Growthink Blog

The Paradox of Fear


Michael Raynor’s great book - "The Strategy Paradox" - should be required reading for any investor or executive seriously interested in understanding the real connection between risk and return in the modern economy.

Raynor’s basic premise is that almost everyone - because of how human beings are fundamentally wired – over-rate the consequences of “things going bad” and consequently default to seemingly safe strategies way too often.

Raynor goes on to make the point that while this may be perfectly fine from a personal health and safety perspective, it is disastrous business and investment strategy.

The reasons, he cites, are both subtle and obvious.

The obvious reasons revolve around classic “agency” challenges - namely that there are a different set of incentives in place for operators versus owners of businesses.

The owners - i.e. the shareholders - main goal is investment return. As such, they usually evaluate strategic decisions through the dispassionate prism of expected return.

The operators of businesses, in contrast, usually act as who they are - namely highly emotional, emphatic, and personal-safety focused human beings.

And while, as professionally trained managers, they are of course aware and focused on expected value and shareholder return, their analysis of those rational probabilities often get overshadowed by more "human" concerns.

Like friendship.

Like the stable, comfortable routine of a job. Of co-workers. Of a daily, comfortable work rhythm.

And the result of this natural human bias toward more of the comfortable same is executive decision-making that defaults way too often to the seemingly (that word again) conservative option.

Now as for why this conservatism is a huge strategic problem, Raynor delves into the concept of survivor bias and how it pertains to traditional studies of what factors separate successful companies from the unsuccessful ones.

Survivor bias can be best illustrated by all of those statistics that too many of us unfortunately know by heart regarding the abysmally low percentage of companies that make it through their first year of business, the number that make it to five years, to 10 years, to a Million, Ten Million, a Hundred Million in revenues and so on.

Now most of us naturally interpret these statistics as to mean that the leaders of these failed businesses were too aggressive, that they took too many risks, made too many big bets that didn’t pan out.

But Raynor's research actually demonstrated the opposite.

As opposed to Jim Collins’ famous (and famously flawed) Good to Great analysis, Raynor found that when the full universe of companies were surveyed – not just those that survived – that there was a direct negative correlation between those that didn't make it and the relative conservatism of their leaders and their pursued business strategies.

Or from the other perspective, the successful businesses were led and managed far more so by leaders who could be described in those seemingly pejorative terms - "aggressive," "risk taker," "bet the house" types.

So what should the entrepreneur interested in building a big business do? And what should the investor looking for executives to back look for?

Well, to quote the title of a famous self-help book from many years ago, "Feel the Fear…but Do It Anyway."

Accept that as human beings, we are wired to be afraid.

BUT to prosper in in our modern age we must step out and into the brave new world of modern possibility, opportunity, and wealth.
And leave fear in the hunter - gatherer caves from which it came and where it belongs.

RISK…and what to do about it


The four letter word in all conversations between entrepreneurs and investors is risk.

Investors are always interested in getting ownership stakes in high potential companies but are also always weary of the considerable risk-taking necessary to actually do so. 

The most successful investors and entrepreneurs I know take a dispassionate and detached approach. 

They don’t get caught up in all of the “drama” around thinking and talking about risk.

Rather, they view it for what it actually is - simply a measurement of the likelihood of a set of future outcomes.

In the context of evaluating whether or not a business will grow and be successful, risk has three main drivers:

1.  Technology Risk. Can the entrepreneur actually bring-to-market a product or service and on what timeframe?

2.    Market Risk. Once the product is in the market, will anyone care?

3.    Execution Risk. Can that entrepreneur lead and manage a growing enterprise?

Critically, this risk calculation is done not by adding, but rather by multiplying, these factors together.

As such, poor grades on any one of these factor has an exponential impact on the business' overall risk profile, and thus its overall attractiveness.

And as should be obvious, better led and better managed companies simply have better answers when queried regarding the above - their technology plans are better thought out, they understand their market and customers more deeply, and their people have better resumes and track records. 

But it goes deeper than that. 

Human beings – conservative by default - are disproportionately prejudiced against higher risk undertakings and strategies, even when their expected returns more than compensates for their higher risk.

