Contemporary business theory places great amounts of emphasis on strategy and long-term thinking.  These concepts are most definitely of great importance, but there is one critical aspect of successful long-term strategy that many theories and systems fail to comprehend.  That critical insight is how all strategies, regardless of how large or small ultimately distill down to steps that must be acted upon in the present tense.  Furthermore, these action steps frequently break down into smaller steps.

Thus, it becomes true that the largest, most grand, and most complex strategies all come down to one small step.  That one step is the next step.  Once the next step has been taken, focus shifts tot he step after that, and the step after that, and the step after that.  The long-term perspective must always yield to the immediate action, because long-term results can only be accomplished through a continuous string of actions.

Another way of considering this concept is to understand the relationship between past, present, and future . . . both in regards to thought and action.  The past is beyond our ability to influence, but its insights are ours to discover.  Yesterdays victories cannot be relied upon to sustain us into the future, and yesterdays failures have passed into history.  We cannot exist in the past, because the past is gone.  The present is where we recognize current opportunities and act to capture them.  The knowledge of the past can help us to see opportunities, but they must all be captured in the present.

The present represents both the past of our future and the future of our past.  Todays opportunities will be gone tomorrow, and tomorrow’s opportunities cannot be captured today.  As we look into the future, we see the present that has not yet come to past.  None of us can act in the future until the future becomes the present.  The opportunities of the future are valuable to understand, as they will pass into the present tense over due time.

We must be mindful of the future, but we cannot live in the future.  The future is most certainly inevitable, but all that we do must take place in the present.  Furthermore, it is not practical to indefinitely delay all enjoyment of life for the sake of the future.  Life is for living, and each person must balance the present against the future, without being weighed down by the past.  We must understand that the future can only be built by decisions and actions that we take in the present.  Thus, what we do now is ultimately what is of the greatest importance, since the future necessarily build on the present.

In this way, we realize success by taking one small step . . . our next step.  The steps that we take are shaped by our vision of the future, and our recognition of opportunity.  However, the only way that we can turn this into reality is by taking action in the present.  Each of us has the distinct opportunity to shape our lives by taking action right now.  Success is not a multi-thousand step process, it is a one step process . . . your next step.  By consistently taking action on your next step toward success, it will keep you perpetually moving toward greater and greater achievements.  Each of us can increase the influence that we wield over our lives by taking action right now on one small step toward success.

In the end, achieving our ambitions is both more complex and more simple than most people realize.  The complexity arises from prioritizing between all the things that we wish to achieve and all the decisions that we must make.  The simplicity comes from the fact that all achievements result from individual actions.  And we can achieve our goals by isolating and prioritizing the individual actions that need to be taken.  Thus, one small step … followed by another and then another is the way that we gradually build the stairway to our goals and ambitions.

 

One of the ideas that has become quite pervasive within the minds of investors is the notion of a “good stock” or a “good property” to own.  This notion stems from a general desire on the part of most people to own things of quality.  In our personal life, this frequently manifests itself as a desire to own a comfortable home, and a reliable automobile.  Quality gives us a feeling of safety and security.  Thus, it seems completely natural to want our investments to be the stock of a high quality company, the bonds of a high quality corporation of government, or a property that is desirable in both its quality of construction and location.  The problem with this view is that it only provides one half of the information that you need to determine whether an investment is a good deal.

The second half of this investing puzzle is price.  Put bluntly, the quality of a stock, bond, or property investment only matters in relation to its price.  This means that a ram shackled, blighted property can be a phenomenal deal at a certain price.  The stock of media darling companies such as Apple, Google, and Amazon can all be terrible investments at a certain price.  It is certainly true that high-quality investments can frequently justify a higher price than lower quality investments.  However, it is equally true that any investment can be a spectacular deal if the price is right.

The key for investors is to determine when the price of a high-quality stock, bond, or property is over-valued, or conversely when the price of a lower quality stock, bond, or property is under-valued.  Any investment is a good deal at one price, and a poor deal at a different price.  Unfortunately, it is frequently very difficult to determine exactly where these two boundaries are drawn for any particular investment.

When estimating the appropriate price for a particular investment, there are two relevant factors that need to be considered.  The first is the expected future price, the second is expected future cash flow, and the third is taxes and inflation.  When combined, they will create a holistic picture of the value for any particular investment.

