Wednesday, July 23, 2008

When Pessimism Prevails, It's Time to Get Rich

When Pessimism Prevails, It's Time to Get Rich

If you're serious about getting rich, now is the time. We've entered a period of mass-produced pessimism, when bad news is everywhere, and the best time to invest is when optimists become pessimists.
The Weird Turn Pro
Journalist Hunter S. Thompson used to say, "When the going gets weird, the weird turn pro." That's true in investing, too: At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.
In an earlier column, I stated that it was time to sell all nonperforming real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.
As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become a bull and save them. But as the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market. That's what's happening now.
Pessimism vs. Realism
In 1987, the United States experienced one of the biggest stock market crashes in history. The savings and loan industry was wiped out. Real estate crashed and a federal bailout entity known as the Resolution Trust Corporation, or the RTC, was formed. The RTC took from the financially foolish and gave to the financially smart.
Right on schedule 20 years later, Dow Industrials and Transports struck their last highs together in July 2007. Since then, nothing but bad news has emerged. In August 2007 a new word surfaced in the world's vocabulary: subprime. That October, I appeared on a number of television shows and was asked when the market would turn and head back up. My reply was, "This is a bad one. The worst is yet to come."
Many of the optimistic TV hosts got angry with me, asking me why I was so pessimistic. I told them, "The difference between an optimist and a pessimist is that a pessimist is a realist. I'm just being realistic."
As we all know, things only got worse in early 2008, with the demise of Bear Stearns and the Federal Reserve stepping in to save investment bankers. In February, many of those optimistic TV (and print) reporters became pessimists -- and when journalists become pessimists, the public follows. By March, mutual funds had a net outflow of $45 billion as investors fled the market.
Surviving the Bad Times
Back in 1987, as savings and loans closed and investors' stock and real estate portfolios were wiped out, my wife, Kim, and I were living in Portland, Ore. Many people were depressed and hiding from the truth. The following year, I said to Kim, "Now is the time for you to begin investing."
In 1989, she purchased a two-bedroom, one-bathroom house for $45,000, putting $5,000 down and earning $25 a month in positive cash flow. Today, she owns over 1,400 units and -- because more people are renting than buying -- she earns hundreds of thousands a year in positive cash flow.
The period from 1987 to 1995 was a rough one, even for the rich. In his book "The Art of the Comeback," my friend Donald Trump writes about being a billion dollars down at the time. Rather than give up, he kept on fighting to survive. He and I often talk about how that period was great for character development.
Two-Year Warning
I believe we're through the worst of the current bust. I know there will be more aftershocks, and the news will continue to be pessimistic for at least two more years, possibly until the summer of 2010.
But the upside to this is that it gives us at least two years to do our market research and find the next big stock or real estate bargain. Before buying, I strongly suggest you study, read books, and take courses on your asset of choice. If your choice is stocks, take a course on stocks or options. If it's real estate, take a course on real estate. Now is the time to learn; not only will you know more than the average person and be in a good position when the market turns, but you'll also meet people with a similar mindset.
You have about two years to get into position. Opportunities this big don't come along often, so this is your time to get rich.
Climbing Bulls, Flying Bears
Am I optimistic for the long-term? Absolutely not. I still believe we're due for the mother of all market crashes, and that the U.S. economy is running on borrowed time -- and I do mean borrowed. I think most baby boomers are in serious financial trouble, and that oil will climb above $200 a barrel. Inflation will also increase, causing more pain for the poor and middle class.
The Fed is flooding the market with nearly a trillion dollars of liquidity, which is why I believe gold under $1,200 an ounce and silver under $30 an ounce are bargains. Gold and silver should peak and decline before 2020, completing two 20-year cycles. My exit is to sell silver around 2015. I plan to hold onto gold, income-producing real estate, oil wells, and stocks.
Most of us know the bull climbs slowly up the stairs, but the bear jumps out the window. I believe the bull is still climbing the stairs, and the bear hasn't jumped yet. But rest assured that it will.

Wednesday, July 2, 2008

Peace Through Prosperity

Peace Through Prosperity

In 1972, I was flying a helicopter just south of the DMZ (the demilitarized zone), a line that separated North and South Vietnam. On that mission, my aircraft was not configured as a gunship.

