Does Corruption Improve Stock Market Performance?

He’s a businessman … I’ll make him an offer he can’t refuse.” – The Godfather

(Photo: Artemuestra)

Having spent the last 2 weeks on vacation in Russia, I was amazed by the beauty, the people, the art and also the amount of corruption which exists in this country. After talking with many people, I learned that it is almost impossible to do any legitimate business in Russia without bribes, kickbacks and payoffs. The next logical question that comes to mind is why would anybody do business there? Why would anyone invest in any publicly traded company in Russia, since fraud and corruption are so prevalent?

 I thought it would be interesting to do some basic ‘back of the napkin calculations’ to see how corruption effects stock market performance. Transparency International publishes an annual Corruption Perception Index which ranks countries “by their perceived levels of corruption, as determined by expert assessments and opinion surveys.”

In the developed markets, the top 5 least corrupt countries year after year tend to be New Zealand, Finland, Denmark, Sweden and Singapore. The most corrupt are Italy, Israel, Spain and France and United States.

In emerging markets, the top 5 least corrupt countries are Chile, Taiwan, Poland, South Korea and Malaysia. The most corrupt are India, Mexico, Philippines, Indonesia and Russia (no surprise).

Having a rating for the counties over the last 10 years, I wanted to compare them to the average (arithmetic) stock market performance of those countries over the last decade to see if there were any correlations. Having full data for 10 years of Corruption Index and stock market performance for over 35 countries, I put together the chart below for developed markets.

As you can see, the least corrupt countries (those with highest Corruption Index Scores) tend to have better performances in the stock market over the last 10 years as the trend line shows. The picture changes once we look at emerging markets. If we look at 10 years of data in emerging markets, the countries which are more corrupt have had better market performances. 

It seems for developed markets, corruption does not pay, but in emerging markets corruption does seem to pay, rewarding the most corrupt countries with higher market performances. This is rather puzzling. Why would a corrupt country have better market performance? My guess is that corruption cuts both ways.

For example, if you own a publicly traded company in Russia that makes widgets, you are probably skimming the profits from the top and short changing the shareholders. At the same time, you are also bribing politicians to get more lucrative deals and paying off the local officials to make it difficult for other widget manufacturers to do business and compete with you. Thus improving your profit margins in the process. In the long run, it’s a losing formula for the overall economy. In the short run, the markets do not seem to care how the profits are derived. It is also possible that shareholders are bidding up the price of stocks in corrupt countries in expectation that things will improve and that the upside will hold rewards. Just another way of saying “things can only get better”.

So in corrupt countries, corruption does seem to improve stock market performances at least in the short run. However, in developed countries, corruption seems to have a negative effect on markets.

A word of caution about my findings, it’s very possible the data sample of 10 years might be too small and if we looked at a much larger data set the conclusion might be different. Also there’s a chance that we are simply seeing a correlation and not a causation.

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The Big Fallacy Of Believing That Your S#*T Day Job Will Somehow Lead You To Your Dream Life – How To Get From Here To Where You Want To Be.

“How in the hell could a man enjoy being awakened at 8:30 a.m. by an alarm clock, leap out of bed, dress, force-feed, shit, piss, brush teeth and hair, and fight traffic to get to a place where essentially you made lots of money for somebody else and were asked to be grateful for the opportunity to do so? ” – Charles Bukowski

(Photo: Mark Sebastian)

One of the worst times of my life, (besides high school) was in my early 20s, when I had day jobs that I hated. I always felt out of place. I was surrounded by people eager and excited to work and complete the job at hand and I could never understand how they did it. It’s not that I physically or mentally could not do the job, it’s just I never understood the enthusiasm and the drive they had to do something that never seemed very important to me. I could never trick myself into caring or thinking that meeting some arbitrary sales quota or goal was more important than a day out of my life. This is probably the reason I sucked at every job I ever worked at besides those that I had a direct stake in.

For many years I persevered in crappy day jobs. Jobs I despised and was bad at, dreaming of the ideal life I wanted to lead. One of the saddest things I remember from that time is seeing the cubicles of my co-workers, who also hated their jobs as much as I did, but somehow managed to trick and convince themselves into caring and giving it their all. Their cubicles were lined with posters and snap shots of things they really wished they were doing, their passions. It was pictures of them skiing or playing golf in some exotic location, or relaxing on some island get-away vacation they had. To me it all seemed so cruel, like being stuck in a prison cell with a view on the free and happy world. I never understood why these people put so much energy into their day job instead of putting their energy into making plans to escape and pursue their real dreams and passions. To me it was always a no brainer.

Things have not changed much. Every Friday I see so many people on Facebook posting “TGIF”. If you are in such a vortex of hell that the only sliver of joy you get in your life is the weekend, that is not a reason to celebrate it is a reason to be sad and reevaluate the decisions you have made from birth till now.

There are many arguments you can make and you can come up with excuses why you want to stay where you are. They are all valid and I am not here to argue with you. I’m here to ask you to look at the life you are leading now and ask you if the life you are leading now sucks, then why do you think tomorrow will be different?

