Bubbles Are Good

There's been a lot of talk about bubbles in real estate markets lately; namely in Canada, China, Australia and probably some other places that I haven't read or heard about.

That got me thinking, though, as I've lived through a couple bubbles myself. And yes, I did lose my pants on one of those bubbles. Or maybe it was someone else's pants, because the majority wasn't my own money?

But... bubbles are good, are they not? Sure, large swaths of people lose their money... hell, practically every bubble-time investor loses his or her money. A lot of people who were too enthusiastic even get wiped out completely, never to re-emerge from their financial quagmire ever again.

Still, bubbles are good because they build a lot of needed infrastructure.

What happened during Railway Mania of the 1840's in Britain?

You guessed it. People were investing like crazy in railways... a lot of railway infrastructure was being built... and then... BAM! Everyone lost all their money. But, what good happened? Well, a lot of needed infrastructure was built.

How about the Dot-Com Bubble? Same thing! We got massive expanded Internet infrastructure from that. Thank-you foolish investors.

Those are just two examples of how bubbles contribute to expanded infrastructure, which is a good thing. They steal money from investors, and give a good back to society. As long as you don't invest in a bubble, you benefit.

Here's a chronological list of bubbles off the top of my head, that you can take your time and peruse (and think of, the next time everyone is telling you to invest in this, invest in this!):

(Year of crash) Bubble Name

(1637) Tulip Mania

(1720) South Sea Bubble

(1846) Railway Mania

(1929) Roaring Twenties

(1991) Japanese Asset Price Bubble

(2000) Dot-Com Bubble

(2005) United States Housing Bubble

(2007) Uranium Bubble... WTF?! Uranium?!

(throughout history) Gold Rush

History is so interesting, isn't it?

Parental Failure

A great man once said (and his son tweeted), "A parent's only as good as their dumbest kid. If one wins a Nobel Prize but the other gets robbed by a hooker, you failed." (found here: http://twitter.com/shitmydadsays)

Okay, so basically, I totally agree. Why? Because a lot of parents don't contribute much to their children's success. Some do, many do not. And why are you here reading this blog? For financial success, right? You don't have to become a gazillionaire to be considered financially successful, but you have to be able to take care of your loved ones.

That said, teaching your kids to be successful is an important part of parenting. Sure, lazy and aloof parents do sometimes end up with hugely successful children... but those are the special people among us (*ahem*, that's not most people). Proper and balanced guidance is what makes a good parent and it's those kids that end up really well-off, for the most part.

As a parent, you need to properly guide them: if you want them to be better than you, don't teach them what you think you know. Find them suitable role models and/or some type of educational aspirational leader. You also need to be balanced: don't be all up in their business, watching everything they do... don't be a helicopter parent (and as said before, don't be aloof).

Let's give you some solid examples:

Little Jamie: Daddy, I want to become a lawyer.
Daddy: No need honey, you'll find a rich husband!
FAIL

Little Jamie: Daddy, I want to become a lawyer.
Daddy: That's good, dear. Good luck.
FAIL

Little Jamie: Daddy, I want to become a lawyer.
Daddy: Okay, you go find out how, and I'll pay for your education.
(Uhh... hello, most kids will never go find out how.)
FAIL

Little Jamie: Daddy, I want to become a lawyer.
Daddy: Well, there are different types of lawyers, what kind do you want to be?
Little Jamie: What? I thought there was only one type. Like on TV.
Daddy: The ones you see on TV, dear, are criminal lawyers. They either defend (help), or prosecute (try to put in jail) bad guys. But also, there are real estate lawyers... family lawyers... corporate lawyers... etc.
(After explaining extensively the types of lawyers out there and what they do...)
Little Jamie: Oh, I think family law sounds good. I want to help mommies.
Daddy: That's great! So, you're in grade 8 now... that means in high school you'll have to... and in university, you'll have to...
WIN

As you can see, regardless of the intelligence or ambition of your child, ALL children benefit from the last scenario.

How Much Would You Rather Make?

Which scenario would you rather have (all else being equal)?

A) All your friends and relatives made $70,000/year, and you made $80,000.

B) All your friends and relatives made $100,000, and you made $90,000.

Really, which situation would you rather have? Surprisingly (or not), most people said that they'd rather have option A. That does not make logical sense. It does, however, make emotional sense.

You wanna be better than everyone else, don't you? You want to be higher on the pecking order, don't you? You wanna feel good about yourself!

As for me, I'd take option B, not because I have no emotion... but because I know that most people would just waste their money buying useless crap (I used to do that). And I'd save... so eventually, I would be much richer than them! Suckers!!!

As an aside, in some cultures (I'm talking Chinese right now), the husband absolutely has to make more money than the wife. Couples have broken up, engagements have been called off, marriages have failed because the wife made more money than the husband. I kid you not.

Because of a Chinese man's ego, he has to make more than his wife and his friends/relatives. But, he especially has to make more than his wife. I did an informal survey at a class I taught in Taiwan, and every single one of the males said they'd rather make $60,000 NT a month, with the wife making $40,000... as opposed to them making $100,000 and the wife making $120,000. That is CRAZY! They'd rather cut their total household income in half, just because they want to make more than their wife. Shoot... I'd rather just let my wife work, and I'd find some way to breastfeed the kids myself.

