Producers vs. speculators; how to gain upper hand in creating wealth

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In Peter Bruegel’s Never-Never-Land, lazy sots wait for food and drink to fall into their mouths, a goose lies down on a platter ready to be eaten, and a partly cut-up pig waits to be devoured. Ah, prosperity for all — and no effort! (Dover Books).

(Second of three parts.)

When people think of investing, they think, “I must go to some investment counselor and I must send my money off to New York or London or some place because I cannot do that myself.”

That’s exactly wrong. You need to invest in yourself first. Small businesses (every enterprise from a drycleaner to a manufacturing plant with $20 million yearly sales) make a more consistent and higher profit than any other undertaking in the United States, about 20 percent on capital invested.

So your own business in your own locale, the business you know best of all, is by far your most lucrative investment. It’s hard to beat 20% year in and year out.

Gambler & producer compared

Increasing your skills builds wealth in yourself. Obviously, you can also build wealth outside of yourself, too, as you accumulate productive assets, but building wealth looks at the world differently from solely seeking money profits. That other way says, “How can I snatch money profits out of this? How can I make this one raid into the market, grab some money, then take my profits and run?” The time horizon is very short, maybe less than eight hours, certainly not 100 years.

An utterly different view of permanence and continuity goes with the productive mentality. Here’s an example of wealth versus money profits. I have a dear friend from the middle of a Southern state. Sixty years ago, that was some of the poorest country in the world because its wealth had all been destroyed in the War Between the States and had never recovered.

Her grandfather had come to that area and started a little bank in the 1880s. His two sons carried on his work, but not merely by lending money. They looked for businesses to invest in. They did lend money, of course, but when they saw a business that they liked, they invested their own money. They invested in chicken farms and chicken packing plants and lumberyards and timber operations, and all of those enterprises that would produce something from the resources around them and build up the local economy.

Naturally, they were looking for a profit; they weren’t just altruistic souls. They invested in these businesses in the fifties and the sixties. By the time they died in the late 1980s, they had about a dozen grandchildren and those investments in only one of those enterprises were a huge inheritance for every descendant.

What had they done? They had enabled everyone in their local community to prosper by concentrating on building wealth instead of snatching money profits. When they invested in an enterprise, they didn’t expect to take any money out of it for five years, ten years, 20 years, maybe not even in their lifetime, but they kept constantly building wealth. They mined the diamonds in their own back yard.

Building your own place

Folks tend to think of investment as something incomprehensible, very sophisticated, and magical that happens some place far away. What is mundane and right next to us, the basis of day-to-day life, cannot offer the same magical investment opportunity. That’s not true.

John Edward Hurley said, “Culture is the integration of the divine in everyday life.” I love that statement because it requires you to look at the world around you with wonder. When you go to invest locally, you have to look at the world around you with wonder. You have to see something deeper than the everyday and the mundane. You have to see the opportunities hiding there, and naturally the risks, too.

First of all, you have to learn to trust your neighbors, or to learn which neighbors are trustworthy. Actually, it goes deeper than that. It’s not learning whom you can trust with your money, but whom you can trust with your life. A different human relation takes place, trust and friendship that goes much; much deeper because you are working together to build wealth.

You have a common interest and you must have a common love for each other. (I mean “love” as in the Golden Rule.) You need community, if not family, and a common commitment to community. You must decide that you are going to stay here, and therefore you’re going to make it a better place to live.

Enough of trusting in experts

Before they invest Americans must overcome all the wrong lessons they’ve been taught. Chief among those is that it is possible to pass responsibility for your own life over to somebody else. You can’t ever do that. Responsibility always comes home. If the bank or brokerage goes bankrupt and loses my money, they don’t pay, I do.

Maybe people are lazy. Maybe they don’t want to take the time to learn who’s trustworthy, what the local economy is like, what are the opportunities, and so forth, but profit and building wealth can never been separated from work. If you think that you can just send your money off to XYZ management firm and get more than a minimal return, you’re wrong because the people who do the work are the ones who take the money.

Worse yet, expertise isn’t always expert. It’s axiomatic in the investment world that the very worst thing you can do with your money is turn it over to a bank trust department. All professional investment managers manage according to what they want and what’s good for them, not necessarily what’s good for you. They are pursuing money profits, the bottom line result, and not much concerned about building productive wealth. Think of them as the gambler who needs to win this hand so he can double down on the next.

Building wealth and money profits are not the same thing. When you build wealth, you build productive capacity that will keep on throwing off revenue. It’s like a fountain that keeps flowing and flowing and throwing off blessing to all around.

Here’s an example from our farm. A few years ago we bought about ten sheep. Two years later, we had forty. We put very little further investment in them, just let them eat grass we had anyway. Right now while I sitting here, they’re out there busy making more money for us.

Translating into your own life

How do I translate this into my own life? How do I escape these people who have positioned themselves as the intermediaries for my money, skimming off the profit and growth? How do I take my money back and use it create wealth? How do I invest locally? What traps should I beware?

In part 3 of this post Franklin will talk about a trap laid against local economy. It’s a trap that has already sprung, and clings to its victim’s ankle. But it’s a snare going forward, as well, especially if you are not a direct beneficiary of the government money machine.

From the October 2012 Moneychanger. Used by permission. Franklin Sanders is publisher of The Moneychanger, a privately circulated monthly newsletter that focus on gold and silver and the application of Christianity to economics, culture and family life. We have subscribed to this newsletter for more than 20 years, and consider it a must read. F$99 a year. Franklin is an active trader in gold and silver (he’ll swap your green Federal Reserve rectangles and give you real money in return). He trades with savers and investors outside Tennessee. Subscribe to his daily price report and market commentary on the website.

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