Summer Doldrums or Summer Glee?

The key to solid investing sounds quite simple in theory, but it is incredibly difficult to do in reality. The overall goal for investors is to find a stock that has a low value, buy it, wait for the value to rise, and then sell it to make a profit. In that one sentence, you get the entire essence of an entire line of work in which brilliant people, such as Scott Reiman, have had a lot of success. However, you can imagine how hard this is to do, so how have they managed it?

What is their secret?

While there are many things that you need to know if you are going to be a successful investor, one of the most important things to understand is the global economy. As the years go by, the world seems to be getting smaller and smaller. People are able to deal with other companies that are located in other countries and even in different continents. Despite this, many businesses work together closely developing products and service.

Parts could be produced in Japan, for example, only to be assembled in the United Kingdom. In this way, the economy of one country can be directly linked to the economy of another country. When the first country starts to struggle economically, it can have a trickle-down effect on the second country. If less parts can be produced, for example, then there are not as many finished products to be assembled. Because of this, consumers are not able to get what they want, and they do not spend their money as freely. They may spend it in other ways, or they may just hold onto it.

Opportunity Strikes?

This means that the economy can begin to look worse, and stock values may dip. However, this dip is not permanent. When the first company begins producing things quickly again, the economies of both countries can rebound, and the stock prices, which are tied to the overall economy, could begin to rise. Those who are very good at investing know how to look for these signs and signals in the numbers.

They can tell when things are shifting and when the economy might be coming back around. They can even tell which specific companies are involved in the process. They can then buy those companies’ stocks while they are still doing poorly, anticipating the upswing, and make a lot of money if they are right and the stock values begin to rise back up again.

Hold on to your Wallet?

With the stock markets wobbling again, some economies are looking ‘spent’ while others are raising their production, it’s hard to figure out which companies are worth looking at, and which are worth avoiding. What stocks are you looking at? What are you selling, too?

Steps to Renting: Becoming a Landlord

If you remember my previous post about generating additional income, it was quite a long time ago in which I wrote:

My wife and I have talked about renting out our current apartment to generate additional income. But we encountered three problems that have so far prevented us from making any success on this:

  • 1. we like it here and we don’t want to move yet;
  • 2. we still wouldn’t make any residual profit from renting our house out without paying off part of the mortgage principal (something we don’t have enough cash yet to do); and
  • 3. we can’t decide where we’d like to live other than here. Contribution $0. Potential contribution estimated at $100.

So if you like a rental income property (and who doesn’t?), what do you need to get started? Mmm… it’s hardly like we’ve made a start. So let me list the things that I think I would need:

1. Renovation:

We seriously need to do the tiling work in several rooms: the bathroom, where the tiling is beginning to separate from the walls due to the contraction and expansion of the concrete in summer/winter, and the poor workmanship when the place was finished. I also suspect that we need to replace one of the air conditioners in the study.

2. Redecoration:

We’ve got walls painted in a variety of colors, and it’s been a few years. It’s likely that our tastes aren’t exactly the same as our renters. So we’ve probably got a bit of painting to do, as well as other minor repairs.

3. Insurance:

Not sure how to handle that. I know that you can get landlord’s insurance… but what happens if the tenant absconds or worse? Can that be claimed?

4. Finances:

Since our property is mortgaged, the yields are just not very attractive since rents are fairly low in this neck of the woods. We know that we would have some gross profit, but there’s also a landlord’s tax of 10% on the income. So not sure how that would work. I think the only solution would be to pay off some or a lot of the principle. Still a good return on money invested.

5. Renting:

Finding good tenants would be a priority. The neighboring landlord rents his apartment, the tenants there have been anything but reliable. Dirty, filthy,… with problems paying rent. I think tenant screening would be essential to prevent this, even if it meant the apartment being empty longer.

With a sound plan, it might work. Still a few kinks to work out. I do know that the area is very desirable, with lots of chances to find tenants. Of course, that means we’d have to move! A chance to find a new area.

Would you gamble? Would you start a business?

This follows an interesting discussion we’ve been having on Forumosa about starting businesses.

