Tag: wealth

Part 2: What I’m Doing (and Not Doing) to Safeguard My Wealth

Posted on by Mark Ford

On Friday, I talked to you about the history of stock market crashes to show you that we have gone through hard times before, and the market has always been able to recover.

Today, I want to tell you what I’m doing to safeguard my wealth.

I’ve written about the stock market at least a dozen times over the past 10 years. And in each of those essays I’ve reminded readers that I don’t have a crystal ball, and that my guess about the market’s future is as valid as your next Uber driver’s.

In my lifetime as an investor, I’ve seen several serious bear markets. Had I been able to predict their tops and bottoms, I would have cashed out my stocks early, moved into cash and gold during the descent, and put back that and some more at the bottom.

But since I’ve never had a crystal ball, I’ve never tried to time the market. I’ve always taken the view that, while I can’t know how steeply the market may drop or how long the recession might last, sooner or later prices will return to their pre-crash peaks, and then continue to move up from there.

I should say, though, that this strategy makes sense only when the stocks you own are in large, profitable businesses that are antifragile, that have the resources a business needs to survive a crash and even an extended recession.

And, as long-time readers know, my Legacy Portfolio is populated exclusively with companies like that.

What Is the Legacy Portfolio?

It’s the easiest, safest, most consistently successful strategy for building wealth in the stock market.

The goal of the Legacy Portfolio is to accumulate shares of no more than 10-25 of the world’s best companies when they’re “on sale,” holding well into retirement. We adopt a long-term mentality, whereas most investors are reckless and trade in and out of stocks, chasing invisible returns. We plan to never sell. By doing this, we take advantage of the power of compounding, through price appreciation and growing dividends.

What About Buying Gold?

I bought a fair amount of gold back in 2004, when it was selling for $400 an ounce.

I didn’t buy it as a hedge against the dollar or the stock market. I bought bullion coins (mostly) as a “chaos” hedge. A stockpile of tradable hard assets that might come in handy if the world economy moved into another depression, like we had in the 1930s.

If we do see that economic era repeated, the value of my gold will almost surely continue to increase. But I’m not counting on that. Its purpose isn’t to compensate for the paper wealth I’d lose in stocks, but to be a form of insurance – “just in case” currency that I could use to buy necessities for family and friends.

Which raises the question: When and how do you buy gold? And the answer is, you buy it just like you buy any sort of insurance. Figure out the likelihood of the risk. Determine how much coverage you would need. And then decide if the premium you have to pay is worth it.

When I decided to buy gold coins, I bought enough of them (at an average price of $450) to sustain my family and my core business for a good length of time. I didn’t buy enough to cover historical expenses for many years. I bought enough to pay for the basics. And that helped me feel more secure.

But that was hardly all that I did to protect my family’s wealth against a stock market crash and a recession. It was just one piece of a financial structure I began setting up 40 years ago and began writing about when I started writing about wealth nearly 30 years ago.

What About Stockpiling Cash?

I like having a portion of my net investible assets in cash for all the obvious reasons – doing my own banking, using it for fast moving investment opportunities, and as part of my insurance program against crises like this one.

But that feeling is counterbalanced by the recognition that cash is generally a low- or no-return asset class and therefore having a lot of it means that I won’t be taking advantage of the historically high returns of the stock market, the real estate market, private equity, and private lending.

I don’t have a fixed number in my head about how much cash I should have at any one time. I let the markets make those decisions for me.

I don’t, for example, invest in rental real estate properties when I can’t find properties I can buy for less than eight times gross rent. Likewise I don’t buy any additional shares of Legacy Stocks when their P/E ratios are expensive by historical standards.

By adhering strictly to these sorts of value-based investing strategies I am effectively prevented from putting my new earnings into any one of them. And that means I end up accumulating lots of cash while these markets are expensive.

In the past half-dozen years, most stocks – including most of my Legacy Stocks – have been so expensive (relative to earnings) that I have not allowed myself to buy them. This means that the dividends I’ve been receiving for the stocks in my Legacy Portfolio have been going into my cash account. And that is okay with me.

I normally put a good chunk of my earnings every year into real estate. About 10 years ago I began selling off my individual units and moving into apartments, where I could get better yields with less hassle. But the number of such deals I could find has diminished to a trickle in the last three or four years. Again, by sticking to my valuation standards, I’ve been effectively locked out of these markets, too.

