It is common wisdom today that the key to building wealth is taking risks. People who take higher risks get the higher returns and wealth. There are risk/return graphs in investment and business that prove this. Most of us by now have heard that stocks have higher risk and volatility but higher returns over time than investments like bonds. New entrepreneurial ventures have higher risk and failure rates than established businesses and tend to create greater fortunes. And this is definitely true. But here is the paradox I have learned through many years of hands-on business experience with successful people:
The best entrepreneurs, executives, and investors I have worked with who actually achieve the highest returns and build the most wealth don't see it that way! Despite often being involved in unproven ventures and changing management or investments, they don't perceive that they are taking big risks at all. They are simply doing the obvious. They are very definite that what they are doing or investing in must and will succeed. They have a clear understanding of change and fundamental trends that seem all but inevitable to them. They appear risky and unclear only to people who don't understand such changes and naturally cling to familiar patterns that are more comfortable.
Was Lee Iacocca unclear about the changes that were necessary to save a dying Chrysler Corporation in the mid-1980s? It was obvious to anyone who didn't have a stake in the old ways of doing business. How long did it take Gerstner to figure out as an outside manager what it would take to turn around IBM in the mid-1990s? Haven't much of the public and outside analysts been clear that Apple needed radical changes before its near demise in the mid-1990s? Was Steve Jobs unclear about the potential of personal computers in the late 1970s? Or Bill Gates about the need for a software operating system standard in the mid-1980s? Or Gordon Moore about the doubling of semiconductor power every 18 months since the mid-1960s? Was Michael Milken unclear about the need to finance such new emerging companies through nontraditional means in the 1980s?
The many failures among the high-risk ventures come from naive people who are hoping to make an easy killing, such as winning the lottery or getting instant salvation or overnight success in business. It is not that new directions or investments are proven or that it will be easy or that there won't be challenges. That's the hard part. These successful people have the clarity and conviction to push through such challenges. They foresee the need for a new product or service or the viability of a new technology or investment. Why? They have a unique history of experience that has already validated it for them. They have done their homework and know it is possible. They understand the fundamental trends driving the changes they are investing in. And their experience and homework has also taught them that it won't necessarily happen overnight or be easy. Therefore they usually don't expect it to be. But if it is much harder than they thought, it's their belief in the feasibility and inevitability of what they are doing that keeps them moving ahead until their vision becomes a reality. It's the strength and attraction of their vision that allows these people to overcome the obstacles that appear as risk, uncertainty, and volatility to others.
Clarity about long-term fundamental trends is the key to dealing with the random and uncertain short-term events that inevitably come in the path of any goal. A clear vision of future change and the discipline to stay the course are the keys to building wealth and success, whether in business or investments. Setbacks are only opportunities to learn, adapt, or invest more. It isn't a matter of chance to these successful people. In this incredible era of change and progress, the lion's share of wealth is going to the top half of 1 percent of the population -- those with this understanding of change and a systematic approach to taking so-called risks. Eighty percent of today's millionaires are self-made, not through inheritances.
In The Millionaire Next Door, the authors' surveys of wealthy people have found that the typical millionaire achieved such status by systematically underspending and oversaving from modestly above-average incomes. The law of compounding interest and investment returns built wealth over time, not overnight successes or excessive risk-taking. And a high percentage was self-employed, from successful small business owners in mostly nonglamour industries to big-time entrepreneurs.
I watched one small business owner establish a simple business that sold a narrow line of shorts to Wal-Mart. He managed a $5 million business with two small factories in towns far away from his home office in Paradise Valley, Arizona. No management complexity, no bureaucracy! Roy focused on one simple concept that he could master and control without a bureaucracy while still maintaining quality. Though he had many opportunities, he adamantly refused to let his business grow beyond his ability to maintain his personal knowledge, control, and, most important, his beloved casual and family-devoted lifestyle. His profits were high, his business consistent, and his lifestyle almost perfect...without the stress of international competition and a workaholic lifestyle that would have eclipsed his family values. He achieved wealth and the ultimate lifestyle!
