Rule #1 is definitely unique! – MT Ed. 

I managed to totally screw things up for myself at the ages of 20, 22, 24, 29, 33, 37, and 40, so I decided to write everything I know about so-called personal finance. The words personal finance are a total scam, but I’ll save that for another time. Let’s just say, this is about how to build wealth and preserve your wealth. 

The things you need to know. 

The first answer is: nothing. You need to know absolutely nothing about personal finance. Buying a cheap beer versus buying an expensive beer will not help you get rich. 

But that seems cynical. So let me say congratulations first. You’re 20 years old! Yay! 

I can’t even really remember being 20 years old. I started my first business then. And failed at it. But that’s another story. 

When I was 22 I was thrown out of graduate school and then fired from three jobs in a row at higher and higher salaries from which I saved nothing. 

When I was 24 I moved to New York City and began the first of about 10 career changes. The first rule of personal finance is that it’s not personal and it’s not financial. It’s about your ability to make 10 changes and not get too depressed over it. 

During those career changes I made a lot of money. Then lost a lot. Then made a lot. Then lost a lot. Then made a lot more. 

I did this so many times I made a study of what was working for me on the way up. And what wasn’t working on the way down. 

So I’m not an expert on anything. I just know WHAT HAS WORKED FOR ME to create massive success. I’m admitting it right now. I’m not just a failure. 

First off, don’t bother saving money. You get more money in the bank by making more money. That’s rule No. 1. 

(Should you put your money in stocks?… Are we in a bubble?… How about mutual funds?… I answer all of these questions and more in my Ultimate Cheat Sheet for Investing.) 

People might think this is flippant. What if they can’t make more money? Well, then, you’re going to run out of money. No personal finance rule will help. 

Buying coffee on the street instead of in a Starbucks is the poor man’s way to get rich. In other words, you will never get rich by scratching out 10 cents from your dollar. 

People save 10 cents on a coffee and then… overpay $100,000 for a house and then do reconstruction on it. 

Or they save 10 cents on a book and then… buy a college degree for $200,000 that they never use. 

Now your real education can begin: 

A) Don’t save money. Make more. If you think this is not so easy then remember: Whatever direction you are walking in, eventually you get there. 

B) That said, don’t spend money on the BIGGEST expenses in life. House and college (and kids and marriage, but, of course, there are exceptions there). Just saving on these two things alone is worth more than a million dollars in your bank account. 

C) But doesn’t renting flush money down the toilet? No, it doesn’t. Do the math. You can argue all you want, but the math is very clear as long as you are not lying to yourself. 

D) Haven’t studies shown that college graduates make more money 20 years later? 

No, studies have not shown that. They show correlation but not causation, and they don’t take into account multi-collinearity (it could be that the children of middle-class families have higher paying jobs later and, oh by the way, these children also go to college). 

E) Don’t invest in anything that you can’t directly control every aspect of. In other words… yourself. 

In other words:

1. You can’t make or save money from a salary. And salaries have been going down versus inflation for 40 years. So don’t count on a salary. You’re 20; please take this advice alone if you take any advice at all.

2. Investing is a tax on the middle class. There are at least five levels of fees stripped out of your hard-earned cash before your money touches an investment.

F) If you want to make money, you have to learn the following skills. None of these skills are taught in college. 

I’m not saying college is awful or about money, etc. I’m just saying that the only skills needed to make money will never be learned in college: 

•  how to sell (both in a presentation and via copywriting)

•  how to negotiate (which means win-win, not war)

•  creativity (take out a pad, write down a list of ideas, every day)

•  leadership (give more to others than you expect back for yourself)

•  networking (a corollary of leadership)

•  how to live by themes instead of goals (goals will break your heart)

•  reinvention (which will happen repeatedly throughout a life)

•  idea sex (get good at coming up with ideas. Then combine them. Master the intersection.)

•  the 1% rule (every week try to get better 1% physically, emotionally, mentally)

•  “the Google rule” – always send people to the best resource, even if it’s a competitor. The benefit to you comes back tenfold.

•  give constantly to the people in your network. The value of your network increases linearly if you get to know more people but EXPONENTIALLY if the people you know get to know and help each other.

•  how to fail so that a failure turns into a beginning

•  simple tools to increase productivity

•  how to master a field. You can’t learn this in school with each “field” being regimented into equal 50-minute periods. Mastery begins when formal education ends. Find the topic that sets your heart on fire. Then combust.

