Posted by: seanmalstrom | May 7, 2013

Email: Financial assets

Hello Master Sean,

When I read your blog articles about becoming financialy independent, I cannot think of any others than investments, taking form of:

  – creating your company,

  – realty (the one you rent, not the one you live in),

  – stocks and bonds (and other financial market products).

My knowledge of this subject is probably scarce, but do you think this list is comprehensive (or close enough). And which would you focus on, and why ?

Thank you very much about your insights, for that subject is very interesting and motivating, but also very… blurry to me.

Of course it is blurry to you for the same reason that Calculus is blurry to most people. In order to learn Calculus, you have to have years of training in math. If you just start with Calculus, you become confused.

People who are financially trained (usually having parents who know this stuff) are taught this throughout their life. Meanwhile, people like you were given a very different type of training. In the schools, you were trained to get a job and how to behave like an employee. Your role in life is practically destined.

There are many, many different types of jobs out there. You know this because you live in the job sphere. But to the rich person, all the jobs out there look the same. From the rich person’s perspective, there is a galaxy of different investments and ways to have money work for you.

In an alternate universe where you are a rich person, you would be emailing me asking, “This job thing is somewhat blurry. I can only imagine three types of jobs. One would be servicing people, another would dealing with technology to make something (from a computer to a bulldozer), or the only other third type of job I can think of is infrastructure with the company itself (from accounting to human resources). Is this all the type of jobs there are?”

There are all sorts of jobs out there which the question above doesn’t even begin to penetrate. It is doubly so for asset creation. What every job has in common is that you work for money. What every asset has in common is that the money works for you.

People say we live in a capitalistic society. The answer is that only a few people live in a capitalistic society. People who work for money, in this thing called jobs, are not experiencing capitalism. Since the Middle Class definition is having debt such as a mortgage, the Middle Class are closer to peasant-stock than to being capitalists. The poor might as well be peasant-stock too. The difference appears to be that the Middle Class can control their debt while the poor are controlled by their debt (and as debt balloons with the Middle Class, they get controlled by their debt and become poor).

We are not taught in school how to be capitalists, i.e. to make money work for you. You would think this might be an important factor in living in a capitalistic society. It is deliberately designed for you to be ignorant of how to be capitalistic so you can be leveraged. Any employee who talks or behaves like a capitalist immediately gets fired from the company.

People say it is not what you know but who you know. Let’s look at that. If you do a comparison of WHO, WHAT, WHEN, WHERE, WHY, and HOW, which is the most important? From what I can gather, the most important is the HOW. When it comes to WHO, it is only in the context that the WHO is good at the HOW.

I don’t have a clue how to bring a business to public. However, Bill Gates did know HOW which is why Microsoft went public and how Bill Gates got rich. Bill Gates also knew HOW to program (though we could argue he wasn’t that good). He knew the HOWs to many things.

Steve Jobs knew HOW to program as well and knew HOW to build a computer. Steve’s friends were better, of course. But Steve Jobs learned HOW to borrow money from the bank, HOW to talk to investors, HOW to sell. In his last job, Steve Jobs was a trained technician from ATARI who was shipped around the world to set up PONG machines. After setting up some PONG machines in Europe, he then hopped over to India to shave his head and get ‘spiritual’.

One multi-billionaire by the name of Trevor Reese Jones got his wealth through the HOW. He was a freshly minted lawyer doing land deals. He got out of that and went into Oil and Gas. Working with George Mitchell’s technology of hydraulic drilling that was started in the 1940s, he (and others) was the first to successfully unleash hydraulic fracturing. He sold his lands to Devon for billions after creating value of the land by unlocking all that oil and gas. By being a property lawyer, he had an extra HOW that many in the oil and gas field did not have.

How do you increase the value in yourself? Most people only think in a vertical way of education. The more education you get, the more value you get. The more experience you get, the more value you get.  This is true but only in a limited way. If you get a doctorate, you still get more money, but you are still an employee. This is the ADDING OF VALUES. (High school + College + Grad School)

The other path is one of MULTIPLICATION OF VALUES (Value 1 X Value 2 X Value 3 X etc.). Shigeru Miyamoto was not an engineer. When he worked at Nintendo, everyone else there was an engineer. Gunpei Yokoi was an engineer. Miyamoto had the value of being an artist, a showsman. But toys and video games that Nintendo were making was a very technical environment. So by learning the technical side (which everyone at Nintendo is required to do BTW), he could multiply those values he had. Later on, he added on additional values to himself such as learning marketing (Miyamoto is the primary marketer that Nintendo uses and is the de facto face of Nintendo). Miyamoto may not run the company, but the multiplication of values gave him tremendous wealth and success which is more than he ever would if he just tried to be the ‘best artist’.

Look at Iwata. Iwata started off with the value of programming. But he added on the value of business-leader. Combined, the two give Iwata a much higher value than a lone programmer or a lone businessman can have. It is why he is President of Nintendo as we speak.

