Accumulating Wealth

"The worst guilt is to accept an unearned guilt"

-Ayn Rand

Welcome to The Golden Sense! Urban legends are popular myths and people just love to talk about them and spread them to others. These include such claims as the only things that would survive in a nuclear holocaust would be cockroaches and Hostess Twinkies; that swallowed gum takes 7 years to digest; that you can recharge your cell phone using body electricity; and that the female praying mantis always eats its mate. None of these are true by the way, according to the experts (whoever they are).

This brings us to a topic that isn't an urban legend, but something that should be given serious thought. There are principles that can be followed in order to accumulate lasting wealth. The Golden Sense has touched on this subject in the past and it has been written about many times by other authors. Many of these authors have different formulas but there is a general theme among them all. It is important to keep in mind that money isn't everything in life. However, wealth accumulation does provide a ticket to a life of freedom and stability. In order to achieve this goal you need to set up your affairs so that you can withstand a financial crisis as well as inflation proof your wealth. Throughout centuries people have followed five basic techniques that have generated great success.

The first and most important thing is to develop multiple income streams. Active income comes from working in a business as an owner or an employee. Developing one or more large income streams is critical to building lasting wealth. Owning a business is often the best way to generate large amounts of income, but you can also do very well by being a highly paid employee. There are thousands of rich executives, salesmen, lawyers, bankers etc. It is never too late to get a job or own a business. By having multiple recurring active incomes you will be able to save and have cash readily available for your everyday activities.

The second principle is to invest money in high quality large dividend paying businesses like Exxon Mobil, Coca Cola or Disney. Enduring businesses have built fortunes for Warren Buffet, Bill Gates, the Rockefeller's and the Rothschild's. Buying ownership shares in public or private companies can be extremely lucrative. 

The Casey Daily Dispatch provides an excellent example.

"Consider someone who bought an ownership stake in Johnson & Johnson in 1990. At the time, J&J was an established blue-chip leader in consumer products and pharmaceuticals. It was one of the best businesses in America. In April 1990, someone who bought an ownership stake in J&J began earning the company’s annual dividend payment of $0.15 per share. This translated into a 2% yield on the investor’s capital.

Over the next 25 years, J&J grew from $11 billion in sales to $74 billion in sales. It also increased its dividend payment every single year. The dividend increased through recessions, bear markets, and terrorist attacks.

By 2015, the person who bought an ownership stake in J&J in 1990 had watched the value of his stake grow by 1,321%. He was earning an annual yield of 42% on his original investment. And he made all this money by owning one of the world’s best businesses."

Businesses like Johnson and Johnson maintain value over time and they can create enormous wealth for you as an investor. 

The third principle is to purchase prime productive real estate. This means purchasing real estate in areas of high demand (think New York or Santa Barbara) or purchasing productive agriculture land. Whether it is a prime location or highly arable land, these types of properties can produce income for you regardless of what happens with the stock market or your day job. Productive real estate never goes out of style. Sure, real estate prices fluctuate, but highly desirable areas to live or land that produces quality food is something that stands the test of time. 

Taking on large debt just to own a home doesn't count. Taking on hundreds of thousands of dollars in debt to own a home can often be a mistake if done in the wrong area. Certain areas go in and out of fashion and some areas are subject to large taxation. These factors can be devastating to your wealth accumulation plans. The point is, choose wisely, and don't over extend yourself financially. 

In order to build lasting wealth, you must crisis-proof…inflation-proof…and lawyer-proof your money. This brings us to investing in precious metals in different political jurisdictions. Establishing a grantor trust or an LLC outside of your home country can be a huge asset. Create a trust or establish an LLC with the purpose of owning precious metals that are stored in different countries around the world. This is an effective way to shield your wealth from lawsuits, aggressive bankrupt Governments, and political instability. The precious metals will inflation proof your wealth and retain value over time. All this can be done quite easily, but I recommend researching your options and requirements before taking action.

The fifth principle will insure that you can retain your money, increase your options, and provide you with lasting freedom. I am talking about obtaining citizenship in more than one country. It is important to obtain more than one passport. Each person typically obtains a passport from their birth country, however, you should also seek to obtain additional citizenship from the country your parents are from or go through the process of applying for residency in another country. Doing this is not as hard as you think. There is a multitude of options in the world. Having dual or multiple passports will enable you to increase your options for work, business, residency, tax jurisdiction, and freedom of travel. This is an important tool for retaining and increasing your wealth and freedom. Nations and countries are like stock markets, they go through booms and busts and likewise go from freedom to despair. By having the option to come and go as you please is a freedom well worth the effort. This alone is all the wealth in the world that you need. 

By establishing and practicing these five principles you will ensure lasting wealth and stability for yourself and your family. Successful wealth accumulation can be done. It won’t happen overnight because it takes effort and persistence. As you slowly accomplish the five principles you will eventually feel the freedom and security that was once just an urban legend to you.

Over and Out

T. Norman











Brown, Steve. 2015 Bank Investment Daily

Hunt, Brian. 2015  Casey Daily Dispatch

Changing Tactics

"If you do not change directions, you may end up where you are heading"

-Lao Tzu

Welcome to The Golden Sense!  When the news initially broke of Playboy magazine’s decision to stop running photos of completely nude women I simply assumed that “somebunny” had gotten the story wrong. After all, since Playboy first appeared back in 1953, such photos have been ever-present. Gradually over the years, the magazine has fallen victim to the power of technology and the Internet. There, people can just click to “every sex act imaginable for free,” according to Playboy’s CEO. That is why the magazine is changing tactics, in hopes of a toned down magazine.

Speaking of changing tactics, the big question in the financial world is whether or not the Federal Reserve will raise interest rates. Interest rates are incredibly important because they affect everything in the world. They are the price of money. Since 2008, interest rates have been held at an artificially low level of 0% to 0.25% by the Federal Reserve.

The thinking behind low interest rates is to encourage borrowing that will spur growth in the economy. The subsequent growth is meant to boost employment. 

