Ben Franklin and Compounding
This is a very important grouping of information. Read it thoroughly, and you'll see some aspects of money will unfold before your eyes. I wrote this awhile ago. But it's timely and timeless. BEN FRANKLIN AND COMPOUNDING Wade B. Cook The best investment in the world is in smiles
Me' thinks it was many eons ago when Ben Franklin's wise words on the subject of compounding were put forth for our thinking population. So, about 28 people are affected. Just kidding. Many people who understand the true nature of wealth creation have put the typical compounding strategies into their proper place. There has to be more, so it goes. Ben was supposed to have said something like you can put your money to compounding and leave it to build up value and after 300 years or so, you'd have a bit to live on. Me' thinks also that interest rates during his time were slightly higher than they are CE (Current Era—I've always wanted to use that expression since BC and AD are out of style, as set forth by the cultural thought police. Heaven forbid we use the LORD anymore). So there has to be a better way. I will suggest it is so. A better way exists. It is sort of an inside out way to look at wealth. It starts with challenging the old form of compounding. That is a banks way. But nobody challenges that banks, especially if left to far less intrusive government regulations, serve a purpose. They lend. They are not investors. They are not normal risk-takers, and therefore offer a payment for using other people's money. That rate has to be small, and when you add insurance and guarantees, along with complying with odious regulations, you'll wonder how they can pay any interest at all. So, 1/2 of 1% seems good to some people.
I hope not you.
I have been called America's most enthusiastic cash flow proponent. The reason for this is quite simple, we all need cash flow. There are three reasons for investing or using our time and money in a business endeavor. They are Cash Flow or Income; Tax Write-Offs; and Growth. Of these three the paramount need is more income. If one generates more income, especially for an outside independent source, he or she can buy all of the boring tax shelters and growth investments on the market. One more point: It takes cash flow to buy these investments. It is most difficult to work for someone else or even run a small business with all of its demands, and therefore most difficult to build a grouping of assets large enough to support a prosperous retirement. So to add a few words to the “independent source” mentioned in the previous paragraph, this must be a source of income in a more or less passive nature. To me this means getting assets to produce income. There simply are not enough hours in a day or even a lifetime for the average American to accumulate a substantial amount of wealth. In all of this it truly is a wise person who realize this need for an independent source of income, but also realizes they need to learn from, even lean on the experiences of others.
In my new book, TURBO MONEY, in a chapter on the Mystical and Magical Truth About Money, I brought up a simple truth which most people do not think of too often. Once presented, people say, “I know that.” This truth is that most businesses and real estate succeed because there is income from an outside party. Think of a rental house or even Aunt Emma’s Pottery Shoppe, without sales or rents. We know this but then buy stocks which usually do not have any income. Most stocks fall into this growth category. The stock market is not generally viewed as a source of income. Oh, to be sure, there are companies which pay dividends, and many people choose those, so we’ll use that scenario here to make the point of this subsection. Where does the money come from to pay out dividends? There is a market adage that goes: “A stock price today is based on the ANTICIPATION OF FUTURE EARNINGS.” Notice I didn’t write that the stock price is based on other market sentiments, or even on current earnings (unless that is used to calculate dividends), but everyone looks to the future. In traditional investments—as compared to the Wade Cook ways of cash flowing the stock market—the wise person lives by this motto: FOLLOW EARNINGS, FOLLOW EARNINGS, FOLLOW EARNINGS. Growth is nice and tax writer-offs are needed in their season, but income, that’s the targeted benefit. When you hear or read of P/Es or Price Earnings Ratios—both past, blended past and future, or future—they tell the story for a fundamental point of view. Yes, I acknowledge the technical point of view but to me it’s all about measuring the health of a company—earnings, management, debt, alliances. And in all of this earnings is the most important. And think, when you buy stock, you’re not really buying the past, except as an indicator of things to come, but you are buying what the company will do in the future. So back to the point of income or sales from outside sources. That to a large extent determines the future of the stock. A company expanding into China for example, is a good sign, the stock goes up. But then trouble with the Communists and the stock goes down. Interest rates go up a lot and stocks go down. Why? Because companies have to service the debt, and excess debt drives earnings down. There is a lot more to this, so I encourage you to get my book, INVEST SMART and TURBO MONEY—this book will rock your world. It will show you how to get retired in two or three years depending on how much money you have to start. It is very exciting. One last point, when I say investments and businesses need income from outside sources, one would think, for the most part, that stocks don’t qualify. However, I beg to differ. There are ways to treat the stock market like a business. I’ll bring up a simple one. You buy a stock for the soul purpose of selling it. You could pick a target price and sell it then. selling it. You could pick a target price and sell it then. You could employ my Rolling Stock strategy and buy and sell in repeated waves. You could also use the strategy: Writing Covered Calls. Any one of these puts the emphasis on selling. Are you following the theme of my investing and trading style. It is this: Know your exit before you ever go in the entrance. I love Writing Covered Calls and there will be a brief explanation in a moment. But the point is to use the stock as an asset upon which you make money. So, it’s not that the company of the underlying stock is making money or not, it is that you are employing a strategy to have your stock—in-and-of-itself—make money. This becomes your independent source of outside income. And the other aspect of this is to use the experiences of others. But where? Patience, I’ll introduce the where a little later.
