Portfolio Construction: All Weather vs. Stock/Bond Mix

I’ve been looking for alternatives to traditional stock/bond mixes. Why?

Although “everyone knows” that “stocks go up in the long run”, that doesn’t mean most people can stomach the volatility. Can you really imagine seeing half of your money disappear overnight?

Also – although stocks have historically always done well over a 15 year time period, 15 years is a long time for a young guy like myself. My life will probably be radically different in 5-10 years!

So the traditional alternative is to temper the portfolio with bonds. But in this low interest rate environment, that causes a lot of drag on the portfolio and means that you get almost nothing in return. So I’ve been looking for alternatives.

One alternative that looks interesting is presented in “Money: Master the Game” by Tony Robbins where he interviews Ray Dalio.

Dalio gives a basic formula for an “All Weather” fund – one which doesn’t have the same volatility as a traditional stock / bond mix. Here’s the formula:

  • 30% Stock
  • 15% 10 Year US Treasuries
  • 40% 30 Year US Bonds
  • 7.5% Gold
  • 7.5% Other Commodities

The idea behind this portfolio mix is that with a traditional stock/bond portfolio usually when the world becomes a scary place, everyone just goes to cash (or to short term T-Bills) and it becomes a “risk-off” environment. This is exactly what happened during 2008. Dalio makes the point that the world is “long everything”

And what a weird portfolio. Over 50% bonds and only 30% stock. Must not return anything, right?

Curious, I decided to pull data from various ETFs and compare what would have happened over time with different mixes and contrast it to the All-Weather Fund.

  • 100% Stocks
  • 90% Stocks / 10% Bonds
  • 80% Stocks / 20% Bonds
  • 70% Stocks / 30% Bonds
  • 60% Stocks / 40% Bonds
  • 50% Stocks / 50% Bonds
  • All Weather Fund

For the Stock / Bond Mix, I used VTI and BND.

For the All Weather Fund, I used VTI, IEF + TLT for treasuries, GLD for gold, and DBC for a mix of commodities.

Back test went from Apr 2007 – May 2019. I used these dates because they were the max amount of data I could find (not all of these ETFs existed before these dates).

Here are the results:

That purple line is the All Weather fund. The other ones are stock/bond mixes. As you can see, the long term winner was the 100% stock mix (no surprise there). But the All Weather fund during the 2008 crash only had a max drawdown of 8%. On the other hand, you can see that if you had invested $100k right before 2008 you might be one year later sitting on only $60k. How scary is that!? For me, I know I would “puke” as the futures traders say.

Here’s a link to the data sheet:

https://docs.google.com/spreadsheets/d/1j7Hm45ONXAOGU_-MA30dZhV4lWbOyVNjWDJDrPhxjaQ/edit?usp=sharing

I think the FI/RE movement has a lot of great things going for it, but one thing that is often underemphasized is that money is largely about self-knowledge, and that requires you to ask (and answer) questions such as:

  • Why does money causes such extreme emotions?
  • How do you handle drawdowns (both on a practical and emotional level)?
  • Have you spent enough time really planning out what you will do if things don’t go “to plan”?
  • Can you handle (and will you stay in the market) when your account has lost half its value?

I think many in the FI/RE movement can’t stomach these drawdowns and unconsciously move to Real Estate as an alternative to dampen the volatility (buy and hold RE seems to have more steady returns through cash flow).

Instead of getting tied up in a non-liquid asset that has high transaction costs (RE), why isn’t portfolio construction talked about more?

7 Levels of Investors

Having guideposts or a framework can often be useful for figuring out where you are going and where you are. I referred to the 7 Levels of Investors that John Burley originally put out that Kiyosaki made famous.

Here’s a link to that free e-book which I’ve found useful as a guide:

http://belnapfamily.net/teach/7Levels.pdf

The table of contents should give you a pretty good idea:

Chapter 1- The Non-Existent Investor (Level 0)
Chapter 2 – The Borrower (Level 1)
Chapter 3 – The Saver (Level 2)
Chapter 4 – The Passive Investor (Level 3)
The “Gone into a Shell” Passive Investor
The “It Can’t Be Done” Passive Investor
The “Victim” Passive Investor
Chapter 5 – The Automatic Investor (Level 4)
Compound Interest – 8th Natural Wonder of the World
Chapter 6 – The Active Investor (Level 5)
Chapter 7 – The Capitalist Investor (Level 6)

For a slightly different, but more entertaining look, see Dan Lok’s presentation –

which is part of a larger series:

Some thoughts on Robert Kiyosaki + Rich Dad Poor Dad

A question in the FI/RE movement came up recently: “What do you think of Robert Kiyosaki”?

