Business men and women like myself are constantly badgered about diversification of their investments. This kind of talk usually involves someone trying to sell us something.
C’mon, we’ve all heard the “time share” sales pitch which by the way are not investments. How about the never ending emails and solicitations to buy stocks, bonds, gold, futures and ETFS? What about the local bank that wants you to buy safe certificates of deposits (CD’s) that are now almost paying a full one percent of interest?
Let me clue you in on a little secret that took me about 30 years to figure out. It’s personal but I’ll share it with you in the hopes that you will avoid some of my mistakes.
You see, I really have crow like tendencies. If I see something shining, I investigate it.
So as I was growing up in the business world, every time my friends were making money doing something different, I wanted to be involved.
Did you ever hear the saying “The grass is greener on the other side?” I’m here to tell you it’s the same everywhere, it just depends how you fertilize it and take care of it.
Here are just a few illustrations on all the ways I lost money:
When we have the tech boom, a few of my friends made over 1,000 percent on their money. So naturally, being the crow that I am, I refinanced some houses and jumped into the tech boom and bought as much stock as I could. I financed the stocks so I could buy as much as possible. I still remember that stock salesman from Paine Weber called me to say I had a margin call.
My brilliant response was “What’s that?” Of course you all know that my stocks dropped in value and I had to cover the loss.
I got out and have never returned to the stock market because it’s out of my control.
FastHomeAuction.com was a start-up that I was involved in and I lost more money than I can summon up the courage to write down.
The coin store, the texting company, lobster businesses, Salvador Dali art, and on and on…
The truth is, every time I bet on someone else, I lost. The grass is not greener on the other side.
I invest only in single family houses. This is my area of expertise. Unlike everything I wrote about above, it pays a dividend every month in the form of rent and when bought in the right areas, it goes up in value and there are tax benefits to owning real estate in the U.S. called depreciation. There is nothing better for me out there and this is my comfort zone.
The lessons for me and the lesson for you is that if you are good at what you do, invest in your business. You’re in charge and you make the decisions and most successful people need to just stick with what they are good at.
I’ve dealt with hundreds of international buyers on 6 different continents and we’ve discussed their business ideas and so on. Eventually the conversation comes around to diversification and they ask me what else I invest in. When I tell them that I only buy houses the conversation usually turns to gold or silver investments and they’ll tell me I’m not diversified. That’s when I tell them the following: “I am diversified, I buy houses on different streets.”
You see, for me, and you might not feel this way but it’s not all about being diversified, it’s all about focus. I’m focused on what I do and when I invest in what I know, I win.
And that’s the point for you. You may be a lot better off just investing in your business. If you don’t have a business, invest in what you know and everyone knows something about houses. Most people live in houses and know how to take care of them.
Save yourself a lot of time and money and always count the cost before you invest outside of what you know.
The last point I want to make, and it’s a painful one, is this: When you lose money, you didn’t just lose the money you invested. You lost the future value of what that money could have made for you – forever.
Try this exercise, at age 38 I lost $180,000 in a maintenance company I ended up owning as a result of factoring their accounts receivables. Simply take $180,000 and compound it at only 8% for 33 years to age 70. That’s over $4,000,000 I lost at retirement…but it gets worse. I can make 12% in my sleep and that’s over $7,500,000 that I would have had at retirement.
That’s the price I paid for being a crow on just this one mistake.