Expected Future Price

• In the world of stock and real estate investing, this is referred to as appreciation.  Fundamentally, it represents the expectation that the future price of an investment will be higher than the price you paid to purchase it.  This is frequently referred to as the ‘buy low, sell high’ philosophy.  For most investors, this is the primary source of value that they see.  Stock market tickers report the price of securities, and the Multiple Listing Service reports the price of properties.
• However, the ubiquitous availability of price information frequently causes people to over-emphasize price appreciation as a source of value.  It is most certain that price appreciation is an important source of value for investments, but it is certainly not the only value vector.  The fact that so many people focus on market prices has made them become very volatile over the past few years.  Values for stocks, bonds, and real estate have all fluctuated significantly.  This has made future price appreciation very difficult to predict.
• In addition to all of this, there is one further characteristic of price that investors must take into consideration.  In order to capture the benefit of price appreciation, you must sell the investment.  This means that watching the value of your stocks or real estate skyrocket means absolutely nothing unless you sell and lock-in the gain.  Thus, in order to realize the full gains from future price appreciation, it means that you must sell at the right time.  In practice, this is very difficult to do and frequently results in selling while values are still going up.

Expected Future Cash Flow

• Another key characteristic of what makes a good vs. bad deal for investors is the cash flow that is produced.  In the case of stocks, this comes from dividends.  In the case of bonds, this comes from interest payments and the future return of the bond face amount.  In the case of real estate, this comes from rents that are paid by tenants for the use of your property.  The importance of cash flow to the value of an investment is that it represents a current, tangible return.  Typically, investments that produce the best cash flow don’t always have the best appreciation.  However, they also tend to be less volatile since the price tends to be more highly correlated with the rate of cash generation than the market expectations for future price increases.
• The way that most investors articulate the future cash flow of an investment is through its yield.  In simple terms, the yield of an investment represents its annual cash flow divided by the price paid for the asset.  In the case of stocks, the “dividend yield” is the annual dividends divided by the current market price.  In the case of rental real estate, the “capitalization rate” is calculated by dividing the annual net operating income of the property by the purchase price.  In the case of bonds, the discounted future value of all payments is compressed into an internal rate of return, which is articulated as the bond yield.
• In most cases, the rate of cash generation for an investment is much less volatile than the market price of that investment.  Stocks that pay dividends tend to adjust their dividend rate at a much slower rate than the market value gyrations of its price.  Rents from income properties tend to shift much more slowly than the value of the property.  Bonds typically feature a fixed interest and repayment price, with their market value being determined by the movement in yield rates for similar instruments.  When market yields increase, the price of bonds currently on the market go down.  When market yields decrease, the price of bonds currently on the market go up.

Taxes and Inflation

• The final key characteristic that differentiates good vs. bad investments is inflation and taxes.  Inflation represents the erosion of you investment’s purchasing power and taxes represent the amount of your gains that need to be paid to the government.  One of the oldest and most important concepts in finance is that “It’s not what you make, it’s what you keep” … fundamentally, this means that the “real” rate of return for your investments is much more important than the “nominal” performance.
• Starting with inflation, it is important to understand that when the amount of money in circulation expands more quickly than the amount of goods and services being traded, it creates upward pressure on prices.  For some asset classes, the effect of inflation is relatively benign, for others it is beneficial, and for some it is devastating.  By and large, property values tend to be lifted in proportion with inflation, while cash flows from dividends and rents are also increased by inflation.  Some stocks move up with inflation, but certainly not all.  On the other hand, bonds with a fixed interest rate are destroyed by inflation since it de-values the interest payments.  Conversely, fixed-rate debt that you owe is wiped away by inflation as the dollars you use to re-pay the loan become less valuable.
• Another key characteristic to understand is taxes.  Different types of income are subject to different rates of taxation.  Generally speaking, income that is earned from a job encounters the most taxes.  Income that is earned passively encounters less taxes, and income earned from capital investment encounters the least taxes.  Astute investors also understand the impact of legitimate business deductions, non-cash expenses such as depreciation, and deferring capital gains through a 1031 exchange to reduce their tax burden down to the legal minimum.  In many cases, it is tax advantages that turn a good investment into a great investment.

