By: Tom Vilord
www.WallStreetValue.com

The summer going into my freshman year of college, I was up late at watching tv everynight. I happened to come across a few infomercials that piqued my interest. The first was the Don Lapre program, where you post tiny classified ads in the paper and suddenly you become rich. The other was the no down payment real estate system by Carlton Sheets. That summer, I would stay up late every night to watch those infomercials because the lifestyle they portrayed looked like the American Dream and that is what I wanted. Financial Freedom, fancy toys, etc. Don Lapre was driving around in his convertible Mercedes and filming from a tropical waterfront location with crystal blue water and boats in the background with the palm trees swaying. The Carlton Sheets ad was pretty similar. This really got me interested and I started thinking about how I could attain that lifestyle as well. I started buying books on entrepreneurship, real estate investing, as well as books about investing in the stock market. The rest of the summer and leading into my freshman year in college, I would read those types of books as often as I could. As an 18-year-old college student, I wasn’t really sure what I wanted to do. I initially majored in physical therapy, but after reading these books, I started questioning whether that was the best major for me. Fortunately, or unfortunately for me, my grades were so horrendous that I didn’t have a choice but to switch my majors. My junior year I started studying business and finance. Still not knowing exactly which path to take, at least I was finally on the right path based on what my interests were. I started an internship at Merrill Lynch. I didn’t really enjoy it, but I saw what the fruits of my labor could be, so that is the path I decided to take. Thank God I did and here is why.

As financial advisor, I was able to utilize the entrepreneurial skills that I have learned reading those books. I essentially had to build a client base from scratch just like any business owner would. I got to utilize my stock market knowledge I learned from those books everyday too. However, most of you reading this article may not have any interest in being an advisor, or you may be at a time in your life where changing a career may not seem probable. If you want to create a life where financial freedom is the end goal, there are three main ways to accomplish that. Start a business, own real estate and/or own stocks.

Maybe starting a business isn’t in the cards for you right now. And after reading an article that was recently on Yahoo about the time commitment it takes to be successful, I completely understand. The author of this article said that to be successful in business, you can’t work 9 to 5, but you have to work 95. Meaning you have to work 95 hours a week. WHAT??? That’s 15.83 hours a day IF you take one day a week off. When I started in this business I did have to work some crazy hours, but now that I am 41 years old, I don’t have the energy or desire to do that. I have 2 kids that I love spending time with, I enjoy going to the gym, going out with my wife, playing as much basketball as my old bones can handle, I love coaching basketball, and I certainly love vacations. I’d have to kiss most of that goodbye if I were to work almost 16 hours a day. No thank you! I don’t want to trade my time for money.

Many people invest in real estate and are very good at it. I tried it, I still have one rental property left, but this just wasn’t for me. The idea of investing in real estate is one of the best ideas for creating long term wealth. You buy a property, a tenant pays down the mortgage over time, you get the tax breaks, and eventually a mortgage that is paid off, resulting in rental income that is all yours to fund your retirement (or anything else for that matter). The main point is that your money is working hard for you. This creates a passive income where you are not trading your time for money. The books that talk about buying multifamily housing units or other types of rental properties for multiple streams of income at some point in the future make absolute perfect sense, especially in theory, but here are a few drawbacks that I encountered. I can’t fix anything. I’m not handy. It cost a lot to delegate that to a contractor anytime something goes wrong with the property, and things go wrong ALL the time. I had a few rentals, and I have had tenants that wouldn’t pay on time, wouldn’t pay at all, and they would call me at all hours of the day or night for the most minor issue. I could give all of this away to a management company to handle, which would probably be an excellent idea if I had more properties, but with just one property left, the cost to have that managed isn’t worth it. I also had a vacation property that I rented. That was even more of a hassle. Instead of having one tenant a year with a typical annual lease, I had a different tenant every week at the Jersey Shore. More tenants equal more leases, more security deposits, more bounced checks, weekly cleaning service, more headaches, etc. And when someone is on vacation, they don’t want anything to go wrong. I had to drive 45 min to change a light bulb for one tenant in Ocean City, NJ. In their defense, you needed to unscrew 8 screws to get the case off in order to get to the light bulb, but none the less, it was really annoying. All of these issues are nothing more than inconveniences, so investing in real estate isn’t bad, it’s just not for me any longer. If you are the fixer upper type, then you are trading your time for money.

The other part of creating wealth, which is that path that I have taken, is to be invested in the stock market. It seems so difficult to many, but it all boils down to this oversimplified summary: If you buy great fundamentally sound companies, and you buy them below their intrinsic value and wait for it to come back to its correct value, you will make money. How much is involved in doing this? We teach every detail of this in our course at www.wallstreetvalue.com. It takes about 5 minutes to determine if a company is crap or if it should be investigated further. If its crap, you move on and only five minutes of your time has been invested. If it’s really a great company it could take about 2 hours to over analyze a company. To look at the financials, do some very basic math, read a few important parts in the annual and quarterly reports, read about the industry and its competitors, and do some research on sites like seeking alpha, could take some people 30 minutes to do all of the analyzing necessary to come up with a decision to buy. I can do that from the comfort of my own home. Once you buy, have text alerts set up from seeking alpha, CNBC, etc on the stocks that you own, so you can keep up with any event that’s taking place, and read or listen to the quarterly reports. That sounds 1,000,000 times better than working 95 hours a week or fixing toilets for a tenant that doesn’t pay their rent. The best part of this is that it’s also a passive structure to the point that once you are invested, your money is working for you, not the other way around. In Feb of this year, 2016, I determined that Cummins was undervalued. It’s about as Blue Chip as they get. They are a very stable company with a long term track record of success. I bought in at 85, sold out in November at approx. 127/128. In just 9 months I made close to a 50% rate of return. How many decades would it take to earn that in a bank CD today? That return was earned simply by doing some easy research that identified that it was a great company and it was undervalued. I waited for it to come back to where it should have been valued, and made an awesome return doing so. I didn’t have to work 95 hours a week for those nine months to earn that 50% return. I didn’t have to get my hands dirty fixing or flipping a property either. I just had to do some reading. Sounds tough, huh? Don’t trade your time for money. Let your money work hard for you. Learn how to find great companies, learn how to determine the business’s value, buy when it’s undervalued, sell at or above its true value, and then repeat until you are very wealthy.

 

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