I'm constantly surprised at how my seminars on Asset Protection seem to draw more people than my seminars on making money. It would seem that there should be a lot more people trying to accumulate money than there would be people trying to protect it; but that hasn't been my experience. I've also noticed that many people use credit cards to pre-pay their tuition into the Asset Protection seminars, then request that we hold off processing these cards until they can pay down their credit balances. Upon reflection, I've come to the conclusion that there's a direct connection between these two anomalies. They're both based upon fear.
A long time ago, I created the metaphor of the 'capital mountain' that everyone must climb in order to become rich. Picture a mountain range atop, which sits an ancient temple filled with the riches of the world. Anyone who reaches the top can have their fondest dreams fulfilled. Everyone starts the climb up capital mountain, rushing up the gentle slopes together, but then the going becomes harder. The steepening slope becomes dotted with boulders. The temperature drops as evening gloom replaces the dappled sunlight. The trees and foot hills swiftly change to stark vertical walls of slippery stone. The increasing difficulty of the ascent is matched by decreasing numbers of climbers. Where once there was a torrent of people attempting the climb, now there's only a trickle. Most have been driven away by the seeming hopelessness and sharply increasing difficulty of the quest for wealth. Added to this is the growing perception of increasing risk. The combination of these factors keeps 99% of climbers from reaching the top.
Sooner or later, those who press onward and upward are confronted by an obstacle that few are able to overcome: Fear! In my metaphor, suppose you were half way up capital mountain, resting comfortably on a wide, sheltered ledge. Below you is the panorama of verdant fields and forests. You feel a real sense of achievement, even though you haven't reached the summit which can still be seen dimly above the daunting outcroppings and ledges above you. Then fear hits you. Suddenly you realize that with each upward step you take off of your safe ledge, you risk falling all the way back down to the bottom, perhaps never to climb again.
Most people make the decision to stay on that safe ledge. Only a few of those enjoying a comfortable career position are willing, able or ready to overcome their fear and risk climbing further as entrepreneurs. That's why the middle class is so broad and the wealthy class so narrow; and why younger people, without a real sense of the hazards of investing, seem to do much better than older people who begin to comprehend how much they could lose. Fear is what holds more people down than any other thing. Those who, having arrived at a comfortable station in life, want to conserve and protect it. Oddly enough, many people with no accumulated assets to lose are still fearful of taking even the first upward step Those without assets seem as apprehensive as those who could lose millions.
Fear is something fundamental that resides in all of us. It is based as much upon what is known as what is unknown. The fear that keeps our intrepid climber clinging to his safe ledge half way up capital mountain is akin to the fear a child feels when contemplating the dark at the top of a long stairway. The fact that we can't identify a specific threat doesn't mean that we don't feel it just as much as if it were confronting us. Our imagination is the culprit. Being able to project unfavorable consequences of an action leads to inaction. That applies to climbing mountains, climbing dark stairways, or investing in the future. And it holds us all back just at the point when we should continue our climb.
'KNOW-HOW' REDUCES RISK – AND FEAR . . .
Napoleon once described courage not as the lack of apprehension, but as that special ability that some people have to overcome and to go on to gain their objectives. In many instances, the special ability Napoleon described boils down to skill, ability and 'know-how'. There seems to be ample evidence of a direct link between knowledge and courage. Here's why: With knowledge comes the ability to separate real from imagined risks. Once real risks are accurately assessed, they can be eliminated, or dealt with rationally. In the process, the fear that creates indecision and inaction is dispelled. In short, the more you know about what you're doing, the less fear you'll feel, and the more likely your enterprise will succeed.
Nothing is risk-free. The only way to avoid loss is to do nothing; and in the long run, that creates more failure than anything else. Knowledge turns 'risk' into 'calculated risk'. Winning automobile racers know that being able to tolerate a calculated risk is what gets them to the finish line ahead of those who play it too safe. The early bird gets the worm. When energy is focused on what a venture might lose instead of how it can be made successful, just a tiny bit of hesitation allows the other fellow to seize opportunities that could have been yours People who win repeatedly get a head start on the opposition by moving quickly without knowing everything they need to know. Conversely, many people have been wiped out doing the same thing. The trick is to find a half-way point between perfection and failure with which you're comfortable, then to be decisive.
Nothing is risk-free. There are inherent risks in any venture. First, there's 'market' risk. The possibility that you might buy at the 'top' and be forced to sell at the 'bottom' because of random swings in market demand and prices. 'Financing' risk is always a factor in leveraged investments. On any particular day you might sign a Note with terms that could have been better had you waited a little longer or tried to negotiate a little harder. Or, you might personally guarantee a mortgage note only to see the sale and rental markets collapse, bringing you down along with them. Of course, from time to time institutional credit can disappear completely from the market, taking with it the financial liquidity upon which sellers and buyers depend to transact business. Government creates risks too.
Recently, the San Diego Housing Commission demanded repayment of 1994-1997 'Section 8' rents; maintaining that they exceeded market rents for that period; despite the fact that government had set the rents. This hurt landlords who rented to 'Section 8' tenants. Tax, rent control, EPA, and pro-tenant legislation is often passed without regard to the effect it might have on investors. It is almost always politically motivated, but often cloaked in the guise of social or economic need. The uncertainty of the political environment can create additional risk.
A long time ago, an Italian named Pareto came up with the Pareto Principle. This simply states that, in any endeavor, the first 80% of the objective can be attained with 20% of the total effort expended. To achieve the final 20% requires 80% of the total effort. Often, settling for a quick 80% of the potential profit and moving on to the next opportunity makes more sense than wringing the last penny out of a deal. Here are some ways this principle can be applied:
By specializing in an 'easy' market segment, a little knowledge goes a long way.
By learning how to leverage investments prudently, while avoiding ruinous debt loads, even beginners can realize extraordinary profits with minimal risk.
By selecting investment vehicles that you already know something about, there's less to learn; and fewer unknowns to fear.
By avoiding low-income political 'targets', and government subsidy programs, you're subjected to less political interference in your markets.
By focusing on investments for which market demand is inherently more stable, volatile price swings that produce panic responses can be avoided.
