Thursday, April 10, 2008

10 minutes of informative viewing

Today's Working Lunch

From the off (1) Interest cuts & implications (2) The spectre of "Negative Equity" (3) The plummeting Pound

Posted by jack c @ 03:43 PM (668 views)
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2 thoughts on “10 minutes of informative viewing


    This week I want to find out whether you are genuinely interested in achieving financial freedom or just a time-waster.

    Regular readers will recognise this is “tin hat” time.

    If you haven’t got a tin hat you’d better go out and buy one sharpish.

    Most writers have to keep their readers sweet or they won’t keep buying. I’ve got nothing to sell so I don’t give a monkey’s cuss (quaint expression – but the only clean one I could think of).

    I’m not selling financial freedom – I’m giving it away.

    It is what it is – which is invariably different to what you think it is. I am writing for 100,000 mindsets. Do you really think I am going to keep changing the tune until I find one you like?

    So tin hat on – let’s find out what you are made of.

    This will all be over in a moment – in fact, it just takes three questions.

    In each question I want to know how the following statements would affect your attitude to investment:

    Question 1. Imagine that property had just gone up in value 20% over the last 12 months. How would this affect your attitude to property investment?

    Answer A. I am thinking “I have missed the boat”

    Answer B. I am thinking “Boy this is a great opportunity, I must get in quickly”

    Question 2. Imagine that property is the same price at the end of the year as it was at the start of the year. How would this affect your attitude to property investment?

    Answer A. I am thinking “This is a waste of time, what’s the point of investing in a market that stands still?”

    Answer B. I am thinking “Property doesn’t always go up in a straight line so this is still a good time to buy because I am buying at last year’s prices”.

    Question 3. Imagine that property has fallen in value 20% over the last 12 months. How would this affect your attitude to property investment?

    Answer A. I am thinking “Property is a great way to LOSE money”.

    Answer B. I am thinking “Wow, this is a great chance to buy on a dip”.

    If you have taken your time answering these questions and you have given me, or more importantly yourself, a genuine and truthful description of how you feel, you now know EXACTLY what conditions you are looking for in order to invest in property.

    If your answer is answer A to all three questions then the good news is you can stop reading this newsletter every week and spend your time more wisely playing golf, listening to music or watching the game on TV tonight. I do not say this in a flippant or derisory way. I simply want you to understand where you are and what your motivations are.

    If you won’t buy property if it is going up in value, down in value or standing still – then for heaven’s sake stop thinking about property investment altogether and find something that really does get you turned on.

    The same is also true of gold.

    I am writing this newsletter on the 1st April 2008 and gold has just fallen from over $1,000 an ounce to $895 an ounce. Gold’s sell off has no doubt been exacerbated due to it being the last day of the first quarter. End of quarter sell-offs in commodity markets are both common, and misleading, and go against the long-term trend as traders take profits for the quarter.

    And yet today I have about 30 emails from people asking if they should get out quick. What this shows is that they don’t have a strategic plan for the next 7 years. As a result they get confused and misled as the price goes up and down. They are like startled rabbits in the headlights – “Oh tell us what to do. Please tell us what to do”.

    If you have a strategic plan you would know what to do.

    If you don’t, you need to sit down and write out a seven year plan for your investments and then you should stick to that plan.

    The philosophy here is “I may not always be right but I am never in doubt”.

    If you think property will be worth more in seven years time then you should buy property – and the best time to buy is on the dips.

    If you think gold and silver will be worth more in seven years time then you should buy gold and silver – and the best time to buy is on the dips.

    There is nothing particular clever about what I am saying but it makes life so much easier.

    You get to sleep at night when you have a plan.

    You feel as if you are in control of your own destiny. If you are not prepared to lose your shirt (and who is?) then maybe you want a stop-loss position. This means that if the commodity you buy ever falls, say 20%, then you sell at that price to protect your remaining 80%. I am not recommending this, by the way, I am just saying you can completely protect your downside if you want to.

    The reason I am not saying this is that, as you may have guessed, if a commodity I believe in falls 20%, that is exactly the time I will be backing up my truck and buying as much as I possibly can. If the fundamentals are still in place then a drop in price is a great time to buy.