I have put some money into private debt and private equity. But only when I knew the borrowers and the businesses very well and felt sure my lending was secure.

In past essays on the stock market I’ve said that to make my wealth as antifragile as possible, I did my projections based on a stock market crash of 50%. When I first picked that number nearly 15 years ago, it seemed like quite a long shot. Today it doesn’t feel so crazy.

Now What?

As I’ve alluded to, my core investment philosophy mimics Nassim Taleb’s concept of “antifragility.”

In his bestselling book Antifragile, Taleb defined antifragility as the ability to not only survive, but also to benefit from random events, errors, and volatility.

My version of that is very simple…

I invest primarily for income, not for growth. That means rental real estate, bonds, private debt, income-producing equity and dividend yielding stocks. Depending on the economy, not less than 80% and sometimes as much as 90% of my net investible wealth is in income-producing assets.

I invest in what is proven today, not what might happen tomorrow. Investing in income-producing assets means investing in current facts, not future possibilities. This is, admittedly, a conservative approach to wealth building. I am willing to give up the potential for cashing in big on the upside for a smaller but virtually guaranteed return.

I don’t gamble. I am as tempted to invest in attractive speculations as the next person. But I’ve learned from experience that is a bad idea. My historical ROI for the speculation I’ve made is nearly perfect. I’ve lost almost all my money every single time. I will occasionally invest in a friend’s business. But when I do that I consider it a gift. I expect no return and usually get no return. So I limit those “investments” to how much I’m willing to lose.

I pay attention to value. I invest exclusively in income-producing assets, but that doesn’t mean I don’t pay attention to how much they are worth. As I said above, I invest in stocks when they are well-priced relative to their P/E ratios (among other metrics). I invest in real estate when I can buy properties that are inexpensive relative to their rental income. I buy debt when I can get a yield that is at least better than inflation, etc.

I hope for the best but plan for the worst. In terms of antifragility, nothing is more important than planning for the worst. Planning for the worst in good times allows you to survive and even thrive during the bad times. My worst-case planning began by imagining almost everything going wrong at one time. The market collapses. The economy moves into a deep recession. My businesses fail. The whole nine yards.

When you think that way, you have no choice but to include all the fundamental asset-protection strategies in your financial planning, as well as a few more.

Diversification. I won’t waste our time talking about the importance of diversifying financial assets. I don’t look at it as a theory. I see it as a fact. To achieve maximum antifragility, dividing one’s financial assets into different classes is rule number one.

Position sizing. In my humble opinion, position sizing (limiting how much money you put into any particular investment) is almost as important as diversification itself. When your investible net worth is relatively small you might have to limit individual investments to 10% of your portfolio. The goal, as you acquire wealth, is to reduce that percentage as you go along. These days I rarely put more than 1% of my net investible wealth in any investment.

Here’s a Look at My Portfolio

Stocks: I came into the stock investing game late. And cautiously. When I set up the Legacy Portfolio about 14 years ago, I invested what was at that time 10% of my net investible wealth in those stocks.

Thanks to the bull market that followed, my stock account doubled and stood, at the beginning of the corona crisis, at about 20% of the portfolio. That’s a good deal. But it’s still only 20%. So when the market is down 30% like it is today, that means my net investible wealth is down by 6%. If the market continues to fall to 50% – my worst-case scenario – then I’ll be down 10% overall. Not good, but not bad either.

My strategy for stocks is to hold on and wait for the market to recover. It might happen in six months (unlikely). It might happen in a year (possible). Or it might happen in 10 years (safe bet.) I’m hoping the return will be sooner rather than later, but I’ve planned for later so I’m not going to fret about it.

Debt: About 10% of my net investible worth is in debt instruments. My debt portfolio is diversified among bonds and private lending. Because of the private debt I’m getting decent returns – from 4% to 12% on most of my deals. For a while I’ve not been able to buy good debt at good prices. But that may change. If so, that’s where some of the cash will go.

Ongoing Enterprises: About 20% of my net investible wealth is invested in about a half-dozen private companies, ranging from $10 million to $1 billion. This is where I get the lion’s share of my current income. I’m very concerned that income may slow or dry up completely in the next year. If it does, I will have to turn to other income sources. In the meantime, I’m working hard to keep those businesses afloat.