•  stopping the noise: news, advice books, fees upon fees in almost every area of life. Create your own noise instead of falling in love with the others.

If you do all this you will gradually make more and more money and help more and more people. At least, I’ve seen it happen for me and for others. 

I hope this doesn’t sound arrogant. I’ve messed up too much by not following the above advice. 

Don’t plagiarize the lives of your parents, your peers, your teachers, your colleagues, your bosses. 

Create your own life. 

Be the criminal of their rules. 

I wish I were you because if you follow the above, then you will most likely end up doing what you love and getting massively rich and helping many others. 

I didn’t do that when I was 20. But now, at 46, I’m really grateful I have the chance every day to wake up and improve 1%. 

P.S. James Altucher has been a hedge fund manager, angel investor and trader. He has sold two companies for $10 million each and is on the boards of several large companies. He also hosts one of the highest ranked business podcasts in the world and has been a Wall Street Journal bestselling author twice.

“If this were a marriage, the lawyers would be circling.”

The Economist, My Big Fat Greek Divorce, 6/20/2015

If you’re like me, you are suffering terminal Greece fatigue. You just want Greece and its creditors to “do something already” rather than continually coming to the end of every week with no resolution, amid finger-pointing and dire warnings from all sides about the End of All Things Europe – maybe even the world.

That frustration is a common human emotion. Perhaps the best and funniest illustration (trust me, it is worth a few minutes’ digression) is the story about one of my first investment mentors, Gary North, who was working in his early days for Howard Ruff in Howard’s phone call center before Gary began writing his newsletters and books. (Yes, I know I am dating myself, as this was the late ’70s and early ’80s, just as I was getting introduced to the investment publishing business. And for the record, I knew almost everyone in the publishing business in the ’80s. It was a very small group, and we got together regularly.)

Howard set up a phone bank where his subscribers could call in and ask questions about their investments and personal lives. One little lady had the misfortune to get Dr. Gary North on the line. (Gary was the economist for Congressman Ron Paul and went on to write it some 61-odd books, 13,000 articles, and more – all typed with one finger. He is a human word-processing machine.)

This sweet lady lived way out in the country and was getting older. She asked Gary if he thought it would be a wise idea for her to move into the city (I believe it was San Francisco) to live with her daughter. Not knowing the answer, Gary helped her work out the pros and cons over the phone, and she decided to move. A few days later she called back and said that she couldn’t bring her dog with her because of the rules at her daughter’s apartment. It turns out she couldn’t live without her dog, so Gary helped her come to the conclusion that she could stay in the country.

A few days later she called him back asking whether she should change her mind, and Gary once again help her to come to a conclusion. This went on for several weeks, back and forth, move or not move, dog or no dog. Finally she called one last time. Gary, in utter exasperation and not being infinitely tolerant of indecisive people, said, “Look lady, just shoot the dog and sell the farm.” (For the record, I hope she didn’t really shoot the dog. I like dogs.)

That is where most of us are with the Europeans and Greeks. I have devoted a great deal of space in this letter to Greece over the past five years and have visited the country and corresponded with many analysts and citizens about the situation. And while I want to briefly outline the Greek situation again today, as there are some subtle nuances to consider, I think this juncture is a teaching moment about the larger picture in Europe. In fact, watching this process, I have come to change my mind about the timing of what I see is the endgame for Europe and European sovereign debt. I think exploring that issue will make for an interesting letter.

Economic crises go through cycles. Here’s a chart from the clever folks at Valuewalk.com (via my friend Jonathan Tepper on Twitter).

https://twitter.com/valuewalk/status/612948290267688960

The Greek situation is presently caught in those two bubbles on the bottom. European leaders held summit meetings this week to consider new breakthrough concessions offered by Greek Prime Minister Alexis Tsipras. Let the champagne flow. Except those concessions were rejected, and the Greeks rejected the counteroffer as of this afternoon. But it’s not quite midnight yet.

Unfortunately, the wheel of debt never stops turning. If this solution is like countless others floated in the last five years, we will soon learn that it has no substance or simply won’t work. We will then reenter the crisis phase.