Instead, my assignment that day was not to fight, but to observe the battle below and report what I saw. Unfortunately, what I saw was tragic. The North Vietnamese kicked our butts. Not only did we lose a number of aircraft, but many men lost their lives.

Tough Questions Unanswered

Back in the pilots' ready-room aboard an aircraft carrier, the debriefing began. Most of us were shaken and our spirits were low. Seeing fellow pilots shot down and men dying leave memories that can never be forgotten.

Once the debriefing was over, my commanding officer asked if there were any questions. Raising my hand, I asked, "Sir, why do their Vietnamese fight harder than our Vietnamese?"

Without waiting for his reply, I continued, "We have the most powerful military on earth. We have B-52 bombers pounding the enemy with 1,000-pound bombs. We have fighter jets dropping napalm on them. We have tanks. We have Navy battleships with 16-inch guns pounding them. We have squadrons of Army and Marine Corps helicopters armed with rockets and machine guns providing close air support. The North Vietnamese don't have much, and yet they keep coming and keep fighting."

There was a long silence in the room. I suspect some of my fellow pilots had similar thoughts. Being Marine helicopter pilots, we had a bird's eye view of the war that few others had.

"We're the richest nation on earth," I continued, "North Vietnam is one of the poorest. We give the South Vietnamese the best military support in the world, yet they're losing."

The silence continued. My original question -- "Why do their Vietnamese fight harder than our Vietnamese?" -- was never answered.

Fighting Not to Lose

Back in 1972, we all knew the Vietnam War was over. We knew the U.S. was looking for a way out. We were no longer fighting to win -- we were fighting not to lose. That made it made it almost impossible to keep fighting.

You may notice similarities with what's going on in Iraq and Afghanistan today. There are three lessons from 1972 I believe are relevant to the world today. They are:

  • How powerful the human spirit is.

    Flying over the North Vietnamese in 1972, I was stunned at how fiercely they fought. We had all the modern weapons, but we couldn't beat them. Their spirit was unstoppable.

    Today, when I hear fellow Americans complaining about their own lack of money, or how they can't afford to invest, or how middle-class America is having a tough time, I'm reminded of the North Vietnamese soldiers taking on the richest country in the world. If you've lost your spirit, even living in the richest country in the world can't help you become rich.

  • It's tough to negotiate from a position of weakness.

    It was only after the U.S. recognized we had lost the Vietnam War that we agreed to sit down at the so-called "peace table." Today, as the wars in Iraq and Afghanistan still rage, we're doing the exact same thing. In war or in business, it's disastrous to negotiate from a position of weakness.

  • Don't let someone else run your life.

    During Vietnam, defense secretary Robert McNamara and President Lyndon Johnson called the shots from Washington rather than listening to the men on the front lines. In Iraq and Afghanistan, we have the same problem.

    President Bush, Vice President Cheney, and former defense secretary Rumsfeld, all men without combat experience, are calling the shots from Washington. They're not listening to their generals with Vietnam experience, generals such as Colin Powell. It appears that our leaders place little or no value on experience.

The Spirit to Succeed

The same sort of misguided leadership occurs in the world of investing. Today, there are millions of workers who put trillions of dollars in the hands of mutual fund companies even though many of these companies have horrible track records.

Many fund managers can't even beat the S&P Index. Yet, in spite of their poor investment record, many of these managers are paid billions of dollars in bonuses -- bonuses paid for with the sweat and toil and hopes and dreams of workers.

Personally, I would rather manage my own money than let strangers control it and my future.

In 1972, I saw many young soldiers lose their lives due to incompetent leadership in Washington. Today, millions of workers' retirements are at risk due to incompetent leadership on Wall Street.

But I also witnessed the power of the human spirit while flying over Vietnam -- a spirit stronger than the mightiest military power in the world, and one that beat the richest country in the world.

Today, I see the same spirit in the world of global business. America is still the richest country in the world, but countries like China and India are coming on strong. It's estimated that China holds nearly a trillion dollars of America's debt, which is more than enough to destroy our economy.

Play to Win

Financially, there are three classes of people. The rich are those who play to win. The middle class plays not to lose.

For the middle class, financial security is more important than financial opportunity. Ironically, today there's far more financial opportunity than financial security, yet the middle class still seeks security.

