When I was younger, I used to be an addict.
I wasn’t an alcoholic. Not a porn addict. I smoked pot a couple times after football practice in high school, but no drugs since. I have been to Monte Carlo without the urge to lay one franc on the roulette table. I was a special kind of addict. I was a “DEAL” addict.
The world needs Deal Makers. My guess is less than 1% of the public is or even has the tools to be a Deal Maker. I loved the hunt. Like a bird dog working a hedgerow, sniffing out deals takes energy. The joy is finding something no one else has found. Sometimes the deal is sitting in plain sight of the world, but you envision something that no one else has contemplated. The power of your creativity and foresight creates value out of thin air. The satisfaction of negotiating the purchase and arranging the financing is likely the same sort of fulfillment that a Rembrandt or a Van Eyck felt when applying their last brush stroke. Once you close the deal, you can sit back and savor your accomplishments. Pulling a rabbit out of a hat and creating hundreds of thousands or even a few million dollars of value out of thin air is a great feeling. Ahh, I loved it, and I was good at it.
My problem was I sucked at being a manager. I didn’t have the patience. I was young and hard headed. I was chasing the euphoria of the deal. I had to have another “hit.” I was an addict. As soon as I closed one deal, I would chase after a new deal. I once bought cash out of the bankruptcy court for 60 cents on the dollar. At 29, I once made over $1 million in one day. I once bought a 15,000 square foot office building for $60,000. I have lots of stories like this. The flip side of all these good stories are a bunch of “bad” stories where I was a total bonehead. What good is making $1 million when you turn around and lose it due to your bad habits? I was addicted to the deal and did not have the patience or the maturity to slow down and be a good steward of my assets. I put hard contracts on real estate and businesses with no idea how I would come up with the money. I would take enormous risks. I was bullet proof. I didn’t care about going broke and losing everything because I figured I could make it all back. And then there’s the ego! At 30, I once was offered $1 million to assign a contract to purchase property that was only two hours old. I turned the guy down. My ego wanted to develop the property, and I wanted to be the big stud behind the project. It was beyond stupid not to take the money as I had only spent 4 hours of my time procuring the contract.
Over time, I kicked my Deal Addiction and began to be a much better manager of my assets. A cocky young man soon finds that he is not bullet proof. Just like Sherman McCoy in Bonfires of the Vanities, we learn that we are not Masters of the Universe, but subject to all the forces of nature and whims and foibles of the universe’s prickly personality. We all get smacked in the mouth at some point.
Confucius, Socrates and Gamaliel were all renown teachers, but the greatest teacher of all time is Experience. In my previous life I felt untouchable. Over the years, Mr. Experience taught me that bad things are unavoidable and often out of one’s control. It is best to be prepared for such events. I have had every business experience imaginable. The experiences I value the most are not the home runs, but the plentiful mistakes. A few years back, my son, fresh out of college was tending bar. A patron gave him a penny stock tip. He asked me should he buy? I told him he would likely lose all his money, but if he felt strongly, buy. Subconsciously, I wanted him to lose his money, as I wanted him to have a memorable mistake under his belt. A simple $650 mistake is often worth more than $50,000 of “business courses” in college.
I am not sure which me I like the best. I identify with the “bad boy” cowboy deal addict. I like that guy, but I am not that guy anymore. Thanks to Mr. E. and all that he has taught me, sadly I have morphed into the terribly un-sexy “wise counselor.” Ostensibly, people come to me for legal and investment advice, but none of this advice is with any merit without factoring in the lifetime lessons learned from Mr. E.
With this introduction, I thought as 2021 winds into 2022, I would share a few things that Mr. E has taught me over the years:
1. Know who you are. My firm can give you outstanding legal and investment advice, but none of that matters if you don’t know your strengths and weaknesses. In all things, being disciplined is the key to wealth creation, security and the fulfillment of goals. Bad habits get in the way. My bad habit was the ego and pride associated with being a deal junkie. We all have bad habits that get in the way of success. Recognizing what they are is the first step to financial security.
2. Keep good numbers. Oh, how I love a general ledger! A timely P&L fills me with happiness. You can’t be a good steward of your financial life without knowing how and where you spend your money.
3. Fix the leaks. Eliminate waste. This is a perfect time of the year to analyze personal and business expenses and find ways to cut fat. Leaks slow down the ship and sometimes sink it. When your emotions make it hard to cut, ask yourself how you might feel after you saved all that money. I saved $2k by cutting the cord and streaming all my sports shows. A year later, I have an extra $2k, and I don’t remember what the hell I used to watch when I had cable.
4. The 8th wonder of the world is compound interest. Understanding the principles of finance and letting this knowledge guide your investment decisions will pay incredible rewards. Don’t be swayed by the sizzle, always look at the numbers, they are your honest foot soldiers.
5. Live within your means. Don’t worry about keeping up with the Joneses. If you think your status and friendships depend on people viewing you as wealthy and successful, you are seeking the wrong friendships. I know a fine gentleman who went to jail for 14 months. He was a philanthropist and pillar in the community. His business suffered. He was under enormous stress. When folks are under such stress, they don’t think clearly. He was a good and honest man, but the stress caused him to do something stupid. Had he not lived so “large,” he would never have been under such pressure and wouldn’t have gone to jail.
6. If you are 25 and just starting out, ask someone who is 50 years old what it feels like not to have saved any money. Look at the poor decisions he made and ask yourself if you want to be this guy in 25 years?
7. Bid things out. This is different than #4 above. These are services you need but can get them for less if you put in the effort. Last week a friend of mine called me crying. She lives on a beautiful horse farm. Her investment advisor told her that she should sell the farm as expenses were eating into her principal. I asked her for some documents and bank statements. Between trustee fees, insurance that had not been re-evaluated, brokerage commissions, utilities and several other expenses, we eliminated $60,000 of expenses in an hour’s time. After 3-4 days, we saved a bunch more. People want your business, have them compete for it.
8. Don’t let your kids ruin you. Or you ruin them. At 13, they should have summer jobs and after school gigs to make money, preferably with the hot sun beating down on them. Make them be self-sufficient. This will pay more long-term dividends than where they go to college. Learn to say no. If you can’t swing the fancy private college, it is nothing wrong with making them go to State U and you shouldn’t feel guilty. Remember, all the money you save (and invest) by not spoiling them eventually goes to them anyway.
9. Don’t listen to advisors who don’t take the time to get to know you, your situation and your personality. Everyone is different. No one can give you good advice without understanding who you are as a person.
10. Drugs and alcohol. When it comes to successful wealth management, there is nothing more destructive than substance abuse. If you have a problem, there are loving, kind people who will help you. Sobriety leads to the healthy habits and the fiscal discipline necessary for wealth creation. If you know of someone with a substance abuse problem, do not give them money. Do not let them manage money or be a fiduciary for others.
Above all, talk to people who have had life experiences. Seek out mentors who are kind and caring. Run away from professionals and experts who treat you like a potential fee instead of a person. Best wishes for a happy and productive 2022!