In addition, the Federal Reserve entered the market place and purchased trillions worth of U.S. Treasuries and Mortgage Backed Securities. This maneuver was meant to fund Government spending and lower mortgage rates. This was termed quantitative easing (QE), or more simply put, money printing. Although QE has ended in the mainstream media’s eyes, the Federal Reserve actually still purchases treasuries and mortgages with the interest earned on the bonds they currently hold. The buying continues, only at a slower pace.

There have been a variety of results from this monetary policy. The low interest rates allowed the bank's to increase revenue volume by providing a cheap source of funds. This helped some banks ride out the storm of loan defaults hitting their books.

The low rates facilitated the Government's spending binge and increased debt levels to the point where national debt repayment is now a complete impossibility. In addition, consumer and corporate debt has reached dangerously high levels. U.S. companies have issued $9.3 trillion in new bonds since the financial crisis. That includes $1.4 trillion in new bonds in the last year alone, according to the Securities Industry and Financial Markets Association. That’s a new all-time record.

The low rates have crushed retirees, as old folks now cannot earn a fixed income on their savings. The consequence has been the creation of a generation of people dependent on social security.

Since bond yields have reached all-time lows, money has flown into the stock market creating a massive bubble. Stocks are overpriced and the entire market hinges on every word the chairman of the Federal Reserve says.

People now refer to the current state of the financial world as the twilight zone, where fundamentals don't matter and the only thing that does matter is what the Federal Reserve is going to do next.

Economic growth has been slow and mild. The official unemployment rate has gone down, but this is only a consequence of the participation rate, which is now near all-time lows. The unemployment math is fuzzy, but makes for a good headline.

So what's going happen? The Federal Reserve targeted 2015 as the year in which they were going to raise rates. Yellen has even admitted that the employment picture isn't perfect, growth is mild, and inflation is low. In fact, the current economic situation is slowing dramatically.  

It appears that after seven years of low rates, all the U.S. economy got was more bubbles and more debt. No one could refer to it as a rip roaring success. 

Is it time for the Fed to take a page out Playboy's play book and change tactics? It is something to think about. After all, if you try something different, you may get different results.



Over and Out,

T.Norman









References:

Bank Investment Daily, Steve Brown






 

Be the Bank

"It is impossible for a man to be cheated by anyone but himself, as for a thing to be, and not to be, at the same time"

-Ralph Waldo Emerson

Welcome to The Golden Sense! I came across a video of a guy who was attempting to use a selfie stick to take a video of himself while going gator hunting in the Everglades. The problem for him was that while gazing into his phone to take the video, he drove his Jeep into the back of another vehicle carrying a canoe. It blasted out his windshield before ever getting anywhere near any gators. It’s hard not to notice that with the advancement of technology, there has been a large increase in the number of efforts to capture adventure footage in circumstances of questionable wisdom. As new products and services get developed it becomes quite interesting to see how they are tested by the mainstream public.

A relatively new service that has been making headways is the online credit market place of Lending Club.  This company has created a market place where investors can lend money in the form of consumer loans to borrowers. The result is that investors can make high yield returns while borrowers can arguably get lower cost loans than traditional bank lending programs.

As an investing tool, Lending Club offers something unique, it is a place where someone who doesn't have very much money can invest and get fixed income high yield returns. If you are new to investing or simply looking for high yield returns, Lending Club is the place to go.

Instead of investing in an entire loan, you can invest in fractions of loans in $25 increments. Each fraction of a loan is called a Note. Notes come in 36- or 60-month terms, depending on the term of the corresponding loan. Having the ability to invest in portions of loans with as little as $25 allows people with little money to become a full-fledged investor. In addition, having the ability to invest small amounts into different loans allows you to offset the risk to any singular loan that goes bad.

Lending Club assigns a grade (from A to G) to each loan based on borrower credit quality and underlying risk. Lending Club Notes have Historical Returns (including loan losses and fees) by Grade A-C of 5.19% to 8.88%.  You can choose the grade or grades that fit your investment goals.

Having the ability to invest in high yield loans creates an interesting opportunity. The opportunity is that you can take out a loan at a low interest rate and then turn around and use those funds to invest in higher yielding opportunities at the Lending Club. When you do this, it is important to factor in the default rate of the loans you invest in. By using this strategy, you are actually doing exactly what a bank does. 

If you have a good credit score and healthy income, you can take out a loan at Lending Club and potentially invest it in the higher rate loans. This may or may not work as the Lending Club takes fees out and your net interest margin could get crushed. In this scenario, everything depends upon the borrowing rate you receive.

A better idea is to use a chunk of money to invest in gold at www.silverbullion.com.sg and take out a loan against your securely invested funds and invest the borrowed funds at Lending Club.

As Simon Black explains:

The Silver Bullion platform provides a marketplace for people who own precious metals to borrow money from other people using their gold and silver as collateral.

This is what’s known as a ‘peer to peer’ or P2P lending platform, because it effectively eliminates the bank as a middleman.

There are two components to the peer-to-peer gold-backed lending facility:

1) the lenders,

2) and the borrowers.

In order to borrow money, you’ll first need to have gold or silver on deposit with Silver Bullion (you can buy it directly with them, or have your existing gold transferred in).

Afterwards, you can post a loan request on the platform.

All loan requests conform to contract specifications; they are for fixed terms (i.e. 1-year, or 2-year loans), and backed by your gold at a 2:1 ratio.

So, if you have $10,000 worth of gold and silver on deposit, you can borrow $5,000.

The interest rate on the loan, however, is set by the market. Borrowers and lenders themselves find a common price for which they’re willing to participate in the transaction.

There’s no centrally managed authority that dictates what the interest rate should be. This is true free market for money in the works.

By borrowing money at a cheap rate and then turning around and investing it at a higher rate, you can make a healthy low risk spread.

There are other ways to get cheap loans by posting collateral. You can get a certificate of deposit loan at a bank. Basically you get a certificate of deposit (time deposit) at the bank and the bank will turn around and loan you the same amount usually at a minimal 2-3% rate.

Whether you feel safer with cash or gold as your base investment, the rates on loans you can get are cheap. By being patient and diversifying the loans you invest in, you can essentially turn your own finances into your own banking system.

There are so many new gadgets, services, and technologies in the world today. With some you will find great success, while with others you may find yourself with broken windshield next to a swamp.  All these new inventions can bring success or sorrow. Whether you use a selfie stick or a financial loan, you have to be careful.


