It seems that the US does stop for 4th July celebrations for about a week or two … go figure! But, just when I was beginning to think that the 7MITs feel that they have enough to go on without our help, Jeff pops up with this interesting post … for all of you with real-estate and/or stocks in your future, what’s the huge breakthrough that Jeff has discovered?! It’s right here in his post …

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As a quick recap…

• My life purpose is to “Lead and develop leaders.”
• My number is 10 Million on 1/1/19
• My current Net Worth is $672,290
• My annual required compound growth rate is ~ 30% +/- a couple %.  I’m finding this number is fluctuating a bit, but seems to average out to right around 30%.
• My selected growth engine is real estate investment and individual stocks

According to Masterson’s Table I should be able to generate ~ 30% with my growth engine.  Over the past couple weeks I’ve been researching both elements of my motor to determine whether I believe Masterson’s results.

What follows are my predictions, guestimates and silly wild a$$ guesses as to what I might be able to expect in annual returns and its affects on my number.

Now I make no claims as to the accuracy of these results.  Remember, it’s product of my research online and work with a calculator.  I welcome all comments and corrections.

Real Estate: In this first round I only considered residential real estate.  I need to repeat this exercise for commercial real estate and hope this post will generate some discussion in that regard.

In my analysis, I initially considered my returns as a percentage of the property value.  Then it dawned on me that my actual growth should be determined by how much of my own skin I have in the game.  In other words my returns are a function of the down payment I put into the property.

I assumed I would be buying properties in the $150K range with 20% down (i.e. $30K).  I planned for a 30 year loan at 6% and positive cash flow with an anticipated holding period of 10 years.  Tax benefits and purchase discounts (e.g. good deals, foreclosures and tax liens) were NOT considered.  I view them as icing on the cake.

Bottom line for me: the business fundamentals of the property must be sound before I lick the icing.

10% is nothing to sneeze at, but when you compare the returns to the amount of money I’d potentially be investing (the down payment), it quickly becomes apparent why real estate investing can be so attractive.

Individual Stocks: When it comes to stock investing, I’m going to stick to the value investing principles made famous by investors such as Warren Buffet and laid out in books like Phil Town’s “Rule #1″.  I will be doing my stock analysis centered on the requirement to make 15-20%.  Also many of the stocks I anticipate investing in will likely pay dividends on the order of 3-5%.  Putting the two together, I think I can possibly gain 18-25% annually with this approach.

Revving the Engine: Simple math here throws out a potential annual return of 68-75%.  Wow!  That’s basically double what Masterson came up with.  I’m not claiming Masterson is wrong, but if I were writing a book, I’d probably low ball the results a bit hoping that most folks would see better than published results.  I’m hopeful that was his approach.

Pulling My Little Red Wagon: If I hook up my growth engine to my little red wagon, I can begin to see how achievable my number really is.  Here I projected my current net worth ($672K) out to where I think it will be on 1/1/10 based upon my recent growth rates, then started running the math on an annual basis at 68% growth.

This of course assumes my entire net worth is fed into the engine.  I can tell you right now, I don’t have the intestinal fortitude to pump it all straight into the machine.  Although it would mean reaching my number in about half the time I’d planned.  That’s a plus!

Another way to look at the numbers is to ask the question, “How much of my net worth do I need to feed the growth engine in order to hit $10M by 1/1/19?”  The answer to that question is 49%.  I can live with that.

My profile then begins to look like:

Conclusions: I can most likely use a combination of real estate and stock investment to reach $10M by 1/1/19.  I should anticipate returns on the order of 30-68% and be ready to commit between 49%-100% of my net worth to this investment strategy.

What do you think of my analysis?

Can You Find Your Number on Craigslist?

As I prepare for my entry in to MM201, I’m finding that my game plan is changing.  My original play book was aimed at achieving an annual compound growth rate of 38%.  However, in my previous post, I noted that recent increases in my net worth have reduced that requirement to just under 30% (29.28% to be exact).

That’s great for a couple of reasons

1. My number (10 Million by 1/1/19) just became more achievable.
2. I can take a step down on the risk ladder and still have a reasonable shot at achieving my goal.

As Adrian pointed out in a post over at 7million7years.com about Masterson’s Table

1. Real Estate and Stocks can produce an annual compound growth rate of 30%
2. Real Estate, Stocks and a small business can get you to 45% annually.

When I needed 38%, I was planning to take aim at the 45% growth engine to ensure I hit my goal  Higher returns tend to require greater risk and I was going to assume some to get where I wanted to go.  That extra risk is not necessary right now, so I’m going to put my business plans on hold and focus on REI and individual stocks.

In an attempt to jump start my progress (and to have a little fun) I placed two ads on Craigslist.  Who knows, maybe I’ll find my Number on Craigslist.

