Risk and Reward- The Vital Two R’s of Business


We are risk takers by nature, all of us, in varying degrees. But marching into the unknown is a human instinct that manifests itself in obvious, as well as mysterious ways. Every hour of every day we take risks. You may allow your mind to explore this idea and find examples. Traveling to a new country, hiking an unmarked trail, buying a gift for a loved one, tasting a weird- smelling food, going to war, getting married, asking for forgiveness, climbing the Himalayas, camping, skiing, driving, falling in love, leaving home, and doing nothing is also a form of taking risk, yet indirectly.

For the sake of our topic, let’s narrow down that endless list to just one: Starting your own business and deciding to become an entrepreneur.

Why do people leave the comfort and security of a guaranteed pay-check, and go on their own? For starters, that comfort has become unattainable lately. Downsizing, mergers, acquisitions, financial crisis, to name a few, have made job security a thing of the past.

But that is not the main reason entrepreneurs go out and face the world alone. It is something within each and every one, a calling if you will. I bet you’ve heard this before and you might be thinking: “OK, a calling, but what is the percentage of success of that calling? Show me the money!”

True, no matter how strong a calling was, and how enthusiastic the person would be, a business venture must yield financial results. In other words: Money ūüôā

That’s why, before delving in the ocean of entrepreneurship, one must evaluate few traits that are vital to making that journey a pleasant and fruitful one.

So what are those traits? The first that comes to mind is risk tolerance. I’ve talked about this, giving it an acronym of RT in several posts about investing, and it still applies here, probably more so. A low RT isn’t going to help here. A very high one would result in taking too much risk, and again that is dangerously dangerous ūüôā

We are looking for a healthy RT, which on one hand drives the entrepreneur to explore new, uncharted frontiers, most of the time alone and with little knowledge and tools, and on the other, keeps him/her aware of the potential challenges, and do enough research and preparation ahead of, during and after taking the risk. What is that called in plain English? Wisdom combined with courage. And in eloquent English: Courageously wise or wisely courageous ūüôā

The heart of our discussion here is the following:

‘Risk and Reward are proportional: The more risk one takes, the higher the probability of reward. The opposite seems to be true, most of the time.’

Let’s start with a simple example: If you decided not to teach your four-year old child how to ride a bike, fearing the risk of injury, you denied him/her the rewards that come with riding a bike. One of them is innocent joy!

To get any reward, we must do something, right? And any doing involves taking a risk, no matter how small. That’s why they are related proportionally.

Raise the level of one, the other gets a boost. The challenge is to find that threshold where raising too much would result in unwanted results rather than rewards. And that threshold differs depending on the situation.

In the example above, rushing the learning curve increases the risk of injury. Taking the matter way too slow may delay the reward or even prevent it from happening.

We need to be patient with the whole process. We start by taking small risks and observe our emotional and mental reactions, just like building, you start with a foundation, then keep adding to it.

Another aspect of this building process is appreciating the results, no matter how small.

When it comes to building a new business enterprise, the principle would be the same, however, the application is different.

Does that mean you start with a tiny little venture then expand gradually? That’s one way to approach it. Say open an online store with only one product line, give it your best till it starts making profit, then add a second product line, and so on.

Nevertheless, if you know that your RT is high enough to get into bigger business adventures, especially if you know you have good financial and practical backing by trusted partners, then you may want to create a vision that would lead to more aggressive plans. For example, starting an eCommerce platform, where small business owners can open their one-product-line stores.

The web is full of tools and articles on how to assess your RT level. Here’s one, which I have no affiliation with, and can’t guarantee its results, but you may want to give it a shot, or look for something else in that line of tools:

http://www.moneycontrol.com/personal-finance/tools/risk-assessment-tools.html

In conclusion, know thyself before starting a new business. The time, money and energy spent doing that is worth the clarity that result from being aware where your next step will hit the ground.

All the best,

The WEalth MAker

How to Weather Financial Storms


fin-storm

Wealth is a state of being. An orientation towards abundance that is unique. On one hand, you do not feel “entitled” to anything. You see what you have as a pure blessing. On the other, one believes he or she deserves prosperity as a birthright, and go out in the world to attain it, ethically and effectively.

Financial wealth is no exception. It comes as a result of who you are, and how you translate that into enlightened, guided and productive actions.

Like everything in this short passage called “life”, like the oceans that ebb and flow, the state of our physical wealth may go through ups and downs. The frequency of such changes could appear over the course of years, or months, depending on the structure of your financial foundation, and your short-, mid- and long-term decisions.

When everything is alright, everything is alright! Friends and family are close, all is well, and everyone is “seemingly” happy.

As things start faltering, guess who sticks around? Only those who love you, or like you, regardless of your financial status, or any status for that matter. This is important to know in good times, not only in bad times. It helps choose whom to trust.