Real Estate: About 40% of my net investible wealth is invested in real estate, and 80% of that is in income-producing properties in various locations. If all of these properties were leveraged, I’d be worried. But my debt on them is less than 5%. I may see diminished income, but in the worst-case scenario it will be a 25% drop, which would still be acceptable.

Hard Assets and Cash: About 5% of my net investible wealth is in hard assets like bullion coins, rare coins, and investment-grade art. These are last-refuge resources. For the time being I have not thought of tapping into them. That could change.

Cash: As I explained above, my cash position has grown in the past several years because my preferred income-producing assets have gotten pricey. I’m expecting that some time before this crisis is over, cash will be king again. I’m waiting for that.

So What Am I Doing?

I’m doing just about nothing right now. I’m not selling stocks. I’m not selling real estate. I’m not selling my businesses, my private equity. I’m not even selling my debt.

For the moment I don’t feel that I need to make any changes, because many years ago I put in these safeguards in order to protect my family’s wealth.

We are going to get poorer. That’s for sure. But I’m not making any changes because the way I diversified my assets 20 years ago seems to be giving me the protection I had hoped it would today.

What About You?

If you have been reading my writing these past 20 years and even loosely following my strategy, you should be in more or less the same position I am. If you feel good about that, as I do, then you will probably want to do exactly what I’m doing: mostly nothing.

But if you aren’t diversified, and have the lion’s share of your money in cryptos or growth stocks – well then, you are going to have to listen to the advice of the people that persuaded you to put so much of your money in those deals.

And while you are doing that, don’t despair. And double down on your day job. Things will get better eventually and if you are getting better (investing smarter) in the meantime, you’ll be fine after it all shakes out.

Editor’s Note: Mark’s “chaos hedge” – gold – is entering a new and powerful bull market. So if you want to both protect and, more importantly, GROW your wealth in the coming years, then you need to check out what we’re calling the PERFECT gold investment for 2020. Click here to discover the BEST possible way to grow your money… with legally guaranteed returns of up to 109%!

Like what you’re reading? Let us know your thoughts at mailbag@manwardpress.com.

My Six Secrets to a Six-Figure Income

Posted on by Mark Ford

Founder’s Note: I’m so excited to bring you this note from Mark Ford… the newest (and perhaps most iconic) member of our team. In my mind, it is the perfect essay for Manward. It reveals the truth about how to get rich – the truth nobody else wants to talk about. Enjoy it… and let me know your thoughts.

I’ve been writing about creating wealth for a dozen years. Before then, I wasn’t writing about it. I was doing it.

My income has actually increased since I stopped actively “creating wealth.” But that’s the thing about getting rich – when you get rich it is just too damn easy to get richer.

It’s not fair, but it’s a fact.

When I decided to get rich, I didn’t know the first thing about the subject. I was an editor. I wanted to be a novelist. I had never taken a course in finance or economics. Plus, I was broke.

But I had a great advantage. I was working for a human wealth machine – a man who, at 43, had already created three hugely profitable businesses. He decided to adopt me as his surrogate son and taught me everything he knew.

I retired 12 years later with a net worth well in excess of $10 million.

Two years later I went to work as a business consultant to Agora. Bill Bonner, Agora’s founder, adopted me as his kid brother. He also taught me everything he knew. In the 15 years that have passed since then, my wealth has multiplied many times over.

Starting at age 50, I wrote about entrepreneurship (under my pen name Michael Masterson) for 10 years. I wrote about close to a dozen books and several thousand essays. I adopted my readers as my surrogate siblings. I told them everything I knew about starting businesses.

Then, at 60, I retired the Michael Masterson pen name. Since then I’ve attempted to tell my readers everything I know about creating wealth – which is a bigger and more complicated subject than entrepreneurship.

Today, I want to briefly introduce you to six basic truths about wealth building that have made me successful.

Some of the secrets you won’t learn anywhere else. I haven’t seen them written in the mainstream financial press. And many of them were learned the hard way – by me.

