March 3, 2009
December 15, 2008
A Nudge Of The Spotlight…
A few years ago I was making some frequent trips to the Big Apple, good ‘ol New York City.
In this edition of the Rapscallion, I thought I’d nudge the spotlight over a little and splay the light down on something interesting there. All in an effort to make you think a little and learn from it.
Call it a "sub-culture" I never knew existed before...the subculture of the "$10 Millionaires."
This is a strip of geography (midtown Manhattan) and a sphere of folks where pretty much anyone and everyone’s net worth was around $10 million bucks.
I take that back… not everyone’s net worth. This would NOT include their multiple nannies, maids, valets, doormen, handymen, deliverymen, or personal shoppers.
Now you’d think a bunch of people running around with net worth’s around $10 million would be an extremely happy and grateful subculture of "Manhattan-ites"…but it was anything but. They seemed to me generally unhappy and restless.
They are also a very religious sort I might add…if you call politics, pets and pet causes "religions."
One time I brought my then 7-year old son with me to visit. He wanted to see the Statue of Liberty, the Empire State Building and Times Square, which we did. When he was introduced to members of this subculture, he was greeted and treated like a space alien straight out of Battlestar Gallactica. A foreign outsider, penetrating the culture...a human in midget form, that doesn’t obey like a pet (not to mention he was laughed and snickered at by grown adults for the landmarks he visited)!!
Why the unhappy and restless nature? It’s because they are like most everyone else- namely, they want something they can’t have. And what this sub-culture wants more than anything else is membership into the $100 million net worth subculture. This is no exaggeration. (You know…so that when you go out to cocktail parties, you can push elevator buttons with higher numbers on them)
And I’ll bet if you were able to penetrate the $100 million subculture, they’d be mostly miserable and perturbed because they didn’t have $1 billion on the books.
Amazing.
So…where did all this wealth come from? While it’s impossible to know precisely where from (due to the secretive nature and subject of money), in a round about way, this "deca millionaire" subculture exists because of the stock market. Both being near it and being in it.
Like any big city, New York City is made up of lots of "mini cities" within it. Places like the 5 boroughs, "Little Italy", SoHo, and the "Upper West Side". But NYC is also made up of companies that are like mini-cities themselves. Like the armies of employees that go to work for a company like say Goldman Sachs. Their workforce population alone is as big as most small town cities.
Since the world’s finance is centered in New York City, money flows in from around the world. The salaries for research heads, trading bosses, money managers are easily in the millions per year. Even wet-behind-the-ears college kids easily make 6-figures right smack out of college!
Fact is, the bonuses doled out by just one Wall Street "city" (like Goldman Sachs) during a Christmas season can be mind boggling. Some of the top guys get $50 million per. Many hundreds of people get bonuses in the millions. And thousands of people get bonuses in the hundreds of thousands. This, to me, is something out of Battlestar Gallactica, or Hollywood, or some other fantasy land!
From just one company.
Stimulus like this ripples and re-ripples through that tiny island strip of land called Manhattan.
Real estate, for one, gets a continued shot in the arm. Values rise, sustain and rise some more. This in turn creates an entire "city" of well-paid real estate agents. Then there’s trendy shopping, dining, decorating…and the rest of the ripple effect is unfathomable.
Then there’s the extremely lucrative, $9-trillion-and-growing "hedge funds" explosion that came out of nowhere during the last 10 years…paying analysts, managers and staff 2 and 3 times what they made in their "old" Wall Street jobs.
So why am I spending time to share all of this with you?
Because for the most part, this subculture I talked about has been cut off at the knees—almost entirely wiped out.
The Lehman Brothers "city"? Gone.
The Bear Stearns "city"? Vanished.
Hedge funds? Hemorrhaging. In fact the former head of the Nasdaq exchange who now runs a gigantic hedge fund was just today indicted for an alleged $50 billion "Ponzi" scheme to hide mounting losses from investors.
I’ll bet two years ago, no one in a million years could of dreamt up a nightmare scenario this horrific.
