The actions, mindset & strategies needed to succeed in achieving the 1% level are not going to be very useful to achieving wealth towards 0.1% or higher.
Some examples down below. 👇🏼
• The 1% are attempting to achieve retirement by 65, but the 0.1% are planning how to do it before 30 (many do it by 25).
• The 1% save their way to prosperity very very slowly, while the 0.1% use the abundance mindset so instead of saving they are GROWING their income rapidly
• The 1% stay away from debt as their financial advisors call it a “sin”, while the 0.1% leverage OPM (other peoples money) to make their fortune faster & as long as the debt is serviced with income producing assets, the 0.1% want to take on more — not less — debt!
• The 1% focus on investing only via index funds or stock picking with monthly contributions, while the 0.1% are usually not investing in other people’s businesses or idea... but instead creating & executing their own which eventually help them make fortunes at the exit
• As soon as the 1% reaches a millionaire status, which took them almost their whole lifetime, they become very risk averse & scared.
• There is an saying in wealth circles to never get advice from a millionaire as they are very scared & protective they might lose it
There is a lot of advice out there on how to achieve financial retirement by the age of 65 or even late 50s.
Work hard, save, invest into index funds, save some more, stay away from debt, live below your means, etc, etc.
This advice is solid, but...
Have you noticed there is not a lot of advice on how to make your first $10 million or $50 million?
Why?
Because most people don’t know how to accumulate wealth without the “save + invest until 65” formula.
The things one requires to make a couple of millions by 65, is completely different to that of what it takes to achieve several 10s or 100s of millions.
Different tactics, actions & strategies, a completely new mindset & surrounding yourself with different mastermind.
Finally, when it comes to a thread like this — it is important to state that negative comments usually arise from people who assume that wealth accumulation is linked to greed, instead of being a great challenge.
What you do with money, that is your call.
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Unless there is a year-end rally, the Chinese stock market is on track for the fourth down year in a row. This is exceptionally rare for any global market.
Several key names — Alibaba, JD, Tencent, etc — show just how much corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).
In many cases, FCF per share is at or near record highs while the share price is near multi-year lows (in some cases decade lows).
See the $JD chart below.
Alibaba $BABA corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).
Tencent $TCEHY corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).
Despite a very strong 10-month rally in stocks, most global fund managers are still overweight bonds (risk averse) and underweight stocks (risk seeking).
Some sentiment surveys do suggest bulls are back, but the lion's share of capital (managed by funds) is still defensive.
Asset allocation by an average retail investor (AAII) and an average fund manager (BofA).
The sentiment correlation is quite close over the last two decades, but it starts breaking down in 2016.
We think more & more passive LT indexers, hence retail is persistently bullish.
In February of this year 4 out of 5 fund managers expected China's GDP to outperform. We know quite a few investors who held this consensus view, as well.
The Chinese economic GDP has disappointed since. Today, only 1 out of 5 fund managers believe China's GDP will reaccelerate.
1) Global economy has completely changed since the 1970s.
Today, intangible asssts (brands, patents, software, licenses, IP, etc) are twice as large as tangible assets (factories, plants, etc), which dominated the company investments 50 years ago.
This has many consequences.
2) Intangibles are expensed via the P&L statement, so they often don’t show up on the balance sheet the way tangible assets do (they are capitalised via cash flow statement).
Now, think how framing an investment as an “expense” will have a meaningful on financial metrics.
3) Intangible investments artificially suppress the net income (all of a sudden you have all these additional “expenses” which are really investments).
Therefore the P/E ratio is becoming obsolete and probably (almost) irrelevant.
If ROC is higher than WACC, growing revenue adds shareholder value.
If ROC is lower than WACC, focusing on growth destroys shareholder value.
If a money losing business attempts to grow faster by cutting prices to gain even more market share, it leads to an adverse outcome.
How should management think about growth vs profitability?
If the business is generating excess ROC (above WACC) then focus on stable growth is intelligent.
However, if the business isn’t generating excess ROC, the focus should turn from growth to improvement in profitability.
The management teams should refocus on growth drivers only when the cash return on operating capital employed has increased in excess of weighted cost of capital and that is now validated & consistent pattern (not a multi year cyclical event, like with commodity businesses).
Buffett repeatedly stated that value and growth are two sides of the same coin.
Graham purists (who disregard the asset's quality) commonly fall into value traps, because valuations tell them nothing without understanding the business's growth potential.
Simplified example. 👇🏽
Alphabet $GOOGL currently trades at 15.7x forward operating income.
Is that cheap or expensive?
We think that using such quick-and-easy metrics cannot help us in our due diligence process — it only leads to decision-making errors.
Simplified answer:
a) if the business can grow meaningfully from here the current multiples entry will prove to be cheap
b) if the business's economic moats start narrowing abruptly, resulting in disappointing grow and market share loss, it might prove to be a value trap
"What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact." — Warren Buffett
It seems Alibaba investors are falling victim to confirmation bias the whole way down the slippery slope, which started in October 2020.
While some disagree, an attempt to pump the IPO by cutting the prices of services is a clear sign of management's short-termism culture and lack of capital allocation discipline.
Artificially generating revenue at any cost is not how most great CEOs and management teams think.