I’ve spent a lot of time studying Robert Kiyosaki. I think there are lots of good things (and some bad things) about him:

The Good:

* Investing is largely about psychology, and very little about “how to”. There are lots of ways to make money – it’s not hard to find any of them. But what distinguishes those who do from those who don’t? (My belief: It’s largely about psychology). So I think one of the key elements he’s trying to invoke is to get you to think for yourself, not to puppet back what he believes (or some strategy). I think this causes him to take an almost Socratic approach to how to he teaches. Instead of telling you “how” to do something, he’s often trying to get you to question your assumptions of the world you live in. (For instance: “Is your home really an asset?”, “Do housing prices always go up?”)

For instance, if you were told to buy index funds because the market always goes up over the long term, what happens that first day when you lose 25% of your savings after you’ve bought at the top? Some one with confidence in themselves and the strategy will stay in and ride it out. But someone who doesn’t have that confidence (but has done it because some “expert” told them to do it) will panic and realize the loss. (Ask me how I know!).

* He points out some of the flaws of the education system. I think one of the most obvious ones is that the educational system (aside from Montessori, and some weird ones on the fringes) are really trying to set you up to fit into a very specific mold – one that obeys authority and thinks there are “right” answers instead of seeing the world as a place of exploration, learning through failure, and lots of grey area.

I think the system leads to a lot of good in society (a hard working work force, etc), but leads to problems when investing (aka, “buy when others are fearful, sell when others are greedy” or “buy when theres blood in the streets”). So every one from warren buffet to sir john templeton, etc. understand the power of defying the crowd to make large sums of money (exactly how the system is trying to discourage you from thinking).

* He thinks education (although a reformed education) is one of the major keys to alleviating people from poverty (The story of his “poor dad” comes to mind).  I couldn’t agree more.

* He’s onto something between the idea of good vs. bad debt, and it’s obvious that this idea has made some people a lot of money (namely: Trump) – although obviously not the only way to play the game. I do wish he gave some more warnings about the power of leverage, though.

* I think he’s been a huge inspiration in terms of the FI/RE movement. In fact, I think I originally got inspired into FI though him.

* I think he’s right in pointing out some of the hypocrisy with how the rich have different rules that the poor/middle class when it comes to investing. (He notes how accredited investors are the only ones with access to the best deals that contain asymmetric risk/reward). Also, how Moody’s was really to blame about the housing market crash + MBS valuation, but instead the big banks took the rap for it.

* I think he’s generally right about gold and dollar devaluation, and in some ways saying the same thing a lot of other people in finance are saying re: a coming crash (for instance Ray Dalio – that all things go in cycles and we just haven’t experienced them yet since they haven’t happened to us or in our lifetime).

* I think his cash flow quadrant is one very useful way of thinking about how wealthy you can grow and the potential for growth + taxes. I also found one of his advisors books (“Tax Free Wealth”) very useful for understanding taxes.

* I really like his cash flow quadrant board game, which you can play for free online – and does provoke a new way of thinking about things.

* He points out John Burley’s stages of wealth. For me, it’s important to have a framework of where you are and where you can go.

* I do think he’s trying to do good things for people.

The Bad:

* I haven’t taken his training or courses, but they seem like a total scam. Not only do they charge a lot, they seem very thin in content. DANGER – STAY AWAY.

* His books are obviously thin on the “how to”. And the how to is clearly a necessary (although not sufficient) to being a good investor.

* I think his didactic style isn’t very good (at least for me). One thing that I’ve realized: I first need a plan, and only then, when I can’t follow it, I have to wonder “Why?” which leads me to my own psychology.

Instead, he approaches it from a psychological standpoint first, but I think most people aren’t ready for that.

* He is no savior and won’t give you “the answer”. I think this is what most people want (at least it’s what I wanted).

* I think he could give some ready made strategies that would work for the masses, but doesn’t. He + his wife Kim talk about debt pay down acceleration + have recycled the Dave Ramsey snowball style of quickly paying down debt, but it’s not obviously in any of his articles. I think someone like Dave Ramsey has actually done way more for people, despite Kiyosaki having a similar reach.