Break the pattern. Below are the 5 steps I would recommend to get from where you are now to where you want to be.

  • Define the life you truly want.

Be as specific as possible. Try to picture what your life will be like when you get to where you want to be. Write it out in as much detail as possible. Be able to see it, smell it and taste it.

  • Feel that you are deserving of it and have the right to it.

Remove people from your life who are negative and who don’t support your goals and dreams. They unconsciously sabotage you into believing that you are not good enough to have what you desire. To get whatever it is you desire you have to believe that you are fully deserving of it. This is crucial.

  • Believe that you will be a lot happier once you achieve your goals.

Have absolutely no negative thought or emotions about what you want. See that your life will be a lot better in all aspects once you get what you desire and that any actions you take towards your goal is better than staying where you currently are. 

  • Come up with a plan to try to get there.

It does not have to be a perfect plan, as a matter of fact, when you finally arrive you will see the route you took will be a lot different than the one you planned. But having an imperfect plan is still better than having no plan at all and wishing that tomorrow will be somehow different.

  • Don’t get discouraged about how long it takes.

If tomorrow you are even an inch closer to the life you truly want you have succeed. Remember progress is never a straight line. It’s always 2 steps forward and 1 step back. Don’t get discouraged – every step gets you closer to your goal.

If you have a job you despise or maybe even tolerate don’t fool yourself into thinking that things will change without you taking steps to change it. Even if you go out and pursue your dreams and you fail, what have you really lost? You will always be able to find another crappy day job (which may even be better than the one you have now), but if you don’t you will suffer indefinitely. Take a chance, life is short.

Michael Page

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2012 Q3 – Report

“In the short run, the market is a voting machine but in the long run it is a weighing machine.” – Benjamin Graham

(Photo: 401K)

This is not a recommendation to buy or sell any security; this is simply how I am managing my money and how I see the market. It is also a record to track my performance.

 All commentary is based on market levels at 9/30/2012. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


Current Market Valuations:

International Markets:

International markets are overpriced by about 10% and need to drop about 30% to be a true bargain.

Emerging Markets:

Emerging Markets are slightly overpriced and need to drop little over 25% to be a true bargain.

 US Large Caps (S&P500)

S&P500 is overpriced by about 35% to fair value.

US Small Caps (Russell 2000)

US Small Caps continue to be tremendously overpriced and need to drop over 40% just to be fairly valued.


 

Current Portfolio as of 9/30/2012:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

65.40%

Berkshire Hathaway

BRK.A

15.34%

ProShares Short Russell2000

RWM

9.10%

Asian and Emerging Market Currencies

8.57%

ProShares Short 20+ Year Treasury

TBF

0.49%

Greece

GREK

.55%

Italy

EWI

.51%

Ireland

EIRL

.04%


My Current Positions:

 

Cash and Cash Like Instruments – 65.40 %
I was able to put a little cash to work over the last quarter by investing in European equities which presented a good bargain, but overall I continue to hold cash and preserve capital.

Berkshire Hathaway – 15.34%

Berkshire continues to be the core equity holding in my portfolio. It was greatly under valued earlier in the year and has risen steadily. My position in Berkshire Hathaway is really two fold; 1) To be able to take advantage of a rising stock market in a safe holding which historically should not drop as much if there was to be a crash. 2) A play on quality by going long (BRK) and shorting Russell 2000 (RWM). I am taking a position that in the long run quality stocks will out perform junkier stocks. So far it has been a profitable trade.

Russell 2000 Short – 9.1%
The Russell 2000 is currently greatly overpriced. It is possible that the stock markets will go no where for a long time but most likely outcome is a big drop in prices to bring prices in alignment with evaluations.

Asian Currencies – 8.57 %
My Asian Currency position is an insurance policy against the falling dollar. Most likely any global harsh stock market decline will be reflected in a stronger dollar but in the long run I suspect the Asian currencies will become much stronger against the dollar.

Long Treasury Short – .49%
A small position to capitalize on any large drop in US Treasuries.

Greece – .55%
Italy – .51%
Ireland – .04%
I picked up some Europe stocks when they hit their lows in July. They are up between 15 and 30% to date. Unfortunately due to the small position the performance is not enough to move the needle very much in my portfolio. My feeling is that in the near future I will get a chance to pick up a lot more stuff in Europe and will get a chance to put a lot more money to work.


Things I am Watching:

Global Cape (or Shiller P/E) is has been a good predictor of future stock market performances. Over the last quarter I picked up a number of stocks from countries which were trading at a very low Global Cape in Europe. There are currently a number of countries all which are within 20% of a true bargain. They include Russia, Portugal, Austria, Ireland, Belgium, Finland, Netherlands, France and Brazil. Greece, Spain and Italy are about 30% from their lows. I hope to put a lot of money to work once the opportunities present themselves.


My Performance:

I consider myself a buy and hold investor and judge the success of my investing over a full market cycle. The performance over a quarter or even a year is pretty irrelevant in the long run. But I am including it just for reference and record keeping.