WHAT IS A COVERED CALL? A covered call is a way to cash flow the stock market. The process combines two well know ways to make money, and by this combination, people are able to generate monthly income, sometimes several times month.
In short, one buys the stock and then sells a call option, giving someone the right to buy her stock at a set price, sometime in the future. The seller (or writer) of this option sells the option and takes in the income for doing so in one day. This income is spendable or can be taken out for other uses.
The word covered means that you actually own the stock. A call option is the right to buy a stock. Most people buy these risky options and most people lose.
Writing Covered Calls reverses this process. We are not buying options but selling them. Others take the risk, we take their cash. By selling we take in cash and an obligation to deliver the stock at this certain price, a price that we are happy with.
It is a monthly income machine. We sometimes call it: RIG, or Repetitive Income Generator.
MY QUEST FOR INCOME
I've been invited to write some things for the WIN site and their THOUSAND DOLLAR THURSDAYS. It is a pleasure. We have found some very exciting ways to cash flow the stock market. This is knowledge that will help you make more and keep more. It is easy-to-learn and will help you grow your monthly income from your home. Please understand we are pure educators. We’ll sell a book or two, but we do not manage your money. We do not recommend investments, and in fact, we get nothing out of what you do. One new way to look at compounding is to get your money to produce more income in a business sort of way. It doesn't have to be onerous work, but it cannot be entirely passive, either. Your money needs to work as hard as you work. That is easy to say. But I mean it. You sleep. You have down time. You take time off, get sick, and have a million and one intrusions into your life. Your money needs to get a better personality, meaning it works harder, without all of the distractions listed above. Money needs to set about making more money.
Another Ben Franklin quote: "Money makes money and that money makes more money."
There you go. That's the secret to wealth: Get your money producing money. Hardly an epiphany. The problem is most people just do not know how to accomplish this. Most people never learn the skills and discipline to achieve an inkling of the success that is theirs for the taking. It comes down to awareness of profit possibilities, productive knowledge and a desire to bail out of the financial doldrums—to grow out of your problems. The answer is really not that hard to find. In fact, once found, it's quite easy to learn, master and implement. Here is a simple statement, but behind these words is a bright future if you unlearn so much of what you have learned that just ain't so. It is this: You need to get assets working for you so you can quit your job, retire earlier and retire better than you've ever thought possible. To do this you need a tried-and-proven strategy. A strategy that works for you so you don't have to go to work for you. It's called Assets Producing Income. Even if you have very little money to get started, knowledge comes first, and the way will be made clear. It's about using the stock market as a home-based business. Don't get turned off by the words "Stock Market." We've found an exceptional way for you to generate excess monthly income. It's not about the future, some off-distant time and place, but about NOW. There are two components to this process. One is the asset, in this case certain stocks. The second is selling and taking in cash in one day, on an option giving someone the right to buy the stock you purchased. Whether they purchase it or not, you get to keep the money, and if they purchase the stock, you'll probably make more. This two-fisted process. It's called Writing Covered Calls, and it's a cash-flow workhorse. This is sort of like rental property. Most people have never thought of using stocks this way. What do you need to succeed, and exceed extravagantly. Read what Mark Victor Hansen, author of Chicken Soup for the Soul said about Wade Cook: "Listen to the one of the masters of our time and you'll get everything good thing you want." You'll be amazed at how the tools work to fix your income problems. is about the most powerful technique in the market for generating monthly income, and income that will come in repeatedly. Now, we're sure you have questions: Like, okay what if the stock goes down? We've got that covered. "You still can make money." This is way to develop a wonderful way to retire better—again using these methods for building a great IRA or Pension and then living a fulfilling and wealthy retirement. You'll love getting into more cash-flow details and techniques. Selling for more cash, more on the double-dipping formula, and then you'll learn more about proxy-investing and how to make even more with less cash tied up and less risk. This is not "get-rich," but get rich steady. We call it "Get Cash-Flow Rich."
“Victory is not won in miles, but in inches. Win a little now, hold your ground, and win a little more later.” —Louis L’Amour ________________________________________________________________ © Wade B. Cook. All Rights Reserved. To connect with Wade and get more information about using the stock market like a business, go to wadecook.org