An insight about investing (long)

Hi,

I wrote this back in December 2001 and the more I come to know about investing, the more I see how true it is.

Enjoy- and by all means pass a comment!

quote:

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As I build more and more wealth I’ve come to the conclusion that making money is a lot like crop farming in that there are four cycles that must be completed to turn an idea (seed) into profit.

Let’s explore this analogy further.

Cycle One: Buy The Seed

The aim of any wealth creation plan is to make money. However before you make one cent you must take a seed and plant it in fertile ground.

So the first question that must be considered is, ‘What sort of seed should I plant and how do I obtain it?’

There are many different kinds of ‘wealth creation’ seed but the bottom line is that the crop is either regenerating (like the apples from an apple tree) or alternatively the seed raises an annual crop that must be harvested and then replanted for the following years crop (such as wheat).

In this example, the apple tree would be cashflow investing and the wheat would be capital gains returns. Neither is right or wrong and as such it would be smart to have a mixture of both types.

The way you acquire the seed either a choice of paying cash (which means going to seminars and / or buying product), investing time developing your own idea or a combination of both.

What’s important to note here is that unless you have seed you cannot plant a crop. And if you don’t plant a crop then the space available in your life for wealth creation may become overgrown with weeds, which will make the wealth creation farming process much more difficult.

Of course in this analogy the weeds are lifestyle expenses that prevent you from being able to plant your wealth creation seed in the first place.

Cycle Two: Plant The Seed

The only way to turn a seed into a seedling is to plant it in fertile ground. Buying product or having a good idea will never turn into profit unless you take action and implement a strategy that turns the concept into a reality.

For example, the idea of positive cashflow property investing is fantastic – but you’ll never earn a dollar of profit unless you actually find a property and then harvest it using the strategy of your choice.

I’ve been to and presented at seminars around the world. The most frustrating thing to see is people who buy product but will never actually use the information. I also know lots of people with good ideas but these do not translate into profits without effort.

Another class of wealth creator I’ve come across are looking for the illusive seed that will self-germinate without any further effort on their behalf other than buying it. In this case the person goes from seminar to seminar and product to product searching for the non-existent seed that will actually self-germinate without any need for planting.

Cycle Three: Nurture The Seed

It’s not enough to just plant the seed and expect it to ripen on its own accord. You must also regularly water and fertilise your wealth creation crop too.

This is a hasty profit seeker comes unstuck.

Sure, they do the work to collect seeds and even plant them, but instead of nurturing their crop they become distracted from their strategy by other quicker ways to become rich or they expect their crop to be self-sufficient.

Yet when a crop becomes neglected it begins to die and those nasty weeds are prone to start taking hold.

You can nurture your investment by continuing to take action to make the investment outcome you desire a reality. It is also important to monitor the performance of your asset to ensure the results are consistent with your expectations.

Step Four: Harvest

Given time and commitment your effort is will be rewarded with a successful crop of either regular cashflow or eventual capital gains returns.

You might think that the cycle process may end with the harvest, and for farmers who spend all the profits from the crop and have nothing to buy new seeds with, it does.

It is critical that when it comes time to harvest your crops that you don’t let it over ripen. It’s common for greedy farmers to wait for higher yields only to have the entire crop spoilt by insects or disease.

So it is with investments too in that there is a time when you could harvest your investments and make a profit rather than looking out for the one big massive return that will make you rich. I’m aware of many share traders who have missed their signal to sell on the expectations of massive gains only to see shares ‘gap down’ and open well below the previous days close.

There is a difference between being prudent and being greedy. Pay attention to when is the best time to harvest and avoid spending all your profits and not having enough capital to by the seed to resow your wealth creation fields.

What This Model Reveals About Successful Wealth Creation

You cannot expect to ever make a profit unless you gather seeds, which is done when you acquire new information and open a new possibility in your life.

Information by itself is useless unless you take action. The action needed is planting the seed in fertile ground, which can be achieved when you apply your theoretical knowledge in a practical situation.

Just planting a seed in the form of an investment or new money habit is not enough. You must continually nurture that seed too. Many investors plant seeds, yet few profitable crops eventuate because neglect causes the possibility to wilt and the weeds to take root.

There is an optimum time to harvest your wealth and then use a portion of the proceeds to begin the seed – harvest cycle again. Investing is a continual process and not an exercise where you can become massively wealthy overnight.

In the same token though you must be vigilant in deciding when your crop is mature and ready to harvest and when it becomes over ripe because you have waited too long.

How David And I Apply This Model

We don’t expect that all our crops we plant will be ready for harvest at the same time and we also know that it would be silly to plant all the same kind of seed in all our fields.

Our goal is to have regular periods where we plant and regular periods when we harvest.

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What do you think about this? Please post a reply!

Bye,

Steve McKnight

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Remember that success comes from doing things differently.
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