Portfolio

3Q 2012 Performance

YTD Performance (till 9/30/2012)

My Portfolio

0.74%

0.81%

S&P 500 (IVV)

8.32%

14.33%

Total World Stock (VT)

5.60%

11.79%

 

Michael Page

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The Financial Happiness Plateau

It’s not enough. I need more. Nothing seems to satisfy. I don’t want it, I just need it.” – Tool

(Photo: Stuck In Customs)

In a previous article I wrote about what I learned from personal experience about money and happiness. The point being that increasing your wealth brings happiness, but only so much as it allows you to remove things that make you unhappy. Once you allow money to remove most of things that make you miserable (the job you hate, piled up bills, fear of going broke, etc.) then you reach a plateau. That point where more money does not make you any happier, at least not by any noticeable amount. What’s interesting is that once people reach that plateau, they usually take one of two paths. The first group realizes that money, the object that they have been placing on the pedestal for all these years, is indeed just “another thing”. These people usually go on to make a great deal more money because they now begin to see the accumulation of money is nothing but a game, a fun game. These people usually become a lot wealthier. Making money becomes more enjoyable than almost anything that money can buy.

The second group of people never learns and keeps looking for the next “happiness fix” which they think money will provide. They spend their lives believing that money will make them happy and now that they have it they can’t fathom that their ideology is wrong. They believe that their lack of happiness is caused by simply not having a faster, larger, shinier objects. They spend money on bigger and better toys, thinking that the next purchase will make them happy. Maybe it will at least make them appear happy to others, since they need the outside world to try to convince themselves. These people believe that happiness is just around the corner at the next Ferrari dealership or a yacht. Unfortunately, they usually never reach happiness or wealth but spend the rest of their lives chasing it.

This idea of pursuing happiness brings me to a fascinating article I read a few weeks ago about Lenny Dykstra. When I was very young I remember watching Lenny Dykstra play for the NY Mets in the 1986 World Series. He was quick, aggressive and fun to watch. After baseball Lenny’s life took a good turn as seen by this short bio.  

Unfortunately, no matter how successful or rich you become, if you continue to believe that your happiness is dependent on having the next great toy it eventually becomes the cancer that overtakes you. I think this is what happened to our friend Lenny. He just needed a bigger house, a bigger plane and bigger cars. Believing that happiness comes from having “things” was his downfall.

“I said, O.K., I know I’ll be happy when I buy my own Gulfstream,” says Dykstra, reflecting on the plane he purchased in 2007. “But I got down to the end of the nose, I looked back and I said, O.K., happy, come on, come on. So it’s not about the Gulfstream. But it is about the Gulfstream. Meaning it just wasn’t as good a Gulfstream as I wanted.”

Quote from Sports Illustrated Article.

That one quote really embodies what happens to millions of people who never learn to stop spending money, thinking that the next thing they buy will make them happy.

If you are poor money will make you happier than you are now. Probably a lot happier, but only so much as it lifts you from your discomfort of being poor, but after that you’re on your own.

So as you pursue and reach your financial goals, keep this in mind. There will be a point where you will have to take one of two paths when you realize that being wealthy is not all that you though it would be. But that realization is a start of something greater, it will be the next phase of your life. Use it wisely and take the path that will make you a lot wealthier and happier.

As for Lenny, our story does not have a happy ending. After being worth millions he got thirty one million dollars in debt and filled for bankruptcy and was later charged with embezzlement and theft. He is broke and serving 3 years in prison. Looking back now how much easier and less painful would his life have been if he simply learned to live a comfortable lifestyle and invested his money wisely? Instead he chased the illusion of bigger and better and thought that luxuries would bring him happiness. In the end he lost wealth and happiness along with his 1986 World Series Ring, which he was forced to sell to pay his creditors.  Money might not always bring happiness but financial stupidity usually always brings unhappiness.

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Does Money Bring Happiness?

“Money, if it does not bring you happiness, will at least help you be miserable in comfort.” – Helen Gurley Brown

(Photo: RubyRan)

Does money bring happiness? That is the universal question. People who try to answer that question usually fall into two categories. There’s the “Yes” crowd; comprised of people who usually have something to sell you. These are the people on infomercials who stand in front of sports cars and yachts and try to convince you that if you buy their product you will be rich and happy.

On the other end of the spectrum, you have the “No” crowd. This group is usually comprised of people who try to convince others, and themselves, that you do not need money to be happy. But unfortunately, most of these people are not rich now and will never be rich in the future. They can’t make a fair comparison which does not lend any credibility to their opinion.

So what is true answer?

I have been poor most of my life. I have slept in my car, lived in basements with nothing but a mattress on the floor. I lived on Ramen noodles and worried about every penny for many years. I have had a few successful businesses and I’m now financially comfortable and actually consider myself rich. I no longer have to work a regular day job. Having lived both lifestyles, I know I can answer this question honestly from experience. I am not trying to sell anything and I have no hidden agenda.