I worked with another entrepreneur and investor, a penniless immigrant, who consistently bought raw land around two of the fastest growing cities outside of L.A. Where was he buying? In a seemingly unattractive area compared to other booming suburbs closer to downtown. The results: he turned a $7,000 original investment into $50 million in less than a decade. This was worthless land in the desert that his analysis of the consistently expanding sprawl indicated would almost certainly be in demand within 5 to 10 years. He had documented exactly how this had happened in similarly unattractive areas within the same radius in other growth cities. It was a certainty for him. He bought in a circle around these two new growth cities and had the patience to wait for the development to approach in whatever direction it chose. And he had the conviction to convince other investors to leverage his investment and join in the inevitable profits with him.
Scott McNealy of Sun Microsystems started saying in 1986, "The network is the computer." This was something that almost no one in the highly innovative computer and software industries even remotely understood at the time. It wasn't until 1995 when the Internet suddenly emerged into the mainstream of this country that this vision became one of the greatest trends of all time. Sun is now positioned at the center of this revolution. The stock market and the press have rewarded him enormously. He had the staying power to stick with his conviction until it became the reality he foresaw. He didn't give up or change strategies simply because the industry didn't acknowledge it yet.
Anita Roddick built the Body Shop, a worldwide franchise of personal-care stores, out of a conviction that there were more natural and healthy ways of caring for ourselves. She also assumed that people would be moved by the impact of such natural consumption habits on the benefits to traditional industries of third world countries and the resultant preservation of rain forests versus clearing for cattle production and urban development. This message and cause allowed her to attract motivated employees and eliminate traditional advertising expenditures that many baby boomers considered offensive. She simply assumed that many other people shared her values. And many did indeed! Her personal experience and that of many people she associated with made this a near certainty for her. She understood and invested in one of the most fundamental trends of the new generation: environmental and health concerns.
Peter Lynch, one of the best investment managers of all time, had an intuitive sense of the new retail and business formats that could bring a better level of service at radically lower prices to the consumer. He was not only a great stock and technical analyst by training and experience, he was also an adamant and early consumer of such concepts. These were the very types of consumer trends he was drawn to through his own personal experience. He saw the value of long-term trends before most of us did. He could spot a Wal-Mart or Home Depot or PetSmart right from the beginning. It was a near certainty to him that such concepts would succeed. And he had the professional experience to evaluate whether such companies were financially sound and undervalued.
He helped lead the explosive trend in mutual funds by proving that a focused, professional investment manager who technically and intuitively understood a sector of change in our economy could create incredible wealth for everyday investors who didn't have such skills -- all in an easy-to-track "packaged" investment program. Peter Lynch never pretended to be able to predict the economy or fortunes of such companies in the short term. He bet on the long-term fundamentals. He experienced many short-term setbacks and failures. But the 10 to 30 times returns he experienced over time on the best calls made him a legendary fund manager, more than making up for the bad calls.
Warren Buffet did the same thing for the incredible surge in successful brand names in mature industrialized countries like ours around the world. You know...companies like Coca-Cola, GE, Gillette, and McDonald's. He has been accumulating large positions in such companies since the early 1980s. He bought when most investors considered these to be relatively mature companies with slower growth ahead and high valuations from historical performance. He wasn't focusing on the past trends in countries like the United States but in the emerging third world countries where 5 billion new consumers were absolutely destined to follow the same buying trends we had already established and realized in the past century. Talk about long term fundamental trends! And these emerging consumers didn't need to go through the brand wars that occurred in the United States. They already knew through international television and communications which brands were the top ones here. As long as such leading companies had sound management, financial structures, and clear strategies of investing heavily in these new markets with dominant market shares, he was patient enough to wait for the inevitable growth and profits.
