Nov 9, 2022
Luck & Risk + How to Build a Crystal Ball - BRT – WFL S03 EP56 (155) 11-6-2022
What We Learned This Week
- 4 Kinds of Luck - Blind, Hard Work, Preparation, Reputation
- Crystal Ball - Read to get Data on Tech Trends
- Types of Risk - Interest Rate, Inflation, Play it Safe
- Market Risk - Buffet Rule # 1 - Never Lose $, how Mkt losses affect your portfolio & timeline
Co-Host: Denver Nowicz, President - Wealth For Life
https://wealthforlife.net/brt/
https://twitter.com/denvernowicz
Denver is an advisor with nearly 20 years experience working with clients in investments and insurance, designing retirement plans with a combo of both. He takes us through different strategies for clients to get the best allocations for their money over the long term. It is the Combo Strategy of both Offense and Defense, the synergy of the mix, not ‘All or Nothing’.
Notes:
4 Kinds of Luck in Business
In 1980, Bill Gates and Microsoft
struck a software deal with IBM to create an operating system for
their computers. This is considered the greatest business deal in
history.
Why?
Not only did a then relatively
unknown software company called Microsoft get its biggest customer
ever, they also struck a non exclusive licensing deal to sell the
same operating system to other companies. This deal put
Microsoft on the map, while simultaneously flipping the future of
these 2 major computer companies. Microsoft would one day
supplant IBM in the industry.
There are many details and
conflicting stories to how this legendary deal went
down.
(For the Details: HERE)
One thing is for sure, there was
some luck involved.
Bill Gates mother was on the United
Way board, and knew the CEO of IBM, so a personal connection was
established. When IBM first approached Gates, he connected them
with Gary Kildall of DRI as he was the premiere software developer.
But IBM and Kildall could not cut a deal, and IBM came back to
Gates and Microsoft.
On the other side, Microsoft had
established themselves as a fast growing computer company by 1980,
and had caught IBM's attention. It's BASIC software already had
hundreds of thousands of users. Also the MS-DOS software turned out
to be more compatible and cheaper then Kildall's
software.
When reviewing this deal, one can
ask -
Did they get lucky?
Was it Skill that got the
deal?
Was it a combo of both?
Maybe there different types of luck.
Let's look at 4 Kinds...
Blind Luck or Dumb
Luck
You just got lucky. You were in
the right place, at the right time.
This is nearly impossible to repeat,
so cannot bank on this plan of action over the long term.
Enjoy the benefits while you can, but limited lessons you can learn
here.
Luck thru Hard Work
& Persistence
You got lucky because of a
compounding effect of consistent hard work over time. You are out
there doing work, meeting contacts, providing value, etc.
Then you post marketing content often, discussing your work
and showing case studies. You also work with many different people,
who you foster the relationship and they recommend you.
This system can be replicated if one
is willing to do the work.
'The harder I work, the luckier I
get.'
Luck thru Preparation, to
Discover Opportunities
You got lucky because you are the
'eternal student', always researching about your industry, or an
adjacent one. Because of this you find the growing trends to take
advantage of, or meet the contacts who open your eyes to a
potential deal or new market.
This system also can be replicated,
assuming your have the intellectual curiosity to do deep
dives on topics and meet the relevant people involved.
Of course, you also have to do the
work. 'Luck = Chance + Preparation'.
Luck Because of
Reputation
You got lucky because you have been
doing such good work for years that has provided you a stellar
professional reputation as the go to guy. When someone thinks 'X',
your name comes up. The question is asked, 'who is the best guy at
X', and they contact you for help.
This system is repeatable if you do
the work to build your reputation ('it precedes you') thru years of
good work and great results + promotion again.
For more of this topic, go straight
to the source:
Dr. James H. Austin wrote a book (in
1978) breaking down the 4 kinds of Luck: Chase, Chance, and Creativity: The
Lucky Art of Novelty.
How to Build Your Own Crystal Ball
Older people sit down and ask, ‘what is it?’ But the Boy asks ‘what can I do with it.’
Don't fall into an outdated mindset. Keep up with the trends. - Steve Jobs
The best in business understand how to Anticipate the Future. They see the Train coming around the corner.
Business and Technology trends are ever changing. To survive you must keep up with what has happened in the industry. More than anything this is a mindset of ongoing learning.
Warren Buffett is an avid reader. He reads 4 – 5 hours per day looking for ideas. He’s lucky if he finds a few good ideas in a year. This has been deemed his super power.