On the practical level, it is advisable to always have, stowed away, a six-month reserve to cover basic, essential needs: Food, shelter, car, school tuition, etc.

What if the downturn lasted more than six months? It is possible, and we’ve seen it, especially in a soft economy. Here comes the importance of long-term planning, and preparation. As a master of your ship, you can “see” those black clouds before they hit home, and get to work on¬†your plan B, C or even D (of course, you do have at least B ūüôā

How about the emotional side of things? This could be tougher!

How can you maintain your composure, your strength, and your trust in a higher Power that knows what you’re going through, and will never leave you alone, as it always has?

This is not theoretical, or abstract. It is as real as it can get. We need our emotional and spiritual energies at their best. Otherwise, the storm might wipe us out, no kidding about that …

What we do when “everything is alright” comes to the rescue when things are not alright. Serving others quietly and candidly, helping the needy, being active volunteers in our communities, nurturing the relationships we’ve built upon love and trust. But the most important is cultivating an unwavering faith, a special connection beyond space-time and cause-effect restrictions. All of that is a different kind of “deposit” in a mysterious, yet real, emotional/spiritual account. We deposit without keeping track, for it comes naturally out of who we truly are!

And finally, we need to remember that no storm lasts forever, and that every storm brings with it opportunities for growth, which would’ve never¬†been possible otherwise.

The Wealth Maker

© Image Credit: http://www.comparethemarket.com.au/

Beware of Binary Options (BO) Trading!


Despite its newness, BO trading has almost gone mainstream. The promise of fast and easy attainment of riches fuels its overwhelming proliferation.

People with no experience whatsoever embark on this adventure. After all, opening an account takes seconds. Placing a trade is swift and instant, and so is losing money!

The business model of the so-called binary options brokers (many of them are regulated by gambling authorities, if at all) is an old-fashion scheme, where the winners take part of the losers’ money, and the house keeps the rest. Does that remind you of any other business model?!

New brokers are popping up everywhere. The only region that doesn’t welcome them as much is North America. None of them is recognized or regulated by financial authorities in either Canada or The US.

The platforms, the graphs, the glamour, and even the so-called “rules” play on the psychology of the users, who soon become losers of hard-earned funds.

What is the split? Probably one winner in every 100 or more members. So let’s run a quick calculation. The winner is so good, he/she nets $1000 a day. The losers, on the other hand, give up an average of 50/member. Total loss: 50 *100 = 5000. The winner gets a grand, and the house keeps four; not bad at all! Keep in mind that this example assumes a very low-end of the game. Usually, the split is one winner out of at least 500. And the losers let go of more than 50 a piece.

Is that business, investment, or even trading?

No. It is not, by any measure. It’s a new form of online gambling. People talk about using technical analysis to “predict” the closing price of an asset, when the trade expires. What’s that called? Betting, right. Fighting the odds, with eyes less than half-oppened.

Financial markets are unpredictable on the long-term, let alone for minutes and/or seconds. A price graph may decide to have a “hiccup” right before expiry, costing you all the money you’ve put on that price closing higher (or lower) than the entry point. The reason could be a piece of news, High Frequency Trading (HFT), or any other unpredictable event that may have taken place momentarily, causing a trend to change direction, wiping out¬†your “investment.”

Is that fair? Well, first, no one forces you to do it. And second, which is more important, this is an emotional rollercoaster. Very few people can maintain their composure in the face of such rapid changes. Those are the few winners, exactly as in poker, or any other money game.

Money is a vehicle to exchange real value. Playing with it isn’t healthy, both for the individual and the economy.

Please notice that nothing is being exchanged, not even futures (for example, commodities or stocks). The whole deal is about prediction and speculation. The “trader” buys the “right” to put money on a probability, which is affected by factors that are entirely outside the reach and control of the trader. Can you buy and sell probabilities? You can utilize statistical data to make an informed investment decision. Here, that piece of information has become the asset!

We need to know the traps so we wouldn’t step on them.

Go back to the articles on this blog, or any other source you trust. Gain the knowledge of real investment, real work. Know your options, and never commit money to buying fish in the ocean!

The Wealth Maker

Business and Technology: Allies or Adversaries?


Not long ago, trade was at the core of business: The exchange of value between the buyer and the seller, physically. People used to travel, on horseback, carrying their homeland goods, to distant territories. They would trade the goods they have with what the other country had to offer.

Nowadays, billions of dollars get exchanged everyday, across the globe, without anything physical being “traded”. The wonders of technology!

Millions go online to trade commodities they never own, or to bet on price movements of stocks, indices, currencies or commodities. What is being exchanged? Where is the value transferred from the seller to the buyer?

Has technology added an inherent value to business dealings?

Has it made making money easier or losing it faster?

A merchant in ancient times wouldn’t lose his shirt overnight. Today, a business may go down in days, due, in part, to a blind reliance on technology.