He buys value waiting to happen on the basis of projectable long-term fundamental trends. He has patience. He buys when he sees such value and holds for the long term. He doesn't try to anticipate short-term trends in the economy or in such companies any more than Peter Lynch did. By 1997 he had stopped buying heavily in Coca-Cola while accumulating shares of McDonald's. Why? The stock markets had seen his vision of companies like Coca-Cola and driven valuations too high, at 46 times earnings in mid-1997. He didn't sell Coca-Cola as it was still likely to grow at its earnings rate of 18 percent a year with less than 2 percent volatility well into the future, which is still a great return with low risk. But he bought McDonald's because the short-term nature of the markets was overstressing the obvious maturing of the burger market in the United States versus the much greater long term potential overseas.
He is a long-term investor just like many of the very elite households in this country that are building wealth in this unprecedented boom. Meanwhile, most of us make more modest gains. And a significant minority is falling behind as the rapid pace of change makes obsolete our past businesses, jobs, and investment strategies.
Investment is actually very simple. It is just like diet and exercise. I don't know about you, but I don't need to hear many more statistics about diet and exercise. It is pretty straightforward. It comes down to broccoli and chocolate cake. We all know that broccoli is better for us but we tend to choose the chocolate cake when we actually sit down to eat. The chocolate cake is simply irresistible, it tastes better, and it even feels better in the moment. But it isn't the best for our long-term health, or even for our energy and mood later in the day.
A clear vision of fundamental change and a persistent and disciplined strategy of investment in time and money: those are the keys to building wealth, especially in a time of sweeping change that threatens old ways of thinking and doing business. But most investors think about timing the markets, picking the hottest stocks and funds, trying to beat the odds instead of the simpler, clearer long-term approach of a Warren Buffet. The purpose of this book is equally simple:
To help you understand the fundamental trends that can be reliably projected into the future to allow you to build the wealth and lifestyle you desire in the greatest boom in history.
I have spent 25 years analyzing such trends, beginning with an undergraduate education in economics, accounting and finance, followed by an M.B.A. at Harvard Business School in business management, marketing, and strategy. I have worked at the highest levels of business strategy with Fortune 100 companies at Bain & Company. I then worked in strategy and turnaround management with many entrepreneurial growth companies. I have been the CEO or CAO of several such companies, dealing with real human and business change at the extreme.
Unlike an academic or an armchair economist, I have been directly involved in the dramatic changes occurring in our largest multinational companies and, more important, our vibrant emerging companies that are creating almost all of the growth and jobs in our economy. I was paid for forecasting fundamental changes in old and new industries: changes that companies had to invest their entire assets and strategies I had to be right or suffer the consequences. I have been an entrepreneur, having conducted research that has spawned my own business, which is not only succeeding beyond my original vision but may allow me to prosper while living on a Caribbean island. I have achieved the lifestyle I wanted, not from daydreams but from vision, patience, and understanding long-term trends that I determined were inevitable.
Over my unique life and business experience, I learned how projectable such fundamental changes were. I simply adapted the proven tools in my profession of business and industry forecasting to the broader economy. I didn't consider this a risky proposition, although it took many years and much more struggle than I anticipated for such forecasting tools to be recognized. I also learned through entrepreneurial ventures, crisis management, and short-term investment trading how random and unpredictable short-term changes, events, and setbacks can be. How many experts have consistently predicted short-term events and market movements? Elaine Garzarelli was the last such expert timer to live and die by "the sword." And she was really good. Nobody has ever proven the ability to predict the short term over time.
Instead I developed an intuitive sense of the sweeping but simple trends that were changing our lives, businesses, and investments. And very simple quantitative measures to verify and project such trends. That is where the real payoff is, just as the greatest entrepreneurs, business managers, and investors have proven throughout history. I have conducted extensive research, in many cases going back hundreds of years and even thousands of years of history, to validate these changes and develop a clear and understandable vision of where we are headed in this incredible boom...and even the inevitable downturn that will follow.
