared market prices always reflect everything that is known about stocks and bonds. So, trying to “beat” the market was futile.

However, this popular theory is a load of BS.

The academics missed a critical aspect of human nature: People are irrational. People do crazy stuff from time to time. Even rational people do crazy stuff from time to time. It’s just human nature. We’re emotional creatures.

Take World War I, for example. You had the countries of Europe, filled with people who generally just wanted to enjoy life and mind their own business. And then, a small conflict erupted.

That small conflict could have been resolved relatively quickly had rational minds prevailed. Unfortunately, irrational human nature took over.

This resulted in a huge war that killed more than 15 million people. It completely devastated some of the most powerful countries on Earth.

There were lots of men fighting in that war who had no idea who they were fighting or for what reason. They were murdering each other because some king or bureaucrat told them it was the right thing to do. It was total insanity.

Was that a rational decision?

Another example of our irrational nature is our tendency to self-destruct. Destroying your life with alcohol, drugs, or gambling isn’t rational. Punching a brick wall and breaking your hand isn’t rational. Staying with an abusive spouse isn’t rational. Yet, people do those things thing all the time. It’s part of who we are.

So, don’t be surprised when you see people doing crazy, irrational things. Take note, protect your family, and don’t be surprised. If you have a sense of humor and a safe place to stand, you might even get a laugh out of it. Laugh at the absurdity of life.

I want you to be a financial empire builder. And as an empire builder, expect this absurdity to constantly produce financial crises.

A crisis creates massive empire building opportunities because it introduces tremendous amounts of emotion into the financial markets.

A crisis creates panic. When people panic, they dump their ownership stakes in stocks, bonds, real estate, and commodities with little regard to their real values or ability to produce income. They just sell first and ask questions later. This creates huge declines in asset prices and huge volatility.

For example…

***In 2008, the U.S. stock market fell 53%. Crippled by mortgage market losses, banking stocks fell more than 90%.

***From early 1998 to March 2000, the Nasdaq stock index climbed an incredible 219%. But when this bubble popped, the Nasdaq plummeted 78% over the next two and a half years.

***On June 18, 2014, the price of crude oil was $106 a barrel. Just nine months later, the price had declined by 59% to hit $43 per barrel. It eventually fell as much as 73% off its 2014 high. Many oil stocks lost over 75% of their value.

***From their 2000 low to their 2008 high, gold mining stocks, as measured by the Gold Bugs index, climbed 1,300%. After hitting a peak in 2008, gold stocks crashed as much as 70%.

These examples are just from recent times. You also have the stock market crash that accompanied the start of the Great Depression. Stocks lost over 80% of their value. Then there’s the 1987 stock market crash. Stocks lost 22.6% of their value in one day.

Remember, markets are rational most of the time. They price most assets correctly most of the time. But when emotion levels go off the charts–like they do in crashes we listed – emotion completely overwhelms reason.

During a crisis, the price of assets decouples from the value of assets.

This, of course, means if you can keep your head while others are losing theirs, you can buy assets at fire sale prices.

A crisis event is about the only time you get the opportunity to do so. When you buy assets at bargain prices, you set yourself up for huge gains down the road.

For example, the wake of the 2008 credit crisis was a fantastic time to accumulate world-class assets… a fantastic time to lay the foundation of a financial empire.

This period was marked by the bankruptcy of Lehman Brothers, which was the largest corporate bankruptcy in U.S. history. The housing market crashed. The stock market plummeted more than 50% in its worst year since the Great Depression. We were on the verge of a global economic meltdown.

But the world has a funny way of not ending. It turned out that late 2008 and early 2009 was an amazing time to buy business like Apple, Altria (the world’s largest cigarette maker), and Starbucks. Apple tripled in value off its 2009 bottom in less than two years. Altria doubled off its bottom in about two years. Starbucks more than tripled in value off its bottom in about two years.

Commercial real estate, as measured by the large commercial investment fund, iShares Real Estate, also more than doubled off its bottom in just two years. One of the top mining firms in the world and owner of the top shelf Grasberg copper deposit, Freeport-McMoRan, more than tripled off its bottom.

All those assets were deeply depressed because of the mass, emotionally charged selling… because of the pessimism. The crisis created extreme bargains.