Technology is a tool, a means to an end. When a business adopts any new technology, it must “serve” the mission of that business. Failing to do so, is a sign of either picking the wrong technology, or not having the right expertise to correctly utilize it.

The other concern when it comes to entirely relying on the instantaneous availability¬†of technology is the probability of the opposite! What would a business do in case of a power failure, a major software crash, a loss of connection to the intranet (the business’s own internet, sometimes called Virtual Private Network (VPN); a tunneled network that securely rides over the public Internet)?

Here are some guidelines concerning the “marriage” between business and technology:

  • What is the business about, regardless of “how” it’s going to reach its objectives?
  • Who are the “people”, human beings, whom will run that business?
  • Does this business need to rely “critically” on any technology? what is the percentage?
  • What is the technology strategy? One that is “derived” from the overall business strategy, not the other way around, even if the business is all about “making” technology. In other words, a hi-tech enterprise
  • Do we have, in-house, the expertise to select, procure, install, configure, test and run the technology we need,¬†or do we need to outsource it?
  • Risk management: Document, in details, a Standard Operating Procedure (SOP) to follow in case of a technical malfunction, no matter how small. The overarching objective is to keep the business running, at its best, and keep customers happy
  • Have we considered implementing five nines High Availability (99.999 % HA)? There is no such thing as 100% availability, but five nines is close, yet not enough, alone

The list could go on. Add to it what’s relevant and specific to your business.

This article is an invitation to be aware of the wonders of technology, its limitations, and the best approaches to utilizing it for the good of a business.

The author loves technology and comes from a scientific/technology background, yet the misuse of a wonderful tool turns it from being an ally to becoming and adversary…

 

The Wealth Maker

Go Slow


Rushing is a form of greed. We can’t squeeze in a moment more than what it unfolds to offer. What does that mean? You might ask.

Each and every moment is a medium of expression and interaction. Our attitudes determine the way we interact with those moments, but nothing can “change” the nature of a moment, and what it has come to offer.

When it comes to investing, this is so rewarding, even if you can’t observe its effect immediately.

“Go slow” is not a synonym of “be lazy”. It’s an invitation to be mindful of your vision, objectives and actions.

Take your time researching a potential business; read, analyze, and discuss, but never rush to a decision under the pressure of timing the market. That strategy has proven to be misleading, at best…

Once you reach a decision, and you become ready to act, then go for it, do not delay. Here you can be bold and swift.

Now you have planted the seed. You can’t sit next to it and repeat: “Grow, grow, …”. Can you do that on a farm? Can you speed up natural processes, skip a season, harvest in February and plant in September?

The same principles apply across the board, in each and every human endeavor.

Your seed is the “wonderful business” you’ve mindfully invested in. Go slow! Learn to wait. Cultivate patience. It pays in droves at the right time.

How do you know if it is time to harvest? When the business ceases to be “wonderful”, or when it has already produced a handsome return. Before you sell, though, you should have already completed the same research process on another business, in which you intend to reinvest the profits from selling the first business. You need to have liquidity as part of your portfolio, but don’t¬†leave too much sitting around, doing nothing (actually un-invested money becomes a burden, over time, as it loses some of its original value due to inflation and other factors).

Is that boring? You bet it is! But boring is better than losing, isn’t it?

Refrain from¬†buying and selling for the sake of having fun and excitement. Find another venue to satisfy that desire. Investing isn’t a game to be played. It is a discipline to be followed…

Good Investing!

The Wealth Maker

The Wealth Making Architect‚ĄĘ


If you performed a Google‚ĄĘ search on the above title, you’d get something along the lines of either wealth advisors or engineering architects.

I wanted to introduce this term¬†to reflect the necessity of building wealth from the ground up. Furthermore, to emphasize that “wealth” is not only financial. When an engineer designed¬†a house, for example, he/she would take into consideration all the aspects which would make that house livable and ready to become a home!

Another vital step in creating that architecture is to create¬†a blueprint. Have you ever heard of any sort of construction that didn’t have a blueprint to start with, to build upon and use as a baseline?

A Wealth Making Architect (WMA‚ĄĘ) is going to follow the path of his/her counterparts in other¬†disciplines. However, instead of designing a brick and mortar dwelling, they design a life-long wealth making, growing, and maintaining epic, with the client being the hero.