Over and Out



T. Norman

 

Real Returns?

"To be uncertain is to be uncomfortable, but to be certain is to be ridiculous."

- Chinese Proverb

Welcome to The Golden Sense! You’d be hard pressed to find a grade school student who doesn’t recognize Jesse James as one of the most famous outlaws of all time. James and his gang, which included his brother Frank, robbed countless banks, trains and stage coaches throughout the Midwest in the mid-1800s and eluded capture for 15 years. What fewer people know perhaps is that it was their December, 1869 robbery of Gallatin, Missouri’s Daviess County Saving Association that brought notoriety to Jesse James. During that robbery Jesse shot and killed the bank’s cashier, John Sheets, whom he reportedly mistakenly believed to be the militia officer who had killed his buddy “Bloody” Bill Anderson a few years earlier in the Civil War. Eventually, in April 1882, Jesse was killed by Robert Ford (a newly recruited member of his gang). 

Times may not be as tough as in the Jesse James era from the mid 1800’s when people lived an average of about 40 years but they remain difficult nonetheless – particularly in saving and investing (PCBB, Brown).

Investors around the world are now faced with overpriced stocks; overpriced bonds, overpriced real estate, and well...overpriced everything.

The Economist cites a Deutsche Bank study pointing out that for 15 countries going back as far as 1800, the average prices of stocks, bonds, and residential real estate now stand at all-time highs. “Worse still,” writes the economist, “Deutsche Bank reckons the average real return from equities over the next ten years will be negative. The same is true for Treasury bonds, European corporate bonds and US residential property.”

So what are we supposed to do when saving and investing is so difficult? Sure, there will be some winners in future years, but to be certain of where those gains are going to come from is nothing short of a bet...a guess at best.

What the average person should do in an economy like this is to strategically diversify. If everything is overpriced, the most likely scenario is for things to correct and go down in the future. At this time it is best to strategically diversify your investments, your income type, your banking exposure, and your political jurisdiction. By doing this you will be strategically managing your risk in this uncertain environment.

The goal of diversification is not to boost performance—it won’t ensure gains or guarantee against losses but it will manage your exposure. Diversifying your investment portfolio is simple enough. Simply don't put all your eggs in one basket as they say. You'll want to spread your investments over different categories. This can easily be done by purchasing individual securities or  exchange traded funds (ETF's) which typically have low transaction costs. A well-diversified person would have exposure to stocks, bonds, gold, currencies, and real estate. Having diversification will help keep a balance in your portfolio through the ups and downs of the market. Unfortunately, you can't diversify yourself out of a financial hurricane so don't have grand thoughts of completely nullifying all risk. The expectation is that a diversified portfolio may provide the potential to improve your financial returns for the level of risk you are willing to tolerate.

It is also important to consider the income type in which your investment will provide. Investments will either yield a dividend or be sold for capital gains. By diversifying these type of investment incomes it will provide your portfolio with a balanced income stream. When the market is up, you will want to sell and gather your capital gains, and when the market is down you will be glad you owned those dividend paying stocks and those bonds yielding interest income.

I know this is a shocking statement; but not all banks are safe and secure. Banks around the world are exposed to a multitude of different risks. Some banks are not well capitalized or exposed to risky loans while others have plenty of capital and are managed appropriately. Sure there is FDIC insurance in U.S. banks, but during large financial crashes, such as 2008, the FDIC didn't have enough reserves to deal with all the bank failures. For instance, according to the FDIC's annual report, the commission has enough money in its insurance fund to cover just 1.01% of all the money in U.S. bank accounts (or about $1 for every $100 of yours). Just like with individual investment securities, the smart thing to do is bank with a few different institutions.

Diversifying into different political jurisdictions is concept most Americans do not normally think about. Yet, political and national risk is a very real threat. For example, the U.S. is financially bankrupt by their own admission. Just look up their financial reports on their website.

It’s also not surprising that insolvent nations run into major, game-changing problems. As Simon Black recently wrote: 

"Several of the United States major trust funds and institutions are already insolvent or quickly heading that way:

• The United States Highway Fund is insolvent
• The Disability Insurance Trust Fund of Social Security is scheduled to become insolvent within months.
• The Pension Benefit Guarantee Corporation, a sort of FDIC for pension funds, is insolvent.

When push comes to shove the only options on the table for bankrupt nations will be default, confiscation, capital controls or massive inflation. Argentina did it in 2008… Portugal in 2010... France and Ireland in 2011… and Poland in 2013. Now Uncle Sam is finally starting to open up to the idea of nationalizing private citizens’ retirement accounts to pay the national debt. Most people don’t know this, but the U.S. Treasury has already raided the pension funds of government workers at least FOUR times since 2011 to plug federal spending deficits."

Holding funds or owning assets in different political jurisdiction is an intelligent thing to do. I am not saying disaster will strike tomorrow. What I am saying is that diversifying yourself financially across different political jurisdictions (countries) will help you weather a severe financial or political storm.

Jesse James certainly never thought about these topics. He lived in a simpler time. For all of us, the present day land scape is incredibly different. It is a complicated world with financial risks around every corner. The only thing we can do is set up camp accordingly.

Over and Out,

T. Norman

 

A Mixed Bag

"Change the"got" in your sentence into "get".

-James Altucher


Welcome to The Golden Sense! Due to travel and extensive work requirements The Golden Sense will be a different format this month. I wanted to share a Podcast by James Altucher regarding the power of the human brain and an article by Steve Brown from PCBB Bank Investment Daily about the recent volatile market action.


James Altucher Podcast:

The is an excellent podcast with Jim Kwik about the power of the human brain and the ability to use it beyond the realms of what people think currently possible. Enjoy:

http://www.jamesaltucher.com/2015/07/ep-121-jim-kwik-brain-coach-and-superhero/

PCBB Bank Investment Daily

Steve Brown

Beijing just won a bid to host the 2022 Winter Olympics, making it the first city in the world to host both summer and winter Olympics. Considering Beijing does not get much snow, it is likely to be a challenge to pull off. Yangquing, where the ski competitions are planned be held, has an average snow base depth of one centimeter. China has been involved in another set of Olympic Games of late, and that is in trying to control the volatility of its stock market and at the same time, devalue its currency versus other global currencies.