Unsure:

* I think he thinks the way a rich person does, and this often conflicts with a lot of the mindsets of the middle class, which is where I think most of the FI/RE movement is. For instance, I highly doubt Kiyosaki would ever be focused on savings rates. Why would you focus on saving when you could use your brain and just by thinking, make 10x what you’ve spent in the whole year?

* Interestingly, I think there are a lot of common ways that the rich and the poor think that would just appall many of the middle class. For instance, why would you ever work hard at something you don’t like to do? For more on this, see “The Millionaire Fastlane”. Also, consider Ray Dalio who at one time was broke, but it was OK because he was doing what he really liked to do. Also see CD Baby’s founder Derek Sivers tiny book.

I think many CEOs fall into this category.  The old joke: only a CEO would trade a 40 hour work week working for someone else in exchange for an 80 hour work week working for yourself.

* I’ve realized that one way you might look at things is in terms of “How much education does this require to do well?”. For instance, how much education does it take to buy stock and sell covered calls on the S&P vs. passively buying an index fund?  How much education does it take to raise private money in a JV deal vs. use your own money for a buy and hold 4 unit?

 

How to get shit done – BF Skinner Style

More around positive reinforcement:

I often find that I’ve started a task but don’t want to finish it and would rather do something else.  Being “self employed” as I am now, the really tough part is actually getting things done without a “boss” hovering over my shoulder (metaphorically speaking, of course).  So when I’m half way through with a task, I just think of what I want to do when I’m done and don’t allow myself that treat/thing until I’m done.  It’s really no different than those who get rewards in BF Skinner’s videos.

31 Ways to be More Productive (or: Book Notes: Instant Focus by Patrick King)

The introduction to this book immediately appealed to me as it described my own situation.  When I was an employee, I thought that without pointless meetings, commuting, etc. that I would be more productive.  Now that I’m on my own, I’ve been struggling to get stuff done.  I’ve had to build a routine/structure (as if I were at work), but I still find that I’m not always as productive as I’d like to be. So I sought out a few books and this was one of them.  It’s basically a list of productivity tools/hacks.

So here are 31 ways you can become more productive (these are my book notes):