    The question you have to ask yourself is – are the fundamentals still in place?


    One weapon you will certainly be needing in your fight to achieve financial freedom is knowing how, when and where to use debt as a means to achieving your core objectives.

    Debt is a poison – it kills most people, or at the very least keeps them in pain for many many years. But for those who know how to use it correctly, it can be an extremely powerful tool.

    Most people get into debt because they buy things they don’t need with money they haven’t got – usually, it has to be said, in order to try and impress others.

    I have always found it odd that people borrow money on which they then pay extortionate amounts of interest, in order to impress others with their wealth. It is completely absurd.

    The biggest mistake is that the debt finances the purchase of something that loses half its value the moment it leaves the shop – and most of the remainder of its value will be lost in a couple of months thereafter. By contrast the debt that is financing the purchase has a very healthy life ahead of it and will live for many years feeding off its benefactor as it does so.

    In this situation you have the worst of all worlds:

    A rapidly depreciating asset.

    A massively growing debt.

    A finance structure that requires YOU to make the monthly payments.

    Horrendous finance terms.

    You would think it impossible to ever sell such a scheme to any sane person, and yet we are awash with credit cards that are testimony to people’s financial stupidity.

    Of course not all of you are this gullible.

    I know from many of the emails that I get that there are people out there who use credit cards wisely. This, in essence means you ALWAYS pay off the bill in full every month and use them as a way to get cash back, points or airmiles. Good for you. If enough people did this, credit cards would disappear overnight because without financial morons to finance them they could not survive. This is an important point. I hope it is obvious that many of the techniques used in achieving financial freedom are not available to everyone. If everyone used credit cards sensibly then they would disappear overnight. If everyone became a landlord who would be left to rent? Understanding this will help you to understand that you are in a very small minority group – and you always will be.

    If you are wondering why I am so brutal – don’t.

    The financial media should be spelling it out in exactly the same tone, so why don’t they? The media equivalent of advice on credit cards?

    Choose a credit card with a low interest rate.

    Now why would they do that?

    Because they make their money from advertising not from helping their readers.

    If they told it like it was they would immediately lose the valuable advertising that makes them all the profit. The newspapers will never tell you to cut up your credit cards because they rely on the credit card issuers for their revenues.

    Blindingly obvious!

    Credit cards are bad news – never have so many financed the financial activity of so few.

    But not all debt is bad. After all, how will you ever get the money to invest if you cannot borrow it? Ah – there’s the rub. Which brings me nicely on to the most important part of the newsletter.


    If you can change the four criteria I laid out earlier, then debt becomes a way of helping you achieve your financial ambitions. After all, if you are not wealthy now how can you finance your investments.

    To save you you scrolling back, these were the four criteria that made debt a bad thing:

    A rapidly depreciating asset

    A massively growing debt

    A finance structure that requires YOU to make the monthly payments

    Horrendous finance terms

    The question is, how many of these criteria can you change?

    What if, instead of buying something that only ever went DOWN in value, we bought something that had the potential to go up in value?

    What if instead of having a ballooning loan, we controlled the debt so it remained a manageable size?

    What if, instead of us paying the loan, someone else paid the loan?

    What if instead of paying high rates of interest we could get the lowest possible rates of interest.

    This is the model that launched buy-to-let.

    Whilst people often consider buy-to-let a risky investment, it is hard to see the justification for such a claim when every aspect of the business model is so heavily geared in our favour.

    Why would anyone condone credit card lending and at the same time criticise buy-to-let as being a risky investment?

    The answer is obvious – only someone who is not going to benefit, that’s who!

    Financial freedom is achieved by breaking the rules and over-turning conventions – not because we are dogmatic, reactionary or Luddite, but simply because the conventions are designed to make us poor and other people rich. In the search for financial freedom it is essential that we challenge those habits, those idealogies and those rules that most people take for granted.

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  • bidin'matime says:

    Too much positive spin – and look out for the property ‘expert’ with the dodgy haircut – I can’t take anyone with a haircut like that seriously…

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