So does money bring happiness? The answer is “Yes” but not by as much as you would think. Or to put it more accurately, money does not make you happier it just makes you less unhappier.

In my experience, I found that money does not bring happiness but it simply removes a lot of the crap that makes you unhappy. If you were to write a list of the things in life that annoy and bother you, I can safely say than money would be able to solve a great deal of them.

The annoying problems that plague so many people are the same; the crappy job that you hate, worrying if your car is going to make it just a little longer, the inability to afford to take a real vacation, the constant worrying about expenses at the end of the month. The list goes on and on. All these problems add up and lower your standard of living and quality of life. Money does not necessarily bring happiness, but lack of it definitely brings unhappiness.

Money can help you solve and remove a great deal of those problems, but that is where its job ends. After you have taken care of the basic necessities and have the security of a financial safety net that is pretty much as good as it gets.

Having money also allows you to pursue things which can nudge you towards happiness such as hobbies, therapy or new experiences but overall having a yacht or a Ferrari will not make you any happier. I really wish this was not true. I wish that buying a new “toy” would make me happy, but it rarely did and when it did the happiness was fleeting.

This is not to discourage you to pursue riches and wealth, because your life will indeed be better with money than without it. But keep in mind that there is a plateau which you will reach where money will no longer be satisfactory in providing your “happiness fix”.

So the bad news is that being rich will not make you as happy as you imagined but the good news is that to reach the maximum happiness from money is a lot easier that you think. As you imagine your dream life of how happy you will be living in a mansion surrounded by fast cars, caviar and champagne the truth of the matter is that you will be just as happy as when you simply live a comfortable life with money put away for a rainy day. Having 10 million dollars in the bank will not make you 10 times happier than having 1 million.

The reason you pursue money is because you think it will make you happy, fortunately that happiness is a lot cheaper and closer than you imagined. 

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2012 Q2 – Report

“In investing, what is comfortable is rarely profitable.” – Robert Arnott

(Photo: 401K)

This is not a recommendation to buy or sell any security; this is simply how I am managing my money and how I see the market. It is also a record to track my performance.

 All commentary is based on market levels at 6/30/2012. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


Current Market Valuations:

International Markets:

Currently International Markets are trading about 10% above historic averages and would need to drop about 25% to be true bargain. There are a few European countries (Spain, Italy, Greece and a few others) which are trading at historically low CAPE valuations but overall the International Market is still overvalued. I suspect things will continue to deteriorate in Europe regardless of the positive headlines which seem to boost the market in a predictable fashion if only for a short time. But bargains are starting to appear.

Emerging Markets:

Emerging markets fairly priced, and would need to drop by around 25% or so from these levels to be a true bargain.

US Large Caps (S&P500)

The S&P500 is overvalued by about 30% and would need to drop to close to 45% to be a true bargain.

US Small Caps (Russell 2000)

US Small Caps are still tremendously over priced by about 40% and would need to drop by close to a half to be a true bargain. Once again it does not mean that they will do so in a near future, since they can go nowhere for a long time and allow evaluations to catch up. Overall I don’t see the US market trading a lot higher from today’s levels 5 to 7 years from now. And I see very little reason to venture into the broad US market at these levels.


 

Current Portfolio as of 6/30/2012:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

66.82%

Berkshire Hathaway

BRK.A

14.61%

ProShares Short Russell2000

RWM

9.77%

Asian and Emerging Market Currencies

8.44%

ProShares Short 20+ Year Treasury

TBF

0.38%


My Current Positions:

Cash and Cash Like Instruments – 66.82 %

With a large cash holding it’s easy to be tempted to chase yields but unfortunately there are very few bargains to be had and with current evaluations risk outweighs rewards.

Berkshire Hathaway – 14.61%

Berkshire Hathaway is trading slightly above its book value. I suspect if things begin to look bad in the US, Berkshire Hathaway might be caught in the undertow and trade at a true bargain. Even though Warren Buffett has stated that he plans on buying back the stock if the prices are within 10% of book value thus putting a floor on the stock price. I suspect in a true bear market crash the floor would be broken regardless of the buy back.

Russell 2000 Short – 9.77%

To me, the US market looks riskier than ever. Especially over the next 12 months and post elections (regardless of who wins). If stocks rise roughly 10% from these levels I would feel comfortable adding to my short position.

Asian Currencies – 8.44 %

I added slightly to my Asian Currency position over the last quarter, which is a hedge against the falling dollar.

Long Treasury Short – .38%

I added slightly to my position shorting the Long Treasury over the last quarter. I suspect a bear market will drag the yields even lower allowing me to add to my position.


Things I am Watching:

Currently a great number of people expect that the likely outcome in Europe would be for weaker countries (Greece, Spain or Italy) to exit the Euro. But very few people are talking about the possibility of the stronger countries (Germany, Finland) exiting the Euro to avoid being dragged under, which I think is just as likely a scenario. But overall things in Europe are starting to look cheap, specially if your holding period will be years not months or days.