Ultimately, it is the responsibility of each person to determine what constitutes a superior investment deal.  Since people have different appetites for risk, there will always be a variety of investors bidding for a variety of assets.  What is most important for the individual investor to do is take an honest assessment of their personal investment tolerance and make decisions that incorporate all of the major value factors.  By balancing the future price, future cash flow, inflation risk, and tax characteristics, it will allow you to build a strong portfolio of optimized deals.

 

The financial planning profession has a long history of demonstrating the power of compounded growth to clients who are looking to invest for the future.  Typically, a chart will be shown that shows the difference between investing $100 per month at 1%, 5%, 8%, and 10% rates of return for 20, 30, and 40 years.  As expected, the results are typically astounding.  The extended impact of compounding for a longer period of time at a higher rate of return creates a tremendous difference in the amount of compounded returns after a long period of time.  Thus, the fundamental assumption behind all contemporary financial planning models is to invest money into financial products that have historically produced a high rate of return so that you will be able to enjoy a happy and comfortable retirement from your compounded returns.

Unfortunately, there is one question that never seems to enter into the conversation.  This question is whether the historic rates of compounded growth for the stock market will continue into the future?  If the returns produced by the stock market in the past do not extend out into the future, there will be many hundreds of millions of people who have their entire financial lives decimated.  And the shock will be even more severe, as many people have not even considered that it could happen.  For many years, it has been assumed that the stock market can continue to grow faster than Gross Domestic Product (GDP) indefinitely.  However, that assumption may be faulty.

Currently, the ratio of total US Stock Market Capitalization compared against GDP stands at approximately 95%.  This means that the total value of all US stocks adds up to 95% of total US economic output for one year.  This ratio is consistent with the 10-year average from 2000 through 2010, but is higher than the 20-year or 30-year average for the stock market to GDP ratio.  This disconnect raises an interesting question.  How much longer can the stock market continue to grow faster than the economy?

It is important to consider that the overall stock market can only grow if new capital is invested.  Individual stocks will go up or down in value as people switch from holding one company to holding another, but there is only one thing that can propel the entire market upward, and that factor is additional investment.  However, that additional investment must come from economic activity.  What happens if the level of investment required to continue driving the stock market upward at historic rates is larger than the amount of economic growth?  The answer should not come as a surprise … if the money to invest isn’t being generated by the economy, it won’t be invested, and the stock market won’t grow at it’s historic rate of appreciation.

To illustrate this point, both total stock market capitalization and GDP have been projected out at historic growth rates over the next 15 years, starting with actual data from 2010.  Over the last 30 years, the total stock market capitalization has grown at approximately 9% per year, while GDP has grown at approximately 5% per year.  When these assumptions are extended out to 2025, the infinite compounding fallacy becomes quite clear.  in order to maintain the historical rates of appreciation that are used in almost every financial planning model, the stock market will need to be $17.4 Trillion dollars larger than US Gross Domestic Product by the year 2025.

When one considers that this gap represents approximately 57% of Gross Domestic Product, it becomes increasingly evident that the total stock market capitalization simply cannot continue to grow at its past rates because there is not enough additional output being generated to fund the incremental investments that would be necessary to continue driving market values upward.  Thus, the answer to the question of what will happen to stock market capitalization is very apparent.  Unless the economy grows dramatically faster than it has in the past, there will be insufficient capital to propel the stock market values upward at previously experienced rates of appreciation.

Upon further analysis, the problem grows even more complicated.  Since the ratio of total stock market capitalization to GDP is currently equal to the 10-year average from 2000 through 2010, and is higher than both the 20 and 30 year averages.  This means that if the ratio between stock market capitalization and GDP regresses back to historical levels, the growth in stock market valuation will not only be constrained by GDP, but may actually grow slower than overall economic output.

Over time, it is not possible for the stock market to grow nearly twice as fast as the economy.  Eventually the capital required to drive further value growth equal to past rates of appreciation will not be available.  In this way, the fallacy of infinite compounding becomes strikingly apparent.  Financial planning models have been built on the assumption that one can passively generate a rate of return significantly higher than the growth rate of the overall economy.  Over time, this assumption will prove to be faulty, and spell ruin for the traditional models of investment planning.

