There’s an unspoken truth in the investor community about people who have successfully scaled their portfolio to 6 figures plus.
Typically, many investors or trading services want you to think that the recipe for success lies in some sort of trading strategy or method. I think the younger Tik-Tok generation, YouTubers and Instagram influencers do this. I see the adds every day about some ridiculous ForEx or Crypto class. But, success is truthfully compounded by good decision making over time. Wealth is NOT created over night and it is rooted in something so important, so crucial and fundamental for basic understanding.
It’s Cash Flow
This publication is for the retail investor looking to scale a portfolio for generational wealth. It will discuss important topics like personal finance, life style decision making, investing decisions, risk management and everything you need to be in the position to grow your wealth and take control of your financial destiny.
I will keep this one FREE because I plan on sharing this with family, friends, and our investing community. It’s important for everybody, regardless of if you have $5,000 in your investing account or $500,000. Personal finance impacts all of us and being in the right position/foundation is what makes a difference to true wealth creation.
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The “Income Statement”, “Balance Sheet” and “Cash Flow” statement is not just made for corporate finance. In fact, it’s arguably one of the most important concepts of finance in general. It’s a shame schools don’t try to teach kids this at a young age in my opinion. The reason why, it teaches you one of the most important concepts of money being a tool and not a source of “value”.
Money not having value sounds crazy, it goes against popular opinion but it’s true. Money isn’t valuable, it’s a tool that’s exchangeable for goods and services. The goods and services are of value. When you learn what an asset is or a liability, it all makes sense. Better yet, what a productive asset is.
Income and Expenses
This is a difference maker between what can make you a successful investor and what wont. Investors make more than they spend and are compulsive savers.
If you have $10,000, I can confidently say 99.99% of people cannot take it and make it into millions. The .01% are professional traders who have been doing this for years or randomly hit the lottery on GME call options (don’t do this). But, what you can do is invest it.
Investing cash is not the act of trading and trying to catch movements between numbers. It’s the act of actively looking to exchange your cash for corporate equity. Cash is a constantly depreciating asset due to inflation but corporate equity is a cash generating asset. Corporate equity (stocks) is a productive asset where you are, literally, a partial business owner. As a business owner, your goal is now to ensure management is doing the right thing to grow the business so you see a positive return over time.
The reason why I brought up the idea of putting your money into a company is to emphasize the importance of your personal income. This can be derived from your job, or better yet, a business. Let me explain:
Your investments need time to produce superior returns and it should be a place to “store” generated wealth while your income pays for all your lifestyle and bills.
The average American household makes about $85k per year and the average American expenses are roughly $65k. This would imply that the average house hold is not positioned to begin building an investment portfolio. It would be broken down like:
$85,000 annual gross income:
Roughly 30% goes to taxes: $25,500
This would make net income around $59,500 (take home pay). This is roughly $5,000 per month. From here you can expect to pay:
$1,500 for rent or mortgage (assuming you don’t have roommates)
$350 for utilities
$350 for car payment
$100 for cell phone bill
$100 for insurance
$150 for gas
$300 - $400 for food
This is going to leave you with $2,400 for what ever you may need it for. It sounds like a decent chunk, but it’s not. Random things will come up along the way like car repairs, medical emergencies, entertainment and social expenses. This is also assuming you don’t have any debt in credit cards or student loans. Do you see how quick that $2,400 goes away?
The goal here is to boost your income, however possible, and constantly manage your expenses to make more than you spend. Investors continue to improve this ability and constantly funnel money into their portfolio of assets. With enough scale, the assets begin to supersede your income and set you free.
Investors are Compulsive Savers and Masters of Self Discipline
The best way to think about this is by breaking down a few of the key traits of investors. The traits and BEHAVIORS are equally important to the knowledge and skills learned along the way. Essentially, this is combining “soft skills” with “hard skills” to create a path of limitless opportunity. A few behaviors like:
A delayed gratification mindset - The best asset you have, as an investor, is time. In fact, it’s arguably the most important asset you have. Some of the greatest investors often say, “the reason why I began investing is that I didn’t want to work forever”. This obsession and value of their time often leads to a delayed gratification mindset as they sacrifice the spending of $1,000, $2,000, or $50,000 on something materialistic or “shiny”. The perceived exchange is for their time back later in life. Market fluctuations or crisis is often seen as an opportunity rather than an end all be all to their long term financial goals.
Unparalleled discipline - Wealth accumulation is a behavior and is typically the result of doing the right thing over time. For example; if you have $10,000 what are you thinking? Are you willing to forgo the luxuries or material items you could buy with it? Or, how are you spending your weekends? Are you being productive or often doing things you don’t necessarily want to do? Another one of my favorite thoughts on self discipline is doing the right thing when nobody is looking. In other words, it’s the act of doing something to accomplish a greater goal rather than fulfill an instant need that’s not productive. It could be thought of as waking up early in the morning and going to bed at a good time to accomplish the tasks of the next day because you know it’s the right thing to do. Self discipline will change your current situation and personal/financial future.