Typically countries devalue their currencies when they become overwhelmed with debt. Had Greece still used the Drachma instead of the Euro, a large devaluation would have occurred naturally given their debt levels, reducing lifestyles but also reducing the debt overall. Greece’s debt is in Euros and therefore can’t be reduced naturally, and this is why the debt problems there are so intractable. China does not have a debt problem like Greece; their problem is a rapidly slowing economy. China has just massively devalued its currency, through market forces and through government intervention. In the past, China kept its currency artificially cheap and until 2005, they pegged the yuan to the US Dollar. Since then, the yuan has been pegged to a basket of currencies and the exchange rate fluctuates, but it is still actively managed by the central bank.

The strong US economy (and the strong US dollar) versus the weak Chinese economy are already exerting downward pressure on the yuan. So why would the Chinese government do more?

The weaker currency basically puts Chinese goods on sale, so if the currency falls 4% to 5% as it did over the past couple of weeks, it serves as a 4% to 5% price reduction on the goods and services that China exports to the US and other countries.

Currency devaluations can be inflationary internally, but most countries (China included) would prefer that inflation were higher (it is around 1.6% currently). China has invested heavily in housing, infrastructure and industry and has a glut of almost everything. While economic growth is still strong by US or European standards (6% to 7% a year), it is not enough to create jobs for some 7mm new college graduates per year. Without enough jobs for a rapidly advancing society in terms of education and skills, social unrest can result.

The slowdown in the traditional Chinese economic drivers, exports and heavy industry, is naturally driving the economy towards more consumer driven and lighter manufacturing, signs of a more mature, more diverse economy. The reversion to weakening the currency may indicate that China’s leadership is nervous about the efficacy of the new strategy and is reverting back to familiar tactics to try to control the markets and grow its economy. This is why the Chinese stock market has been fluctuating more than 8% daily and has experienced a precipitous drop in the past month. Last week, the drop in Chinese stocks bled into US markets and stock prices have been pummeled. The

Dow Jones Industrial Average has dropped over 1,600 points in the last 4 trading sessions, and although the market spent most of yesterday in positive territory, prices fell 200 points by the close as market players didn’t want to be invested overnight.

What does it mean for American consumers? It means Chinese made goods will be cheaper, it also means US exporters, already struggling with the strength of the dollar, will be negatively impacted. Investors’ 401Ks are feeling real pain at this point. A cheap yuan strengthens the case for the Fed to keep interest rates low in the US. The Federal Reserve is most interested in the growing strength of the US economy and also wants to get interest rates above zero, but this recent volatility probably takes a rate increase off the table for September and maybe even for the rest of 2015. The Fed will be watching carefully to see if this is a short term lurch, or if the downturn in stock and commodity prices continues.

There won’t be any medals awarded in the Chinese Currency Olympics, but we expect there will be plenty of volatility affecting markets everywhere for some time. Hang on tight!

The Magicians Who Code Apps

"Innovation distinguishes between a leader and a follower"

-Steve Jobs


Welcome to The Golden Sense! Technology, iPhones, and apps have been the hot topic for many years now. Almost every industry has been trying desperately to keep current with today's ever changing technology. Due to this need to be user friendly and "cool", businesses are paying hefty prices to get their own iPhone apps developed. In addition, companies are willing to pay huge salaries to anyone who has a basic understanding of how these things work.

As the comedian Amy Schumer puts it, "companies have a boner for any millennial who knows how to use a computer."

There are some horror stories about companies spending hundreds of thousands of dollars or even millions on developing iPhone applications. Apparently, some ignorant business owners and companies are getting taken to the cleaners by blindly outsourcing app development and not managing the process correctly. These things happen to people who lack the understanding of how this technology works.

Learning the basics of coding and app development can go a long way in saving your business money. If you are not a business owner, just having this knowledge can increase your personal skill set and potentially increase your salary substantially. Fortunately, learning the basics of coding and app development isn't as intimidating or hard as you may think. There are three easy "do it yourself steps" you can follow to help teach yourself the mysteries of app development.

First you need a Mac Book computer (sorry PC only users). Go to the Apple Store and search for Xcode. The most recent version as of 2015 is Xcode 7. You can download this program for free and you don't even need a developer account! Yes, the program is actually free. Xcode 7 includes everything you need to create amazing apps for iPhone, iPad, Mac, and Apple Watch. The Swift programming language has been updated and is now faster than ever, with great features that make your code even easier to read and write. Xcode’s user interface testing feature can even record your app in action and generate tests for you. Keep in mind the download may take a while because it's approximately one gigabyte in size.

Once you have Xcode downloaded, just open up the program and start clicking around to get used to the functionality and controls. Go to the internet to read a few basic articles about Xcode. Don't spend too much time trying to learn the complexities. To start a project you need to go to "file" and "start project". Give it a name and go through all the necessary prompts.  The great thing about Xcode is there are templates you can use to design apps. It's kind of like Microsoft excel. As you know, Microsoft provides templates for spreadsheets, income statement, etc. Xcode provides similar templates for getting started with app development.

An important takeaway in regards to coding and development is to learn about building "classes" and instructing "classes" to communicate with one another. A class describes the behavior and properties common to any particular type of object. An app is built as a large ecosystem of interconnected objects that communicate with each other to solve specific problems. It's like building an individual piece of a puzzle and instructing it to communicate with other pieces of a puzzle to create the big picture.

The third thing is you need to is go on YouTube. Everything is on YouTube! Search for Xcode app development videos. Work alongside the video and slowly build a basic app. These videos are instructional and equivalent to hand holding. They will help you to learn the basics of coding and development. After you've completed your first app you will feel really good about yourself. Remember, repetition is important! The more you do it the better you will get. If you are comfortable enough to start creating things on your own, make sure you write a storyboard for every app you plan to develop. This will help you stay on track during the development phase.