So what can a person do?  It’s one thing to point out the problems with compounded appreciation assumptions built into financial planning models, but it’s another thing entirely to plot out a new course that overcomes these challenges.  The truth is that this course will be different for every person.  However, there are a few guiding principals that will make finding this course much easier.  These considerations are that cash is king, and leverage amplifies results.

Cash is King

This is the oldest and most hallowed of financial axioms.  Cash stands and the fundamental basis of investment value.  The ‘real’ value of an investment is the cumulative discounted value of all future cash flows it produces.  This can come in the form of dividends from a stock or rent revenue from an income property.  When evaluating an investment based on the cash it produces, the value is easy to see.  However, if the value of an investment depends solely on selling it to somebody else for a higher price in the future, it can result in tremendous volatility and risk … especially if the investment does not produce any cash flow.  Thus, the paradigm of the future for investors should be to seek cash flows.

Leverage Amplifies Results

Another fundamental consideration for astute investors is the power of leverage.  This can take the form of both financial leverage and organizational leverage.  In either case, the leverage will allow you to amplify the results produced by your efforts.  In the case of financial investments, borrowing at a low rate of interest and investing at a higher rate of return will allow you to amplify your returns much higher than could be earned with cash alone.  Similarly, leverage will amplify any losses that are incurred from your investments.  This is equally true with organizational leverage for business owners.  Amplifying your time through the efforts of others will allow you to generate better results if you are highly effective, or will create chaos if you are disorganized.

In the end, future investors will need to rely on their ability to create value.  The days of infinite compounding from perpetually escalating market values are reaching an end.  The people who survive and thrive in this environment will be the ones who focus on fundamentals and create value.  It is important to understand that every difficulty carries an opportunity, and that each person is responsible for capturing that opportunity to create the best future that they can.

 

Though the iPad got the ball rolling, Windows 8 may be the catalyst that finally brings about the “post-PC” era, as Apple likes to call it (and others prefer not to).

While many digirati were attending a conference in Rancho Palos Verdes, Calif., I was further down the coast in San Diego attending a less glamorous but hardly less important Qualcomm conference. Qualcomm is, after all, the enormously profitable company (with a market cap just shy of $100 billion, rivaling Intel, which is at about $115 billion) that supplies the guts of many of the world’s feature phones, smartphones, and, increasingly,
tablets.

Chips it designs essentially define the hardware and performance of the phones many people use. Qualcomm’s role in the phone industry is analogous to Intel’s in the PC industry. (Qualcomm said at the conference that 250 future devices are being designed around its “Snapdragon” processor.)

Which brings us to the future Windows 8 PC. Qualcomm chimed in this week, saying it will build quad-core Snapdragon processors for Windows 8 devices, in addition to the dual-core chips it is beginning to supply now for tablets like HP’s upcoming TouchPad.

“This will require high-performing, low-power processors…with features like 3G and 4G wireless wide area network (WWAN) connectivity,” Qualcomm said in its Windows 8 statement Wednesday.

When Qualcomm speaks about Windows, people should listen. As Qualcomm CEO Paul Jacobs is always quick to point out, Qualcomm is the exclusive supplier of processor silicon for all Windows Phone 7 devices.

So, with Qualcomm and others set to supply high-performance ARM processors for Windows 8, what will these Qualcomm-powered Windows 8 devices be exactly? Jacobs gave us a hint this week. “You will see some clamshell looking devices. Some of them will be convertible. Some of them will be just tablets. We’re going to see a wide range of stuff going on,” he said at press conference on Wednesday.

Though Jacobs was referring to products coming out later this year and early next year, similar design themes will apply to Windows 8 devices.

What will a Windows 8 PC be? A few rough ideas:

• A 2.5GHz quad-core ARM chip-based Windows 8 tablet?
• Newfangled Windows 8 tablet-centric hybrid with slider keyboard?
• Motorola Atrix smartphone-with-laptop-dock kind of device?
• Tried-and-true clamshell laptop sporting a high-performance ARM chip?

I say all of the above will be a PC, if that’s the primary device you do most of your personal computing on, including lots of business productivity apps like Microsoft’s Office suite. Along these lines, a comment at one of the technical sessions at the Qualcomm conference stuck with me: many young people in the future may skip the traditional PC all together. They may grow up using a device that bears little resemblance to today’s laptop.