  1. Kill perfectionism. You’re probably the only one who notices.
  2. Write daily goals into a checklist and do it the night before.
  3. Be prepared to write notes on ideas no matter where you are. If you don’t, you’ll forget about them.
  4. Public accountability: friends, social media. Ask Friends to check in on your progress of long term goals.
  5. Group similar tasks together and do them one after another.
  6. Positive rewards. Steak dinner or whatever you want
  7. Break a large goal into smaller goals.  Possibly even goals that aren’t obviously directly related. For instance: if you wanted to lose 100 pounds, you might schedule something simple like taking a 5 minute walk after eating each meal.
  8. Develop a morning routine:
    1. Wake up
    2. Check your daily goals checklist – 5 minutes
    3. No social media
    4. Only use the bathroom *after* checking your goal checklist
    5. Get started on a sizable task before breakfast/coffee – 20 minutes
    6. Eat breakfast; eat same thing every morning – 15 minutes
    7. Check emails And reply to the most urgent
    8. Re-evaluate daily goals checklist
    9. Goof around for 10 minutes before really getting down to work
    10. Nightly Routine: make sure daily goals checklist is set
  9. Don’t do lists. Writing down todo lists reminds people of what they should do, but most people already know what they should do.  Just as important: a don’t do list. What are the tasks that steal your time? Don’t do: things you can’t do anything about. Things that don’t add to your bottom line. Can you delegate to someone else?  Exclude tasks that don’t make a significant dent in your end goals.
  10. When do you get mentally fatigued?  Cut your loses when you are physically avoiding your work devices, if tired, or if only taking on the smallest of tasks, or not being able to focus on a small reading passage.  Don’t try to push through tasks, instead, prefer to take breaks.
  11. Create a distraction blackout.  Remove wifi, use ear plugs, etc.
  12. Gamify productivity. Can you do it an hour instead of two?  Compete against yourself / previous performance.
  13. (Similar to #1): Complete a task first without it being perfect.  For writers: just start writing anything + don’t worry about spell checking, making things perfect, polishing, etc. Perfect is the enemy of getting stuff done. For writers: write drunk, edit sober. Just write and get something out as opposed to getting things perfect
  14. Don’t multi-task. It doesn’t exist.
  15. Protect your time. If someone wants to schedule a meeting, ask for an email about any questions, etc. before you grant them a meeting. This way if they won’t spend 5 minutes on you, why would you spend 30 minutes on them?  Your time is your most valuable resource, so protect it.
  16. Triviality – ignore “who the hell cares” tasks. Have a strict agenda and know what to focus on. Example given: what color should we paint the car shed in a nuclear power plant.  Who cares?  Preempt triviality when you notice you are losing focus and doing things that don’t really matter (for instance, cleaning the house, etc).
  17. Don’t do things you don’t want to do. Your own time is worth gold.  Use a VA to do grunt tasks. Maximize leisure time. Does this make me happy or unhappy? Do I have a choice whether to do it?
  18. Use the ABCDE priority system:
    • A – very important. Must get done today and would have serious repercussions if not done immediately.
    • B – important. Must get done soon and will have repercussions, but doesn’t have to be done this minute/today
    • C – nice to have
    • D – delegate – tasks you can delegate out
    • E – eliminate – you really don’t need to do these.
  19. 80/20 rule – 80% of productivity comes from 20% of your work.  Can you do more of that 20%?
  20. Peak productivity times: when are you most productive?  Identify those times and then block them out and make sure no one disturbs you.  It may be in the morning, in the afternoon, in the evening, late at night, etc.  If you don’t know when it is, keep a journal. When does work just seem to flow? When are you tired?  How long will you need for breaks and when are you done? How many hours are you normally in flow? Leave space open and use only the most taxing tasks for that time. The same way athletes rest their legs and speakers rest their voices, keep your mind rested during non peak times.
  21. Live in your calendar. Schedule your day the day before. That way you know exactly when and where you should be.  There’s no choice – you just abide by your calendar.
  22. Stay positive. It’s a force multiplier. When you are stressed out you will get nothing done as you are totally focused on the stress.
  23. Creator vs manager mode (see Paul Graham’s articles on this). Batch similar things together. Creating = needs open ended time, avoid meetings. The managers objective is meetings.  So group these similar things together.
  24. Commitment contracts with yourself, a friend, or stickk.com. This is negative reinforcement.
  25. 10 minute rule. Anything you are dreading doing, just start it and commit to doing it for only 10 minutes.  After that, You are free to quit. But usually you gain momentum. (I’ve personally done this with violin for years.  I promise to only play for 5 minutes but then I notice that a whole hour has gone by!).
  26. Alter your scenery.  Do different tasks in different locations, but only move on when you are done with your group of tasks. This breaks the monotony of day and also gets you moving.
  27. Focus on minutes, not hours. Product people get a lot done in each minute.  They schedule things in blocks of 15 minutes instead of 30 minutes to 1 hour.
  28. Focus on one thing.  What’s the most important thing to do? What’s the most important task that will get you to your most important goal?  Schedule 1-2 hours to do only that one thing with uninterrupted time.  (See the one thing book)
  29. Don’t use todo lists. 41% of items are not done.  [Where this statistic comes from I’m not sure]. Just put everything in the calendar and do it as it comes up.
  30. Anticipate how you will self-sabatage in the future and use it as feedback. An example – we all want to eat healthy so we buy a bunch of vegetables at the start of the week but by the end of the week they are rotting in the future. [What’s the solution to this?]
  31. Go home on time (Have dinner with your family).  There’s always going to be more to do.

Processes Over Affirmations

I’m starting to favor processes over affirmations.

Here’s why – when I write an affirmation like “I am an amazing athlete” and yet I’m overweight, smoke a bunch of cigarettes and drink every night, it just seems like bullshit. It’s actually not congruent with my behavior, and I explicitly think it’s untrue (I think “I wish!”).

On the other hand, when I set up a process to run every day (or every other day), I find that I naturally don’t want to smoke, engage in excessive drinking, excessive eating, etc. I also am on my way to getting fit.

I’ve figured out that if I leave things to will power, they don’t happen.

If, on the other hand, I schedule them, then I just find myself doing them. Why? Because they are scheduled.

For instance – if I had a job (I don’t right now, but if I did) – I’d schedule going to work every day so that I show up at 9 or 10AM.  And every day I’d show up to work around that time. 

If I set a goal to run a 5k and I’ve got a plan and I set a reminder on the days I want to run – guess what – I’m going to run the 5k!

Does this mean I’m perfect and run every day I plan to?  Of course not.

Does this mean I show up at 9AM every day to work, right on time?  Of course not.

Sometimes I’m late; sometimes I don’t run.  But I do my best and find that for the most part, I achieve my goals.