My Performance:

I consider myself a buy and hold investor and judge the success of my investing over a full market cycle. The performance over a quarter or even a year is pretty irrelevant in the long run. But I am including it just for reference and record keeping.

Portfolio

2Q 2012 Performance

YTD Performance (till 6/30/2012)

My Portfolio

0.45%

0.03%

S&P 500 (IVV)

-3.15%

8.57%

Total World Stock (VT)

-5.29%

5.86%

 

Michael Page

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How To Determine Fair Price For A House In Under 2 Minutes

“Once again large segments of the population have come to believe that they have found the way to unending wealth by doing little or no real work.” – Anonymous

When I first moved to Florida around 2005 real estate was on everyone’s mind. It seems that no matter where I went, everyone I met talked about planning to buy a property or about the property they just bought. Everyone was expounding the virtues of owning a home. They would go on about what a great investment it is, how prices on houses have never gone down and why I should buy immediately!

There were a few things I remember that really bothered me and made me believe that this would all end badly. Looking back, I was probably the only person in Florida who felt this way in 2005 but as Warren Buffett says “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

The few things that really stuck out to me during that time were:

  • There were just too many people mouthing the same clichés about the virtues of buying a home. My question was always, “Why now?” Where were these people 10 years ago when prices were more than 25% cheaper? If today is a good time to buy, then ten years ago was even better. Where was the enthusiasm back then?

  • The arrogance of real estate agents. I specifically remember looking at a few properties and it seemed like the real estate agents felt they were doing me a favor by showing me the property. I have always found that whenever you buy something from someone who feels they are doing you a favor by selling to you, there is a good chance you are over paying.

  • The rule about investing is to be greedy when others are fearful and fearful when others are greedy. There was way too much greed in 2005, which was a sign to me to be fearful.

But the straw that broke the camels back was when I remember reading a news story about a few strippers who stopped stripping because they were making more money flipping houses. A good rule of thumb is that anytime you hear news stories about strippers getting into a new line of work be it Flipping houses or Day Trading odds are there is a bubble. That is not to say that all strippers are stupid or uninformed, (having dated a few). But it does mean that when the mainstream media starts doing stories which ties strippers with particular hot finance topic of the day chances are that we have jumped the shark.

Needless to say, I did not buy when I first moved to Florida. I chose to rent and I am still renting now. However, I’m starting to think about buying for the first time since living in Florida seeing that the prices are starting to look fair.

So how do you decide when is the right time to buy a house? How do you decide what is a fair price to pay for a property? How do you avoid a bubble? There are a number of indicators such as price to income ratios, debt to service ratios or price to rent ratios which can give you a rough idea if you are purchasing a property at a fair price. All of the above are a bit complex since they require some digging to come up with the numbers and only give you a rough approximation for the area.

Below is my simple back of the napkin 3 step formula to help determine what is a fair price to pay for a house or condo and takes less then a two minutes to determine.

Step 1: Forget all the clichés about a house being a great investment and that prices will keep going up. That is simply not true. Robert Shiller, who looked at home prices for over a century, has found that houses increase in value at roughly .2% above inflation. That is all. Assume that anything you buy will appreciate with inflation, anything above that is wishful thinking and luck.

Below is inflation adjusted Real Estate prices through 2Q 2012. As you can see prices are only now getting closer to historic averages.

Step 2: Determine the property you want to buy or something very similar in that area. Then look up historic sales prices on Zillow.com. Find the price of the property you are interested in (or similar) and look at what it sold for around 1992 to 1996 year range. This is a safe range to look at since those are U.S. pre-bubble prices and are a lot more accurate.

Step 3: Go to inflation calculator and plug the price the house sold and the year to determine what that means in today’s dollars. Assuming that no major renovations have been made to the property this is a fair price to pay for the house or condo.

It’s that easy. You are basically taking pre-bubble prices and assuming the housing appreciated with inflation. If you were to do this during the real estate bubble, you would see that prices have shot up over 25% above inflation prices in almost all the areas of the country and we are in a huge bubble. Then again, the housing bubble was like any other bubble in finance and was never about logic or reason; it was about greed and delusions.

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How Rich Would Warren Buffett Be If He Never Invested In Stocks?

“I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” – Warren Buffett

(Photo:MarkGregory007)

Warren Buffett has had a big impact on my life, not only by shaping how I view investing, but also how I view the world around me. Over the years I have read dozens of books about him and I have attended the annual Berkshire Hathaway shareholder meetings for close to a decade.

I thought it would be interesting to look at Warren Buffett’s wealth in a little more detail.