Of course, you won’t be an expert just because you watched some videos and clicked around. However, you will be knowledgeable on the subject. Building apps and coding are not done by magicians; it is done by normal human beings. There is no need to be intimidated or spend outrageous amounts of money to develop an app. You can build the basics and get your project off and running by yourself. Entrepreneurship is about doing....it's not just about finding investors to pay for everything you need.

This whole process isn't as scary as you think. You just need to get started!

 

Over and Out,

 

T. Norman

A Real Phenomena

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

-Warren Buffet

Welcome to The Golden Sense! Remember the Cabbage Patch Kids, those dolls that became a craze during the 1980s? There was a time when the dolls were in such demand that there was a constant shortage on toy store shelves and people fought in the aisles to get their hands on the limited supply. The 1983 holiday season saw violent outbursts at major retailers. Some stores tried to find clever ways to control crowds, but efforts largely failed, leaving many people empty-handed and frustrated. Eventually more dolls became available and demand dropped. In time, the violence subsided and the stories of baseball bat-wielding parents faded into the distant past - although some remnants of those actions can be seen in Black Friday around the country.

I live in the small, beautiful city of Santa Barbara, California. Recently in Santa Barbara there is a phenomenon occurring in the real estate market equivalent to the Cabbage Patch Kid ordeal. Santa Barbara has recently received the lucky (or unlucky) label of being one of the least affordable cities in California. Which in turn, makes it one of the least affordable cities in the entire United States. According to the recent UCSB economic forecast, less than 14% of the "working" residents have an income that can support purchasing the average price home in Santa Barbara. According to Zillow, in June of 2015 the median home value in Santa Barbara was $1,029,700. Santa Barbara home values have gone up 7.7% over the past year, and the average price of homes are now near the peak of the real estate bubble in 2006. The local market has three powerful factors that are pushing prices into the stratosphere.

In the past year real estate listings have been considerably lower than the historical average. Simply put, no one is selling. The historical listing average for Santa Barbara and the surrounding area of Goleta, Montecito, and Carpinteria has been around five hundred properties. For the past year or two the amount of sellers has dried up considerably and the listing average has dropped, at times, over 20%. The lack of sellers is pushing the price higher for the homes that do come up for sale.

In addition to this limited supply, we all know that the Federal Reserve has held interest rates at extremely low levels for the past seven years. Since interest rates are at historical lows, borrowers are able to borrow larger amounts of money for less cost. The consequence of this is that more and more potential buyers bid up the price of real estate because they have the ability to pay these higher prices with cheap money. 

The third reason is the unique geographic location of the city. The city has the ocean on one side and the mountains sloping up directly on the other. This beautiful location makes for limited space for new development. In addition, the city has a height ordinance which restricts tall buildings from being built. The consequence of this is the amount of homes available remains at a relatively fixed amount. Just like the cabbage patch dolls, this real estate market has a very low supply prompting buyers to be aggressive and pay higher prices.

To some, these contributing factors are music to their ears. To others, it's extremely frustrating. The lack of available housing has pushed rental prices to absurd levels. Current home owners and property companies love the increase in perceived wealth. In the mean time, prices could very well continue upward. However, once more sellers come to the market or interest rates rise, the market price for these homes will come down.

For now, the escalation in price is just another market fluctuation. At one point Cabbage Patch Kids were hard to find. Then things changed. The Santa Barbara real estate market will eventually change too. If you want to see an adjustment in price, you just have to have time on your side.

Over and Out

T. Norman

Invest in Yourself

"You're only given a little spark of madness. You mustn't lose it"

-Robin Williams


Welcome to The Golden Sense! The movie Lost in Translation tells a simple story of love and friendship between an aging movie star and a young college graduate. The two Americans meet in a hotel in Tokyo in a story of communication gaps and alienation. Differences between Japanese and American cultures are highlighted as too is the generation gap between a has-been actor (who travels to Tokyo to make a whiskey commercial) and his relationship with the young wife of a celebrity photographer (bored with her life). A lot is unspoken and a lot is lost in translation.


Investing is a topic that often gets lost on translation. The term is misunderstood or used in different contexts that connote slightly different meanings. To simplify it, an investment is time, energy, or matter spent in the hope of future benefits actualized within a specified date or time frame. In my opinion, the best investments are the ones you make in yourself.


One of the best investments I made was going to school to get a master’s degree in business finance. Today education is extremely pricey, but despite the high price tag the education you receive will last a lifetime and qualify you for much higher paying jobs. Educating yourself in finance, technology or other useful skill sets is generally always a good investment. The skills you learn won't disappear like a stock with poor earnings. These skills stay with you and will allow you to apply them to every venture for the rest of your life. Personally, my income has doubled since I received a master degree and the return on investment is close to 70% annually.


A good friend of mine has an MBA and today he is considering getting an additional master's degree in computer science. By acquiring computer programming and data base skills he could substantially increase his income by applying these skills to the data analytic industry. Of course, educations does not guarantee you success. A degree can easily be wasted if you don't apply your skills appropriately in real world.


I helped my wife invest in acquiring the skills to be a Pilate’s instructor three years ago. Despite the initial cost of the program, she is now making a 100% return on the initial cost every month being a full time instructor. By using your new found knowledge and skill set to your advantage, investing in an education can yield the best returns.


In the 1990's a newly minted millionaire named Mark Cuban spent over $100k on a lifetime first class ticket from American Airlines. This may seem like an extravagant expense up front, but Mr. Cuban was able to travel the world on his first class ticket networking and visiting cultures the world over. He used it almost weekly. You see, Mr. Cuban wasn't just spending money; he was investing in himself and his own personal growth. It's hard to quantify your personal gains from traveling, but you'll know what you've gained after the experience. Today, Mr. Cuban is a billionaire and owns his own private jet. He claims his traveling experience was one of the most rewarding things he has ever spent money on.


It is possible to obtain citizenship and a passport from another country. As Simon Black says, "We don’t get to control where we’re born. It’s a fluke really. Yet as soon as we come into this world a particular nationality is thrust upon us like a birthmark that stays with us for life. By investing in a second passport the benefits can be lifesaving. Our nationality dictates so many things throughout our life. It might mean that we’re required to serve in the military and fight and die in some foreign land at the behest of an out of touch politician. It might mean that we’re required to pay an ever increasing portion of our income to finance government largess that we don’t agree with at all. It can also substantially restrict the places we can go and travel in this world." By investing the time and money in getting a second passport you open yourself to more options to travel, work, and a lifetime of opportunities.