Every cycle breaks eventually. If you forget everything that’s happened to this point and re-imagine the crisis as an economic standoff between Greece and Germany, you have to say Germany will win. It outweighs tiny Greece in every possible category. The real question is why Germany let the fight go on this long. We will deal with that in a minute.

Note that this observation isn’t about which country should win; it is about who will win. Greece has some legitimate grievances. Unfortunately, these grievances aren’t going to matter in the end.

Poster Children for European Profligacy

My friend David Zervos of Jefferies & Co. has no doubt who will win. He sent me this note on June 17.

The bell is tolling for Alexis [Tsipras]. European leaders from all sides have abandoned him as he burns through every last bridge that was once in place. His only meeting of importance during this crucial week of negotiation is with Putin – which clearly does not inspire any confidence for a near-term resolution. 

It is actually amazing that we have not seen any of the left-leaning party leaders from the rest of Europe running to Tsipras’ side as he truculently engages his paymasters. Where are all these European anti-austarians? Of course they are hiding from the Germans, hoping not to receive the same fate as Alexis. So there he sits, alone and under his last Soviet-held bridge, just like Hemingway’s Robert Jordan. He is waiting to cause just a little more damage before his time is up. 

In the end, there is no question that the Germans have executed a near flawless plan to humiliate and vilify Greece. The Greeks now stand as poster children for European profligacy. And they are being paraded through every town square in the EU, in shackles, as the bell tolls near the gallows for their leader. And to be sure, making an example of Greece is a probably the greatest achievement for the fiscal disciplinarians of Europe. Maastricht never had any teeth. But this exercise is impressive. It shows that fiscal excess will be squashed in Europe. The Portuguese, Spanish, and Italians are surely taking notice. And in the days that lead up to a Greek default on 30 June, and then more importantly on 20 July, these disciplinarians will surely display their power for all to see.

Oddly enough, I actually think this has been the German plan all along. With no real way to ensure fiscal discipline through the treaty, they resorted to killing one of their own in order to keep the masses in line. It explains why Merkel took out Samaras when she knew a more hostile government would surely emerge in Greece. This was masterful political manipulation.

The 1992 Maastrict Treaty created the European Union and led a few years later to the euro currency. Which I said at the time would be a disaster. And it has been. Leaders have been wrestling with its fundamental flaw almost from the beginning. The EU has no way to enforce fiscal standards on its member nations. The member nations likewise have no way to devalue the currency in their own favor. This can’t go on forever – and it won’t.

Germany, by virtue of its sheer size and its favored position in the bureaucratic scheme of things, grew wealthy partly by exporting to the European periphery: Greece, Italy, Spain, Portugal, and Ireland. (The rest of their 40–50% of exports of GDP come from exporting to the rest of Europe and the world. They have benefited massively from a currency that has been and continues to be weaker than it would be if it were just a German currency.)

The peripheral countries essentially exported all their cash to Germany (and to some extent northern Europe) in exchange for German goods. When they ran out of cash, not just because of their purchase of export goods but because of the uncompetitive nature of their bureaucratic and labor systems and the rather large unfunded government expenditures, they wanted yet more cash to continue to spend on government services. Germany and the rest of Europe offered vendor financing. German and the rest of European banks loaned money to Greeks so the Greeks could buy German goods and perpetuate their government spending habits. In the early part of the last decade, tt was a deal that was seemingly made in heaven as Greece got to borrow money at German rates and Germany got to sell products in a currency driven by the valuation of the peripheral countries.

This arrangement left Greece and the other PIIGS deep in debt. Much like the American homeowners who lived beyond their means, Greece found itself overleveraged and undercapitalized. And here we are.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

The Dow is back under 18,000 points after yesterday’s 178-point – or 1% – drop.

Gold continues to wander around, apparently lost. More on that below…

Our long-term stock market indicator, developed for us by our chief researcher and former ValueLine stock market analyst Stephen Jones, is flashing a warning.

As we explained in the May 7 issue of Diary, it looks at the price of stocks relative to the economy that supports them.

And right now, it tells us to expect an average annual loss of 9.6%, after you account for inflation, over the next 10 years.

Don’t Count on Your ATM Cards

Will this indicator be proven correct?

We will wait to find out…

Yesterday, came a report that the prime minister of Poland, Ewa Kopacz, has urged Poles traveling to Greece to take “a larger amount of cash” with them.

Why?

Because the situation could be “very dynamic,” she says.