Most importantly, those bargains offered the opportunity to make “one decision” empire building moves. When you buy top shelf businesses, resource deposits, and properties at fire sale prices, you often never have to sell them.

Remember, during a financial crisis, essential assets like factories, skyscrapers, mines, oil fields, farms, pipelines, and power plants don’t dry up and blow away. Their physical structures don’t change one bit.

Factories still make things people want to buy.

Farms still produce food people want to buy.

Homes remain structures we can live in.

During a crisis, the only thing that changes about these valuable, lasting assets is who owns them.

The financial markets are like a chess game. During a crisis, the ownership of essential assets moves from weak players to strong players.

For example, during the 2008 panic, the share price of manufacturer 3M fell from $78 per share to $45 per share, a huge 42% decline.

But here’s the thing: 3M was (and still is) one of the world’s elite manufacturing companies. It has a huge suite of valuable brands, intellectual property, distribution contracts, and production facilities.

In addition to its popular sticky notes, 3M makes adhesives, cleaning pads, insulation, and hundreds of other things. It has billions of dollars’ worth of factories and brands.

3M is so good at what it does, that it has increased its dividend paid to shareholders every year for more than 50 years. Less than 50 companies in the world can make that extraordinary claim of consistent profitability and shareholder yield.

During the crisis – when 3M stock fell 42% –  3M’s factories didn’t dry up and blow away. Its super brand names didn’t fall into a black hole. Nothing about 3M’s business changed.

The only thing that changed was who owned the company.

During the crisis, panicked sellers dumped their ownership shares. But asset accumulators with an appreciation for value and quality scooped them up at bargain prices.

Four years after the crisis, 3M shares had more than doubled in value and reached all-time highs. The company continued raising its dividend as well. Investors who bought 3M shares during the crisis were earning an 8% (and growing) dividend in the years that followed.

An Enlightened View of the Market

When you buy a high-quality, super stable income-producing collection of assets like 3M at fire sale prices, you get what could be called an “enlightened” view of economic recessions and market declines. While others worry, you relax.

After all, if you’re earning a safe 8% yield on your share of a world-class collection of assets, do you care if the stock market drops 10% or 20% next year?

Do you care about a 10% decline in home prices or a 30% spike in oil prices?

Not really… unless you get entertainment value out that kind of news. But it certainly won’t affect that part of your empire. You can sleep soundly at night… and be comfortable knowing that no matter what the stock market does, folks are still going to be buying products from your business… and your business will continue paying big dividends.

You know the broad market could decline by 20% and you would still get your 8% yield. They could shut the market down for a year and you’d still get your money.

That’s the peace of mind accumulating assets at bargain prices will give you.

And while we as empire builders are looking to own top shelf assets for decades, it’s worth pointing out that buying during a crisis can lead to huge short-term wealth accumulation. When things are truly bad, you don’t need them to get “good” to make a lot of money quickly. You can make huge money as things go from “terrible” to “less terrible.”

The greatest speculator of all time, George Soros, has a brilliant way of looking at crisis situations. He says, “The worse a situation becomes, the less it takes to turn it around, and the bigger the upside.”

Warren Buffett is one of the world’s greatest practitioners of accumulating assets during times of crisis. Buffett comes off as a grandfatherly “aw, shucks” type of guy, but he’s a master crisis hunter… a master of buying assets during times of despair.

In 1964, Buffett made an incredibly successful purchase of blue-chip credit card firm, American Express, after it was rocked by a crisis. American Express had extended a large amount of loans to a company that was busted for falsifying documents. Its share price fell nearly 50%. Afterwards, Buffett bought the stock. He ended up making a fortune and owning more than 10% of one of the all-time greatest American businesses.

Buffett was also a very active buyer and lender during the 2008 credit crisis. He made a handful of spectacular investments during that time. Buffett is famous for saying that he likes to invest in great companies that have been hit by a one-time huge, but solvable, problem. In other words, he looks to buy great companies after a crisis.

Humans are hardwired to seek the safety of crowds. Fifty thousand years ago, it’s how we survived. But when it comes to accumulating assets and building your empire, you won’t succeed by doing what everyone else is doing. And during a crisis, almost everyone panics and sells. We must fight the natural instinct to run away from the crisis… and instead run toward it.