Below is a table of how much wealth Warren Buffett accumulated by what age. I adjusted it for inflation so all the numbers are in today’s dollars.
(Sources: Warren Buffett Wealth and Fortune Magazine)

Warren Buffett’s Age Warren Buffett’s Net Worth
   
11 $1,784
14 $65,365
16 $70,795
19 $94,741
21 $174,670
26 $1,184,261
27 $2,579,245
30 $7,773,142
32 $10,666,192
33 $18,045,882
34 $25,235,129
35 $51,130,000
36 $56,811,111
37 $68,887,725
39 $156,733,650
43 $176,191,210
44 $88,673,730
47 $254,384,400
49 $443,690,000
52 $896,496,900
53 $1,432,256,000
56 $2,939,041,000
58 $4,473,334,000
59 $7,050,991,000
66 $24,196,300,000
72 $45,658,800,000
77 $68,800,600,000
78 $39,540,200,000
79 $50,406,200,000
80 $52,758,200,000
81 $45,006,600,000
 

What I really want to focus on is how much wealth Warren was able to accumulate between age 11 and 21. Even though he purchased his first stock when he was only 11, he really did not start to invest successfully and professionally till he was in his mid 20’s. So the wealth accumulated before age 21 was mostly done through jobs and businesses he started.

What’s most interesting to me is that even before he started investing successfully he was able to accumulate close to $180,000 by age 21.

Here is how Warren did it:

At age 13 he had 5 newspaper routes delivering 500 newspapers, which made him $175 a month (around $2300 in today’s money). He then started a business selling used golf balls. At age 14 he purchased 40 acres of farmland with $1200 he had saved and leased it out. By age 16 he had read over 100 books on business and decided that he would be a millionaire (almost 8 million in today’s money) by age 30. He reached that goal.

In high school he purchased a used pinball machine with a friend and started a business placing them in barbershops and splitting the revenue. Soon he had 7 pinball machines around town making about $50 a week ($480 in today’s money). He later sold the business for $1200 (around $11,500 in today’s money). This was all done before he went college.

Here is a chart of his net worth from age 11 till age 21 in todays dollars.

As you can see from the chart, even if Warren never invested in stocks, it is safe to assume that he would still be a multi-millionaire today.

There are a lot of ideas and concepts that help make Warren Buffett one of the richest men in the world. I believe one of the main reasons was that he simply loved accumulating money and watching it grow. From an early age, he loved accumulating money even more than spending it. I have found that it is almost impossible not to become rich when you have that mentality.

Michael Page

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Do Really Rich People Make Better or Worse U.S. Presidents?

“I think that’s most unfortunate about our Democratic system, that you’re confining it to people who are either very wealthy in their own right or have capacity to gain access to large amounts of money.” – Birth Bayh

(Photo: Stuck in Customs)

With the upcoming election, a lot is being said about Mitt Romney’s wealth, which is estimated to be around 230 million dollars compared to President Obama’s net worth of only around five million. Many people insinuate that a person who is born into great wealth or is very wealthy might be out of touch with the common person, and therefore might not be a good leader for the country. But is that true? Do less wealthy people make better presidents compared to really wealthy ones? Since I have not seen anyone in the media look into this, I thought it would be interesting to find out.

The net worth of every U.S. president at their peak was recently calculated by 24/7 Wall St. and adjusted for inflation. The results are slightly skewed since a few presidents made the majority of their money after leaving office (Bill Clinton) and a few lost money (Thomas Jefferson), but overall, it should give a good approximation.

We can also look at historical rankings of presidents based on surveys of academic historians, political scientists and popular opinions which rank all U.S. presidents on such qualities as achievements, leadership, failures and faults. Wikipedia keeps a list of the major surveys. If we combine all the surveys, we can get a pretty accurate consensus of just how good, great or mediocre each president of the United States was.

If we look at the data, we can compare how great a president was compared to his net worth and see if there is any correlation.

But first is to dispel a common belief that any person despite his wealth or upbringing has an equal chance of being the president of the United States. It is a good sound bite and looks good on paper, but has not been true. Almost every president of the United States has been born into at least an upper middle-class family. The poorest being Andrew Johnson who was born into the upper part of the lower class. (Abraham Lincoln despite the legend was born to a middle-class family.)

So what we are really calculating is the question “Do semi-wealthy people make better U.S. presidents than really wealthy people?” Let’s take a look:

The three richest presidents have been:
(inflation adjusted)

  1. John F. Kennedy – worth almost one billion dollars.
  2. George Washington – worth almost 500 million dollars.
  3. Thomas Jefferson – worth 212 million dollars (although died in debt).

The poorest presidents who never were able to amass over one million dollars over their lifetime have been:

James Buchanan, Abraham Lincoln, Andrew Johnson, Ulysses S. Grant, James A. Garfield, Chester A. Arthur, William McKinley, Woodrow Wilson, Warren G. Harding, and Calvin Coolidge.

The top three best-rated presidents have been:

  1. Abraham Lincoln
  2. Franklin D. Roosevelt
  3. George Washington.

The 3 worst U.S. presidents have been:

  1. Warren G. Harding
  2. James Buchanan
  3. Andrew Johnson

Here is the complete list. The table includes the presidential rating, net worth and the president’s net worth ranking, which was derived by sorting all the net worth numbers in order from the lowest (poorest) to the highest (wealthiest). I assigned the rating of one (lowest rating) for all the presidents whose net worth was under one million dollars.