The multiplication of values works best when the values are opposite from one another. Take writers. There are many writers out there. Now take engineers. There are many engineers out there too. They come from different worlds. Engineers make fun of the fine arts people all the time. In the fine arts world, they make fun of engineers too. But if you multiply the values, something interesting happens. Someone with the value of a writer and the value of engineering has new opportunities thrown at them such as being a technical writer, one of the highest paid jobs in the world. The reason why is that engineers don’t know how to write and writers don’t know about engineering. It takes a rare person to be able to do both. “But at that link, Malstrom, there is listed writers.” But those writers aren’t being paid to be best written authors, are they? They are being paid to be best selling authors. It is the value of writing multiplied by sales skill and multiplied by marketing. Unless a writer goes the technical writer route, this is the only other way I know how a writer makes significant money. But it is never writing as a value alone.

You don’t have to be the best banker, best investor, best businessman in order to succeed. Just be competent and multiply that value with your other values. Multiply the investor value with a technical value, and you have someone who knows how to laser in on technical markets. Multiply the value of investor and the value of a politician/lobbyist, and you have someone who can invest in something worthless and lobby to change the zoning of that area and sell out for millions.

People ask, “Where are you getting this information from?” From nowhere. This multiplication of values is something I just made up in this merry little post. It is what is behind every successful person. Financial knowledge is not a silver bullet. It is just one value that needs to be multiplied with the others you have. Aside from people making the mistake of focusing on only one value and building that up (going for your doctorate, working that one job for decades for experience), the other mistake is people not seeking to build values. They go to their job and then get drunk, play video games, chase women, and just waste time. If you build a value instead, you can multiply it which is what eventually brings in the big bucks.

In his graduation speech for his honorary doctorate, Steve Jobs talked about how success is like ‘connecting the dots’ of your life. The example he gave was taking an interest in a course of fonts. By itself, knowledge of fonts has little value. And computers, by themselves, all had similar value. But by multiplying what he knew about fonts with computers, Jobs made the Macintosh stand out by having beautiful fonts (which everyone else stole from them of course). I suspect Jobs experience at Atari and video games gave him the value of ease-to-use. Anyone installing PONG machines would realize PONG’s success is how easy the game was to pick up and play. PONG just works.

Multiply the HOWS in your life to create wonders. Melville could write. But he also had the value of being a sailor on a whaling ship. Multiply the two together, and you get Moby Dick. Or take Tom Clancy who has the value of writing and the value of following the Cold War military news. He became fascinated over a story of a Russian submarine that wanted to flee the Soviet Union and join the US. By multiplying the two, he got The Hunt for Red October.

Value depends on what you can offer, something unique that most people can’t (talking is not a value neither is walking as everyone can do both). One unique value is willing to live anywhere, away from family and friends. This value is what is required by the oil and gas industry concerning field workers. You might start off at around $40,000 a year. But let’s say you have that value and multiply it with the value of math and technical training. Field technicians start off around $50,000 to $100,000 a year (depending on how much time they take off). And let’s say you combine the Wandering Gypsy value with Technical training and then multiply the value of danger (not hazardous as all the field work is hazardous. I mean dangerous as in working in a country infested with radical Islam where a terrorist might behead you for sport). The wage then goes to $200,000 and beyond (with more free goodies you can imagine). But let’s say you take all those values and multiply it with being able to manage people (a very important value that most businesses acknowledge). You could become a rig supervisor at some of these hotspots in the world and your income becomes at least a million dollars a year.

You can see how the multiplication of values is what erupts wealth for the individual. Now, some values multiply better in certain combinations than others. I won’t dispute that. However, the point is to illustrate this multiplication. This is why it is idiotic for someone to say anything outside their field is ‘stupid’ or ‘worthless’. The engineer might say those English Majors are worthless. But while that engineer is at risk of being laid off by foreigners who can’t speak English, the engineer who got the English major value can become a technical writer which foreign workers cannot do (because they don’t speak or write English well). Imagine the looks on the faces of the other English majors when they hear that one English major guy, who was also doing engineering, got a much higher paying job.

The point is that what is ‘worthless’ is the value isolated. I can’t imagine how something like basket weaving can be multiplied beneficially, but maybe it could happen. Look what happened to those who had a passion for duck callers. So before you laugh at the Theater Major, consider that such a value could be multiplied into something else.

The question is not what value is the best, but which is the most optimal combinations. Financial knowledge isn’t the ‘best value’, it is merely one that rapidly escalates wealth in multiplication of values. Knowing HOW to sell is an optimal value. Legal finesse, the HOW of the law, is another optimal value (or else why do rich people keep hiring lawyers?). Accounting is an optimal value. Even creativity (oh, that word) is an optimal value since you are creating intellectual property.

What is a business but a sum of individuals who are multiplying their values? Therefore, in order to increase individual wealth, you need to multiply your own values.

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