Of course, putting some money into long term financial investments will serve you well over your lifetime. Long term investments will help your money grow or retain purchasing power. Money is important and without a doubt you will need more of it as you grow older. The idea is to create a stable financial future that will allow you to act on future opportunities as they arise.


Let's be clear, short term trading of securities is risky and almost equivalent to gambling. You can get lucky once in awhile, but most people lose money in the long run conducting short term trading. Gambling in Las Vegas or Macau is not an investment either. The odds are stacked against you. It is a sure bet you will lose money. Buying fancy clothes and materialistic items does not qualify as an investment because they depreciate in value once you take them off the rack. All these things don't benefit you in the long run.


There are plenty of things that do qualify as investments, but it is the investments that reward you with new options and opportunities that compound the fastest. This is something that shouldn't ever get lost in translation.



Sincerely,

T. Norman

Sweet Venture Capital

"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it."

-Henry Ford, founder of Ford Motor Company.

Welcome to The Golden Sense! In the 1970's and 80's there were TV commercials for Reese’s peanut butter cups featuring two individuals who somehow collided, accidentally mixing together their chocolate and peanut butter (only to discover that the combination was delicious). The famed candy traces its roots to 1928, when Harry Burnett Reese (a former shipping foreman and dairy farmer for Milton S. Hershey), decided to start his own candy business. Reese purchased chocolate from his former employer and peanut butter cups rapidly became the Reese Candy Co.’s most popular item. In 1956 after Reese’s death, his sons merged the Harry Burnett Reese Candy Co. with the Hershey Chocolate Corp. through a stock-for-stock merger. Those shares today are worth well over $1B. The combination of chocolate and peanut butter is unarguably one of the best discoveries ever.

Today, Venture Capital firms are looking for a sweet success similar to Reese's Peanut Butter. These firms are mixing their money with revolutionary startup companies in attempt to create big profits. Companies are springing up all over Silicon Valley and northern California with wild ambitions. Large amounts of money are being invested into small companies with game changing ideas. These startups have a chance to make millions or maybe even billions of dollars. A few will make it big, but many will fail.

Startup companies generally have a great business model but don't have the cash to build their idea into a success. The founders of these companies need capital invested into their company so they can grow them into fully functioning businesses. This is where Venture Capital (VC) comes into play. A VC investment in your company does not guarantee success but it does mean you have someone in your corner. The VC's are all about capturing the value between the startup phase and the public company phase.

Venture Capital is so hot today there are literally waiting lists to pitch ideas at these big firms. The top firms are all located in the San Francisco Bay area. Visit Sand Hill Road in Menlo Park and you’ll find offices for four of the Top 5 firms. For example, New Enterprise Associates has 105 deals and $739 million invested in 2012, while Kleiner Perkins Caufield and Byers has 105 deals and $546 million invested. These firms invest a little in many different companies and expect to make huge gains when one or two of them go public or get acquired.

VC firms have deep pockets and expertise every entrepreneur wishes they had access to. Startup companies need to have the right ingredients to get that all important investment. The VC guys are very picky about the companies in which they invest. There are five aspects VC firms look for in every potential investment.

First off, VC firms are looking to make investments in companies that offer a unique product or service. You need to be able to differentiate your company from the competition. Unique tech products or products that create a new market always have a better shot of getting investment capital.

Secondly, VC firms are looking for a product or service that is in a large enough market where substantial profits can be made. Niche products with small demand generally are not on the receiving end of VC investments.

Third, VC firms only invest in companies that have teams who can deliver. This means the founders of these companies need to gather key employees that cover key aspects of the business. The team needs to be a group of people that has the experience to build the company into its full potential. Also, a complete team is one that can drive the company to the public offering phase or through a successful merger.

Fourth, VC firms like products with scalability. Companies that can start off dominating small markets and scale upward are much more enticing than companies trying to compete in global or national market straight out of the blocks. For example, Facebook dominated the Harvard social media scene before expanding to other universities. They then expanded outside the university scene. This natural progression allowed the company to grow appropriately.

Fifth, VC firms look for companies they can add value to. They know that investing in a startup is a multi-year relationship with many hurdles involved. VC firms have connections and resources. If these firms know they can help a company in a certain sector, this will be more enticing for the VC's to provide an investment.

If you understand what Venture Capital firms look for, you are more likely to get an investment. The business world is changing rapidly with the growth of technology. The production of ideas and revolutionary businesses is alive and well despite the struggles of corporate America.

If you are founder of a unique business, or simply have an amazing idea, form your company so venture capital will take a chance and invest with you. Securing a VC investment may not be as amazing as peanut butter and chocolate, but it might be the next best thing.

Sincerely,

T. Norman

The Idea Man

"Great minds discuss ideas;
  average minds discuss events;
  small minds discuss people."
 
-Eleanor Roosevelt


Welcome to The Golden Sense! Money is a side effect of being an idea machine. James Altucher is a living breathing idea machine. James is an American hedge fund manager, entrepreneur, bestselling author, and podcaster. He has founded or cofounded over 20 companies, including Reset Inc. and StockPickr, and claims to have failed at 17 of them. He sold several companies for eight figure exits. He's on the board of a billion dollar revenue company, has written for The Financial Times, The New York Observer, and over a dozen popular websites for the past 15 years. He's run several hedge funds, venture capital funds, and is a successful angel investor in technology, energy, and biotech. He has also lost all his money, made it back, lost it, made it back several times. James writes down 10 bad or good ideas every day. He claims his idea generation has catapulted him into many of his successful ventures and has been the driving source of his wealth accumulation.

Coming up with ideas is like working a muscle. If you didn't walk for a month your legs would become weak. The moment you stood up, after that month of sitting, your legs would be wobbly and unstable. Your fitness would be completely gone and walking or even running would be a major challenge. Exercising your "idea muscle" is like working on your physical fitness. The more ideas you produce, the better they become. A good way to start is to imagine all the obstacles are gone. Imagine, “if I wasn’t worried about money". James calls this IDEA SUBTRACTION. Subtract the perceived obstacles to an idea and (BAM!) you find that many more ideas are born from that.

