First, a disclaimer: I am neither a financial advisor nor an attorney. My posts are merely reflections of the experiences I have gained as an investor since the year 2000. Before you take any investment actions based on information contained within this and/or any future posts, please consult with a Certified Public Accountant; a fee-only, fiduciary-bound Certified Financial Advisor; and/or an attorney who is an expert on the specific investment instrument that you decide to pursue. You are responsible for your own financial destiny.
As you may have noticed, I changed the title of this post slightly from what I had in mind originally. As I began writing, the new title fit much closer to what I was really thinking.
For those of us who decided to pull our investment funds out of Wall Street, it was a matter of trust. How do you trust those faceless people who decimated the value of your retirement funds because of the decisions they made using your money? In contrast, I have known myself all of my life except, of course, when I was a baby. I know I can trust myself with my own money. I know how to budget. I know how to keep the spending level within what I can afford. I know how to distinguish the difference between what I want versus what I need. Along the way, I have made plenty of tough choices in order to stay within the budget – as I still do today.
When it came to the question of to whom I should entrust my investment funds – i.e., my retirement nest eggs – it had to be either the faceless people on Wall Street or myself. The choice was obvious. In retrospect, however, deciding to pull funds out of Wall Street was the easiest part. Trying to decide where to place them was much harder. I could place them in multiple bank accounts but their rate of return hardly keeps up with inflation. I needed to be able to secure for myself a rate of return that was much higher than the bank rate. That’s when the harsh reality hit me. I realized how ignorant I was about making money through investing.
Oddly, being an MBA with corporate experience – which meant that I understood business fundamentals both in theory and in practice – did not prepare me as an investor. Among those who choose to become MBAs, I think there is a big difference between those whose goal is to inherit and run a family business vs. those whose goal is to become marketable in the job market. At the time when I was going for my MBA degree, I fit the latter category. So when I realized in 2000 that there was something terribly wrong with my 401(k) and its performance, I did not have a clue what to do about it. I only knew that I needed to secure my financial future by being able to make investment decisions myself. This situation, by the way, is analogous to when I decided that I needed to come to America. I didn’t even know English back them. I just knew that I had to be here. In any event, insufficient knowledge about investing became the next big hurdle to overcome. I needed to learn how to invest. I decided to learn how to invest in real estate. After all, we owned our own home. So I thought it couldn’t be that difficult.
What had happened on Wall Street in 2000 and 2008 – when millions of Americans’ retirement savings either were decimated or disappeared into thin air – created opportunities for enterprising individuals to sell training programs to do-it-yourself investors.
Have you ever wondered what a “guru” means? The original Hindu definition of a guru is an intellectual or spiritual guide or leader. It is very much like a mentor. True gurus are those who deserve our unconditional respect and gratitude. And they have no need to claim to be gurus themselves because others know who and what they are.
For the sake of marketing their product, many people and companies use words creatively. There is nothing wrong with marketing your product creatively so long as you are telling the truth. For instance, it is certainly much more appetizing to call raw fish that is ready to be served as “fresh fish” rather than “dead fish” – although they both describe the same piece of fish. I entitled this blog post, “Be forewarned about the so-called ‘gurus.’” The key, here, is “so-called.” When those who are selling teaching materials, claiming themselves to be “experts,” “gurus,” or any other similar nouns, that raises a red flag – at least in my mind. In the beginning, I believed their claims – because I was naïve and wanted to believe them and learn whatever I could from them.
Here is a list of key points that we have learned over the years about many of these do-it-yourself programs:
- Be forewarned: Many of those who teach these programs earn more money from selling training programs than from actually doing investments. Some of them teach materials even when they are outdated and useless under certain economic conditions. And often times they have learned from another “guru” and done a few deals to see how the system works; then developed their own system so they could start selling programs to students.
- Here is one technique we learned along the way to help sort the real gurus from the pretenders. If you are interested in their programs but wonder if they are making their money primarily from doing or from teaching, ask to see their business-tax returns for the last two years. Then if you are satisfied that they are actively doing what they are teaching (selling), you would feel better about buying their program. We did this once when we were being given a hard sell. The “guru” backed off and moved on to others. We likely saved ourselves a lot of money on that one.
