Rich people employ their capital to work as hard as possible for them. They take the time to look at all of the investment opportunities and make sure that they choose the right strategy.
Note I said strategy, not investment.
With all investing it is the strategy you choose which will determine the outcome.
Most people spend way too much time focused on the investment its return and how it has performed against other investments. They spend far too little time focused on their wealth creation strategy; in fact most people put more time in deciding on how they are going to spend their money than they do in how they are going to make it. The strategy is all-important and need to be the main focus.
All wealth is created from the transfer of money from one individual to another. There are many strategies of how to transfer this wealth, some people look to buy something cheap and sell it at a higher price. This is called trading. You can trade everything from shares, property, gold and collectibles. This has a high level of risk and loss. Arbitrage is another strategy, this involves looking for miss prices items, buy them in one market and sell straight away in another to make a profit. As technologies improve arbitrage becomes harder.
Building sustainable wealth in my view is the best strategy. It may sound simple, but in reality is hard for most to stay focused.
To build sustainable wealth you need to be able to take a long-term view and focus on the income the investment generates and not it value. This is where it becomes hard; as the value of an investment fluctuates most investors start to compare the result with other investments and then look to switch strategies.
This game of catch up never works and in most cases merely compounds the loss.
Income is the key to buying a long-term sustainable business along with the return on the assets employed by the business. A business needs to make real cash returns and dividends paid from cash are the best sort of returns. A business with a sound business model and product, continues to pay dividends through the good and bad times. Over time the price will increase.
The second variable is the return on assets; you need to invest in a business, which can make a better return on your assets, than you can. Do not confuse return on assets with dividends.
Return on assets is the amount of money the business makes as profit; the dividend is the amount of profits that the business pays out to the shareholders. They are usually not the same; the dividend is the surplus cash the company has which it cannot re-invest.
When looking at the return on assets think of it this way, if you have $1,000 you could invest in a term deposit and make 6% or $60. If a business has a return on assets of 10%, then by leaving this money in the business you will make $100.
Our strategy is to invest in such businesses.
For more information please call me on (07) 4771 4577.