Intel will contribute to this, too. Intel’s next-generation Haswell chip design–due roughly in the same time frame that Windows 8 appears–will be the company’s first system-on-a-chip, or SoC, for mainstream laptops. An SoC is the same kind of all-in-one chip design Qualcomm uses today for feature phones, smartphones, and tablets. And, by the way, it’s what Apple uses in its
iPhone and iPad.

That means Intel also subscribes to a very different kind of future PC design. And with Qualcomm, Microsoft, Google, and others like Nvidia behind this, Post-PC or not, the PC will look very different for a lot of people.

Article source: CNET

 

In the midst of persistent economic turmoil, there is a growing sentiment that somebody should do something about all of these problems.  This is a natural reaction to what feels like an opaque and impersonal market.  The actions of Washington and Wall Street show no semblance of connection with that of the regular people who drive the economy forward.  In light of this clear lack of interest to do anything that is not oriented toward special interests, there is a persistent feeling that ‘somebody’ should do something.  Unfortunately, nobody seems to really know who that person is, since the governing institutions are pervasively corrupt.

This has become a key point of concern for an increasing population of citizens.  These ‘regular people’ are working hard to build a life for themselves and a legacy for their posterity.  As election cycles come and go with repeated broken promises of reform devolving into ever greater levels of corruption, there seems to be nobody that is going to ‘do something’ about the current situation.

At this point of apparent hopelessness, there is a fundamental insight that has the power to set you free from the shackles of dependence and create a life of power and prosperity.  This insight is that the key question is not one of what ‘they’ need to do; it is one of what ‘you’ need to do.  The future of each individual person is the aggregated total of the decisions that they make over an extended period of time.  While the actions of others (or lack thereof) may be eternally frustrating, they are not the determinant of our future.  It is what we decide to do and decide not to do that creates our future wellbeing.

This is the fundamental reason why it is so important to build a personal portfolio of success.  This can take the form of passive investments such as income properties, a small business, multi-level marketing opportunities, or any of the many ways that are available to earn income and create wealth.  By taking personal control of your financial future, it will create the freedom to pursue your dreams and live your priorities.  Many people will have their future dictated by the actions of Washington and the machinations of Wall Street, but you have the power to write your own destiny.  Using this power wisely is one of the greatest legacies that you can create for posterity.

 

One of the ideas that is most common in business literature is the notion of solutions.  Namely that leaders should seek to find solutions to problems.  Instead of selling a product, sell a solution.  Instead of doing a job, solve the problems of your group manager.  Creative problem solving has become its own genre of business writing.

Unfortunately, there is one critical insight that this genre frequently leaves out of the analysis.  This learning is that perfect solutions do not exist.  Every choice requires that we forgo other alternatives.  Every problem that we solve results in the emergence of new problems.

Thus, the paradigm is not one of solving problems, but making decisions.  There are no solutions in the world, only decisions.  Each decision has different costs and consequences.  This is an important insight because it highlights the fallacy of solving short-term problems, only to create long-term problems.  Thus, we are not faced with the issue of solving a single problem, but an entire system of decisions that we must attempt to optimize in such a way that we receive the greatest total benefit for the least total cost.

This phenomenon is complicated when dealing with short time windows such a single year, and is further complicated when we are spending other people’s resources.  When making decisions, most people only think about what is happening right now, and assume that they will be able to deal with whatever comes about in the future when it arrives.  Unfortunately, this frequently results in decisions that pull benefits into the present and push costs into the future.  Many people have amassed large credit card bills based on this principal alone.  When costs are continually pushed into the future, they do not go away.  They simply grow and compound until they are so large that drastic action is necessary in order for them to be addressed.

Let us also consider what happens when we are spending other people’s resources.  One of the singularly dominant themes in all stripes of economic thought is that people do not spend other people’s money as wisely as they spend their own.  Evidence of this can be found in both the public and private sectors.  Decision makers in both sectors spend other people’s money.  Politicians and public employees spend taxpayer money for the ‘general good’ or ‘social welfare’ of their community.  Unfortunately, this is a very loose concept and frequently allows considerable room for funneling resources to special interests and pet causes to help the politicians stay in power.  Corporate decision makers use the resources of shareholders in an attempt to earn profits.  Wile considerably less vague than ‘social welfare’ this arrangement still leaves room for self-serving interests to override service to the shareholders.