Idea's change your attitude. By constantly coming up with new ideas you will surprise yourself with the amount of businesses and adventures that can come from nothing. Ideas will help you streamline your current activities and create a future full of possibility. I have tried it myself and have found numerous business ideas; I hardly know where to start.

Write down 10 bad ideas every day and sooner or later 10 good ideas will come to fruition. Most success stories come about by accident, timing, or perseverance. Constantly producing ideas will increase the chance for this to happen.

The 1990's rapper Coolio wrote lyrics every day for 17 years in a row before having a single hit. Someone finally listened. Somehow his voice stopped imitating others and became his own.
Coolio would go on to make millions in his career producing hit songs.

Silly Putty, the stretchy, bouncy compound that children of all ages love to mold, stretch and make into odd shapes came into existence quite by accident. Credit is most typically given to James Wright, an engineer for General Electric, who during WWII was trying to create an inexpensive substitute for synthetic rubber. He mixed boric acid and silicone oil and came up with something even more pliable instead. The substance didn’t suit the government’s needs, but a few years later, an enterprising businessman recognized its marketing potential as a children’s toy. Over time, its popularity soared and Crayola acquired the exclusive manufacturing rights in 1977. Silly Putty was then inducted into the National Toy Hall of Fame in 2001.

Being an "idea machine" may eventually lead you to where you want to be.

Hockey great Wayne Gretzky had an interesting take on how to master his particular craft – don’t go where the puck is on the ice, but instead to where the puck is going to be. Gretzky, a first ballot Hall-of-Famer, saw the game unfold before him seconds before his opponents did and that vision helped catapult him to the short list of not only greatest hockey players ever, but the greatest athletes regardless of the sport. “A good hockey player plays where the puck is, but a great hockey player plays where the puck is going to be.” said Gretzky.

The point is, by producing ideas, you increase your chances of being in the right place at the right time. Highly productive people generate success, and successful people have productive brains. They go hand-in-hand. By becoming an "idea machine", health and wealth are simply a bi-product.


What do you have to lose?

-T. Norman





Note: This is the 50th edition to The Golden Sense! A big thanks to everyone who reads!

Keep the Money!

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver."

Ayn Rand

Welcome to The Golden Sense! Every year tax season comes and goes and with it so does your money. The tax code in the United States is one of the most complicated in the entire world. It is hard to know the exact length of the U.S. tax code but it is estimated to be between 2,000-3,000 pages in length. It's like 2½ times the length of Stephen King’s It—except you replace “scary clown” with “accounting methods.” It's so absurd I am just another person in a long line of people to criticize it. In all of its complexity, the U.S. tax code has some tricks in it that allow you to save money and put your financial life in the right direction.

I have many friends who do contractual work and don't receive the traditional W2 for their services. These people all work for themselves doing fitness training, construction, art, catering, etc. Instead of that W2, they receive what is called a 1099 at the end of every year. This is just a form that reports a type of income that you received during the year. Whether you receive a W2 or a 1099 you may end up owing taxes. However, the good news is that there are ways to reduce the final bill.

Typically, people who make varying degrees of income year over year must pay estimated taxes every quarter throughout the year. This can be calculated based on your prior year’s income. By paying estimated taxes you can avoid interest penalties on the upcoming tax year. I suggest to these people that they set up a savings account and deposit a percentage of their income into the account as the year goes by. This allows you to have the right amount of cash on hand when the time comes to pay the estimated tax.

April 15th is the tax filing deadline, and before this date arrives it is important to start thinking creatively. As you sit down and look at that blurry, complicated spreadsheet (called a tax form) you need to take a long look into deducting expenses for the services you provided. Everybody knows this is possible, but I encourage you to claim every deduction and exemption you're entitled to. This will help reduce your reported income and the final tax bill.

Sometimes, after the estimations and the deducted expenses, there is still money to pay in taxes! There is good news for people in this situation. There are a few financial tools that can be of great use to you. Consider setting up two types of retirement accounts. One is called a traditional Individual Retirement Account (IRA) and the other is a Roth Individual Retirement Account (Roth IRA).

Savvy investors by design, often end up with a blend of traditional IRA and Roth accounts. Having both of these accounts on hand can offer you a chance to "hedge" the big fat tax man. IRA's and Roth IRA's aren't just for people with 1099, they are can be of great use to almost everyone.

An IRA is a financial account that allows you contribute pre-tax money. The money can then be invested, and grow tax free until the time of withdrawal. Of course, there are many rules that go along with this type of account that I won’t get into here. The importance to those who still owe taxes is that with an IRA they can deduct their contribution amount from their tax bill. Contributions can still be made to the prior year before the April 15th deadline. By knowing your final tax bill, you will know exactly how much you will want to further deduct in taxes. This will allow you to contribute the right amount to your IRA (depending on the amount and your situation of course). This is a win-win strategy. Instead of writing a check to the IRS, you will be writing a check to your own retirement account!

If you open a Roth IRA, this account will help when you reach retirement age. A Roth IRA is a financial account to which you can contribute funds that are 'after tax'. That money will grow tax free and there will be no taxes due upon withdrawal. This will help you have access to non-taxable money when you reach retirement age.

Arranging one’s affairs for tax optimization is normal. By having both accounts it will allow you to positively adjust your taxes both now and in the future. Without proper planning, a tax bill can sneak up on you and hit you with a devastating blow.

The whole tax discussion can be boring....and I mean B-O-R-I-N-G! But the tax system is cruel. It preys on society's uninformed. When it comes to your financial affairs, it pays to be as knowledgeable as possible. The more you learn the better off you'll be.

Over and Out,

T. Norman
 

The Second Income

"The question isn't at what age I want to retire, it's at what income"

-George Foreman

Welcome to The Golden Sense! The answer came to me one night while I was making dinner. I was trying to answer the question of what was the best designed animal. The whale shark was the answer I came to. Whale sharks are those funny looking sea creatures that swim around with their mouths wide open filter feedings on plankton. Let me tell you, these animals really know how to structure their lives. No hunting, no trapping, and very little work required. They just swim and eat at the same time. Food simply floats into their mouths, through their filter, and into their stomach. Plankton and small fish might not seem like a big meal, but it's the constant accumulation of food that provides more than enough nutrition for them to grow and be the big fishes they are. Their main strength lies within this act of constant accumulation.  