If you want your own Crystal Ball to see the future, you need to be constantly researching and reading what is going on. From the internet to newsletters to conferences to books, there is no lack of options for where to find information.
There are so many free blogs and newsletters to choose from on niche subjects of tech, VC, or crypto to name a few. If you need the deeper dive, find a paid subscription service doing research on an industry for business or investing.
Get the Data. You need people who can provide you the intel about an industry.
Insiders are the best source of intelligence. Build a Network of people ‘in the know’ in an industry you want to know more about. If you need to know about a few industries, then make a few contacts, whom each represent an industry.
You also need to form business partnerships so you keep learning and evolving. A change in an industry on the tech side, may also mean a financial change or legal change. A good team of Advisors (accountant, attorney, tax advisor, financial consultant, etc) can be invaluable as they deal with multiple clients and see things that may not currently be going on in your business.
Disruption in tech and business is ever present.
It is not uncommon for someone to change careers 2 to 3x in their lifetime. Being aware of the trends can help to make informed decisions of what is going on.
Is the industry you are working in growing or dying? If the industry is on a downward trend, what industry can you jump to on the way up? Knowing what is going on industry wide and the tech trends can affect your career or business.
Real World Example
We will use the tech industry as an example on keeping up with trends, since it impacts so many other industries. Here are some Tips of where to get insights on the Tech Industry:
Tech Trends to be aware of from a quick search on Google.
Each of the below technologies overlaps in many industries today.
Regardless if you work in tech, you have probably heard of many of them.
Risk
Playing it safe and taking no chances is still risky inflation risk if you are just holding cash and putting your money in the mattress, inflation eats away at the value of the cash and your purchasing power
Think of your business as an asset class whether it is a digital business or a traditional physical business, the old brick and mortar
Buy assets to fight inflation, as they appreciate over time
Interest rate risk when the interest rate for loans rises, it cost you more to get money, called the cost of capital
Dangerous to use credit cards as you have high debt with higher interest rates
When interest rates go up it makes a mortgage more expensive and it’s harder to buy a house
Savers thrive in a high interest rate environments, and savers are punished in low interest rate times
Higher interest rates hurts real estate, and business as it puts a strain on the industries. Again, cost of capital to get loans cost more because the interest rates is higher.
On the flipside business or real estate is cheaper to buy in a depressed market, and the return on the asset over the long term is a good opportunity even if interest rates are higher.
ROIC - return on invested capital - Ex: put $100K in investment and cash flow $50K a year over 5 years, means you put in invested $100K, & got $250K or a 2.5x ROIC
Even in high interest rates, these investment numbers make sense
The old adage don’t jump over dollars to get pennies, monitor the big picture
Insurance strategies have matching dollars like 3 to 1 tax-free matching, leverage can expand to your ROI
Credit card co’s, use debt to buy things, inflation and higher interest rates help
Market Risk and Market Volatility
Can be hard to handle emotionally, as market losses Mount.
We’re always told to not be emotional about investments but it’s very hard. A lot of people just invest in the stock market they hope one thing happens buy low and Sell high as long as the stock appreciates everything will go OK we’re banking on appreciation only
From 2010 to 2020 this was a good strategy, as the market was great, up 329%, but from 2000 to 2010, the market had almost a 0% return
2000 to 2020 – up 304%, or 6.74% per year
Can you trust traditional stock market returns?
You need defensive assets to have balance
In 2022, you lost 50% if you owned tech stocks, Facebook stock has lost 70%
How long is it going to take to get it back?
Wealthy do not want to go backwards, they have a percentage of their portfolio in stocks, with an overall portfolio of multiple assets
Buffett Rule #1, never lose money, Rule #2, remember Rule #1
Your advisor should know asset classes
Incorporate an insurance strategy with principal protection
Focus on 2 to 3 items in your protfolio
Best return is on your core business, returns will probably be better than what you get in the market
Break up your assets into: businesses, stocks, real estate, insurance strategies
Entrepreneurs think different, as entrepreneurship is not really about recessions Recession is not a common topic, as entrepreneurs are always looking for where the opportunities and trends are heading
More Info on WFL and Tax Free Matching: HERE
Wealth For Life Topic: https://brt-show.libsyn.com/category/Wealth+For+Life
Link to Taxes Show on 10/31/2021 w/ Denver: Here
Link to Offense / Defense Show on 6/6/2021 w/ Denver: Here
Link to Shows, Denver was a Guest: Here
Investing Topic: https://brt-show.libsyn.com/category/investing
More - BRT Best of: https://brt-show.libsyn.com/category/Best+Of
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