First, let’s begin with some of the lies about creating wealth. At one time or another in my wealth-building career, I foolishly believed in the following so called “facts”:

  • Wealthy people are stingy for a reason. The secret to becoming wealthy is to scrimp and save.
  • The stock market is the most efficient way to invest. You can’t become wealthy unless you understand and master the stock market.
  • Geopolitics determines investment outcomes. You can’t become wealthy unless you understand politics and economics.
  • The general public is always wrong about economic and financial trends. The fastest way to acquire wealth is to invest as a contrarian – i.e., against market sentiment.
  • Economics is governed by the inverse relationship between risk and reward. If you are not willing to take big risk, you will never enjoy big profits.

Do any of these “truths” sound familiar? Have you been following any gurus that advocate these “facts”?

If so, pay attention. I’m not the only person in the world that went from broke to rich. There are many, many people that have done so and some of these people have written books about it.

I don’t read all the popular books on wealth building because I feel comfortable with the system I’ve developed myself, through my own experience. I don’t follow the advice of others except when it dovetails with my own experience.

But that’s not to say that my system is the only system that works. Nor do I want to argue that it is the right system for you. All I can do is report my own experiences to you as honestly as I possibly can.

You are my surrogate siblings. I want you to succeed. The only way I can help you is to tell you what I know to be true. And this is what I know – from my own experience – to be true about creating wealth:

Truth #1

You’ll never get rich unless you understand some fundamentals about saving, spending and investing.

Truth #2

The single most important factor in avoiding the spending spiral that kills wealth is to stay in the house you have now. Nobody else that I know of has made this simple point. But I can tell you that it is true.

Truth #3

Stock investing (or even stock and bond investing) are inadequate strategies for building wealth. They won’t get you rich or make you wealthy however much you wish they would.

Even Warren Buffett, the world’s most successful investor, knows this. His wealth has come not from being an individual investor but from being the principal of Berkshire Hathaway – a business. Keep that thought in mind every time you hear his name quoted.

Truth #4

The most important single factor in wealth building is the size of your investible income. Investible income is what you have left over each month after you’ve taken care of your lifestyle expenses.

Again, nobody else I ever read had the courage to say this before I did. (Now I see one of my protégés saying this and of course I am flattered to hear him pretending it is his own idea.)

Actually, that’s the second most important factor in building wealth. The No. 1 strategy is acquiring equity in a startup business. There are many ways to do this. The most commonly talked-about ways are downright foolish. But there are smart ways to do this even if you are a novice to business.

Truth #5

Investing in rental real estate is unique – it stands halfway between active income and passive income. Next to entrepreneurship, it provides the highest return you can get from any financial endeavor.

Truth #6

The biggest mistake retirees make is giving up their active income. I know that this is exactly what you hope to do some day. But I’m warning you. It’s a big mistake.

If you are already retired, you are probably hoping you can replace that income with passive investment strategies. I’m here to tell you that they won’t do.

To keep your wealth for a lifetime you need multiple streams of passive income. Your goal should be to build each stream of income to a level that you can live on that and that alone.

In the coming weeks, I’m going to continue sharing my wealth-building secrets with you. I’ve been so fortunate to have had mentors who have helped me, and I hope my success will inspire and motivate you to take steps to building your own wealth and living rich.

Want to Become Rich? Here’s What You Need to Know.

Posted on by Mark Ford

A Note From the Founder: I’m so excited. This little passion project is taking perhaps its greatest leap forward today. This is huge. We’re adding yet another world-renowned byline to our lineup. Mark Ford is an icon in the realm of wealth and business. He’s written countless essays… and some of my favorite books. His common-sense advice has the power to change the lives of everyone who takes it. Without a shadow of a doubt, I would not have all that I have without Mark’s ideas and input. And now… I’m so proud to bring them to you through Manward Press. This is going to be great.

They are going to be married – my haircutter and her boyfriend. She asked me for financial advice.

I asked her what she knew about money. She likes money, she told me, and found the subject “interesting,” but she didn’t know a lot about “stocks and investing and stuff like that.”

“Do you know the difference between profit and loss?” I asked her.

“When a business makes or loses money?” she replied.

“How about the difference between an asset and a liability?”

“Huh?”

“How about net worth? Do you know what that means?”

She had no idea.

[Net worth is a measure of a person’s total wealth. It’s the value of all of their assets minus all of their expenses and debts.]

