My Mother Made Me Financially Educated Before I Became A Teen

I was reading this wonderful article by MMM and it reminded me how almost everything I know today was taught to me sublimely way before I was a teen.

Like many other kids, I received a small amount of money every month from my parents. It started with 100 Rs a month and grew to 500 Rs a month over the years. I stopped receiving this amount completely when I turned 18.

My mother encouraged me every month that I don’t spend all the money that she was giving me. She further encouraged me that if I am able to save 1000 Rs, I can give the money to her and she will give me an additional 10 Rs a month or roughly 12% gains per year.

Before I became a teenager, I was able to save up to 5000 Rs from the pocket money, Eidi and other cash gifts I received from my relatives. For handing this over to my mother, she gave me an additional 50 Rs every month in pocket money.

In hindsight, if you think about it, I wouldn’t have saved more than $100-$200 through-out my childhood. In addition, I wouldn’t have generated more than $100-$200 in compounded interest. Despite making no significant amount of money, I learnt the number 1 way of getting wealthy. I learnt how the money can do the work for you. That each dollar is an employee that works non-stop 24/7 to get you more employees every day. It’s even better than a pyramid scheme.

This, I think, is the single biggest differentiator between people who are able to get wealthy and those who do not. How much wealth you’ll accumulate over your life is never determined by how much income you make. I’ve known enough broke people in my life who make over $10,000 each month and still struggle to do well financially.

They do every thing in their power to make contributions in the form of “sweat equity” but make no progress whatsoever to make contributions in the form of “financial equity”. Sweat equity can get you a lot of income, but it’s often the financial equity that buys you the financial freedom.

I was lucky to be taught this way early in my life. It breaks my heart to meet people who make it to the top percentile as far as income is concerned, yet fail to buy themselves financial freedom. I hope I’m able to pass the same learnings to the readers of this blog as well as to my child.

Chasing The Perfection Hype

When investing in any kind of asset (blog, e-commerce store, real-estate, stock etc), do not chase the perfect asset. When you chase the perfection hype, you pay top dollar for acquiring the asset. In the days to come, you realize nothing is perfect and so isn’t the asset that you just purchased.

Then you incur costs for repairs, maintenance, improvements etc for the asset to live up to its perfection hype. This makes your purchase very expensive as not only you paid a higher multiple for purchasing perfection, but also spent more money later on once it didn’t live up to it’s hype.

Instead, you could simply go for assets with visible imperfections. Any asset you buy with visible imperfections will have those priced in too which would get you the asset for a more affordable multiple.

As an example, if there is a niche Amazon FBA store with all relevant products it will sell for a higher multiple than a general Amazon FBA store. I understand why niche stores are better positioned in some cases, but in reality both niche and general stores have imperfections.

Niche stores are less diversified and hence positioned badly to weather a storm like COVID-19 when some categories get hit more than the others. General stores in comparison have visible imperfections such as that many products in the store belong to different categories. Although it may seem as an imperfection to some, it’s also a feature; the store is better diversified to weather a storm.

When buying an asset like a general store, the visible imperfection of having products spread across various categories is priced in. It is why it sells for a cheaper multiple. One could take advantage of this when buying assets and get this general store with visible imperfections. Not only the niche store has imperfections as well, it’s also a lot more expensive. Only in rare cases, it would prove to be a more fruitful purchase such as you sell it later as strategic acquisition.

Assets with visible imperfections can also be improved such that they no longer have any visible imperfections. By doing so, you can quickly increase the value of the asset.

What Happens When You Leave Your Job or Business Abruptly

I started working in my early teens. I didn’t make any significant money for doing so but it’s been a while. I received my first pay-check in 2004. I am 30 years old now and I can say I’ve worked for more years than I have not.

Despite being in a career for this long, I have never had a day job. Not even for 1 day. So I don’t know how that works. To top this off, my own company is also a distributed one with a headcount of less than 5 and a couple of freelancers. So I’ve never seen the other side of the picture clearly. May be there’s something I’m missing out in a day job, I absolutely don’t know about that.