Wanted: Value Stocks for Long Term Investment

Seeking Value Stocks for investment opportunities in companies that possess consumer monopolies and a demonstrated history of strong financials.  Each company’s leadership must be passionate about the enterprise, care about its employees, provide value to it’s customers and keep the best interest of shareholders in mind.  Serious recommendations only, new risky start ups need not apply.

Wanted: Good Real Estate Cheap!

Seeking Good Real Estate Cheap.  Must be move in ready in good school districts.  Must be worthy of high quality tenants who want to fork over loads of cash in exchange for a roof over their head.  Commercial real estate offerings will be considered on a case by case basis, but must come with tenants already in place.

I’m relieved that my growth rate doesn’t force me to own a business right now to continue making scheduled progress toward my number.   As much as I want to start my own business, I suffer from two hold backs.  The first is I am not in a position to devote the time necessary to pursue any business plans because of my military commitment.  The second is that like Ryan, I’m struggling with settling on “The Big Idea.”

It’s not that I don’t want to lead my own company…quite the contrary.  I really do.  My life’s purpose is to “Lead and Develop Leaders.”  Owning, running, and leading my own business would pack a double punch.  Progress toward the number and an early fulfillment of my life’s purpose.

I’m fortunate that  in the military, I have a job that requires me to Lead and Develop Leaders…and I’m getting paid to do it at the same time.

To this point in our experiment we’ve been saying that we need to achieve our number so that we can retire and start living our life’s purpose.

I’m finding myself in a unique situation where I’m nowhere near my number, yet I’m fulfilling and living my life’s purpose already.

Does anyone see a problem with this?  I do.

Tail End Charlie

Besides learning a lot about military aviation – a subject that unashamedly excites me – Jeff is always fun to read; clear, concise and informative … that’s not a recomendation, just an acknowledgement

The ‘obvious’ seems to be: start a flying school … but, Jeff – and, you – may have other ideas. Also, work backwards: how big must a flying school be in order to generate Jeff’s required annual compound growth rate? My suspicion is that Jeff – or we – would need to come up with another angle entirely … a lot of capital … or, a unique twist: anything to make Jeff’s ‘small’ business grow BIG …

… quick!

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I have to start with an explanation, give a couple of excuses, then get down to business.  You’re probably wondering “What the heck does Tail End Charlie mean?”  It’s a term relevant to military aviation and applicable to my situation of bringing up the rear on the growth engine exercise.

As best I can determine, the term has it’s origins during World War II and was used to refer to the poor sap who was the rear gunner in a bomber or the man guarding the rear of a patrol.  It has parallels in Naval Aviation where I’ve used it in reference to the last aircraft in formation or the last aircraft to land on the aircraft carrier.

The term meshes nicely with the seaboard landing scenario on an aircraft carrier.  For Naval Aviators, the term “Charlie” means that Mom (the boat) is ready to recover airplanes.  In Naval Aviation slang “Charlie” stems from the fact that Mom usually has to make a big sweeping turn into the wind so she can recover aircraft.  From the sky, the boat’s wake looks like a big letter “C,” or “Charlie” in the military phonetic alphabet.  If you’re “Tail End Charlie,” you’re the last to land.

So how did I end up as Tail End Charlie on the growth engine exercise, guarding the rear of the formation, paying homage to my fellow MITs and learning from their experiences?  A bunch of excuses is how.  I’ll save you the explanation only to say that everything else I’ve devoted my attention to this past month promises to increase my Net Worth.  So my heart was in the right place.  But I’m Tail End Charlie nonetheless.

Here’s my Diane’s Table…

When I step back and look at my table, several things jump out at me.  Flying, Teaching, Family and Leading/Team Building seem to be very prominent items.  Also heavily weighted are Reading/Writing, Financial Matters, Home Improvements and Making Money Online.

I’ll save you the time counting columns on my Diane’s Table.

The following items are consistent across four columns:

• Flying and Airplanes
• Teaching / Instructing / Learning / Mentoring
• Family

The following items are consistent across three columns:

• Leading / Team Building / Working with People
• Reading / Writing
• Financial Planning / Money Management / Investing
• Home Improvements
• Making Money Online

The Following items are consistent across two columns:

• Cars
• Boating
• Computers

I have some ideas as to what all this tells me but I’ll save that for later in the dialogue that will hopefully follow below.  I don’t want to influence the discussion before the brainstorming and feedback that I hope will come from the rest of the MIT team.  Just remember my RCGR is 38% and I plan to stretch a bit and use Real Estate, Stocks, and a Small Business to overshoot my Number.

Until then, Tail End Charlie is “rollin in the groove” with the hook down, flaps full, three down and locked, ready to come aboard.