“Please do not count only on your ATM cards and on ATMs, but take a larger amount of cash with you.”

It’s not the dynamic situation that would worry us. It’s the dynamite that lies beneath the whole world’s money system.

It is a system that is fundamentally flawed. It depends on the intelligence and integrity of its custodians. Not that we think Madame Yellen is dumb. Nor do we doubt her honesty.

But she is, after all, only human.

And centrally planning an $18 trillion economy – by manipulating asset prices and interest rates – is a super-human undertaking.

The odds that something will go wrong?

100%…

Controls on Cash

A reader asks a good question:

I have a question about the recommendation to hold cash. 

If countries are putting controls on real cash and banking, in what form should a person hold cash? U.S. dollars or some other currency. If we truly go to a “cashless society” what good would having a hoard of cash do?

We would like to have a better answer, but we only have the one we have.

Money is always a convention. It is an understanding. People recognize money as a stand-in for wealth.

Since the beginning of civilization, people have experimented with different kinds of money. They ended up – almost always and almost everywhere – with gold and silver.

Why?

Because they were handy. And because they were hard to produce. They were cash that governments could not easily control. No super-humans were needed to manage them.

Governments – the people who are able to boss other people around – always want to control money. They put their faces on it. They mint it. They clip coins. And they print pieces of paper and call it money.

But they could never completely control cash. People hoarded gold. They hid it. They ran away with it. They used it to make trades between themselves… regardless of what the feds said. And when the feds’ money went kaput – which it always did – they turned back to gold, because they knew they could trust it.

And now, the feds are making a new attempt to bring money totally under their control.

For example, under the pretext of cutting funding for terrorists, the French government already has a law in the pipeline banning cash transactions of over €1,000 ($1,120).

There’s nothing stopping governments from banning cash transactions altogether… and ending the usage of paper money.

Economists pretend it is a matter of convenience to the consumer (no more waiting for the clerk to make change for the fellow in front of you).

…or they try to sell it as a useful macro tool for central planners (they will be able to stimulate demand by imposing negative interest rates)…

…or they say a cashless world will be safer – you won’t be held up at gunpoint, and terrorists will find it harder to get financing.

But the real reason is control. If governments can eliminate cash, they can easily track, tax, and confiscate your money.

When You Need a Stash of Cash

And if the feds can control your money, they will be able to control you.

Do you voice an opinion they don’t want to hear? Do you belong to a group they want to get rid of? Do you want to know what happened to your tax money?

Watch out… With a keystroke, you could be “disappeared.”

“Sometimes, when the government tells you to do something, it’s best to do the opposite,” says a French neighbor.

In 1944, her father was the adjutant mayor of a small town in southwestern France. The Allies had landed in Normandy and the Germans were pulling their forces back to the Rhine.

Our friend tells the story:

Someone had blown up a German truck as it went through town. People were doing that. Taking pot shots at the Germans. The SS didn’t like it. They would gather up the mayor and a few other people. If they didn’t turn over the guilty person, they would kill the mayor. Or sometimes the whole town.

My father got a message that told him he was supposed to go to the town square. Instead, he went into the woods. It’s a good thing he did. Otherwise, I wouldn’t be here.

When do you need a stash of cash? When the feds try to outlaw it.

Hold some dollars. And some gold.

We realize that our answer to the reader’s question is insufficient. After all, what good will cash be after it is declared illegal?

We’re not sure. Maybe we’ve spent too much time in Argentina, where people have more supple and more subtle attitudes to monetary regulations.

Trading pesos for dollars, on the black market, is illegal. Do it and they take you for a scofflaw. Don’t do it and they take you for a fool.

More to come on this in future updates. Stay tuned…

Regards,

Bill
Paris, France

Habit #1 – Know Your Numbers

“But in my opinion, all things in nature occur mathematically.” 
― René Descartes

• Revenue (most recent period and change from previous period)
• CAGR (Compound Annual Growth Rate) for a key metric
• Gross Margin % (Revenue – COGS / Revenue)
• Acid Test Ratio (Cash+A/R+S/T Investments / Current Liabilities)
• Current Ratio (Current Assets / Current Liabilities)
• Net Profit Margin (% of Revenues remaining after operating expenses, interest and taxes)
• Cash and Working Capital Measures (i.e. A/R, A/P and Operating Cash Flow Ratio)