The ability to think of failure as opportunity - An observation that can be made about every investors is the ability to take risk. It’s not that the investor is not conscious or aware of risk but it’s the acceptance of it. This acceptance allows the investors mind to work in probabilities of outcomes. For example, Peter Lynch once said that if you’re picking good stocks 60% of the time you’re doing exceptional. This willingness to embrace that you’re not going to be 100% right and willingness to be wrong is not natural to a lot of people. In other words, investors quite literally run toward failure and accept that the risk of not taking risks is far greater than accepting a life without taking risk. It is, however, constantly managed.
Confidence - This cannot be emphasized enough. Confidence is built through time but is arguably the most important quality of any investor/business owner. In this case, confidence should not be confused for ignorance but should be rationalized through data driven decision making and sound plan. For example, in a Bear Market investors and media scream SELL SELL SELL SELL. It takes an extraordinary amount of confidence in ones own judgement and stock picks to continue to buy. In Euphoric Markets, investors scream BUY BUY BUY. It takes even more confidence to pass on opportunity because the long term risk reward doesn’t fit in your disciplined strategy. Confidence in this case is the trust and ability to make good decisions and sticking to those decisions regardless of what others say. Like I said before, ignorance can be mistaken for confidence. Ignorance will crush you. Confidence is the humble approach to sound decision making and risk taking.
The very act of saving and making sound judgements requires a behavioral approach. I know people who make $300k as a house hold but can’t save any money. In fact, there are people who make $300k/year and they have a house, boat, super expensive vehicle, four wheeler, $60k in high interest credit card debt and a life style of consumption and excess. These individuals make a lot of money and put on a good front but don’t have the discipline or delayed gratification mindset to invest into their future. On the contrary, there are individuals who work at a post office making $60k a year and they’re multi-millionaires in terms of liquid and illiquid assets. The postage man is a compulsive saver, never lives beyond their means and values a future of humility and freedom.
Income must be combined with behavior to take the next step in becoming a successful investor. Income doesn’t mean anything if you don’t understand how to use the “tool” called money.
Education and Knowledge is the First and Most Important Investment
I once heard a quote when I first began my pursuit of financial independence and it really resonated with me. Unfortunately, I cant remember exactly where I heard it from because it was years ago. But it went something like:
By learning about something, you gain control over it. When it comes to money, those who don’t understand it don’t have control over it. It often controls them as they exchange time for money. On the contrary, those who understand money have control over it and learn how to make money with money. In turn, they gain control over their time and freedom.
It could be from one of the Rich Dad, Poor Dad books but they all start to blend together. On a side note, if you haven’t read Rich Dad, Poor Dad it’s highly recommended.
In this case, the relentless pursuit of knowledge is the first investment successful investors make. Many “investors”, speculators, or “traders” will seek for individuals to tell them what to buy and sell. But, this isn’t a winning strategy long term and will inevitably lead to a destruction of wealth. It takes time and work to learn and a few of the most important topics to understand can be:
Income statement
Balance sheet
Cash flow statement
The usage of debt, as an asset, for real estate
Options strategies (to manage risk)
Hedging
Economics both Micro and Macro
Human psychology
Valuing a business
Business structure and roles
There’s many more topics I could list and it’s constantly an ongoing process of learning, growing, changing and adapting to an ever changing environment. The concept of money goes much further beyond, “put your money here and get xyz return”. It’s the concept of how the world works, functions, and moves. It is literally the most important aspect in our modern civilization and it’s not taught in schools or sought to be understood.
Investors dedicate their life to learning how the world itself works, how business functions, how people get paid or why politicians are making the choices they do. The important thing to know is that 54% of Americans live paycheck to paycheck and this is a REAL PROBLEM. This is directly correlated to the lack of education. The gap in this education is exactly why investors always invest first in their mind before investing into a business, crypto or real estate.
It takes an extraordinary amount of time, effort and energy in the short run. This is where we go back to the characteristics of an investor. In order to take control of your financial destiny, you must learn and that process of learning is a continuous behavior. The behavior and mindset of the investor is truly what defines success and failure over the long term. In the long term, this pursuit of education pays dividends compared to any sort of immediate return you could make in stocks, crypto, or real estate.
The Hidden Strategy Behind Scaling Your Portfolio
The hidden strategy is work, effort and a willingness to constantly improve. This is what is truly the difference between an investing course that teaches you how to read technicals or fundamentals in the financial markets.
What I am trying to say is that investing does require a pursuit of bettering oneself over the long term. It does require a change in the perception of volatility, risk, and the very way you think about money.
New investors should be seeking sources of education and not the “latest stock pick”
Experienced investors should always remember that their situation was made in a path of failure, mistakes, obstacles, loss and challenges. Only to selflessly pass the baton on to newer investors with education that will change someones life. Think of it as a way of giving back to a world that has given you so much.
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Until next time,
Stay tuned, and stay classy
Dillon