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.
I’ll be honest. This isn’t my thought. It’s something I read somewhere and I couldn’t agree more.
The thing about zero is that it makes you imagine. You can think of all the possibilities. If your startup is doing ‘zero’ dollars in revenue, you can sell dreams to investors. But if it’s doing $1000 or $2000 or $5000 a month in revenue, the investors are going to see, assess and project you based on those numbers.
And so in a way, if you’re seeking to raise investment, zero can be better than doing a small amount of revenue. Which is unfair, right? But that’s the thing about ‘zero’. And it’s also why sometimes you see companies doing ‘zero’ raising arbitrarily wild amount of investments.
I achieved many of my goals by the time I turned 24, and most by the time I turned 28. Of course, my goals weren’t as big as many others have. They were rather small.
I tried to find happiness in things outside of work accomplishments and financial success and also tried to live a modest lifestyle. I also slowed down at 28 because I felt burnt out by working really hard in the past 10+ years. I felt that I don’t have the same kind of energy anymore that I used to have before, and I turned lazy.
I understand this could be a controversial opinion, and others may disagree. But I think laziness isn’t as bad as it sounds. In fact it can be good. Initially I didn’t like the fact that I’ve turned lazy. Even now, sometimes, I don’t like it especially when I FOMO about interesting opportunities. But I’m in a transition to becoming what I call the lazy entrepreneur. I haven’t achieved the status properly, but I wish to.
The lazy entrepreneurs don’t like working actively. They are tired of working. So they find lazy solutions to the problems that need to be solved. They like investing in things to create passive income. Lazy entrepreneurs also build lazy stock portfolios. But my favorite kind of lazy entrepreneurs invest in and empower active entrepreneurs.
Lazy entrepreneurs wish to move from being CEO of 1 company to having CEOs for multiple companies. Unfortunately, I have already achieved being lazy but haven’t yet mastered the art of being a lazy entrepreneur. Although, it’s a journey I’m excited about.
Yesterday, I wrote a bit about importance of investing. I showed the returns of S&P 500 Index for 10 years from Jan 2009, to Jan 2019. I mentioned that your returns would be over 200% in 10 years in USD. I further mentioned, that if you re-invest your dividends, you would have a return of 270% in the same period. See the additional 70%? This is where all the magic happens.
Let me explain this with an example. Suppose you receive a sum of Rs 100,000 at your graduation at the age of 22. You invest this money at an average rate of return of 10% per year and you keep this money invested for 40 years until your retirement at 62. During this investment, you have two options; you can either withdraw your returns every year at Rs 10,000 per year or you could re-invest your profit. Let’s discuss in detail what happens in both cases.
If you withdraw profits every year, after 40 years you would have Rs 400,000 (40 x 10,000) profit and Rs 100,000 principal. Giving you a total of Rs 500,000 after 40 years. Not so interesting, is it?
But if you re-invested Rs 10,000 profit every year, you would have Rs 4,525,925 after 40 years. A bit more interesting, isn’t it?
You invested the same amount of money, your rate of return was identical, and with the first option your capital stood at 5X while with the second option it stands at a whooping 45X. Here’s a compounding calculator for you to test all sorts of cases.