The win is in the grind – every day doing something, not in wishing to do something.

So I’m starting to think of my affirmations as really more of a list of goals.

Today I’m transforming them from “I am [fill in the blank – something I am not]”,  to “I am becoming [something I am not], with [fill in the blank routine]”

Book Notes: “The Millionaire Fastlane” by MJ Demarco

For the one minute summary:

There are three “lanes” (these are the equivalent to financial “velocities”):

  1. the side walk
  2. the slow lane
  3. the fast lane

The side walk:

  • those who live paycheck to paycheck.
  • They often are in debt
  • they blame everyone else,
  • expect others to help them.
  • the world owes them something.

Slow lane:

  • get rich slow
  • the 9-5,
  • responsible evolution to the sidewalk
  • they save 10% a year
  • skimp + save
  • trade time for money
  • takes decades to succeed
  • saturday & sunday are the paycheck for monday – friday
  • but who would swap 5 (monday -> friday) for 2 (sat & sunday)
  • mediocrity
  • common talking heads: suze orman, dave ramsey, etc.
  • uncontrollable limited leverage.  you have no control, you have no leverage
  • you are trading time for money
  • take 10-60 years to get to 1mil
  • saving 10% = means it will take 10 years to get to your current salary
  • “pay your self first” is really a fast lane doctrine, not a slow lane doctrinebecause you can’t actually pay yourself first as an employee (taxes, etc).

you want to be rich now (or soon ~ 5 years), not when you are 55-65.

so you need to compound quickly, and do it now

businesses generally sell for 6x earnings.  that’s why you need to start a business – to get 600% returns.

an employee can never ask for a 100%-1000% increase in salary

to attract large sums of $$$’s:

  • control
  • leverage

slow lane has neither.  time has no leverage (in theory, 24 hours of time for your income – that’s the upper limit)

compound interest takes *time*.  so if the objective is to get rich quick, it won’t work, because:

  • it will take too long
  • you’ll need control over favorable yield (how are you going to control the economy?)
  • it often doesn’t include inflation (a gallon of milk in 30 years will be $20)

compound interest only works when you have large amounts of capital.   the rich people live off the interest of fixed income (bonds, etc).

The gurus/talking heads (suze orman, dave ramsey, even Robert Kiyosaki) got rich by selling millions of books, etc, not by doing what they actually preach (investing: in real estate, the stock market).  (The author notes that even this book could make the author wealthy, but he’s already become wealthy in his business, which is why he’s out-ing these other authors).

Slow lane is the risky thing to do, as:

  • it’s one big bet on that takes lots of time to play out
  • you have to remain healthy the full time
  • you have to avoid layoffs, bad job markets, etc. for 40+ years
  • most are banking on their home equity
  • terrible lifestyle – must become a miser, otherwise slow lane gets even slower
  • stock market danger.  decrease in capital ultimately kills compounding

Ultimately, there are only a few ways to try to fix things in the slow lane:

  • better returns
  • working more
  • going back to school

But leverage is absent, and ultimately better returns assume more risk.

The exit from the slow lane is “fame” – celebrities, sports stars, etc. They now have leverage.  Millions demand them, so they get paid millions. Other secret exit: climbing the corporate ladder to CEO via stock options.  But this takes a long time.

“Millionaire” is not as much money as it used to be.  You really need 10mil+ to act/live like the way millionaires are portrayed by the media.

=====

Alternative: fast lane

Get rich quick does exist!  But it’s not “get rich easy” which is what most nigerian princes, late night infomercials, etc. offer.

consumer vs. producer.  the majority of people are consumers, the minority are producers:

  • selling things
  • selling info products
  • selling mortgages/debt
  • etc.

consumers seek producers.  irony: once you can produce richly, you can consume as much as you want

net profit = units sold x unit profit

need to either provide massive value to a few people (unit profit)

small value to lots of people (units sold)

or both (which makes you massively wealthy (zuckerberg, bill gates, etc).

Most millionaires (80%+) received most of their money in one lump sump, either being a business owner or an early employee of a company with explosive growth.

industry multipliers (P/E).  Usually multipliers are 2-6x.  So 100k net profit per year business would be worth 400k.  Every $1 of net profit leads to 400% increase

Money tree – passive income:

Rental systems – Real estate

Computer systems

Content systems

Distribution systems

Human resource

Ultimate money tree: money itself

With 10mil, at 5%, you get 40k per month.  With safe instruments!