Name President Rating (Lower the Better) Net Worth (Inflation Adjusted) President’s Net Worth (Lower the number the lower the net worth)
       
George Washington 3 $525,000,000 28
Thomas Jefferson 4 $212,000,000 27
James Madison 13 $101,000,000 24
John Quincy Adams 18 $21,000,000 14
William Henry Harrison 39 $5,000,000 5
John Tyler 36 $51,000,000 20
Zachary Taylor 35 $6,000,000 6
Benjamin Harrison 33 $5,000,000 5
Theodore Roosevelt 5 $125,000,000 26
William Howard Taft 22 $3,000,000 3
Franklin D. Roosevelt 2 $60,000,000 21
James K. Polk 10 $10,000,000 9
John F. Kennedy 11 $1,000,000,000 29
John Adams 12 $19,000,000 12
James Monroe 14 $27,000,000 18
Woodrow Wilson 6 $1,000,000 1
Franklin Pierce 40 $2,000,000 2
Rutherford B. Hayes 25 $3,000,000 3
Grover Cleveland 19 $25,000,000 16
Warren G. Harding 43 $1,000,000 1
Calvin Coolidge 31 $1,000,000 1
Harry S. Truman 7 $1,000,000 1
Andrew Jackson 8 $119,000,000 25
Martin Van Buren 24 $26,000,000 17
James Buchanan 42 $1,000,000 1
Ulysses S. Grant 37 $1,000,000 1
Chester A. Arthur 28 $1,000,000 1
William McKinley 20 $1,000,000 1
Herbert Hoover 30 $75,000,000 22
Lyndon B. Johnson 15 $98,000,000 23
Gerald Ford 26 $7,000,000 7
Jimmy Carter 27 $7,000,000 7
Abraham Lincoln 1 $1,000,000 1
Dwight D. Eisenhower 9 $8,000,000 8
Ronald Reagan 17 $13,000,000 10
Millard Fillmore 38 $4,000,000 4
James A. Garfield 29 $1,000,000 1
Richard Nixon 32 $15,000,000 11
Andrew Johnson 41 $1,000,000 1
George H. W. Bush 23 $23,000,000 15
Bill Clinton 21 $38,000,000 19
George W. Bush 34 $20,000,000 13
Barack Obama 16 $5,000,000 5

 

The chart below plots the president’s ratings in relation to their net worth.
The top left corner would be the worst-rated presidents who were also the poorest.
The bottom left corner would be presidents who were the best rated and poorest.
In the top right corner are the worst presidents who were the wealthiest.
In the bottom right corner are the best presidents who were the wealthiest.

The trend line shows that in the U.S., the pattern has been that wealthier people do indeed turn out to be better leaders on the average and make better presidents.

But what if we remove the amount of money they made, and focus only on what type of family they were born into? Are the people who are born into less affluent families turning out to be better presidents?

For that I had to find a 1986 book called The Log Cabin Myth: The Social Backgrounds of the Presidents by Edward Pessen who did the research into the families of past presidents.

He ranks all the presidents into eight tiers, based on the wealth of the families they were born into. Here are his findings: (The list stops with Ronald Reagan.)

Tier 1: Upper Upper Class
George Washington
Thomas Jefferson
James Madison
John Quincy Adams
William Henry Harrison
John Tyler
Zachary Taylor
Benjamin Harrison
Theodore Roosevelt
William Howard Taft
Franklin D. Roosevelt 

Tier 2: Upper Upper Class and Lower Upper Class
James K. Polk
John F. Kennedy

Tier 3: Lower Upper Class
John Adams
James Monroe
Woodrow Wilson

Tier 4: Lower Upper Class and Upper Middle Class
Franklin Pierce
Rutherford B. Hayes
Grover Cleveland
Warren G. Harding
Calvin Coolidge
Harry S. Truman

Tier 5: Upper Middle Class
Andrew Jackson
Martin Van Buren
James Buchanan
Ulysses S. Grant
Chester A. Arthur
William McKinley
Herbert Hoover
Lyndon B. Johnson
Gerald Ford
Jimmy Carter

Tier 6: Middle Class
Abraham Lincoln
Dwight D. Eisenhower
Ronald Reagan 

Tier 7: Lower Middle Class
Millard Fillmore
James A. Garfield
Richard Nixon 

Tier 8: Upper Lower Class
Andrew Johnson

Here is how the tiers look based on their average president’s ranking.

The lower the reading on the vertical axis the better the president. As you can see, Tier 1 and 2 (presidents born into the wealthiest families) have an average score of around 20. As we get into families born into slightly less wealthier families (Tier 3), the ratings improve. Then the ratings get worse, till we get to Tier 6 (Middle Class) at which the ratings become good again. Followed by Tier 7 and 8 (Lower Middle class and Upper Lower Class).

If we plot the numbers to look at the trend line, we find that better presidents tend to be born into wealthier families compared to presidents born into poorer families.  