This book is about bringing my proven tools of forecasting to people like you who may not have the time or interest to go through my experience in business, research, and forecasting. You can absolutely have a vision of the future because it is the predictable human and economic behavior of people like you and me that actually drives change in our society and economy. Therefore, you can understand these changes in very commonsense terms. Economists who have failed to forecast the most important changes of this era have missed the most fundamental insights, despite their obvious intelligence and meticulous analysis. They have missed the forest for the trees.
The predictable impacts of the birth and aging of new generations drive economic, technological, and social changes that influence our lives, jobs, businesses, and investments over time. The impacts range from innovation to spending to borrowing to saving and even to the purchase of everyday items like potato chips or motorcycles. Consumer marketers have used age, income, and lifestyle demographics very successfully as a "snapshot" to determine how to best exploit trends in consumer behavior today. This book is about seeing such demographic and generation shifts as a "moving picture" to see the changes that will inevitably occur in the future to change our lives, career, business, and investment opportunities. You can understand and invest in the future lust as the most successful people have in the past. History is all about raising our standard of living through innovation and learning. It has also been about bringing a high standard of living to more and more people. The rich don't just get richer over time. Every day people move to higher standards of living and actually reduce the gap between the rich and the poor over time.
Yes, history proves that the gap between rich and poor has narrowed dramatically over the long term, despite volatile periods of change that temporarily tend to benefit the rich. The average person was a serf or slave for most of history versus very few nobles, knights, or information-elite. This also happened in the last economic revolution from the late 1800s into the Roaring Twenties. But that innovation cycle and the new emerging economy created an unprecedented new prospering middle class in the 1950s and 1960s. The innovation of such entrepreneurial people is necessary to create new revolutions that "trickle down" over many decades to more and more people. It doesn't just happen overnight, like the secrets to building wealth I have already described. The S-curve principle described in this book is one of the many simple tools that will make change more obvious to you. It will show how most new products, technologies, and social trends move into our economy and create change and opportunities predictably...but not in the straight line that most experts forecast.
I have been projecting the most fundamental changes in our economy, business, and investments since the mid-to-late 1980s with the simple tools I will present in this book. I am not someone who has become suddenly bullish with the incredible stock rises between 1995 and 1997. In 1988 I began speaking to business CEOs on my research predicting the greatest boom in history and unprecedented changes in business and management -- despite the infamous 1987 crash. I published my first book Our Power to Predict in 1989, in which I forecast an incredible boom to around 2010, with a Dow of 10,000, falling inflation and interest rates, and the resurgence of America in world markets. In this book I have updated my forecasts to a Dow of at least 21,500 and likely higher by including the massive wave of immigrants into our country since then. In late 1992 I published my best-known book, The Great Boom Ahead, which reiterated and expanded on these forecasts lust as depression and debt crisis books were all hitting the bestseller lists and negative views of the future were widespread. That book has become the bible of many financial advisors and investors over the past years because the forecasts have proven to be largely on the mark. It's not that I predicted everything right in the short term. I overforecast the severity of the recession of the early nineties after predicting it in 1989. I underforecast the stock boom to follow despite being wildly bullish at the time. I assumed that my prediction of the collapse of Japan's economic miracle and the fall in suburban real estate prices would have a greater impact on the fundamentals of growth of U.S. consumer trends in the short term. But consumers spent as the reliable statistics I will reveal in this book would have suggested despite these setbacks. That was part of my lesson in focusing too much on near-term trends. I wish I had had Warren Buffet or Peter Lynch as a mentor at that time.
The Roaring 2000s is about projecting the inevitable trends that have already been established by the massive baby boom generation that will impact our economy and our lives as it predictably ages. I will bring a much updated view of the Internet and information revolution and the massive changes that will result in the coming decade in our work and business structures as they are finally moving into the mainstream of our economy. This will create a surge in productivity, wealth, lifestyle opportunities, and conveniences in our lives -- just as automobiles, electricity and motors, phones, and new consumer products such as Coca-Cola did dramatically beginning in the Roaring Twenties and expanding into the early 1970s. I will look at the predictable trends in the stock markets, business and entrepreneurial opportunities, jobs and careers, lifestyles, and real estate investing that can allow you to achieve your dreams in the greatest boom in history. And lifestyle is what it's all about, not merely achieving wealth. Although anyone who is wealthy would quickly agree that it is better than being poor. Surveys of happiness in this country have shown that wealth affects the sense of well-being by a factor of only 2 percent. Happiness is more about relationships, friends, family, and community...and a balanced life. It's more fundamentally about living, learning, experiencing, and growing as a human being. It's ultimately about evolution. It's what you do with your life that counts, and wealth can be a critical tool for achieving the freedom to maximize your experience and your impact on others.