And here’s a list of the¬†steps involved:

  1. Find out what the requirements really are: Working closely with your client, you set an objective to clearly “understand” the hopes, the dreams, the needs, and the responsibilities of that client. Once you’ve reached such understanding, you turn it into a set of specific, implementable”requirements”;¬†one which the client accepts and feels satisfied with
  2. Now you go to the drawing board and create a solution derived from the requirements. This is easier said than done. How can you “weave” requirements into solutions? Into a blueprint that has an eye on the vision, and another on the strategy and plan. Your knowledge and expertise play a major role here, and that involves specific methods, processes, products and/or services available. Sometimes you might need to seek help from other members of your organization/team to “develop” new products or services that would meet the requirements (those must prove reusable with other clients in order to justify the cost and time of a new development)
  3. The next step is a comprehensive review of the solution with your client. Although you both had reached a set of specific requirements, the blueprint might not express what the client was hoping for. This could be the result of the client being not sufficiently informed/educated, or it could be a flaw in the design. Either way, a revision and an update version of the solution should be created. This can take more than one iteration
  4. Once you reach an agreement with the client on the blueprint of his/her financial story, you start translating that solution into long-term and short-term objectives. Each objective requires an action plan. Here comes the knowledge and skill of financial planning, or let’s say, wealth-making planning; the bits and bytes of what needs to be done on a daily basis
  5. Implementing the plans is not an open-ended endeavor. You wouldn’t hand them over to the client and “instruct” him/her to go ahead and “do” the steps! You still need to work with them regularly, and make sure they are ready to commit their time and energy to implementing what has been mutually agreed upon
  6. As with any plan, the process continues dynamically. This is the tracking/observing, feedback, review and update/correction cycle. Plans are not meant to be set in stone. They must evolve in reflection to consistent change. However, a good architect would not divert too much from the original vision and the blueprint.

The past is gone for all of us. The future is known¬†to none of us. All we’ve got is the present moment. Planning, to a great extent, is a matter of trying to predict the future based on past experiences. It¬†helps, but nothing is certain. That’s why it’s a good practice to keep risk planning in sight, and always have plan B within reach!

The Wealth Maker

The Wealth Algorithm (10) – Plan B


 

What if you couldn’t secure the necessary funds to start your project, to reach your dream? Would you give up? I don’t think so. Having had a powerful intention, which you believe in; giving up, giving in, failure, whatever, are not part of¬†your¬†vocabulary, even when you talk to yourself (by the way, random,¬†obsessive¬†self-talk¬†is¬†destructive!).

If that was the case, the first step would be to revise your plan, especially the due date. Then, assuming you have a monthly income, before paying the bills, or buying anything, put 10% of that income aside. Open an investment account for that purpose, and deposit 10% of your monthly income in it, before you spend a dime.

Once your savings in that account reach $1000, start investing. Your target is to make 5% a month. Below is an example of how you would manage your investment account:

Month   10%Savings   5% Yield   Monthly Total

1       200.00             0.00           200.00
2       200.00             0.00           400.00
3       200.00             0.00           600.00
4       200.00             0.00           800.00
5       200.00             0.00          1,000.00
6       200.00           50.00          1,250.00
7       200.00           62.50          1,512.50
8       200.00           75.63          1,788.13
9       200.00           89.41          2,077.53
10       200.00         103.88          2,381.41
11       200.00         119.07          2,700.48
12       200.00         135.02          3,035.50
13       200.00         151.78          3,387.28
14       200.00         169.36          3,756.64
15       200.00         187.83          4,144.47
16       200.00         207.22          4,551.70
17       200.00         227.58          4,979.28
18       200.00         248.96          5,428.25
19       200.00         271.41          5,899.66
20       200.00         294.98          6,394.64
21       200.00         319.73          6,914.37
22       200.00         345.72          7,460.09
23       200.00         373.00          8,033.10
24       200.00         401.65          8,634.75
25       200.00         431.74          9,266.49
26       200.00         463.32          9,929.81
27       200.00         496.49          10,626.30
28       200.00         531.32          11,357.62

 

Over a period of 28 months, and because of the power of compounding, your $200 monthly savings, have turned into $11,357.62!

Notice that you haven’t been withdrawing at all. Every month, you add the monthly savings (A), to the 5% yield on the previous month’s total (B), then to the previous month’s total (C). Or: A+B+C=D. The sum, (D), is reinvested again, and so on. Please spend some time studying the above table. As simple as it may look, it’s so powerful and effective.

Another observation is that the increase from one month to the next is exponential, not linear! Although your total is about 11K at the end of the 28th month, you don’t have to wait 2800 months to reach a million. You’re actually pretty close. You could find out by applying the above formula till the monthly total hits one million. If you did that, you would find out that you would need a total of 125 months. Or around 10 years.

The assumptions we made were conservative: A $2,000 monthly income and only 5% return. If either of these (or both) went up a little, the total number of months would decrease dramatically, again, because of the magic of compounding.

Now you have a backup plan to revert back to in case your original plan could not be implemented. As a matter of fact, you could go for plan B, even if plan A did work! Think about that…

The only challenge with plan B is the 5% monthly return. You might ask: How am I going to maintain such yield every month? What kind of investment am I supposed to use? You could either revisit the methods provided in this blog, or do further research. You will find what you’re looking for.

All the best,

The Wealth Maker