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Leverage this instead of finances for BIGG Success

Cash Used to be King

Leverage this instead of finances for BIGG Success

Listen to this post! Click play to hear George & Mary-Lynn on The BIGG Success Show Podcast (Duration 3:29)

In the hit movie, Wall Street, Gordon Gekko (played by Michael Douglas) said to his protégé, Bud Fox (Charlie Sheen):

“The key to the game is capital reserves. If you don’t have enough, you can’t piss in the tall weeds with the big dogs.”

How’s your access ability?

We hear it all the time – cash is king. But it’s not just cash that matters; it’s also access to capital.

Large companies generally have that. Small business people often don’t.

So it’s crucial to manage your cash flow wisely. Make sure you’re getting a return on every dollar that goes out your door. Because…

Even if an outlay goes to your Income Statement as an expense,
it should still deliver a return to you or it’s not worth spending the money.

In addition, build up your reserve borrowing capacity. Protect your credit rating like you would any other asset. Then you’ll be able to take advantage of opportunities when they present themselves.

Watch your debt ratios so you could always tap into some money if need be. But also be aware that …

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Revisiting Greed is Good

Why greed is not good for BIGG SuccessGordon Gekko (played by Michael Douglas) is perhaps one of the most memorable villains in movie history. He is the tempter of Bud Fox (Charlie Sheen), showing him a world of money and power, in the movie Wall Street.

Many people don’t view Gekko as evil. In fact, he’s a hero to some. That’s one of the reasons why one of his quotes – greed is good – got so much acclaim.

He’s at a meeting of the stockholders. They’re considering his offer to purchase all the outstanding stock of the company.

He stands up and grabs the microphone. He begins by addressing Cromwell (Richard Dysart), the CEO of the target company, Teldar Paper. You have to see the full quote to really understand the context.

“Well, I appreciate the opportunity you’re giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak. Well, ladies and gentlemen we’re not here to indulge in fantasy but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That’s right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell retorts, “This is an outrage! You’re out of line Gekko!”

Gekko replies, “Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can’t figure it out. [laughter] One thing I do know is that our paper company lost 110 million dollars last year, and I’ll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. [laughter] The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated. In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. [applause] Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much. [applause]”

A second rate power

The movie was set in the mid-1980s. Think of America then versus America now. But don’t stop there. What about other developed countries? How strong are they now compared to then? Perhaps Gekko was prescient.

From entrepreneurial capitalism to golden parachute capitalism

In days gone by, Wall Street was the place companies went to for growth capital. Wall Street worked with Main Street to build empires.

Wall Street served an essential purpose. It reduced the risk of investing in companies by creating a market for the ownership stake in them.

But the entrepreneurs behind these companies still held significant stakes. They benefitted with the shareholders, not at the expense of them.

Today, most companies are run by agents, not principals. Sure, the top executives may own a small stake. But they don’t have the same skin in the game required of the entrepreneurial executives of the past.

These executives share in the upside, but they don’t have any significant risk other than reputational risk. If they don’t perform, they still get a golden parachute.

The entrepreneurs of old lost wealth along with the shareholders. Now executives still gain financially even in the worst case.

Perhaps Gekko was on to something.

Greed is a misnomer

BIGG success is life on your own terms. Terms are very important.

And this is the point where we can all take away an important personal lesson. Because Gekko got this wrong.

He was close. But he used the wrong word.

Greed is excessive. Greed is never satisfied. Discontent is one thing; greed is another. We’ve talked before about why you should be happy, but not content. But greed pushes it to an unhealthy extreme.

Greed is selfish. A greedy person is largely only concerned about himself or herself. They only care about others unless their concern directly helps them out.

Greed is covetous. A greedy person wants what others have. They will stop at nothing to get it.

Greed has no principles. The acquisition of things is what matters. One cannot be concerned with moral or ethical boundaries in the pursuit of these objects of desire.

Zeal provides the crucial connection

We like the term “zeal”, rather than greed. Zeal implies the same degree of intensity but it offers the benefit of being grounded.

Zeal comes with an attachment to a higher cause. By keeping your pursuits connected with your principles, you don’t step over a line which causes turmoil and leaves you feeling empty in the end.

There is value in your pursuit because you keep your values intact!