The third group, of course, is the poor, who often work very hard yet have lost the spirit to compete in the world of money. Without spirit, it's tough to win financially, even in the richest country in the world.

I resigned from the Marine Corps and flying in 1974, even though I loved them both. I quit because I no longer wanted to fight for peace. Instead, I believe we can build a more sustainable peace by working for prosperity. Instead of playing games of winners and losers militarily, why not work for solutions in which all sides win financially? After all, in business, it makes no sense to kill your customers.

In closing, I believe that as the scarcity of oil increases, so will the fighting. To me, scarcity in a world of abundance means opportunities for solutions. As the saying goes, "An eye for an eye makes us all blind." Instead, I ask we work for peace and prosperity -- for all sides.

Tuesday, July 1, 2008

Learning from the Best

Learning from the Best

Now that our book, Why We Want You to Be Rich, is out, I can tell you what working with Donald Trump has been like.

Millions of people know "the Donald" as the tough guy who says, "You're fired" at the end of The Apprentice. I've been asked often if he's that gruff in real life. The answer is yes. My experience with Donald is that he's being real whether he's on camera or off. He never pretends to be Donald Trump. He is Donald Trump.

Obviously, co-authoring a book with him has been a milestone for me -- as an author and as a businessman. Appearing on Larry King Live, The Big Idea with Donny Deutsch, The Today Show, The Early Show, and CNBC with Donald gave me more credibility in the business world.

An Unofficial Apprenticeship

Yet I gained more than just recognition and credibility. I also became a better businessman and a better person just from working with Donald over the years.

Here are a few of the ways that knowing Donald has enriched my life:

1. I got tougher.

I know many people don't like Donald because he comes across as a tough guy. That's their problem. In spending time with him, I realized that I wasn't as successful as I could be simply because I wasn't tough enough.

As a businessman, I often didn't say what I wanted to say because I was afraid of hurting someone's feelings, or of having my feelings hurt. Instead of being forthright, I would be polite. Because of my association with Donald, I took back control of my business in 2005 and 2006 and fired people who should have been let go a long time ago.

The employees I got rid of weren't bad people, they were just the wrong people for my company. Today, business is thriving and people are happier.

2. I became kinder and more respectful.

One of my problems is that I'm very impatient and get angry too quickly. I believe Donald can be the same. Yet I saw him be patient, kind, and respectful in many situations that would have caused me to lose my patience.

When I asked him about this trait, he simply said, "One of the most important lessons my parents taught me was to treat all people with respect, even if I'm angry with them." Today, in my dealings with people, I do my best to treat all people with respect -- especially if I'm angry at them. Although I haven't always been successful, I believe I've become a little kinder as a result.

3. I got richer.

My wife, Kim, and I have more than enough money. We consider ourselves rich. When we entered Donald's world, however, we saw a whole new level of rich.

There's a difference between being a millionaire and a billionaire. The Trump lifestyle -- the penthouse, mansion, limos, and 727 -- gave me a firsthand glimpse into his world, and I began to understand why he constantly talks about thinking big.

Just being around him, I began to think bigger and richer. I set my sights on becoming a billionaire and began redesigning my business to become a billion-dollar business. Today, I constantly remind my staff that my job is to make them millionaires -- and their job is to make me a billionaire.

4. I became less petty.

One day, during a meeting in Donald's office, I was complaining about someone we were doing business with. I didn't like the way we were being treated. When I asked Donald about this person and voiced my concerns, he simply said, "Don't be so petty. Sometimes you have to do business with people you don't like. It doesn't mean you have to be like them or like them."

From that, I learned to think bigger and, more important, to know the difference between paying attention to details and being petty.

5. I was reminded of the value of collaboration and partnership, as well as the value of loyalty.

I saw this repeatedly as we developed the concept for our book, discovered our shared concerns and our passion for teaching, and shared the stage for dozens of media interviews.

Getting on Larry King Live and The Today Show is easy for Donald, but in booking a few of these interviews he insisted that we get equal billing. And when a show host mispronounced my name, Donald jumped in to correct him on national television. These simple acts spoke volumes.

History in the Making

About the same time our book was released, a new book about Andrew Carnegie, the richest man in the world at the start of the 20th century, was also published. The timing is ironic. I believe that when history looks back at the start of the 21st century, Bill Gates, Warren Buffett, and Donald Trump will be seen as the Carnegies of the era.