Thus, we can see that short-term “problem solving” with other people’s money has the potential to create a perpetual cascade of bad decisions that eventually result in problems that are too large to address without making significant sacrifices.  The prime example of this in the United States is our national debt and entitlement liabilities.  Large promises of future entitlement payments have been made to multiple generations of workers, based on programs that fund current expenditures with current revenues.  This means that as the number of recipients grows relative to the number of payers, the programs will quickly run out of resources.

When addressing a problem of this magnitude, it is important to understand that there is no “solution” to be found.  There is no way to keep the (unrealistic) promises that have been made without imposing more costs on more people.  This situation is aggravated by the fact that current federal government spending exceeds tax revenue by nearly $1.6 trillion dollars.  When combined, these two problems spell future fiscal calamity since the US cannot borrow indefinitely at current interest rates.  Sooner or later, major sacrifices will need to be made.

One way to address the problem is by reducing future promises, cutting spending today, and re-aligning the tax code to provide incentives for greater economic growth.  Another way to address the problem is by raising taxes to capture more revenue, and sacrifice future economic growth for the sake of current spending.  A third option is to ignore the problem entirely and attack anybody who proposes reforms as a radical extremist.  This is the path of least resistance for politicians, and will ultimately prove to be the most painful.  The many promises that have been made cannot all be kept.  Simply opposing any changes will not alter the fact that the resources to fund these promises do not exist.  Very large cuts will be required in the future if action is not taken in the present.  Unfortunately, politicians have almost no incentive to make current sacrifices for future gains.  Those future gains won’t be realized until after they are out of office.

Fortunately, our individual lives are not directed by the sway of public opinion.  Each person has the ability to decide and to act.  The decisions that you make will shape the future you experience.  The problems that you face can be addressed many ways, but each decision you make will spawn new problems.  Thus, the real question is not one of how to solve problems, but which problems you face, and when you face them.  Your life comes down to decisions.  Which ones will you make, and how will it shape your future.  The answer to those questions is difficult at best, but in any circumstance it is certain that delaying all of our major decisions until later will result in a worse situation than if we take action today.

 

There is an old proverb that states you should be careful what we ask for, because you just might get it.  The wisdom of this insight lies in the fact that most things we want are accompanied by undesirable consequences.  Children and adolescents frequently desire things that carry unwanted consequences with them, but generally lack the foresight to see the future impact.  Part of the responsibility implicit in becoming an adult is to anticipate when ‘getting what we asked for’ will result in something very unpleasant.

Unfortunately, this principal seems to be very difficult to communicate when it comes to electoral politics.  Evidence of this assertion is found in the general trend amongst free electoral systems for the populace to overwhelmingly support political candidates that promise to give ‘free’ services from the government.  However, very few people stop to consider where the resources for these government services will come from.

For example, the United States has a very large entitlement liability from Social Security and Medicare that is likely to result in tremendous demands for payment in future years.  (The current ‘bailout’ initiatives feed this phenomenon as well)  The options for raising the money necessary to meet these obligations all involve undesirable effects.  The ‘best’ alternative is for the economy to grow tremendously over the coming decades, creating a large increase in the tax base.  This alternative requires that the government maintain pro-growth policies for an extended period of time, while holding spending in check . . . all of this in spite of pressure to further increase entitlements.  The next alternative is for the government to either drastically increase taxes or issue new debt for the unfunded liabilities.  Unfortunately, this option constricts the economic activity that is necessary for generating future tax revenues.

The final alternative is to simply ‘print money’ or devalue the currency by increasing the amount of money in circulation by simply issuing new treasury certificates into the open market.  This is far and away the most likely scenario, because is the least visible and doesn’t require a direct vote by the legislature.  The unfortunate end result is that the increase in currency will cause large amounts of inflation that devalue savings, home equity, and entitlement payments.  Thus, the very same people who have demanded entitlements for many decades may see that the actions needed to finance their entitlements will ultimately erode the value down to where they would be better off if no entitlements had been created in the first place.

 

The current economic and political environment is one that has become increasingly polarized.  News continues to come in about a building US government debt spiral that is running a very real risk of destroying the international prominence of US dollars in the global marketplace.  There are serious problems on the horizon if large efforts are not made soon.