Focus on income, not expenses (which most slow layers focus on it).  Now compound interest is actually the way to go.  Exploit compound interest at the shore (title wave analogy) – where it makes an impact.  Most people are riding it way out at sea.  Compound interest – 100% a year from a penny still takes 15+ years to to get anything substantial

Law of attraction is just a repackaging of other stuff.  The real fast landers are the ones selling it.  “Law of affection”.  Affect a million, make a millions.

Pay yourself first: must be a corporation for tax reasons.  Never be a sole proprietor, be protected.  Best structures: c, s, LLC.  Limited liability plus tax liability.

Poor vs. Rich – Deal with the causes, not the symptoms.  You are the results of your choices.  Poorness is really just a series of choices.  Every day you make decisions that ripple through the years.  A small change today can make a large change in your future (a one degree change today doesn’t make much of a difference tomorrow, but will in 20+ years).  Choices -> process -> results

Choices are really choices of perception and choices of actions.  You chose your language.  You must believe that you can retire soon, etc.   good choices of perception influence good choices of action.  For Extra-ordinary results, you need extraordinary thoughts.

WCCA – Worst case consequence analysis.  What is the worst case consequence of this choice?  What is the probability of this happening?  Are these acceptable risks

WADM – Weighted average decision matrix.  Quantify big decisions. Help my decision.com.

Natural gravity of society is to be average.  Stay away from negative people.  Get “headwind” behind you.  Extra-ordinary results mean that you need extra-ordinary thoughts – thoughts that aren’t “normal”.  Headwinds = negative friends, environments that don’t support your dreams.  Where do you find the people who are supportive?  Join entrepreneur clubs, get a mentor, find other like people with the same mentors.  Books/autobiographies of successful people.  entrepreneur forums.  Significant others can be the biggest headwinds if they are in opposition to the fast lane.

When someone asks you for your time, they are really asking for a piece of your life.  Time is the great equalizer and much more important than money (money is infinitely abundant).  fast lane  = wealth + time rich.  stay away from “parasitic debt” (needing to buy the latest gadget which will be obsolete in 6 months).  sidewalkers = time is abundant, money isn’t. vice versa for the fast lane.

Education should go on for the rest of your life.  It should help to facilitate the business system.  Its’ the “oil change”.  The oil change shouldn’t leave the car out of commission for months or years (shouldn’t be too much $$$, too many years).  learn from engagement, the world is your real university.  Infinite knowledge is everywhere (book stores, libraries, internet, etc).  “I don’t have time” – kill two birds with one stone.  Driving, Exercise, Waiting (DMV), Toilet time, dead job time (waiting), watching tv.  Read a book at least once a month, hopefully once a week.  Any education source above $25 should arouse suspicion.  Most people want events, not process.  They want things to be easy which is why they pay $50k for a seminar, which is usually just a marketing machine that knows how to extract out every dollar from you.  Bad seminars = price.  Either “free” (8 minutes of real info with 2hrs of pitches) or really expensive.

The Red line is where growth really happens. Not interest, but commitment to get the business going.  How bad do you want it?  Rat race must be more painful than being an entrepreneur.  Most people just give up at the first challenge.   You are paying the toll, which keeps most people out   Prefer to hit one home run (one big success) rather than nothing. Can’t avoid failure, you have to take risks.  Fear of failure is WCCA.  Take intelligent risks, not moronic risks. Intelligent risks = high upside, low downside.  Must take action now, not “some day”.  There will never be a perfect time.

Not all businesses are fast lane.  For instance, if you start a barber shop, you won’t use the law of affection.

“NECST” (NEXT) commandments:

Need

Entry

Control

Scale

Time

Need = businesses – 90% fail. Must solve a problem, no one cares about your problems. Address the selfishness of others.  Chase needs, pain problems, emotions, etc. Not money. Don’t focus needs of yourself, focus it on what people want. Scalpers, etc. still think selfishly. Your bank account shows how much you are helping people. “Do what you love” – is someone going to pay you for it? Is it solving a need?  Are you exceptional at it?  If not, don’t do it. Also, since many people are doing what they love, the margins go down.  kudos if you can do what you love – even in the slow lane.  but the author loves to play basketball, play piano, etc. but won’t get paid to do it.  Also, when you do something for money, it’s easy to lose the love for something. Use passion, not love.  Why are you doing this?  Who are you trying to prove wrong? Usually passionate why gets you out of bed in the morning and keeps you working long hours.