Nothing is Really Yours

It's true. Nothing is really yours. Sometimes, not even your own body is yours (in the case of prisoners being taken or wars being fought). But let's talk about a stable society; what is really yours?

Let me qualify the definition of "yours." Something that is yours must be yours forever, and should be able to be yours, regardless of your situation.

Therefore, food can actually be yours, because once you've eaten it, it's gone and you used it up. So, I guess things that are used up are yours; such as food, shampoo, water, etc. And maybe small things, too? Like, if you buy a hand-held video game system... it's small and you can keep it and no one can take it away from you by legal means. And if you went broke, well, you could still keep it.

But, what is not yours? Well... people think that a house is theirs. But hell, it's not! Firstly, the vast majority of people borrow money to buy their house. So, if you don't make those mortgage payments, guess what? It's no longer yours. Secondly, even if someone gave you a house, but you had no job... I'm pretty sure that you wouldn't be able to keep it as yours. You wouldn't be able to pay the land tax! And that's not even including the costs for you to have water, electricity, etc.

And with a car... you can imagine why it's not yours, either; gas, maintenance, insurance, etc.

Invest In Yourself

I once read a book called, "The Ultimate Cheapskate's Road to Riches," or a title of that nature, and he posited that we spend too much time thinking about how to make our money work for us, when in fact, most of us would earn the vast majority of our money through our labour. That got me thinking, obviously.

Think about it... all these people are selling you books, advice, newspaper articles, tapes, etc. to try to tell you how to make money with your money. But, how the hell are they making money? Through their labour! They're frickin' tricking you! You heard it here first.

So, I say that you should invest in yourself. School, learning and training really are investments in yourself. Don't let anyone say that further education is a waste of time (their breath is a waste of time).

Think about it this way; you can get maybe $50,000 a year gross... after federal and provincial income tax in Canada, you'll be getting around $40,000 per year. Let's say you're an amazing saver and you save a waaay above-average amount of 25%. That's $10,000 per year that you can get to work for you. Now let's say you get an above-average return of 10% per year... that's $1,000 profit in the first year. Then, $1,100 in the second year. $1,210 in the third year. $1,331 in the fourth year and finally, $1,464 in the fifth year.

So, whoop-de-doo... you get a total of $6,105 over five years, for a total return of 61% on your money from that first year of saving. It sounds like a large percentage (which it is, and I would say nearly impossible in today's economic climate), but in absolute terms, $6,105 over five years is slim pickings.

Let's look at investing in yourself now. Regardless of what job you do or what industry you're in, there's always ways to upgrade yourself, making you more valuable, and thus you being able to earn more. If you got yourself a recognized certificate in your industry from the local college... it would cost you maybe $2,500 and maybe a couple hours, three nights a week, for six months. After you get the certificate, you can probably command 15% higher wages... which equals $57,500 per year now. That's take-home pay of approximately $46,000 per year... $6,000 more than what you previously would've taken home.

Look at that! 240% ROI (return on investment) vs. 161%. And you'll get this extra amount every single year after that, and you don't even need to scrimp and save to get it!

Sure, it seems like investing in yourself takes more work, because you have to study and stuff... but watching your "investments" all day isn't my idea of fun.

Passing on Your Business to Your Children

As a somewhat-continuation to my previous post, let me now discuss why the kids of the founders (or the grandkids of the founders) of a particular company can keep running the business from the helm. How is it that those kids take over from their parents, and the business continues to do fantastically?

We all know the outcome of businesses that are passed on to inept heirs... so let's not discuss that here.

So, for family companies that are passed onto children (Legacies)... we know how they got to the top, but... how do they manage to do a good job? Think Ford, Magna, Loblaws, etc.

Well, the answer is that the children grew up in that particular business environment. Firstly, they were constantly exposed to the inner goings-on of the business at home. Their parents would constantly be discussing the business at home... and the kids were right there to listen. What do your kids hear you discussing at home? Buying the latest electronics? Gossip about friends? Crappy investments, at best! Legacies are already one-up on your kids by the time they're entering high school.

Then, in high school, kids inevitably get part-time jobs to pay for stuff that they want; gPhones, auto-carriages, dinners, movies, etc. Legacies go and work at their parents' companies. Sure, their job is menial for now, but they're in the environment that they'll soon be at the helm of. Not only that, but they get to know things that not any plain old employee would get to know. Furthermore, their parents expect highly of them and demand highly of them and are watching them (and guiding them). What do your kids do for a part-time job? Well... McDonald's... Wendy's... Shopper's Drug Mart...

In addition to that, the business-owner-parents teach their kids to think like owners. You probably teach your kids to think like workers.

Lastly, those Legacy kids will just get higher and higher positions as time goes on. Higher position means more responsibility equals greater learning.

That's three-up for Legacies, zero for regular kids.

Your Boss, Your Previous Boss' Son?

Isn't it sad when you've worked for a company for 20-odd years and one day you realize that your boss is now the son of your former boss? The owner of the company you work for has now passed it on to his children... and all-of-a-sudden this kid's on top and you're somewhere in the middle, or worse yet, on the bottom? That really blows.

It's even worse when this kid treats you like any other worker, and you were the one showing him around the office when he was still in high school! Bastard!

Anyway, that's just another reason for you to be more ambitious. Don't make it your goal to work at one place for the rest of your life... take those skills and make something for yourself.