However, thinking on those lines something popped up in my head and I thought to lay it out here.

When you leave your job abruptly, what happens? If after 7 years of working, you have decided to leave your job today, you may be given some bonuses I suppose for staying around long enough. I don’t know what that number would be but I suppose it won’t be a lot or that it would depend a lot on case to case basis.

When you’re asked to leave your job unwillingly, severance may be offered? How much does that sum into? Internet suggests 2-4 weeks per year that you’ve worked. Let’s average that out to 3 weeks. Since you’ve worked for 7 years, this could be mean you’re getting 5 months of salary without working. That’s not too bad.

What happens though when you leave your business abruptly? If it’s a very very small internet business doing anything between $10K-$100K per year. You will easily flip it for 30x monthly multiple. If it’s slightly bigger than that, but still a small business doing $100k-$1MM per year, I suppose you’ll get over 40X monthly multiple. If your business is larger, solid, more consistent and has been around for 7 years, you can hope to get paid even more than that. If it’s an offline business, I suppose you will get paid a lot more than what you get paid for internet businesses today.

Assuming you have a steady job giving you 6 figures per year i-e $100,000 USD, for having a business of the same size you’re looking at an extra $300,000+ for abruptly leaving it. I don’t think any bonus or severance pays that much. Educate me if my understanding is incorrect.

As humans, we’re so focused on the short term, living in today and thinking everything in the terms of daily and monthly gains, that we forget about the value that is created outside of today. The value that is created outside of today can often be much larger than today. A reminder of that is necessary and I make every effort to constantly remind myself.

Thanks for reading.

Why Are These Exactly Opposite Money Events Happening At The Same Time

I am not an economist. I know nothing about it. Although, I like to preserve my wealth and I also like to read a lot about how to do that. So you can call me wealth preserver.

There are two money events happening right now. One of them is that the Federal reserve continues to print trillions and trillions of dollars to stimulate the economy. The other one is that Bitcoin is cutting its printing rate to half in about 7 days.

Both the events are happening at the exact same time.

When you increase supply of one thing by a lot and trade it with something of a fixed quantity, you’ll either need to pay more of the asset with an increased supply or get less of the asset with fixed quantity.

The long-term impact of the first event is that you’ll need more pieces of paper to buy assets with fixed quantities such as real estate.

The long-term impact of the second event is that you’ll need less number of Bitcoins to buy assets with fixed quantities such as real estate.

Disclaimer: This is not an investment advice and should not be taken as one. I accept no responsibility for any loss, damage, cost or expense incurred by you as a result of any error, omission or misrepresentation on this site.

The Strange Money Rule For The Wealthy

As strange as it may sound, the rich can buy the same things as others at a discount. Not just that, the rich can buy certain things at no cost at all. There are many examples to showcase this, but one example would be parking your money in a bank in a country of your choice to get citizenship. Just for placing your money in a country and financial institution of your choice, with no cost to you.

Similarly you could be flying businesses class upgrades for free or have access to business lounge access at various airports, just for having certain amount of wealth. While those who do not qualify for this threshold are asked to pay instead.

The weird thing about this is that rich are able to afford much of what they are given for free while the poor can not afford much of what they are asked to pay for. But the reason this happens is because money is a tool that is used to make more money. When you park your funds with a financial institution, they can use that to generate money for themselves and pass on a fraction of that to you in terms of certain benefits.

This is just a tiny example of what the wealthy get for their money. The real reason why I wanted to outline this today is because the wealthy generally never spend their principal. They always use money as a tool to generate more money for them which they can use for all of their expenses. They don’t use time as a tool to make money like most other people do. They use money as a tool.

Sure, you will need to trade time to make money if you’re just starting off. But if you want your end-game to look like the one outlined here, you should be making every effort to save that money to use as a tool.