Money or economic wealth is ultimately about giving yourself the freedom to choose the lifestyle that you want and to champion the causes you believe in. That is the new ethic in this era of prosperity when many of us have already achieved the fundamentals of survival, security, and living.
This book is more about how you can achieve the lifestyle you really want. Not just wealth...but the satisfying career, the opportunity to start your own business, the ability to innovate and establish your own business unit within your present corporation, the ability to live where you want to and still maintain or advance your standard of living, the ability to better manage change as an executive or professional within your company, the ability to manage your life to spend more time with the people you love rather than commuting and becoming a workaholic in today's stressful society of two-worker couples and downsizing of jobs.
The ability to greatly evolve and advance one's standard of living has not always been possible for many people throughout history. We are living in the greatest period of change and progress since the printing press revolution and the discovery of America and the rest of the world after the late 1400s. Such times create the greatest opportunities for advancement of people from all socioeconomic sectors. The greatest advances in such times have often come from the drive and motivation of lower-class people and penniless immigrants. As I stated earlier, 80 percent of the millionaires today were self-made through either systematic investment from above average, not extreme, incomes or from entrepreneurial businesses.
I will show how these revolutions are predictable and how they create changes in our economy and society. This will allow you, if you are open to change, to take advantage of these anticipated trends using your own unique experiences and insights. But it is up to you to apply these insights creatively to your own business and living circumstances to redesign how you work and where and how you live. We are in the midst of the greatest economic boom and technological revolution in history. And it hasn't occurred yet. It is about to emerge: just as cars, electricity, and phones did in the Roaring Twenties. The Roaring 2000s will come with the aging of the massive baby boom generation into its peak productivity, earning, and spending years and the emergence of their radical information revolution into the mainstream of our economy.
Tighten your seatbelts and prepare for the greatest boom in history: from 1998 to 2008!
I said this in late 1992 in The Great Boom Ahead and I will say it again: Stay invested and take any short-term setbacks in the stock market or in your career as an opportunity to invest more in change and growth. And when the next long-term downturn in the economy eventually occurs, I have advice for prospering in that stage as well.
Best of success to you in the Roaring 2000s!
Copyright © 1998 by Harry Dent
Building The Wealth And Lifestyle You Desire In The Greatest Boom In History
The Roaring 2000s
Building The Wealth And Lifestyle You Desire In The Greatest Boom In History
How and where we work and live is about to change drastically. In The Roaring 2000s, Harry S. Dent, Jr., one of the world's most prescient forecasters, turns his visionary eye to the full spectrum of possibilities that will follow in the wake of a burgeoning turn-of-the-century economy. Dent identifies opportunities, explores trends, and makes concrete predictions. Among them are:
A Dow that will reach at least 21,500 and possibly 35,000 by the year 2008
The rise of "gazelles," small- to medium-sized, high-growth companies that are now creating most of the jobs in the country
The Eight Critical Technology Trends Changing How We Live and Work
The New American Dream -- why changing technologies could mean a return to small-town living, and the nine types of boomtowns that will offer the highest quality of life
The New Network Corporation, which features leadership at the center rather than management from the top, and human browser teams that represent customers by connecting them directly to servers or specialized products and experts. These organizations are fast, responsive and entrepreneurial
The Seven Principles of Successful Investing
For anyone who wants to take advantage of these invaluable, emerging opportunities. The Roaring 2000s is a necessary guidebook to a not-so-distant future.
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