Since the book stops with Ronald Reagan, I will attempt to guess into which tier the presidents since Ronald Reagan would most likely have been placed into.

George H.W. Bush, born to the family of Prescott Sheldon Bush who was a Wall Street executive banker and Senator, would be most likely considered Tier 2 (Upper Upper Class and Lower Upper Upper Class).

Bill Clinton was born to a middle-class family (his father was a traveling salesman, who died before Bill was born). At age 4, his mother remarried an owner of an automobile dealership. Most likely, Bill Clinton would be considered either Tier 5 (Upper Middle Class) or more likely Tier 4 (Lower Upper Class and Upper Middle Class)—based on his wealthier stepfather.

George W. Bush was born to George H.W. Bush who was a successful business man by the time George was born. George W. Bush would be considered Tier 2 (Upper Upper Class and Lower Upper Upper Class).

Barak Obama was born into an upper middle-class family or Tier 5.

If we factor these presidents into the data, the graph does not change very much and the trend line still shows that people born to wealthier families on the average tend to be better presidents compared to the people born into poorer families. With the best U.S. presidents coming from the middle class or lower- upper-class families and the worst presidents coming from the lower middle class and upper lower class.

If we assume that the future correlates with the past, a bias could be made favoring candidates born into wealthier families. Or another way to look at the stats is to say that people who are born into poorer (lower middle class or upper lower class) have tended to make worse presidents on the average, not better.  

In life at times reality often is the opposite of what we expect.

Michael Page

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Seeing Through the Matrix – The Difference Between What You Think You Want And What You Truly Want.

You can’t always get what you want” – Rolling Stones


(Photo: Stuck in Customs)

One of the most important underlying points of my writings is the idea that to be successful, you have to view the world and yourself differently. You need to be able to see through the matrix. In other words, if you think like everyone else, you will get the results of everyone else. To get extraordinary results, you need to think differently and only after that, everything else will follow.

The Law of Attraction says that “like attracts like.” If you think positively, you will get positive results; if you think negatively, you will get negative results. Many people mistake that to mean that the universe is there to give them that which they desire. I have not found that to be totally true. I have found that the universe is not there to give you what you desire, but instead is there to give you what you desire, but can at the same time handle.

Let’s take the two areas that I have had abundance in: women and money. If you ask a typical man to list out what things they desire most, I can almost guarantee that women and money would be somewhere in the top five. But if that is the case, why is the law of attraction not working in their favor? Why are most people living in scarcity, not abundance when it comes to their dating life and money? The answer is that the Law of Attraction IS working, but it is giving them what they truly desire and what would make them happy, not what they think they desire and what they think would make them happy.

Let’s take women, for example. If you ask a typical guy if he would want to date a swimsuit model, almost all will say “yes.” But the truth of the matter is that the true answer is NO. An average guy would not be able to date a woman who is too far out of his league. And by league, I do not mean looks, I mean personal and sexual confidence. When an average guy dates a truly beautiful woman, even if the woman is really into him, he eventually finds a way to sabotage the relationship. The guy usually starts getting jealous and becomes more and more controlling till the relationship disintegrates. I have seen this over and over and over again. So when the average guy says he wants to date a truly beautiful woman, the fact is that subconsciously he does not. What he truly wants and what he thinks he wants are two completely different things.

Let’s look at money. Everyone says they want to be rich, but is that the truth? The answer again is NO.

Let’s look at lotto winners. If you asked every single lotto winner before they hit the jackpot if they wanted to be rich, I can guarantee that 100 percent of them would have said “yes.” Yet almost 70 percent of lotto winners will go broke [1] after they become rich. Why does this happen? It happens because when people who don’t have a prosperity consciousness come into large amount of money, they tend to get rid of it quickly because subconsciously they feel more comfortable and happier being poor. I know how ridiculous that sounds, but the stats do not lie. What they truly want and what they think they want are two completely different things.

So if you live in scarcity and feel that you want to be rich and date beautiful women, the truth of the matter is that you subconsciously probably don’t, else you would already have it. If both of those things fell into your lap tomorrow, there’s a very large chance that you would find a way to sabotage it and be right back where you are now. But that is what is so great about how the universe works. The universe is really there to serve you. It gives you what you truly want, not what you think you want. And what’s even better is that to get what you want in life, the most important thing that is required of you is for you to change your thinking.

You need to feel deserving of the things you truly want and make them the things you want. The quicker you can align what you truly want and what you want, the quicker they will come into your life. The quicker you can get rid of any negative connotations you might have, no matter how small towards that which you want, the quicker you will have it.

For me, affirmations and visualizations are the best way I found to make that happen, and I attribute the majority of my success to it. I will have more to say on affirmations and visualizations in later articles.

In life, you probably won’t get what you want, but you will get what you truly want, feel deserving of and can handle, and it will usually come with very little effort.

Change your thinking, and everything will fall into place. Start seeing through the matrix.

Michael Page


Reference:

1. Financial planners: Winning the lottery isn’t always a dream

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