Of course, though, I wouldn’t equate gambling with starting a business. Why? Apart from the odds issue, there are far more factors that you can control when you start a business. If you gamble, esp. in a casino, the odds are absolutely stacked against you: the house controls the cards, the house controls the dealers, the house controls who plays, the house monitors ‘cheating’ strategies (and bans anything that is mildly profitable, even ‘card counting’…)…

Gambling is for suckers

Basically, if you gamble, you’re a sucker. But in business, you actually have a good chance of ‘being successful’ and keeping your original stake at the very least. However, there are many reasons a business ‘fails’ including the fact that the owners just get tired or sell out to others or close up one day or die… None of these in particular suggests that the business was an unprofitable one.

It’s in the blood, or not

It’s likely that as Brits, we tend to shy away from doing business, worry about the undue risks, plan until there’s no breath left to actually run the business, borrow lots of money to go into business (IMHO, a huge mistake and a massive risk, but common in the UK), are unusually PESSIMISTIC about doing business, and (even now) still ‘look down’ on entrepreneurs as a breed.

Keep your ass covered

When we started our school, we didn’t worry so much about the risks (and there are many), we just wanted to try it ourselves after seeing so many people screw up royally (is that an adverb?)… we didn’t overly plan except that we knew we could pay the rent on our school for six months without ANY income at all even after setting up the school, we paid ourselves no salary either, we didn’t borrow any money to invest (a huge relief), and we were neither pessimistic nor optimistic about our chances, … Did we have a concrete business plan? No, we didn’t. Did we need one? Not really, we already knew the business in many respects.

Manage the risks, not the luck

IMO, most unsuccessful business owners here fail to manage the basic risks first, don’t make these kind of decisions, and wince at the first hurdles. How? They fail to secure a source of personal income (that covers life expenses, not including their business) first; they overly underestimate the expense of starting up and running for months with little income preferring to spend as much as possible in the first few weeks, and reserving nothing or having nothing to draw on afterwards; aren’t willing to pay themselves a pittance to get things started because they (likely) see a salary for themselves as ‘deserved’; don’t really market themselves well enough except through discounts (a prime strategy) that does NOT work well here… attracts the wrong customers, diverts attention, undermines your profit structure (esp. if you haven’t done your work properly); and so on…

While many seem to believe luck plays a role in starting a business, I like to think of it as luck comes to those who are ready; if you’re not ready, then it’s wasted largely.

Working Hard Not Smart

Usually, restaurants are cheaper to open, require less capital to start up, most believe they ‘can’ cook, and reasons like that… but restaurants are bloody hard work, esp. if you focus on doing a lot of meals or full-day service. My sis-in-law had a restaurant for six months or so, I remember working in it, but they really didn’t know how to run it optimally. Instead they opened at 11:30 and ran it until 11:30pm every day. So they nearly killed themselves doing it, too.

Focus, focus, focus

While I had no access to the financials, it didn’t make much sense to work so long, esp. as lunch hours were always the most busy. I would have preferred to have very busy lunches where people were served quickly, afternoon teas, and close up at 5pm each day. Instead they did dinners, bar hours, etc… and I’m not sure why they thought it was necessary. There is the belief in business here: more is better; you’ll see it everywhere, too.

Cram schools here open multiple classes including math/art, Chinese, Science … instead of focusing on one thing. Restaurants try to serve all kinds of food (I know restaurants that sell rice, noodles and spaghetti!) to all customers at all times. Stores sell everything… there is a lack of focus in many businesses here. Market stalls sell fresh pork and underwear… it’s quite amazing how people relate two disparate businesses.

In the end,…

In reality, it’s the ones who take their money (or someone else’s) and actually try to do something with it in the creation of their SMB, they will learn the experience of being IN business. Most serious entrepreneurs are also SERIAL entrepreneurs, in other words, they will try and try again till they get it right, even if that means they run 5 or 10 businesses in their lives…

No guts, no glory

And I’m sorry to say, no matter what MBA you take, what business course you attend, what class you take, no matter what you read or study, it won’t make a jot of difference unless you actually try to set up and/or run a real business. Fundamentally, Entrepreneurship is a practical skill; so whenever I see academics on TV lecturing on business fundamentals, I really have to wonder what they bring to the table when they themselves don’t bear any risk at all. It’s that willingness to bear the risk that illuminates who will be entrepreneurs and who won’t. That’s what separates entrepreneurs from salaried workers, … the knowledge that next month, if there’s no profit, you won’t take a home salary.

Hope the ramble influences you to think about starting your own business. Drop your comments here.