All about investment

By Martin Thomas

Wealth is ultimately about VALUE and Value is free. If you have ever asked yourself...How do I get rich...you aren't alone. Most articles I have read on this topic go along the lines of, Save money, Get a Job, Work hard, Invest the savings conservatively and above all wait several decades. To me this is some terrible, terrible advice. In this article I will try and demonstrate some rare concepts that only the wealthy utilize. I know they do because it is blatantly obvious and after reading this article you will understand too, what the rich do.

The very nature of money is emotional and subjective. The first concept that will help you begin accumulating wealth is that money is nothing at all but a paper representation of value. To illustrate this, think for example of any commodity at all. Pork bellies. Lets look at a pork belly. Do you have a NEED for pork belly right now? If somebody knocked on your door right this instant with a Pork Belly in arm and offered to sell it to you...would you part with money for it? Maybe, maybe not. But the point is that you would have an OPINION on the VALUE of that ham, or pork belly or what ever else that we humans sell to each other.

VALUE IS SUBJECTIVE
Going back to the idea of being randomly offered a pork belly at your front door. You can isolate value by identifying need or "UTILITY" of the persons opinion. If you were in certain circumstances you definitely WOULD pay for and buy that pork belly. Also depending on your circumstances....the depth of your need, you may pay twice, three times as much for that pork belly. Value is always circumstantial and that makes it subjective. Since money is just a numerical representation of value, we can say that if we control the value of an object, it will be worth MORE or LESS in incremental units or ....MONEY.

I hope you just read what I said, because it is one of the most important points on this page. You can control the NUMERICAL VALUE of MONEY by controlling the VALUE itself. What what do I mean by that? Well simply this. When buying something you can control the amount you pay for it providing you are dealing in an open free market (example 2 people negotiating) and the market is not a monopoly (like a grocery store where they are take it or leave it prices)

Conversely when selling a product you can literally control the amount you receive for it by controlling the value of the object. I am not saying you can get a Million dollars for some old bike. But I am saying you can make a return that is satisfactory even on an old bike.

VALUE INVESTING
Warren Buffet is most famous for the use of this concept, but believe me arbitrage or Value investing was around well before he was around. The wealthy down through the ages have been taking advantage of circumstances and situations to extract a decent return.

Value investing is simply this...buy something, anything at below its intrinsic value price and sell it for its normal price or just a little higher in an effort to maximize on a return. The concept of value investing can be distilled into the sentence, buy $1 dollar for 50 cents and sell that $1 dollar of value for more. This may seem trivial on a small scale, but it is the percentages the smart money watches.

Everyone has to start somewhere, and if you are unemployed and broke it doesn't mean a thing. It means absolutely nothing in terms of your prospects. This is how wealth is made on the planet Earth. If you do the same thing you will get the same results. You will get rich too.

A fundamental lynch pin to this concept is the word intrinsic. Intrinsic value is a value at 100% It is what the object, whether it be land or a car or an old mountain bike. It doesn't matter if it's old. Everything has an intrinsic value in an open free market. The key to value investing is having a capacity to imagine needs and an understanding what utility a potential buyer may have before you purchase. Intrinsic value means that it is not an over estimation and not an under estimation but a sound and probable number that would be the almost exact value of the object taking into account it's age, size, features, damage, restrictions etc. Intrinsic value is not an estimation. It is a float level.

Once you establish this value for an object before you buy it yourself, it is a simple matter to begin controlling the VALUE in the sellers mind. By exaggerating the negative and downplaying the positive you are not tricking people, you are simply acting in your best interests. If it wasn't for you, he may not sell the object at all.

The concepts above apply just as much to a Billion dollar corporate take over as they do, to the transaction of a brown plain sofa. But there is a final piece to the puzzle.

Compounding and leverage.
All wealth creators understand, value and pursue compounding as the ultimate wealth building tool. There is no other more powerful mechanism for rapid wealth creation, getting rich really quick, than the deliberate enlisting of compounding. Specifically through the use of leverage or other peoples money.

If you started with $100 and applied 160% compounding every year for 10 years you would end up with over $1.4 million dollars.

Here's how it look's

Y1 : 261.3

Y2 : 682.79

Y3 : 1784.16

Y4 : 4662.09

Y5 : 12182.21

Y6 : 31832.56

Y7 : 83179.61

Y8 : 217351.27

Y9 : 567946.56
Y10 : 1484064.41

But most value investors get returns of much much more than 160% per year because they use leverage or other peoples money. To manufacture returns of 200%, 400%, and even 500% are not unheard of and not very difficult to achieve. I know you may have heard of investor funds and such that have difficulty maintaining 10% per year and the logic goes, well, these are professionals and if they have a hard time getting a 10% return, what hope do I have of making a return of 500%

Here is the thing. Value investing is subjective and hands on. It is an activity that is the exclusive domain of the individual not the institution. A fleet footed individual can accomplish amazing results but a large institution makes decisions slowly and with weak effect.