- Be forewarned: Many of the so-called experts/gurus have learned the latest investment techniques just a step ahead of their students, putting at risk the students’ money. In other words, they are selling investment-training programs with little or no proof of concept – while securing their own income from commissions and/or service fees levied on the students. It may or may not be their intent to deceive or, worse yet, defraud students. The end result is the same nonetheless: negative return on investment.
- Be forewarned: Many of those who sell you their training programs are expert sales people. They make it sound so easy to learn and implement their programs. Remember, their objective is to connect with their audience on an emotional level and sell their training courses to as many people as possible. Contrary to what they say, their primary objective may not be to help you become financially independent.
- The trick is for you to be able to see behind the impressive sales pitches and beyond the endless examples of success stories, testimonials, and samples of large checks that are displayed. Look for the dates on the checks to see if they are recent or older. That may indicate whether the techniques they are teaching still work in today’s economic conditions.
- Be forewarned: Of those who sign up to these training programs, the percentage of students who actually implement the investment techniques and become successful is very small.
- Be forewarned: Most training programs have up-sells. This means, in the beginning, they get you interested in their program for a nominal fee or free. Then they sell you the next level of program for $1,000 to $3,000. From there, it costs you extra to learn more. Most of them, however, do not teach you enough to the point where you can go out and implement on your own what you have learned. For most of us who were new to various investment concepts, thereby needing to learn more to feel confident enough to implement them, they sell advanced “workshops” or “boot camps” for several thousand dollars. From there, if you really want to implement what you are learning, then you are expected to pay much more for one-on-one coaching program. The minimum price tag for coaching program is usually $10,000 and up. When I was starting out, I did not know about these up-sells. So when it happened, these increasing price tags were quite upsetting to me because that’s when I learned that what I had just learned was not enough to go out and invest confidently on my own.
Now that I gave you plenty of forewarnings, I want to emphasize that there are some real gurus out there who are actively doing what they are preaching. Many of them are sincere when they say they want to help others.
Over the years, my husband and I spent plenty of money on investment-training programs; an equivalent of putting at least one, if not both, of us through an Ivy League MBA program. This leads us to the question of “If we could do it over again, what would we do differently?” Good question. My answer to this question, of course, is very specific to my situation. So I urge you to take my answers with a grain of salt. I was determined to learn whatever it took to become an investor, enabling me to remain financially independent for the rest of my life. With that premise, here is a list of what I would do differently:
- It helps to have a general understanding about various methods of real-estate investing, such as buying foreclosured properties, doing short sales, wholesaling, fixing and flipping, etc., etc. That being said, avoid being distracted by these multiple investment methods.
- Pick just one very basic investment method first and become an expert at it. For example, buy and hold one income-producing single-family property at a time, securing a positive rate of return for each from day one of investment.
- Start out with a very small investment. Making mistakes with a small-scale deal is much less painful than with a big one.
- Not bother to learn investment techniques from so-called experts who do not offer one-on-one coaching.
- Shop and compare real-estate training companies that offer comprehensive programs and find out how much they charge for basic training programs, boot camps, and one-on-one coaching programs. My objective would be to get to the point of making one investment within six months with the help of a coach.
- Be willing to pay for a coaching program from a reputable training company. Trust me, learning it the right way from a knowledgeable coach saves you a ton of money over time. In fact, much of the time and money we had spent on various training programs could have been put toward a good coach who could have helped us with basic, profitable investments.
- When consistently profitable with the first set of investments for at least 24 consecutive months, investigate another investment avenue for the sake of diversification.
Hind sight is 20/20. I wish I knew these points when I was starting out but better late than never. Hopefully, you can benefit from my observations of the so-called “gurus.” Investing on Main Street is much more labor intensive than delegating the task to someone else on Wall Street. I would not, however, trade the sense of satisfaction that comes with knowing how I am making my own investment decisions on Main Street. I’ve come a long way since the market crash of 2000 when I was shaken to the core about my financial future.
What investment topics would you like me to cover in my future posts? I would welcome your suggestions, comments, and questions!
Coming up next month: Due diligence.
