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October 30, 2006 8:04 pm

Triple your money by investing in yourself

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A friend of mine recently came into $100,000 and wanted to know how she could invest it. Everyone has different needs and I have written ad nauseam about stocks, bonds, funds and so on that I think are good, solid investments. But my friend had more specific needs. She is young, smart and wants to “double or triple her money”.

Well, here are some things she should not do:

1) She should not invest in hedge funds. The money is illiquid, it is locked up, it is not transparent, there are hidden fees being taken out of it and the returns are converging on zero;

2) She probably should not invest in mutual funds, primarily because they are mostly correlated to the stock market and it is unlikely they will triple her money anytime soon;

3) Real estate is probably a bad idea. The smart money that went into real estate from 2000-04 is now rotating into the stock market. The speculation that reigned is over for at least five years.

4) Individual stocks. Certainly, of the 20,000 public companies out there, at least 1,000 to 3,000 of them will double and even triple over the next year, regardless of whether we are in a bull or bear market. The problem is it is hard to know which stocks those will be, and for that edge you are competing against mutual funds, hedge funds, day traders, retail traders, pundits and the media. It is not impossible, but it is hard to have confidence you can do it.

The only real way I know to triple your money is to invest in yourself. And the environment has never been better for investing in your own ideas and your own business. Right now, with all of the economists running around blathering about inflation, we are in the most deflationary environment the country has experienced, including the Great Depression, when prices were falling at 5-20 per cent a year. This deflation is an enormously positive aspect of the global economy, because it is caused not by lack of demand, but by: increases in productivity brought on by technology; increases in the supply of business development services, brought on by the development of the third world economy; and the levelling of the small business playing field brought about by mega- advertising platforms such as Google, which allow access to publishers without paying exorbitant ad rates.

Because the cost of starting a business is now effectively zero, not only should you start a business, but it is a sin not to start multiple businesses. The odds of success for any one business are still similar (let us say 10 per cent) to before. So the only way to increase your chances of success is not by spending more money on one business, but to use your resources to jump start multiple businesses until you settle upon a niche or idea that seems to work for you. Then you can devote your full focus to the business that is working.

Well, doesn’t it cost millions to start a business? Yes and no. It depends, but no matter what industry you are in, the costs have come down.

Let us say you have an idea for an internet business. No problem. Let us walk through the steps:

Build your site. Once you have figured out the spec of your business you can use any number of sites – such as elance.com, scriptlance.com and rentacoder.com – to outsource development.
A programmer sitting in Bangalore will cost between 1 per cent and 10 per cent of what it costs to develop something here. And once Bangalore gets expensive, there will be Romania, let us say, and so on.

Then you need to advertise. Not only does Google level the playing field, allowing you to micro-advertise your idea across thousands of websites for pennies per click, but the competition is starting to bring prices down further. Adbrite, funded by the Google investor Sequoia, is encroaching on Google’s turf. Yahoo, with the soon-to-be-released Panama project, will hit Google’s base. And I am partial to a site called StumbleUpon, which avoids the problems associated with click fraud, and brings potential customers to your site for the cheap cost of 5 cents per visit.

The length of this column prevents me from elaborating further, and obviously there is more involved in the process. But this should be the modus operandi of individuals seeking to invest in themselves. And also companies seeking quickly and cheaply to broaden their reach, funds looking for incubation opportunities, and entrepreneurs looking to provide some of the picks and shovels in the middle as the traditional barriers to entry for any business in the world continue to get broken down brick by brick.

james@formulacapital.com

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