Entry = If entry is too easy, you’re going to have tough odds.  MLM, etc. any businesses that are easy to start within 1 day.  Exceptionality is the one thing that breaks the rules of entry.  Can you be the exception (1 of 1000) in an MLM business?   Forex = can you really beat everyone?  The people who are really cleaning up are the people who founded the MLM or forex brokers. Real businesses are processes, not events.  When everyone is doing it, you should get out.  everyone = random people in your life are talking about. dumb money shows up at the end of the boom. you can’t be like everyone else.

Control = you must control the system. if you aren’t driving, you are subject to sudden shifts. you are making someone else rich. you must take on the risk. create MLMs, not join.  sell franchise, not buy them. sell affiliate programs, don’t join them. create hedge fund, don’t invest in them. sell stock, not buy stock. offer drop shipping, don’t use drop shopping.  offer employment, don’t get employed. accept rents & royalties, sell licenses, sell ipo shares, don’t buy them. You can’t be a driver in every instance. Drivers make the big money.  200k every month, not 20k every month. legendary money = 1mil every month which can be made with NECST.  affiliates, for instance, can make good money (20k per month), but rules could be subject to change at any point.  with affiliates, in an MLM, etc. you are a “hitch hiker”.  If someone can flip a switch and kill your business, you are playing roulette.  Are you investing in your brand, or someone else?  Stop building pyramids for others, instead create them for youself.

Scale = leverage. You only have to be right once – so play on a field where you can hit home runs, not singles. example: local salon. need to do something to transform it to larger scale (franchise, etc).  also, law of affection.  Can also deal with magnitude.  Lamborghini instead of Hondas.  can the net income of this business scale infinitely? what is the best case units sold potential? otherwise, you are just your own boss with a job.  need either direct or indirect scale.

Time = Business must detach from your time, otherwise it’s just a job. You can create a businesses but you must be able to extract yourself from it (must at the end of time be passive). Sometimes you can add a system to make it passive (franchising, for instance).

Most potent fastlanes (they fulfill all 5):

  • internet
    • subscription service
    • content based revenue models. hard, because barriers have come down
    • lead gen
    • social networks
    • brokerage systems
    • advertisers
    • ecommerce
  • innovation/inventing. creation/manufacture, distribution.  anything that fulfills a need/desire.  core activity: make something better, or just repackage, do better marketing. example: high end vodka. same stuff, but just repackaged.  same with snuggle – it’s just a blanket. distribution is where the war is won.  authoring is also a fastlane.  writing a book is not a business, but selling one is. have to get it in front of lots of people.
  • intentional iteration. it’s really a small business (because it doesn’t naturally have scale) but done multiple times. small store -> franchise.  investor buying one single house -> 50 houses.  fasteners response to limited scale.

Opportunities are everywhere – you just need to look. doesn’t need to be a grand idea, but just an unmet need. they are everywhere. who cares if someone else is doing it? can you do it better? can you be a better marketer? Competition is everywhere, just do it and do it better. “I hate” “This frustrates me” “Why is this like this?” “Do you have to?” “I wish there was…”, “This sucks”.  These are all open roads. Failures are inevitable. Don’t quit your dream, but you can quit your road.

You need targets.

  1. define the lifestyle you want. how many cars? houses? etc.
  2. what is the cost of this lifestyle?monthly allowance -> gross living cost.  gross living cost * 0.6 => net living costs
  3. set targets. money system target: monthly net living costs * 12 * 0.05.  12 = months, 5 = 5% yield on money system.
  4. make it real. break things down into their smallest parts. need to walk before you can run. learn to make $50 a month before $50k per month.  drop change into your bucket daily (literally). have you applied pressure to that goal?

Keep expenses under your income. Live below your means in order to expand your means.

Late night info products do work – but – they make money selling you the system.  most people don’t actually try to use the system, which means that almost no one gets a refund.  Don’t play your businesses by competing on price. It’s a game of checkers, instead, play a game of chess:

  1. king = execution
  2. queen = marketing
  3. bishop = customer service
  4. knight – product
  5. rook = people
  6. pawn = ideas

idea isn’t worth much, but can be a multiplier. idea = event, execution = process.  ideas are worthless, but often treated like gold.

Customer Service – business plans are useless.  they are really just ideas jacked up. marketplace will tell you what you really should be building. Keeps “black book” with complaints.  Free feedback and insight into mind of customers.

