Ever wonder how some people you know, or you may have heard of, made so much money in such a short period of time? Ever feel stupid for working so hard? Ever feel like you have been working for years like a dog, and achieved moderate success, but business continued to be such a grind year in and year out?
For years, my partners and I have been trying to figure out why every year we've been in business we've had to hustle to keep it going. In the last couple of years I've come to the realization that being of value to my clients, and building a real business, was always going to be hard work. In recent months, I also started to understand that the source of some people's instant success has been based on one, or two, bogus and unsustainable business concepts:
- Excessive leverage
- In a few cases straight out fraud
Excessive leverage:
Leverage is an important part of any business and our economic system. A company, like kasina, borrows money to supplement existing funds for investment in such a way that the potential positive outcome is magnified and/or enhanced. Leverage could allow us to potentially hire new and/or better people, or invest in an office in London and Shanghai, that we otherwise would not have the funds to invest in today.
Excessive leverage, on the other hand, is a powerful friend during an up market, but can quickly put you out of business during a down market. Most investment banks were leveraged by a ratio of 30 to 1. Government sponsored mortgage giants Freddie and Fannie were using leverage closer to 100 to 1 because of their supposedly stricter lending standards and implicit government backing. Most entrepreneurs would be able to make a lot of money if given 100 to 1 leverage.
Fraud:
Last week Bernard L. Madoff, a legend on Wall Street, was a arrested for essentially running a Ponzi scheme. The NYT reported that his funds for years claimed to produce consistently positive returns in up and down markets. One of them reported of having $7.3 billion in assets in October and claimed to have paid more than 11 percent interest each year through its 15-year track record. In reality, he paid returns to certain investors out of the cash received from other investors.
I feel a little less stupid these days about working so hard to be successful. The current financial crisis has changed the way our country does business and it's going to be very hard, if not impossible, to make a quick buck. The people who are going to succeed and make money are going to make money as a result of years of hard work. They will survive by busting their asses to add value to their customers or clients.
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