Many historians view Carnegie as a ruthless man, and I know that many people also see these three in the same light. Yet if you study Carnegie's life, you find that he was extremely generous, and donated billions of dollars in support of building libraries and preserving world peace.

He even envisioned the League of Peace, a precursor to President Wilson's League of Nations. I trust that history will allow a space for the good that Gates, Buffett, and Trump have done, and not simply resent them for their wealth.

Donald and I got together to write our book as teachers, not just as rich men. We're both concerned about the lack of financial education in our schools. In the process of writing it, I not only became a richer person, I believe I also become a better human being. And for this, I feel privileged to have seen a side of Donald Trump that not many people see.

Keeping Your Business Ideas Fresh

Keeping Your Business Ideas Fresh

Sometimes life just isn't fair.

When I was growing up in the 1960s, my parents said to me, "Listen to your elders. You need to learn to respect their wisdom. Someday when you're older, young people will listen to you." So I listened to my parents and grew up respecting the wisdom of those older than I was.

But that notion has been turned upside down: Nowadays, people my age need to listen to and respect the wisdom of people who are younger than we are.

Ideas from an Earlier Age

In business, success often depends upon the relative age of your ideas. And today, people of all ages are in trouble because their ideas aren't just old, they're obsolete.

One example of an old idea is that of the traditional job. Jobs are a centuries-old concept created during the industrial revolution. Despite the reality that we're now deep in the Information Age, many people are studying for, or working at, or clinging to the Industrial Age idea of a safe, secure job.

Now people aren't just losing their jobs -- their jobs are migrating to foreign countries or disappearing altogether. As Alan Blinder, an economist and former vice chairman of the Board of Governors of the Federal Reserve System, says, "A new industrial revolution -- communication technology that allows services to be delivered electronically from afar -- will put as many as 40 million American jobs at risk of being shipped out of this country in the next decade or two." That's double the number of U.S. workers in manufacturing today.

In spite of such alarming figures, our schools still program kids to look for jobs. Advising people to go to school to learn to be an employee is as obsolete as advising young people to become peasants and work for a landlord. People need to be trained to be investors and entrepreneurs, not employees.

Obsolete Every 18 Months

My point is this: In a rapidly changing world, nothing is more dangerous than an idea whose time has come and gone. Just look at how has changed the world of brick-and-mortar booksellers such as Borders and Barnes & Noble, or how Skype is tearing down monster corporations like AT&T, or how Napster shot a torpedo into the record industry. Where do you think the people who work for those Industrial Age employers will be in 10 years?

As I said, people aren't losing their jobs -- jobs and companies are disappearing. I'm glad I listened to my rich dad and became an entrepreneur rather than the employee my poor dad wanted me to be.

Most people today realize that knowledge is doubling every 18 months. Does that mean that we now become obsolete every 18 months? Maybe so. Personally, it makes me feel like I need to assign an expiration date to my ideas, and update them regularly.

Many people my age are in serious financial trouble because they have old, Industrial Age ideas that they never update -- wanting job security, counting on a pension for life, relying on Social Security and Medicare -- while attempting to survive in the Information Age.

That's a mistake. Much of my company's revenue comes from the web, even though I remain a technophobe. My company survives because I've learned to respect the ideas of people younger than me, and recognize when my wisdom is obsolete.

Timeless Business Ideas

Although many business ideas go out of date every day, there are some that are timeless and essential regardless of the era we're in. Here are a few:

Be passionate about your products and what your brand stands for. Brands die if the leader's passion dies, or if the leader's passion is simply to make money.

Build a community. Good entrepreneurs are community builders, actively involved with their communities and dedicated to the community's well being. If you're dedicated to your community, it will be dedicated to you.

Communicate clearly. Speak in the language of your customers. Don't attempt to baffle them with jargon in an attempt to appear smarter than they are.

Tell it like it is, and don't be a phony. In business, there are too many people who will say anything to get their hands on your money.

Be human. Don't be afraid to say, "I don't know" or "Can you help me?" If you're a good leader, people will be more than happy to help you build your business.

Now more than ever, we all need to be careful about whom we listen to. Just because someone is older than you no longer means they're wiser. Their ideas may have been good yesterday, but tomorrow they might be obsolete.