What Markets Do To You, And What You’re Supposed To Do

Facebook advertising can be overwhelming because of how inconsistent it can be. Despite it’s inconsistency, it still is and will continue to be my go to place for marketing. I’ve been busy with the launch of our new store as I mentioned in my last blog yesterday. So I’ll be writing this one in a hurry, so I can head back to work.

Markets. They are a good place for everyone to passively build wealth while you actively work on your business or in a job. But in times like this, markets can get the best of you. Let me tell you a story.

The first time I bought a Bitcoin was for $1000. The first time I sold a Bitcoin was for $200. I think most people are aware that Bitcoin went all the way up to $20,000 and trades today at $6000. I was a newbie in the markets. I continue to be even today, but I wouldn’t make that same mistake again. You shouldn’t either.

If you always wanted to own a certain asset whether it’s Bitcoin or stocks or gold, now and the weeks to come could be the time to do that. 2020 is a better time to buy these assets, as they trade 30% below the price they traded in 2019. 2021 could be an even better time than 2020, but we don’t know that. What we do know is 2020 is a better time to buy than 2019.

As cliche as it may sound, buy when there’s blood in the streets and if you can’t, that’s okay. At the very least though, don’t sell when there’s blood in the streets.

Currency? Store of Value? Uncorrelated? What is Crypto?

During the market meltdown that started about 10 days ago, crypto-assets crashed the most. With Bitcoin going as low as $3500 from the high of $8000 in a single day posting the largest value drop since inception, everyone wondered what is Bitcoin?

People didn’t expect this drop to happen. Here’s Brian, CEO of Coinbase, tweet about this

People wondered if Bitcoin isn’t currency (volatile), or store of value (posting massive losses in value), and it’s also not uncorrelated with stock markets or other assets, then what is it?

Personally, it made me wonder that too. If it can’t even act as an hedge against the other markets, what is it? This drop affected my confidence in this asset-class. However, only a week later, my confidence picked up, at least by a bit.

During the first 3-4 days of the meltdown, I started to see that gold is losing value too. What is often seen as the safe haven during financial turmoil, was losing value too. The oil markets crashed as well, although that likely happened for a different reason, but it did. There was pretty much nothing that didn’t lose value.

What I concluded in the end is that during a financial crisis like that, people sell everything to move to cash. It doesn’t matter what asset class. It doesn’t matter what safe haven. All assets are sold so people can sit on cash and take their time to understand what’s happening before figuring out what to do next.

In the next week, I saw crypto-assets and Bitcoin rebound by a lot. It is trading above $6500 at the time of this writing. It is still below where it dropped from, but has recovered by a lot. Meanwhile, the stock market hasn’t recovered at all. The S&P 500 index for example is still down by 30%. What I’ve concluded from that is while all assets are correlated at the time of turmoil, only 10 days later, I can see crypto-assets moving in a different direction. I feel that in the coming weeks and months this uncorrelation will be very well established.

And that would be the first real world test that this asset-class would pass.

Are Stocks Manipulated?

I wasn’t old enough in 2008 to see, feel or understand what happened to the world, economically. It was only later that I learnt about the financial crisis and recession from the documentaries and movies.

When I started investing a few years ago, I invested in crypto before I invested in stocks. Once I tried to invest in stocks, I was turned off by how far behind the tech was. But I liked stocks for being the real thing. Representing real companies, with real earnings. More substance, and less speculation. Today, however, I’m confused between the two asset classes, and I thought to compare them a bit.

One of my first disappointments with stocks was that the trading hours were restricted to 9-5 / Mon-Fri as opposed to crypto-assets which are traded 24/7.

Another disappointment with stocks was the inability to own and store them the way I can own and store crypto. I had to leave the stocks with the broker account. I couldn’t move my stocks around between brokers and I couldn’t store my stocks in an hardware wallet. This is unthinkable in crypto. Only newbies leave their assets on an exchange or with a broker. Not your keys, not your money.