How bad is it? Most people affected by this in Manhattan are too shell-shocked to even think. A volume of stuff has happened, and so fast kind of a like a train wreck that is still piling up with the metal twisting and groaning in every direction.
Raymond James, a stock brokerage firm based out of Tampa, Florida has been able to watch all of this from a distance. Daily, Raymond James receives hundreds of resumes and job applications from "up north" for work.
They are seeing heads of research departments and other big chieftans applying for entry-level stock broker positions in their Florida offices.
Now, I’m sure there are some very smart traders that turned to cash a long time before all this catastrophe set in – and that’s all well and good. I’m happy for them.
But what’s the lesson to be learned here? Is it to get out of the market at trouble signs? Is it to always have downside put protection in place? Is it to take a jab at rude New Yorkers –that deserved to "get theirs"?
There’s lots of lessons to learn from this…but the bigger picture, I think, is to keep in mind how easy it is to get lulled to sleep –with anything in life. It is very easy to extrapolate out into the future what’s right there in front of us to see, year after passing year. (For example, if Bear Stearns has been in business for over 100 years, and survived all kinds of financial bumps and shocks – it’s gotta stay in business for another 100 years, etc)
Also, how easy it is to have your entire life and livelihood tied into that status quo that lulls you to sleep. The fact is, sometimes life has some dramatic changes in store. And sometimes, it can all happen very, very quickly. And affect nearly every last thing close to you…if that’s how you’re set up.
In the final analysis – I guess this post is mostly about having gratitude. Being and feeling truly grateful for every last thing you enjoy…no matter how small or insignificant (like even feeling grateful for the breath you can draw in right now and for the rest of the day).
That’s really where true happiness lives, I believe, in remembering to have gratitude. Anyway – I hope this finds you well.
--Preston
This edition of the Rapscallion Report:
Staying Power... Dentists And Shining
Knights On White Horses...
In a just a few pages, I'm about to reveal some killer nuggets of wisdom that will help you make and keep more of your money -all while bringing up dentists AND shining knights on white horses in the same short space...
...Now you've gotta read this don't you?
In my soon-to-be 40 years on this planet, I've run across this more than once.
Well, let me give you a prime example. Several years ago, I was in San Diego with my family visiting my wife's niece. We were driving around Mission Bay when all of the sudden she got all excited to tell us about the upcoming house right on the bay.
It was the neighbor of a friend of her's.
It WAS breathtaking - with lots of fancy cars in front, not to mention the ultra long and mean-looking boat tied to their private dock. What she described was a dazzling display of wealth -so much so it made you immediately think the owner was either direct kin to Donald Trump or it was some kind of genius that invented something important.
Only to find out the guy's a dentist.
A dentist.
My mind raced. And here's some of the thoughts it tried to chew on:
How many sets of teeth can you work on in a day? Because after all, you only get paid for the amount of work you do - right? To my knowledge in the dentist world, there's no King-B dentist making a spiff off a bunch of "middle man" sub-dentists? The way it goes is you pretty much get your own office, hang a shingle, and then earn your way by getting butts in the seats -which means YOU have to be there as well!
So where does the massive dough come from? And how come some dentists seemingly live like Oprah Winfrey?
Well the answer is simple. I believe the answer is staying power.
Hearken unto me.
Tooth decay happens and tooth pain knows no season. (On a side note: there are now millions of people convinced of the "need" to have their teeth white all the time...read: vanity knows no season)
This means that no matter what, in good times or bad - if you're a hard working dentist and good at what you do, you can produce a very steady income...hell...a great income! Making all that schooling and dedication really pay off.
So what does this have to do with staying power?
Plenty. Because this is where MOST of the real wealth comes from!
Slide on your "investor cap" for a moment. From time immemorial there have always been periods of desperation, by that I mean: recession, real estate blow-outs or general (or localized) distress.
Fact is problem times will always be part of our human experience - you can count on them like the seasons changing. And if you're someone who can step onto the scene, with cold hard cash in hand...well then, you wield an awful lot of power—don't you?
Confident And Unflinching Vs. Desperate And Flinching!