Back on land, in the human world, banks are the equivalent of the whale shark. Bank's make a extraordinary amounts of money off of interest income from loans. I work in banking and I have witnessed firsthand this business structure collect an astonishing amount of revenue. People walk into the bank every day and make deposits and ask for loans. The bank continually funds loans to individuals or businesses, in return, the bank collects revenue through the interest on these loans. Whether the loan is large or small the interest paid back to the bank continues day and night consistently accruing on the banks books. Like the plankton filtering through the whale sharks mouth, the bank is constantly receiving income. Sometimes the income appears to be small but it is the volume and consistency of revenue collection that brings tremendous wealth to banks.

As individuals we are always looking for ways to improve our income and financial well-being. Some get it right and some don't. Many people fail or under perform because they are constantly looking for the big winner that never comes. Most of the time, people lose their "shirts" investing by rolling the dice hoping to hit that big winner. 

As we see in nature and in the world of big business, a better approach is to mimic the whale shark and the banker. Instead of looking for that big pop in a stock price or that contrarian play, a better way is to consistently put your extra money to work in interest producing securities.

Now what does that mean? That last sentence sounds like a myth in of itself.

If you have money that you want to invest, put a chunk of it to work by creating an investment portfolio with bond funds, master limited partnerships (MLPs), and real estate investment trusts (REITS). All these investments provide a return to you as an investor. This allows you to effectively set up a second income stream. People often mistakenly fail to develop income producing portfolios because they deem them to be too small or insignificant. Whether they are big or small you want to create as many additional incomes as possible. The beauty of the second income is that you are no longer working for the money, the money is working for you.

In order to achieve this lofty goal of a second income, you have to create a portfolio with a system balanced for risk. Income producing securities are subject to price volatility just like stocks or precious metals. They go up and down in value based on demand and present day economic circumstances. All these investment categories have their shortcomings but by investing in at least twelve different interest producing securities you will reduce risk and find diversity.

In the modern world I see eight big categories that make up the economy. By investing an equal amount into each, you will create a diversified portfolio. The eight categories are financial institutions, corporations, government, energy, real estate, individual consumers, transportation, currency and gold. I consider currency and gold as the same category.

The following portfolio shows how interest rates at 6% can create a substantial income. By spreading your money out into the eight different categories and twelve different securities you will reduce the portfolio risk substantially. Whether it is a substantial one million, ten thousand, or even one thousand invested, the portfolio produces a nice cash flow.

 

Second Income Investment Fund
Diversified into 12 holdings
Yields 6% annually
Average principal fluctuation in 2014 was 0%
Diversified Class Exposure
Government Bonds
Financial Institutions Debt
Corporate Bonds
Real Estate (REITS)
Energy MLP's
Currency and Gold
Transportation Loans
Consumer Loans
Total Investment $1,000,000
Type	Ticker	Price	Yield	# of shares	Dollar amount	1 Year Return	1 Year Price Fluctuation
Blended: International, Government, MBS, Corporate	EVG	$14.37	7.51%	5799	$       83,333.00	$   6,258.31	8.58%	$                (7,149.97)
Floating Rate Corporate Bonds and Convertible Securities	PFL	$11.60	9.30%	7184	$       83,337.00	$   7,750.34	1.27%	$                 1,058.38
Taxi medallion loans and consumer loans	TAXI	$  9.55	10.02%	8726	$       83,333.00	$   8,349.97	30.70%	$              (25,583.23)
Market-weighted performance of the bank institutional loans	BKLN	$23.80	4.15%	3501	$       83,333.00	$   3,458.32	4.43%	$                (3,691.65)
Energy Infrastructure MLP's	IMLP	$27.70	4.99%	3008	$       83,333.00	$   4,158.32	4.48%	$                (3,733.32)
Blended: Actively managed equity strategies	AB	$25.39	7.43%	3282	$       83,333.00	$   6,191.64	10.85%	$                 9,041.63
Private equity, real estate, and hedge fund	BX	$33.89	5.65%	2459	$       83,333.00	$   4,708.31	4.14%	$                 3,449.99
Junk bonds mix	SNLN	$19.18	4.41%	4345	$       83,333.00	$   3,674.99	4.20%	$                (3,499.99)
High yield corporate bonds hedged by treasury futures	HYHG	$71.60	5.65%	1164	$       83,333.00	$   4,708.31	11.08%	$                (9,233.30)
Real estate investment trusts	VNQ	$86.00	3.38%	969	$       83,333.00	$   2,816.66	29.76%	$               24,799.90
Price of gold bullion hedged by Canadian dollars	HGY	$  6.17	5.97%	13506	$       83,333.00	$   4,974.98	3.93%	$                (3,274.99)
Petroleum pipelines	MMP	$75.14	3.52%	1109	$       83,333.00	$   2,933.32	21.89%	$               18,241.59
							Total	$ 425 or 0% fluctuation
					Total Invested	$   1,000,000.00
					Yield	6%
					Return	$       59,983.47

 

After one year invested in the securities of your choice, it is important to sell all of them at the market price. This will force you to evaluate your portfolio and mitigate any unforeseen risks in some of the securities. Be sure to reinvest any unused income and create a larger portfolio for the following year. This is called compounding. As Richard Russell says, "compounding is the royal road to riches". Over time your portfolio will become larger and larger and your second income will eventually become your main income.

Remember that all securities have different tax structures and you may have to report your gains differently for each one. That is something everyone should research prior to making any investment decision.

Creating a second income portfolio takes a little bit of time and research but it really isn't very hard. The long term benefits are substantial and are vital to every ones financial health and longevity. Banks aren't making millions of dollars every year with a bad business model. It is their business model that makes them so successful. Whale sharks have lasted millions of years because of their body's structure. Both the whale shark and the bank constantly accumulate. By mimicking these successful structures, you can create lasting wealth for yourself as well.

Sincerely,

T. Norman