As for crypto, I hated the fact that markets were manipulated so much. USDT (Tether) faced allegations year after year that they are just printing USDT out of thin air and using them to manipulate crypto and specifically Bitcoin prices. That they don’t have the actual USD in their bank account in the same amounts as the USDT in circulation. Eventually, they were able to prove it time and again that they have the equivalent funds available with them.

What I’m seeing today happen to stocks makes me think that stocks are perhaps manipulated even more than the crypto-assets. For example, how the Fed is cutting interests to put market on steroids. The fact that Fed has injected trillions of dollars created out of thin air to solve what they term as “liquidity crisis”. But the most mind boggling is how these dollars are created, let’s hear that out from the ex-Chairman of Federal Reserve

I want to finish this off with circuit-breakers. What are these circuit breakers? Whenever markets dip more than 7% in a single day, trading is halted for 15 minutes. When markets dip 13%, trading is halted for another 15 minutes and at a 20% dip, trading is halted for the rest of the day.

This is unthinkable in crypto where we’re used to seeing 70% dips in a single day but no circuit-breakers are introduced to manipulate the prices. The amount of effort Fed puts in in keeping the stock prices afloat is nothing short of manipulation as these practices are unthinkable in crypto trading which we see as the free markets.

Why Does the Fed Cut Interest Rates When Stocks Fall?

As you may have seen that worldwide stocks are falling as the COVID-19 fears have completely taken over the markets. The S&P500 index has fallen nearly 20% from it’s ATH. Asian and European stocks are also following suit.

When markets crash like that, Governments step in and offer certain incentives to businesses like tax-cuts and cheap credit / lower interest rates etc. The governments say that cheap credit will enable businesses to fuel growth with lower borrowing costs. However, there’s an interesting theory on why the Fed really offers cheap credit and what the businesses really do with that credit, read below.

TL;DR: Companies use cheap credit (e.g 0.5% interest rate) to buy back their own stocks which post 5-10% profits per year.

Are Software Companies Safe from Present Economic Conditions & COVID-19?

What’s happening right now due to coronavirus is a supply-chain crisis. Businesses have buyers but are running out of goods to sell. Once the business profitability is affected due to decline in sales, they will let go some of their employees. This could affect purchasing power of some of the people creating a demand-side crisis.

The pandemic could also affect demand as more and more people stay at home to avoid the disease, they would be spending lesser money on certain products. In addition, their purchasing power could also be affected by additional health related bills. If COVID-19 lasts long enough, which at the moment it is showing signs of, there will be both supply-side and demand-side disruptions.

To improve the situation, Fed has cut down the interest rates. The goal is to sustain the economy by offering cheaper credit to businesses. But I’m wondering how can a supply-side disruption be fixed with cheaper credit. Moreover, cheaper credit could help larger businesses but small and medium sized businesses are likely to suffer the most.

While it is obvious that trade and e-commerce are largely affected, are software companies safe? Some of them might be but I do not believe that they will not have a cascading affect on them. After all, many software businesses are intended to solve real-world problems.

In my industry for example, many software businesses are Shopify apps or WordPress plugins. Shopify store owners use those apps to improve their selling experience. But if there are no sales, or no revenue, the store owners will obviously stop using those apps until situation changes.

Softwares that have nothing to do with commerce, may be relying on advertising as a source of revenue, or may be assisting industries that depend on advertising revenue. They aren’t safe either. Once the commerce is disrupted, the advertising is meant to be disturbed too. In my own case, my e-commerce stores are affected due to supply-chain crisis, but I’m also not spending on Facebook and Instagram ads to drive sales which means the advertising industry is taking the hit too.

As a publisher, I also have data to support this argument as CPMs are going down across the board. So any software business which is dependent on advertising or support customers who drive revenue from advertising will see disruption too.

All other kind of softwares may be safe from this cascading affect, but will still be dealing with users with lower purchasing power.

While pure software businesses are much better off than other businesses, I wouldn’t say that they will not be affected. However, it is still a better time to be running a software business than any kind of traditional business.