In response to this situation, people react predictably according to their political persuasion.  Those of a left-leaning persuasion exhibit a noted tendency to blame all economic problems on President Bush, high-income earners, and foreign military operations.  Similarly, those of a right-leaning persuasion are more likely to blame President Obama, and government spending.  However, there is a key principal that people on both sides frequently miss.

For the sake of argument, let’s say that all of the nation’s problems are the responsibility of George Bush / Barack Obama.  (Pick whichever name makes you feel more vindicated)  Now that we have “proven” who is responsible for all of the country’s problems, what are you going to do next?  In response to this question, most people will trail off into some manner of semi-coherent mumbling about fiscal policy, national priorities, or some other form of rehearsed phrases.  Moreover, this narrative completely misses the point of the question.  Most people get so wrapped up in what they think other people should do, that they completely lose focus on what they should be doing.

Thus, the important question for people to ask themselves is not whose fault the problems are, or even what the government is going to do about it.  The wheels turning those cogs will continue to spin with or without our constant attention.  The prescient question for each person to ask themselves is what they are doing for their own future and that of their family.  What decisions will you make right now that create a future of happiness and prosperity?  What sacrifices are you willing to make now for the sake of your future?  Are you prepared to rely on yourself when cuts to government services become unavoidable?

The answer to this question will frame the future of your personal, professional, and financial life.  The difference between informed achievers and self-indulgent whiners is the propensity to take action.  What action are you going to take today?  Are you going to start a business to create an additional stream of income?  Are you going to build an investment portfolio to gain greater control over your financial future?  The exact decision that you make is less important than making a decision and taking action.

In the end, each person is ultimately responsible for the well being of themselves and their family.  The government has made more promises than can possibly be financed, so dramatic changes of one stripe or another are inevitable.  That’s not politics, its math.  Smart players in the game of life will focus on the decisions that enable them to gain greater control over their personal, professional, and financial life.  The unfortunate truth is that there are many undesirable things in the world that we have no ability to control.  Excessively worrying about them only serves to distract our attention away from the actions and decisions that bring us closer to control over our own future. It is certainly worthwhile to stay up to date on the events of the day, but study them from the perspective of a person who takes thoughtful action.  This will train your mind to see opportunity so that it can be captured with intelligent action.

 

The current world is one where information abounds.  The flow of information moves so fast and increases so quickly that many have led themselves to believe that this extreme amount of information means that we have greater mastery over chance and uncertainty.  However, the financial collapse of 2008 demonstrated quite aptly that there is a prolific difference between “Know What” and “Know How” when it comes to situations of volatility or uncertainty.

For those who have not been living in a cave for the last few years, volatility and uncertainty are an inextricable part of life that cannot be controlled with mathematic algorithms.  This is where ‘know what’ has become woefully inept.  By attempting to force reality into mathematical models, the purveyors of self-proclaimed intelligence place the entire world at the mercy of their algorithms.  The pseudo-intellectual class has attempted to make itself “master of the universe” by publishing highly detailed forecasts built on nothing more than subjective assumptions that have been rolled into a quantitative model.  The problem compounds even more when people demand that public policy be based on the output of these models.

This phenomenon results in a form of “Scientism” that emerges from a combination of mathematical techniques that are used as a justification for pushing subjective views or beliefs.  The method for holding up these forecasts that border on religion are to use the ‘credentials’ of people who form the predictions as a method of insulating them from criticism.  The implicit belief of “Know What” or “Scientism” religion is that only the elite possess the necessary intelligence for creating forecasts.

In contrast to this view, we have an emphasis on “Know How” or the viewpoint that nobody possesses the necessary knowledge to accurately predict the future.  In this worldview, future trends represent the emergence of many people making independent decisions, and success is less about knowing what will happen and more about knowing how to make astute decisions.

The net effect of recent focus on “Know What” and econometric forecasts has been a de-facto regression toward medieval religion where the edicts of leaders are to be obeyed without any thought or question.  In the current environment, just like the middle ages this phenomenon creates a tremendous opening for graft and corruption by those who construct the edicts that are handed down to the ‘little people’ who are expected to obey.