So let’s look at Gekko’s quote again, paraphrasing it somewhat and substituting the word zeal:

“Zeal is good. Zeal is right, zeal works. Zeal clarifies, cuts through, and captures the essence of the evolutionary spirit. Zeal, in all of its forms; zeal for life, for money, for love, knowledge has marked the upward surge of mankind. And zeal will save that malfunctioning corporation called the USA.”

We believe our best days are still ahead of us. But we need our leaders to create an environment where entrepreneurs can succeed.

And we need you to be zealous in your pursuit of prosperity. It leads to BIGG success!

Are you zealously pursuing a better, brighter future?

Image in this post from stock.xchng

Weekends are for Wimps

paperwork

In Wall Street (the original one), Gordon Gekko (played by Michael Douglas) said, “Lunch is for wimps.”

So are weekends.

Many people think being your own boss means setting your own schedule. It’s a myth that ignores the realities of entrepreneuring:

Work gets in the way.
Milestones need to be reached.
Deadlines don’t always accommodate weekends.
Customers need to be cared for.
And there’s the ongoing drive for cash flow.
You have to lead by example.
The buck stops with you.

So, we’ll be working this weekend. Because we’re not wimps.

How about you?

When It Comes to Investing, Time is on Your Side

time_money On Tuesdays, we usually talk about time issues – time management, productivity and getting things done. But today, with the volatility of the stock market, we thought we’d take a look at how time affects your investments.

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It took many years to create a portfolio of value. It’s been frustrating to see that value fall so quickly. But we’re reminded of a Gordon Gekko quote from the movie Wall Street:

“Don’t get emotional about stocks. It clouds the judgment.”       

Yet that’s exactly what we tend to do. We get emotional and do the opposite of what we should do. We should buy low and sell high. We buy high on exuberance and sell low in a panic.

The smart money does just the opposite. It buys low in the panic and sells high on exuberance.

A look back at the Dow

We ran some calculations to see if there is a benefit to buying and holding for a period of time. We specifically looked at the Dow Jones Industrial Average because it’s the basket of stocks with the longest history.

Going all the way back to 1896, we assumed we bought the Dow on the last day of every year right before the close. We looked at every period up to December 31, 2007. Then we looked at holding periods of:

  • 1 year
  • 2 years
  • 3 years
  • 5 years
  • 10 years

We looked at two specific things for each holding period: our return and our chance of losing money.

Risk and return results

We found that the longer we held the Dow stocks, the better our return with one exception – the average 3-year return was lower than the average 2-year return.

Even more interesting, we found that the longer we held, the less likely we were to lose money:

  • In one year increments, we had a one in three chance of losing money.
  • Over five year time frames, we had a one in four chance of a decline in the value.
  • Of the ten year periods, we only lost money in one out of five cases.

Then we looked a little deeper – to the size of the volatility. The range of highs and lows went down over time, so the downside was as follows:

  • About 14% for the 1-year increments
  • About 2.75% if we invest over 5-years
  • 0.55% for the 10-year ranges

So based on these historical numbers, the longer you hold your portfolio, the less likely you are to lose money and, if you do, the less you are likely to lose.

Just remember – the past doesn’t necessarily predict the future. However, it’s not unreasonable to use it as a guide.

Beyond the Dow

You’ll most likely invest in a bigger basket than the Dow. You’ll also probably want to invest in more than just U.S. stocks. You’ll also almost certainly invest in bonds and other assets. As a general rule, the more diversified you are, the more likely longer time periods will work in your favor – even beyond what we’ve shown here.

You, CIO

Here’s something we can’t possibly emphasize enough – no one will look after your money like you will. You are the Chief Investment Officer for you and your family. So it’s important to understand investing basics.

DIY doesn’t work

Having said that, do-it-yourself investing doesn’t work well for most of us. So plan to outsource and inspect. Your most critical decision, then, is the hiring decision. You’re not trying to figure out specific stocks to buy, how to allocate your assets among stocks, and those kinds of decisions.

Turning to professionals

With full knowledge of investing basics, you’re ready to work with a certified financial planner to help you plan your retirement portfolio. You’re also ready to invest in mutual funds with proven managers.

Time is money in the bank

As we saw with the Dow, time is money in your account. So keep investing – month after month or paycheck after paycheck. In times like these, you’ll get a sweet deal. The smart money is getting it too! You’re buying low so you can sell high later.

That puts time on your side!

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