One of the most valuable things that happened to both of us was the financial meltdown of 2008.
It was during that fall that we decided to really study the money game and invest large amounts of time into our studies.
Books like these were helpful:
1. The Ascent of Money, by Neil Ferguson
2. When Money Dies, by Adam Fergusson
3. The Creature from Jekyll Island, by G. Edward Griffin
4. Guide to Buying Gold & Silver, by Mike Maloney
5. The Big Short, by Michael Lewis
6. Hedgehogging, by Barton Biggs
All amazing reads.
Each highlighting a different angle of how the current money game is played.
We’ve read a couple of them multiple times. Can’t get enough of a good thing I guess.
Financial education is one of the most glaringly obvious lacking components of our educational system.
We strongly and wholeheartedly believe that financial education plus small business/marketing education are the two of the most valuable things we can pass on to our own children.
Along with strong ethics and helping them form a positive and strong self-image.
Here are some random sample of financial fun stuff that we’ve found interesting:
1. The stock market may return 10% a year to some whiz-bang pros but if you enter into it during a secular bear market you can get destroyed.
Case in point, from Hedghogging (above), “The Dow first reached more than 1,000 in 1966 and didn’t really reach that level again until 1982. During that period, the cost of living in the United States expanded by a factor of 8, so a dollar invested in stocks in 1966 would buy only 13 cents worth of goods in 1982.”
2. Although NO ONE in North America believes it’s possible currencies do disappear.
This was recently shared in a Casey Research Report.
We actually held these types of notes in our very own hands before they went worthless.
Yugoslavia was not an isolated incident. The same thing happened in Zimbabwe in 2006, Argentina in 1985, Belarus 1996, Bosnia 1993, Brazil 1993, Chile 1975, Germany 1923, Greece 1943, Peru 1989, Nicaragua 1990, China 1947, Russia 1992.
And there are others. Many of them.
3. The Canadian dollar, from what we can tell, isn’t backed by very much of anything.
For a country rich in gold I’d like to see Canada have more of it backing our currency … we can dream, can’t we? The amount listed here probably fits under Stephen Harper’s desk with ease.
And Canada is a G7 country that is ranked 80th on the list of gold reserves. Check that out right here.
4. Our father was earning a very good income of $52,000/year in 1980 slapping sheets of drywall against wooden studs.
Today for a family to have the same earning power they have to earn $144,497.70.
Bank of Canada says so…click here to play with their calculator yourself.
5. Many investors invest in equities (stocks) to participate in the growth of the economy.
The same investors buy bonds to hedge against the risk of investing in equities.
Very few investors do anything to hedge against inflation.
From our studies… some of the oldest and wealthiest families in the world hold land, property, jewellery and fine art for generations as a store of wealth.
6. Groupthink, even by smart people, is bad.
The Economist in 2003 had a report (source: Hedgehogging) about a survey conducted by the elite crowd of the U.S. Federal Reserve. The room was full of the most admired economists in the world.
They were asked, at the peak of the tech stock market boom of the late 1990’s, “Is this a bubble?”
They voted no.
Next, in August 2000 they ruled out a recession in the U.S. and in 2002 they predicted short-term interest rates would not fall to 1 percent.
Not a good track record … they guessed wrong each time.
7. Mark Carney, our Bank of Canada Governor, is currently stating that it’s taking the U.S. an unusual amount of time to come out of its recession Click here for the article.
There’s historical precedent for “balance sheet” recessions taking a very long time to correct themselves.
Japan’s balance sheet recession that’s two decades in the making.
We’re sure Carney understands all of this too but may not want to come out and say it.
8. All this talk of “debt default” in the U.S. right now, in Greece and soon to be in Spain and Italy…
… is missing the point.
A country doesn’t have to default on paying their obligations. You can cut spending. Interesting that that option is rarely discussed.
By not defaulting on debt by printing money you end up protecting the banks (bondholders) and passing on the costs to the citizens of the country via more taxes or higher inflation or both.
So all of this is fine and dandy but it doesn’t but steak on the BBQ does it?
Where’s the opportunity in all of this?
By understanding how things work, increasing your financial education, you can take advantage of almost any environment you find yourself in.
You gain a ton of confidence in your decision making.
We know first hand of people making buckets of money over the last few years. A hedge fund owner and manager we know personally is having a great run right now in these crazy financial times.
We know of an engineering company that has grown from 2 people working out of a basement to over 30 people, spawned three new companies and millions of dollars in gross revenues. They are kicking butt.
We know of many real estate property owners earning solid amounts of cash flowing while taking advantage of super-low mortgage rates.
We know of Realtors in the U.S. doing 500 deals a year in communities of 120,000 people! That’s just ridiculous.
There’s opportunity everywhere.
Knowing and understanding the rules of the money game can only help your investing and your business.
Until next time … Your Life! Your Terms!