The Game Plan

Sounds like Josh’s future is pretty much set: stocks, stocks, and more stocks … I see the next generation of hedge fund managers right here. Just to fill you in on the profit potential, a friend ‘in the business’ recently related the story of his self-made hedge-fund-manager friend who told his 8 y.o. daughter (who had to travel alone for the first time) ”you will be traveling on a plane that has strangers on it” … she had only ever traveled by private plane before!

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In order to achieve My Number, I must realize high percentage gains to my net worth, approximately 170%, and according to Michael Masterson’s Seven Years To Seven Figures, the only way to get to 50+% (that’s a really big plus sign), is by starting my own successful business.

I started an e-commerce business in late 2007, got it off the ground in 08, and am looking forward to profits in 09, but this is not the business I believe will launch my net worth to substantial levels.  The business responsible for that is buying other business’ when they are cheap and selling them when they’re over valued, this is also called stock investing, and is made possible by centralized market locations where people from all over the world gather to participate, most of them virtually through the Internet, like me. 

I believe earning an MBA from a prestigious college will better qualify me to take a position in the financial sector, but this is not imperative. You could be a grade-school drop out and get hired by a firm or start your own and actually attract investor’s if you can show and prove consistent profitable trades. This is what I’m focusing on, as well as studying to sit for the GMAT (Graduate Management Admission Test), this is what I like to call “covering all the bases”.  Of what I’ve read thus far, a year’s worth of trading is usually sufficient to prove you can be an asset, I work on this everyday in some form.

After completing the exercise Adrian wrote about recently, I ended up with basically what I’m doing now, minus the e-commerce business. It’s amazing how I have a lot more fun researching biotech stocks and trading than learning marketing techniques and editing HTML code.  In that light, it also comes to no surprise which one is currently profitable and which is not.

Connecting the dots

Photo credit: turtlemom4bacon

Aside from finding the quality of graphics on this site is definitely on the improve Mark has provided a great summary of the steps (and the reasons why) of this ‘grand experiment’ for new readers, even before we get to his table. Thanks, Mark!

It looks like Mark has no shortage of areas to dig into … how to turn this into his growth engine: any ideas? 

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All seven of us came a long way back in 2008 in this grand experiment. Now in 2009, it is time to look at what we have done before and plan ahead for this journey. For this post, we are aligning the previous exercises with this current one to find our growth engine.

We started off with the lengthy but necessary Life Purpose exercise. For this particular exercise, I found out that money has little to do with my life’s purpose but it does affect my ability to realize it.

We then attempted to quantify our life’s purpose by creating a spreadsheet and filling up our Lee’s List. This helps revise our Number and date and determine our Required Annual Compound Growth Rate.  At 40%, I’ll need to invest in real estate, stocks and small businesses.

Although we now have a destination, time and areas that we should be looking into, the scope is still fairly large. Let’s see how the latest exercise can help us.

Here is my table for this exercise:

Items in 4 columns

The common recurring theme in this exercise for me is that traveling or planning vacations and attending or organizing events or parties appear in all 4 columns.

I must admit, I love to travel but I’m limited by vacation time and ability to finance my travels. Right now, it is definitely heavy on the SPEND, ABILITY and DO column. How can I turned this into a future EARN item?

There are a lot of ideas – writing travel guides (books, blogs, etc); be a travel agent; be a tour guide; travel photographer; be a commercial pilot; etc. The closest thing I’ve done that is related to travel industry is being a trainee maintenance  aircraft engineer for a commercial airline. That did not work out for me. I think it has to be combined with other items like e-commerce or teaching for it to be more profitable. Let’s brainstorm for ideas.

Another 4-column item has to do with events or parties. I’m quite social and have organized events and parties  for myself and a few non-profit organizations. I haven’t done it for profit yet or organized any large scale event like a week long conference. I did attend a few good conferences and it is quite a logistic feat to pull everything together. Can I learn to be an event organizer? It does allow the ability to travel too since conferences are held in various cities.

Items in 3 columns

Let’s not overlook items that appear in 3 columns.  This includes investing, problem solving, and learning/teaching.

Again, this leads to a lot of ideas. I’m particularly fond of finding investing ideas be it in stocks, real estate or potential businesses. Problem solving is very general and could be applied to the various activities that we discussed. I enjoy learning new things a lot and sometimes find myself explaining new ideas that I’ve read about. I did think about being an academic and one point but since both my parents were teachers, I thought I should try something different. Something that I did not attempt hard enough is to combine investing with planning, organizing, and problem solving. This is the area I want to focus the most. I should be planning and organizing more investment related activities instead of vacation and events.

I think we got what we wanted out of this exercise for me.  It does give me focus on what needs to be done to align myself with my required growth engine, achieving my number and hopefully fulfiling my Life’s Purpose.