The challenge that most people face in the face of this conflict between “Know What” and “Know How” is that the promises of comfortable retirement made by the “Know What” apostles are quickly becoming revealed as vacuous and empty.  The pension funds, trust accounts, and other means that politicians have used to purchase votes with public funds are not sufficiently capitalized to support the promises made to future retirees.

Ultimately, the only financial security available to regular people is to “Know What” is necessary for building a portfolio that is completely owned by them and free from the prying fingers of politicians, union bosses, and corporate executives.  This stands contrary to the “Know What” religion, since it involves a departure from dependence on the pseudo-intellectual elite for people’s wellbeing.  The unfortunate reality is that political power comes from influence, and dependence on the government places a tremendous amount of influence in the hands of those who run the government.

When going throughout your life, resist the temptations from hucksters and shysters who claim to have a ‘secret’ to financial success that they will reveal only if you purchase their $6,000 system.  These people are simply peddling false hope to people who are desperate for a way to improve their financial situation.  Similarly, resist temptations to believe people who try to tell you that a particular pension fund will completely take care of your retirement needs, and that no other investment is necessary.  These people are also playing on a desire to believe in financial security.  In both cases, false hope is being sold to exercise influence over large groups of people.

Actively seek knowledge about the principles of success that will help you “Know How” to achieve your goals.  Much of this information is available for a very low cost through your library, the internet, or other methods of distribution.  The rub is that very few people will actively market the principles of success.  Most people marketing information are trying to sell a ‘system’ that is based on some form of ill-conceived prediction model.  In the end, your best alternative for creating a strong financial future is to build it yourself by practicing the principles of success.

 

As we go throughout life, it can sometimes seem mysterious to think how we arrived at our current place.  Each person’s life represents the aggregate total of all their decisions and the influence of chance.  For many of us, it can be tempting to blame ‘fate’ or the actions of other people for the fact that their life has not turned out the way that they had previously imagined it would.  For many people, this has resulted in a slowly burning internal anger against their circumstances.  The enduring problem created by this phenomenon is that it constructs a mental barrier that prevents people from taking the actions that are necessary to improve their circumstances.

The first and most important insight that must precede any sustainable improvement in our life situation is the realization that we are fully responsible for the course of our life, and our decisions are the means by which we navigate the river of chance.  It is most certainly true that we cannot control chance.  There will always be events and circumstances in our life and the world at large that are out of our control.  The secret to influencing your future lies in understanding that there is no point in worrying about things that we cannot control and focusing all of our attention on the decisions and events that we can influence.

One example of how this situation creeps up on people is where you have a person that is living paycheck-to-paycheck and encounters an unexpected automotive repair, medical bill, or some other necessary expense.  With no financial reserves, this person may find themselves forced to go into debt, or possibly default on their financial obligations if they are already in debt.  From this person’s perspective, they have been assaulted by fate and ruined by chance.  However, the situation that placed them at the mercy of chance was completely the result of their decisions.  By modifying their lifestyle, these people could have built-up a savings reserve so that unexpected expenses could be met without destroying their budget.  By consistently living below their means, they could have ensured that their debt limits were not maxed out so that true needs could be met at the critical moment.  By understanding that the future is necessarily uncertain, and planning accordingly, many of the disruptions that cause disasters for other people could have been effectively avoided.

The critical insight here is that our ability to shape our future is dependent on our willingness to embrace a long-term perspective.  By thinking further out than our current wants and needs, we begin to see the benefit of making short-term sacrifices for the purpose of long-term gains.  Thus, by improving our decisions, we make the outcome of our future less dependent on luck.  In this way, making intelligent choices reduces our exposure to chance.  It requires us to discipline our feelings and emotions so that they do not dictate our actions.  It requires us to make conscious decisions that support optimal long-term results.

In the end, our circumstances are determined by both choices and chances.  However, the impact of chances is directly related to the choices that we have made in the past and continue to make into the future.  Each of us must ask whether the choices we are making today prepare us for a more prosperous future.  Each of us must ask whether the decisions and choices we make are the result of our feelings and emotions or if they are conscious and deliberate.  Most of us have a clear vision of what we would like our future to look like, and most of us also know the kind of things that are necessary to attain that vision.  What remains is to develop the discipline so that our decisions turn that vision into reality.