To repeat a key empire building idea: During a financial crisis, assets like farms, buildings, factories, and railroads don’t vanish into thin air. Nothing about their physical nature changes at all. What changes is who owns those assets.

During times of panic, you can lean on the wisdom of master empire builders, Warren Buffett and Nathan Rothschild. One of the best things Buffett ever said about how to succeed as an investor was, “You want to be greedy when others are fearful, and fearful when others are greedy.” And the legendary financier Nathan Rothschild’s recommendation was, “Buy when there is blood in the streets.”

After all, the price you pay is of critical importance to the empire builder.

Here’s why…

The Critical Importance of Price

It’s a quirk of human nature that has amazed financial advisors and top investors for generations…

When the average guy wants to buy a new car, he’ll spend hours studying his options. He’ll carefully weigh the benefits and prices of each potential purchase. He’ll pit sellers against each other and get them to compete for his business. He’ll dig in his heels and haggle over car features and the price. He’ll do the same with shoes, computers, and houses.

After all, when you buy things, you don’t want to pay stupid prices. You want to pay good prices. You don’t want to overpay and embarrass yourself by getting ripped off.

Yet… when people invest their life savings, the idea of paying a good price is often discarded. The average guy gets excited about a stock story he reads in a magazine… or hears how much his brother-in-law is making in a stock, and he just buys it. He doesn’t pay any attention to the price he is paying or the value he is getting for his investment dollar.

It’s a shame… because a good case can be made that the price you pay is the most important aspect of any asset purchase.

Like many investment concepts, it’s helpful to think of it in terms of real estate…

Let’s say there’s a great house in your neighborhood. It’s an attractive house with good, modern construction and new appliances. It could bring in $24,000 per year in rent. This is the “gross” rental income… or the income you have before subtracting expenses.

If you could buy this house for just $96,000, it would be a good deal. Since $24,000 goes into $96,000 four times, you could get back your purchase price in gross rental income in just four years. In this example, we’d say you’re paying “four times gross rental income.”

Now… let’s say you pay $480,000 for that house. Since $24,000 goes into $480,000 20 times, you would get back your purchase price in gross rental income in 20 years.

In this example, we’d say you’re paying “20 times gross rental income.” Paying $480,000 is obviously not as good a deal as paying just $96,000.

Remember, with this example, we’re talking about buying the same house… and the same amount of rental income.

In one case, you’re paying a good price. You’re getting a good deal. You’ll recoup your investment in gross rental income in just four years. Said another way, your “payback period” is four years.

In the other case, you’re paying a lot more. You’re not getting a good deal. It will take you 20 years just to recoup your investment. Your payback period is five times longer. And it’s all a factor of the price you pay.

Now, did anything about the actual house change? Were the bricks, or windows, or kitchen appliances somehow more or less valuable in either case?

Obviously not. The only thing that changed was the purchase price – one price led to a good deal, the other led to a bad deal.

The house itself didn’t matter. Price mattered.

This concept works the same way when you invest in any business, public or private.

Let’s say a potato chip maker, Premium Snacks, generated $2 million in profit last year.

If you buy Premium Snacks at a market value of $12 million, you’re paying six times earnings. If you buy Premium Snacks at a market value of $40 million, you’re paying 20 times earnings. If you buy Premium Snacks at a market value of $100 million, you’re paying 50 times earnings.

The market is made up of people. And remember, people act crazy from time to time. One month, the market might set the price of Premium Snacks at $6 million. The next month, it might set the price of Premium Snacks at $8 million or $10 million.

We know that sounds like a wide range of prices, but you see these ranges in the stock market all the time. People are willing to pay different prices for different businesses at different times.

The amount people are willing to pay for a company’s earnings is often called the “price-to-earnings multiple,” or simply “the multiple.”

In this example, it’s a much, much better deal to buy shares of Premium Snacks when the market is valuing it at $12 million – or at a price-to-earnings multiple of 6 – instead of buying shares when it is valued at $100 million – or a price-to-earnings multiple of 50. You get more value for your investment dollar. You’re buying shares in a cash-producing enterprise for a lot less.

Our goal as empire builders is buying assets at bargain prices… and avoid buying assets at bloated, expensive prices.

It’s vitally important to know that buying a stake in a great business can turn out to be a terrible move if you pay the wrong price.