If you're chugging along in good times and bad, saving up a few marbles along the way - the world can really open up to you during the bad times. If you have the steady business and the cash on hand -staying power- you stand to benefit as real estate bargains fly at you for 50-cents on the dollar. You are there to loan money to desperate businesses and other types who willingly sign on to deals with extra collateral (like jet aircraft) in the event of a default.
Not to mention all kinds of other
deals and combinations of out-of-the-blue circumstances where the one with
"staying power" stands to benefit.
What I'm trying to say here is by just being around and being a player in the game - you stand to cash-in in ways that would make Croecus himself jealous.
It's sad but true...when it's all said and done, the #1 all-time wealth producer from any kind of "deal-making" is the fact one person is desperate, and the other isn't. It dates back to ancient times.
And let's face it - there are other professions besides dentists where this is possible. The fact I'm using dentists as an example is merely because I've run into the "dentist thing" more times than not in my little corner of experience!
So how does this edition of the Rapscallion Report help you as a stock market investor - in any way shape, manner or form?
Plenty!
There is such a thing as "staying power" for a stock market investor/trader. The basic definition is not much different from the business world, namely: you're simply "around" and able to take advantage - no matter how bad things get.
By the way, did you know there have been more boom and bust cycles in the REAL ESTATE market than in the stock market?
That being said, the stock market "busts" are FELT MORE by people...probably because lower stock prices are instant and sobering. Unlike a home, stock prices can be seen instantly online and keep hitting people over the head every month in their statements.
So how do you weather stock market storms? How do you "hang around" flush with money - ready and nimble to take advantage of the upswings?
I'm here to tell you THIS can be you. With a few tweaks to your thinking and showing you a few ropes YOU can be a confident and active trader - learning a few key, "staying power" tricks.
One of the main staying power "keys" is the power of a
PUT OPTION CONTRACT.
Put options cost you money to buy, however they allow you to "put" (sell) a stock you own at a pre-determined "strike price" on or before a certain date (expiration date).
For example, say you bought into a stock at $60 and it went up to $70 giving you a $10 profit per share. If you buy a put option contract with a $70 strike price, and the underlying stock falls to $40 - the put option gives you the right to "put" or sell the stock to someone else at $70 per share. Someone is forced to buy it from you at $70!
Everyone else who bought in at $60 fears opening their brokerage account statement, but you come out smelling like a rose.
Imagine doing this on a home? Forcing another party to buy your home from you at an advantageous price to you!!?
There's nothing like put options in the real estate market!
What's more, you can buy put options at select times... both to protect your current individual stocks AND/OR to profit as a stock or an entire market index gets punched in the gut.
The fact is - markets have always moved in "cycles" and in the future they will forevermore move in "cycles". These market "cycles" historically take 3 out of 4 stocks with them. So they are important to be aware of!
Recognizing where these cycles are helps you to be more or less aggressive when taking advantage of individual stocks (and options).
As of this writing, the major market indices have been in an upswing, a new "up" cycle.
However, for many months prior to this, I was the owner of SPY puts (these are puts on the entire S&P 500 index) as well as on QQQQ puts (these are puts on the entire Nasdaq index) during a massive market slide/down cycle.
These puts paid off - to the tune of nearly 300% gains for each index put! What this did was provide a massive soft cushion to my entire account as time passed over this severe selling-off period. Most importantly...this gave me STAYING POWER!
Not the mention the by products of staying power such as massive doses of confidence, clear thinking and (dare I say it?...) FUN!
In fact if you find yourself on the battlefield with uncertainty attacking you straight-on, with a little despair closing in on your left flank, and doom & gloom looming in on your rear - think of "put options" as being several hundred of these guys riding in to bolster up your troops:
This is the image I have when a "Put option" rides in to the rescue
In the stock market, I credit the power of put options and strategically taking advantage of them during certain times as THE #1 REASON for my stock market staying power.
And as you have seen (and most likely already know) - staying power IS HUGE! You need to have it if you want to move your wealth and financial goals up to the next level!
I hope this Rapscallion report finds you well!
--Preston James
