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Thursday, February 25, 2010

Letter From A Multi-Millionaire - #02



Hi Mike,

Remember, there are never times when there are no opportunities, there are only times when opportunities change and the first to see them are the winners - everyone else looses. Practically speaking this means that those whose plans are to do business as usual because they do not see the direction change that has occurred, will spend their time in the wrong places until its too late. Those who see the direction change can get their bait in the water now and as things turn down, they will be busy catching fish.

If I were young and just getting started out, I would definitely set up a business plan that goes with the new trend. What are some ideas that will work? Anything that goes along with the new trend of self-reliance - Anything that can capitalize on people, companies and municipalities going broke - Anything that can capitalize on the coming foreclosure boom - Anything that can capitalize on defaults on large ticket items such as boats, aircraft, heavy equipment, plant equipment etc. - Anything that can capitalize on reduced credit availability - Anything that can capitalize on higher crime rates and less efficiency in maintaining law enforcement order - Anything that can capitalize on the loss of personal and financial safety - Anything that can capitalize on the anger Americans of all generations are going to feel when they realize they have been had by their politicians and financial gurus, etc.

What specific kind of businesses would work in this environment? Businesses that protect and or refurbish foreclosed properties, Businesses that can profit from the expensive equipment that will be dumped at auctions. An upscale pawnshop or business enterprise to assist the nuevo poor that are descending from the ranks of the upper classes - Anything to do with personal security such as a website that offers innovative security systems such as cameras, alarm systems and defensive products. There are dozens of ideas that will work, you just need to see the trend, understand what is happening, design your business to take advantage of that trend for the next ten years or so, get in early and then dominate that business sector. And above all, don't borrow money because borrowed money will be the problem everyone else will be facing as the supply of money virtually dries up, making it virtually impossible for most to continue making payments on their debts. Remember, you can't win if you have that same problem too. Above all, think of a business that will offer help to people that will be caught off guard, in some unique emerging sector that no one else is even thinking about yet.

So, my advice is to see clearly what is coming, get over the emotional hurdles associated with accepting the reality, and start thinking of the implications of the new reality and then come up with a strategy that will take advantage of the new trends that will emerge while everyone is wasting time hoping that the good old days will somehow magically return.

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As an example, the beginning of the economic crisis in 2008 caused the stock market to loose 55% in about a year. That was a crisis for most people in that it decimated their life savings. On the other hand, I saw it coming and shorted the market. In doing so I had my best year ever in investing. I don't even want to tell you what percentage gains I had in 2008 because you would never believe it. Prior to the market falling apart, I was raising the alarm with everyone. The general consensus was that I was not only nuts but that I was being extremely negative so nobody listened except a few close family members. Well, I decided that if I couldn't get anyone else to go with me, I would have to go it alone so I loaded up with put options on the markets. I guess I should have listened to everyone else and stayed with the old trend because as the markets were crashing, I found myself crying all the way too the bank. In other words, when everyone else was trying to figure out what was going on, I was busy catching fish.

Again, trends change but new opportunities always arrive with them.

Sincerely,

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