A colleague of mine once said that the biggest problem America faces is not political corruption or corporate greed, but ignorance about money.

He may be right.

According to a survey by KeyBank, three out of four Americans consider themselves to be financially savvy. Yet more than half of those people admit to having a financial misstep within the last year.

According to a ValuePenguin study, 63% of 2,000 Americans surveyed don’t understand how a 401(k) retirement plan works.

Forbes reported that 38% of U.S. households have credit card debt, and 33% of Americans have $0 saved for retirement.

Further, Forbes reported that more than 56% of adults in America have less than $10,000 saved for retirement.

Financial ignorance in America is widespread, and it is costly. If you could add up the lost value of all the bad wealth-related decisions made on a daily basis by Americans, the number would be astronomical.

We do know that American consumers owe close to $14 trillion to lenders and creditors, according to debt.org. And we know that this debt burden increases every year. We know that last year alone student loan debt reached $1.4 trillion.

There is a reason we are financially illiterate. Less than 5% of us get any sort of financial education by the time we graduate high school. College isn’t much better. You can take plenty of courses in economics or accounting, but the fundamentals of personal wealth building?

It’s simply not taught.

I suppose it’s not taught because most teachers – even those who have degrees in accounting, economics, and finance – don’t know the first thing about it.

That’s certainly true of most of the accountants, economists, and financial experts I know.

I was thinking about this as Kristin was cutting my hair.

There are really two problems operating simultaneously: financial illiteracy (which means you don’t know the difference between an asset and a liability) and ignorance of the fundamentals of wealth building (which means you can talk a good financial game but you are secretly broke).

What could I say to Kristin? What could I teach her right then that would be useful to her and her husband for the rest of their lives?

I could have explained terms to her, but she would soon forget them. I’d rather talk about principles and then, if necessary, explain terms.

  • I could have explained the difference between saving and investing…
  • Or showed her my “golden wells and buckets” illustration and explained how that worked…
  • I could have warned her how, with most young couples, their spending tends to rise in lock step with their income…
  • I could have told her why she and her husband should avoid buying a nicer house every time they could…
  • I might have explained why renting is often smarter than buying…
  • Or given her the one stock portfolio I’d recommend to anyone starting out…
  • Or explained the enormous advantage of time when you are banking on compound interest…

I could have done all that… if I’d had about 10 hours with her.

But I didn’t. And so I wanted to tell her something that was simpler and more fundamental than all those things. I wanted to tell her the one thing that could make the biggest difference in her and her husband’s future financial life.

I thought about it as she was trimming my sideburns, and then I had it. I told her that the most important thing she should know about money is the concept of net worth, and the first and most important rule she and her husband should follow is:

Make sure that your net worth increases – if not every day, then at least modestly every month and significantly every year.

This was a slightly refined version of a thought that hit me many years ago, one I’ve written about before. That thought was that I should “get richer every day.” It was simple and obvious, but it hit me like a bolt of intellectual lightning.

But by making that resolution – that I would do whatever it took to get a bit richer every day – my entire view of investing changed overnight.

Instead of doing what everyone else was doing, I took a different path, where the preservation of my existing net worth was the most important thing, and where to boost that net worth I’d sometimes have to create more income.

Even if your money is conservatively diversified into great stocks and safe bonds, you can still experience a drop in net worth when – as has happened several times in my wealth-building career – stocks and bond returns go down simultaneously.

I realized I needed more diversity. But not in assets that just sit there. I needed assets that would create more income. So I got into rental real estate and direct lending and direct investments in small businesses and tax liens and all these other “off-Wall Street” ways of generating extra income.

And that worked. Since I made that change, my net worth has increased – if not every day, definitely every year. I made that decision about 20 years ago. My net worth has increased almost six-fold from there. And it has never, ever gone down.

So that’s what I said to Kristin. I didn’t brag about my net worth as I just did to you. I didn’t think she needed to hear that. She might have started charging me more. (Which I would have admired.)

But she got the idea and liked it because, I think, it was so simple. Simple and obvious. It’s something everyone can do.

Editor’s Note: As a new member of the Manward family, Mark would love to get to know our readers. So let us know your thoughts and what questions you have for him by sending an email to mailbag@manwardpress.com.

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