Let’s go back to Premium Snacks. It has a good brand and good profit margins. It’s steadily growing. And remember, it does $2 million in annual profit.

If you buy an ownership stake in Premium Snacks at a market value of $200 million, you’re paying 100 times earnings. This is an extremely expensive price. Your only shot at making money in this example is if someone else comes along and is willing to pay an even crazier price than you did.

While this “waiting for a greater fool” approach can work occasionally, it’s generally a losing strategy. The typical investor will never be able to make it work.

What often happens is that the company keeps doing well, but the multiple that people are willing to pay returns to more normal levels.

In a case like this, the company can keep increasing its profits, but the share price will plummet. It can fall 50% or 75%.

We know this sounds extreme, but it’s exactly what happened during and after the 1999 and 2000 market peak.

Back then, good companies with solid future prospects – like Wal-Mart and Microsoft – traded for 50, 60, even 90 times earnings. People who purchased shares back then paid nosebleed prices. They had stock market bubble fever. They didn’t focus on getting good value for their investment dollars.

Because many stocks with good business models were so overvalued, their share prices crashed in 2000 and went nowhere for years. The underlying businesses were still sound. The businesses were still growing and producing profits. But the stock prices got so out of whack that investors who overpaid suffered horribly. It took a long time for the stocks to “work off” their extremely overvalued states.

For example, in 1999, Wal-Mart traded for more than 50 times earnings. It spent more than a decade “working off” that overvaluation. Folks who bought Wal-Mart back in 1999 didn’t make any money for more than a decade. The company did fine… but shareholders who bought the stock at stupid prices suffered for a long time.

If you can buy a great business for 10 times earnings, it’s a good deal. But if you pay 30 or 50 times earnings for it, you’re bound to be disappointed.

This concept is so important we’ll state it again: If you overpay, you can buy a great company and make a terrible investment.

One the other hand, you can make money in a poor business if you pay a bargain price.

Let’s say Superior Foods is barely profitable and has a market value of $4 million. It makes just $100,000 a year. Competitors like Premium Snacks are doing a better job of serving potential customers… so Superior’s sales are declining.

But let’s also say that the company sits on a valuable piece of real estate, which it owns free and clear. You know the piece of property could easily sell for $3 million… maybe even $4 million.

You could buy an ownership stake in Superior, knowing full well the business is in decline and could even stop making money. But if you buy shares while the market values the company at $2 million, you could make great money if they close the business and sell the real estate for at least $3 million.

In this example, you could make money in a bad business by paying a bargain price. Again, it all comes down to the price you pay.

If you’re buying a business with the aim of collecting dividends, the price you pay is a huge deal.

Let’s go back to Premium Snacks. It’s a great business that pays a very stable dividend. It has raised its dividend every year for 23 consecutive years. Its current annual dividend is $1 per share.

If you buy Premium at $20 per share, your dividend yield will be 5%.

If you buy Premium at $30 per share, your dividend yield will be 3.3%.

If you buy Premium at $36 per share, your dividend yield will be 2.8%.

If you buy Premium at $100 per share, your dividend yield will be just 1%.

As the price you pay goes up, the yield on your investment goes down.

Obviously, you want to pay lower prices and earn higher yields.

The situation is the same when buying bonds (aka “making loans”). Bonds pay fixed-income payments. But like stocks, the price of bonds can fluctuate.

For example, let’s say a bond is issued at a price of $1,000 and pays 5% in annual interest. That’s $50 in annual interest.

If investors lose faith in the company that issues the bond, the bond price could fall to $700. But the bond’s annual interest payment would remain $50 per year. In this case, the buyer of the bond who pays $700 would earn about 7.1% in annual interest.

The amount of interest you earn on your capital is all a function of the price you pay.

The key takeaway is that we must view our stock, bond, real estate, and natural resource purchases just like we would view buying a house, car, phone, or groceries. Don’t be a sucker and overpay.

Price is what separates the good deals from the bad.

Make sure you get good value for your investment dollar. Hunt for bargains.

You wouldn’t pay $50 for a gallon of milk, would you?

So why pay absurd prices for your investments?

Learn to appreciate a good crisis… and hunt for bargains.

Next, I’ll explain why asset allocation is much more important than stock picking.

Regards,

Brian