From the Ash's

At the extreme risk of pissing off a lot of people, including some good friends of mine, tonight I'm going to rant on a different topic.  Hopefully, if you follow the words of Mark Stevens, marketing guru, in Your Marketing Sucks, "Smart people can accept criticism, especially if it can help them make more money."  Then maybe you'll take these words to heart and think long and hard about why you want to be an entrepreneur, and particularly why now.

Do you know why people call it a "job market"?  I mean, it's not a place where you shop and it's not a place that securities or commodities are traded, so why call it a market?

It's called a market because there's competition for jobs.  As more or less people enter and exit the workforce, companies outsource jobs overseas or bring them back from abroad, and as more people leave their jobs to go into business for themselves or return from being self-employed to working for a large corporation.  Right now the job market's good and so's the self-employed market.

In fact, the reason each market is good is partly because the other is good.  There's so much demand for skilled employees that companies will hire small firms to help fill in the gaps, and because there's demand for employees is exacerbated by people taking advantage of this propensity to contract small-firms companies have to offer good compensation packages to attract new employees in heightened competition with small firms, as well as, improve the compensation packages of their current employees in order to retain them.

The truth is that this cycle is a natural part of American business and there's nothing new about it.  In fact, many people's businesses will tank in the next few years and they'll go back to working for "The Man", and likely at less than what they were making before they left.  It's only human nature:

People only chase investments that seem secure, so most people enter the market after it is already saturated.

If being an entrepreneur seems like a surefire way to riches, then why hasn't everybody been an entrepreneur from Day One?  Well, that's because it's only right now that entrepreneurship seems like the surefire way to get rich quick.  What's the fastest way to tell an entrepreneur from an employee-cum-wannabe entrepreneur?  Taking one from Robert Kiyosaki's book Before You Quit Your Job, the fastest way to tell if someone truly understands the entrepreneurial spirit is to check how much of a salary they're awarding themselves.

Let's contrast it: this year I will at most give myself $30,000 from my companies.  Every extra cent I will reinvest into their continued growth.  Most people that claim to be entrepreneurs are drawing over $70,000, many over $100,000 in salary.  Quite frankly, that's stupid.  For one, you're exposing yourself to increased taxes, and two you're bleeding your company dry.  When you ask them why they're taking such a high salary, they'll almost always tell you that's what they were making at their job and/or that's just what they need to cover their expenses. 

Damn!  "That's just what I need to cover my expenses."?  Okay, let me run down my expenses for you: Rent - $600/mo.; Food - $400/mo.; Transportation - $300/mo.; Clothing + Miscellaneous - $100.  That means my total expenditures are roughly $1400 or $16,800.  That means that on a $30,000 dollar salary even after Social Security, Medicare, and Federal and State Income Tax, I still have enough money to max out my Roth IRA contribution (currently $4000/yr).

So I do live a pretty austere life, and $600/mo doesn't get you a nice apartment.  However, I still own a car (year 2000) and enjoy my life.  If you really feel you can't live off of $30,000 a year, then at least look at ways to make it tax deductible.  For example, have your company pay your medical insurance, give you a travel allowance, and take advantage of other deductions to reduce your tax burden - your number one cost.

Now then, what's the current abundance of entrepreneurs mean to you?  Well, it means that you're going to get less return for your dollar.  It means that good opportunities are getting harder to find and the market's getting saturated (it also means there's a killing to be made for people willing to take advantage of all of the naive people in the market).  Take the below graph.  It's an important lesson for anyone who wants to understand any sort of market.

Who do you think makes out the best on this graph?  The people who got in when there was hardly anybody there or the people that got in when everybody was already there?  Let's look at a slightly different graph.

Looks similar, huh?  Of course!  Market capitalization follows participation.  That means that the guys that get in at the bottom get in for virtually nothing and get huge returns - easily over ten times their initial investment.  Why?  Why do they have all the luck?  Well, because they were the ones who needed to have the luck in the first place.  They went somewhere no one else was willing to go.  They went into the Fog (see my on fear and the Fog - Jan 23rd).

But this market has the Midas Touch.  You just can't go wrong here!

So it seems doesn't it?  Let me ask you this: how long are properties sitting on the market right now?  Is this above or below the average time for properties to stay on the market?  Well... if it's above average, then it's probably not time to start investing.

When I was a teenager, a friend of mine developed a simple, but successful investing strategy: when the price of a stock fell below the 30-day moving average we began to set limit orders a little above the market price (when these hit meant the stock had reached its minimum and was moving back up).  Once the price rose above the moving average we set limit orders a little under the market price (actually, we set limit orders under it all the time to protect us from a downward plunge).  This simple strategy netted us a tidy little profit.  Do you know why? 

We did the opposite of what the market did.  We went where other people weren't.

If you follow that strategy in every type of investment you make (within reason) for the rest of your life, you will come out on top.