[ more about customer service that was skipped ]

Marketing + branding: the queen, probably the most powerful piece in business.

build brands, not businesses. marketing & branding. marketing can get people to buy even if nothing else is functioning. people are loyal to brands but not businesses.  brand = usp = unique selling proposition. anchor to brand. what makes company different from the rest?  what will compel a customer to use you over someone else? (his example: risk free advertising). targets benefits. dominos = deliver to your door in 30 minutes or less, or it’s free. m&ms = melts in your mouth, not in your hands.

  1. uncover the benefit. if you are already in business, what’s the advantage of your product
  2. be unique.  not “Grow your business” but “shatter sales records”.
  3. be specific and give evidence.
  4. clear and concise
  5. make it real. you must deliver on what you say. if you don’t, you’ll be a fraud and easily exposed

Most people are marketers, but marketers of illusions. No one is poor on social media.  Author is in top 1% of wealthy in america, but you wouldn’t obviously know it.  He needs to compete with the noise.  How does one do that?

  1. Polarize. Not the best strategy for a mass market brand since it will get 50% of people who hate you.  But those who love you, really love you
  2. Risque – sex sells. Godaddy Super Bowl add example.
  3. Arouse emotion. ASPCA animal ads. Lamborgini which makes you feel rich, etc.
  4. Interactivity. If you can feel it, taste it, or touch it, you are more likely to buy it. FB = most popular, questionnaires, surveys.  People love to talk about themselves.  Get people to talk about themselves.
  5. Be unconventional.  Lamborgini sold for one dollar. Energizer bunny.  Geico ads – surprise punchline “I’ve got great news – I just saved 10% on car insurance”. If you get someones attention, half the battle is lost.  If you can get them to answer “what’s in it for me?”.

Ironic: to be in the fast lane (get stuff), you have to be selfless.  Must emphasize benefits (what’s in it for the customer), not features (what you’ve built).  One buyes a hole, not a drill. Translate features to benefits.  Who is the buyer? put yourself in their shoes.

Price conveys more than cost.  It implies value. For instance, designer handbags.  Example: dresser given away for free on sidewalk, but in good condition, just needed a quick staining. then the guy stained it, still no one took it.  finally, he put $50 price tag on it, and it got stollen. Another example: an artist selling her stuff at $90, was able to bump it up to $399 and made the same # of sales.  Another example: same ad for a job listing, but one paid a lot less than the other.  the listing with a smaller salary had 3x the number of applicants.  Are you undervaluing yourself/your products?  Right pricing strategy is crucial to branding.  What makes you different from someone else?  Own the consumer’s mind and you own the consumer.

Chose monogamy over polygamy. Must be focused & disciplined – on only ONE business. Don’t scatter focus over different projects.  It’s a symptom of money chasing instead of helping others.  You figure “if I just do a bunch of things, one has to stick, right?”.  10 businesses earning 10k each is not better than 1 that does 100k.  this just builds weak assets, doesn’t scale to multimillion valuation.  Eat, live, sleep, and shit your business.  Fastlane success comes from monogamy.  After you become wealthy, then you can become a “polygamist”.

Wealth supercharger – time to take your first step:

  1. F = formula. wealth is a process
  2. A = admit. admit that preordained path to wealth, doesn’t work
  3. S = stop & swap. stop following the wrong roadmaps. stop thinking that 401ks and mutual funds will make you rich. swap from consumer to producer
  4. T = time. stop trading time for $’s. invest time into a business system.
  5. L = leverage.
  6. A = assets + income. exploding income. live below your means, but seek to expand your means, not cut your costs
  7. N = number. what’s your dream/freedom number?
  8. E = (e)?affection. law of affection.
  9. S = steering wheel – you must have control.  Deploy WADM, WCCA
  10. U = uncouple. pay yourself first (through your business) in a C, S, or LLC
  11. P = passion + purpose. habitual action.
  12. E = educate. never stop learning
  13. R = get on a fast lane road.  train your mind to find needs / problems. you don’t need to find the next big breakthrough, just solve a problem better. the road chooses you
  14. C = control
  15. H = have what others need, and money will flow into your life
  16. A = automate your business and detach your time from your business
  17. R = replicate. replica your system. you must impact millions.
  18. G = grow your business – it’s a game of chess. build a brand, not a business.
  19. E = exit. have an exit strategy.
  20. R = retire or repeat. either way, celebrate along the way.