My wife sent me this article on what makes people disruptive, said it describes me. I think it also describes a bit about what I’m doing with Elephant’s Paycheck, so thought I’d share.
I kept coming back to this quote in the article:
…when he went to work at a gas station and learned he could earn $5 a week just for shipping in oil from far away, he volunteered to help his boss…
Malcolm McLean experienced the system (of how gas stations worked) and realized there was an opportunity to earn more than he was doing today and he volunteered to learn more.
For me, the insight was about money earning money.
I have so few memories of childhood that every single one that I do have must have had a really big impact on me.
I remember realizing that if I had money in a savings account, at the end of each month (or quarter, I forget) I could go to the bank and have them stamp my passbook with my new, higher balance.
It was free money! Money I could “earn” without working. Simply having money would get me more money.
At the time it was pennies, but even then I realized that percentages matter more than absolute values. If I could only earn pennies on what I had, I just need to save more and then I’d earn more.
For the past few years interest rates on savings accounts have been minimal. Fortunately, I discovered dividends. Dividends should play an important part of your investing blueprint.
When I became a teenager, I got a gift of a five shares (of company stock) in a utility.
Dividends are regular payments companies make to their owners. These payments often come from profits, but not always. For reasons beyond this post, sometimes companies without profits pay dividends (or pay more dividends than they have profit).
The point being that owning a part of a company instead of keeping money in a bank is another way for money to earn money. Another way to earn money without working.
The dividends I was earning were more than that same money would have earned in a savings account (had the gift been cash). I’d soon learn why. (Investing in stocks is more risky.)
In fact, the best part of the gift was not the dividends themselves but the opportunity to learn about the stock market (habit #4 of the wealthy in the linked article).
You see, the utility company I was a part owner in (albeit a small part!) went bankrupt after a bad investment in nuclear energy. I’d later come to learn of the deep amount of luck that I had to have to own a utility that went bankrupt. They were considered the least risky of investments (because they’re highly regulated). But, I digress.
Even at about 15 years old, I was able to learn a lot from this experience. You get a higher return with dividends than with interest because there’s more risk. You can lose your money if you invest in a company that doesn’t do so well.
How do you pick a good company?
The part of the ‘what makes people disruptive’ article that I relate to is the section on “reframing the problem”. Reframe the problem and you can identify opportunities that others either don’t see, or can’t articulate as well because they don’t have a good background for the story they need to tell.
Elephant’s Paycheck is the latter.
The Elephant’s Paycheck Blueprint uses investing techniques that I’ve been using for… well, since I’m 13. I’m simply reframing the problem of ‘how to invest to build wealth’.
The answer is not setting out to pick companies whose stock price will go up. Instead look for companies that will raise their dividends.
Companies with a history of raising their dividends will very likely do so again. Specifically, companies who have increased their dividends every year for decades will very likely do so again this year.
There is a small group of companies with this distinction. Dividend Aristocrats have raised their dividends each year for at least the past 25 years. That doesn’t mean they’ll always raise their dividends, but it’s a really good bet.
Of course, it doesn’t do us any good if the dividends are raised but the shares lose their value. The thing is, that over time, the dividend provides a “floor” to the stock. Meaning, that companies keep their dividend yield reasonably consistent over time. As the dividend goes up, to keep a similar yield (within a range of a percentage point or two) the stock price must go up.
So Elephant’s Paycheck reframes the problem from one of finding stocks whose share price will increase to one of finding stocks whose dividend will increase. Then, we’ve built a Blueprint for how to use these companies to create wealth (and a paycheck) over time.
Interested in more? Take the course (it’s free). And, I hope to publish at least the first version of the book this year (2015). There’ll be advanced notice and discounts provided for people who’ve taken the course.