As a result, higher risk deals are normally underpriced while the lower risk ones are usually over-priced. 

That is good knowledge for investors seeking alpha (and who isn’t?), but what about the entrepreneur?

Well, it should be to always remember that the real dialogue going through the mind of an investor when considering a deal is not really about technology, or market, or management, even when that is what they want to talk about…

No, it is almost always about risk - both its reality and its perception.

Address this concern above all others, head-on, thoughtfully, confidently, and candidly. 

And then risk will be put back where it belongs - as a factor to consider - and not something that just automatically stops a deal.

To Your Success,

What Do Wal-Mart, McDonalds, and Starbucks have in common?


Wal-Mart.McDonalds. Starbucks.

What do they have in common? Well, for one, they are businesses that were not started and grown from scratch by their original founders.

Rather, they were all started by others and then bought by ambitious and talented entrepreneurs (i.e. Sam Walton, Ray Croc, and Howard Schultz) who propelled them to a new stratosphere of growth.

And while high profile, statistically they are not atypical.

Census Bureau statistics show that a purchased business is eleven times more likely to still be in business 5 years from time of purchase as compared to those started from scratch.

However, for most business owners and investors, the business “transaction” path is far too often overlooked.

The main reason is lack of know-how.

You see, the vast majority of business owners and investors have never even attempted to buy or invest in a business other than their own.

As such, they have big knowledge gaps – ranging from the strategic, such as in how to identify the right kinds of companies to target for purchase…

…to the tactical, such as in how to best review and evaluate historical and projected financial statements prepared by sellers.

And bridging these gaps can only be accomplished experientially – i.e. by actually trying to buy or invest in a business.

Please let me emphasize try because the majority of attempted business purchases and sales do not consummate.

This is just fine, however, because the attempt itself always leads to unique wisdoms being gained.
These include being forced to really think about the evolving industry and competitive conditions in a given market.

And to getting real as to the level of expertise, effort and resources necessary to translate a business’ potential into actual results and profits.

Now, even in those rare circumstances when a business is bought, for cash, on a "straight from the treasury" basis, the deal maker still must make a strong financial and strategic case to justify a deal’s opportunity cost.
Of course, for deals requiring outside capital, this case must be made that much more thoroughly.

Again, there is no substitute for experience.

Only by going through the exercise of actually building and defending a financial projections model can one acquire the knowledge base and savoir-faire to effectively deal make.

Let me close with a few words about deal advisors - management consultants, business brokers and investment bankers.

In spite of the mystique these sometimes fine folks like to maintain around themselves, when one cuts through the haze the best of them offer three critical value-adds.

First, as intermediaries, they massage and facilitate the naturally combative negotiating process of a one-off transaction that is a business purchase and sale.

Second, they act as accountability coaches.

Like other undertakings that require great proactivity - such as committing to a fitness or diet regimen - having an outside agent who is paid to keep you doing what you say you want to do has enormous and tangible value.

Now, on their own, these two value-adds are usually more than enough to justify the expense of an advisor.

It is a third value, however, that the best advisors offer that creates the really high ROI.

And that is working with an entrepreneurial and executive team to envision and articulate a business’ future value.

And then, helping to create and maintain existence structures that translate this visioning into day-to-day business reality and results.

THIS is the highest form of business work.

And the highest ROI.

So whether you decide to go it alone, or to work with a talented and ethical advisor, the business purchase and sale process is one that all serious business owners and investors should engage in regularly.

Because yes, even when a deal is NOT consummated, the return on time and investment will be VERY high.

And when a deal DOES get done then the stars align…

…well it is THE fastest and most predictable path to business wealth and success known to humankind.

Just ask Sam Walton, Ray Croc, and Howard Schultz if you have any doubt about that.

To Your Success,

Chief Executives and Chief Shareholders: Never the Twain Shall Meet?


Small business owners lead the most efficient and effective organizations ever designed by human hands - profit-seeking businesses where the Chief Executive Officer also happens to be the Chief (as in largest) Shareholder, too.

Among many benefits, this business form fully addresses the Agency Problem - so often found in larger companies - where the interests of the professional managers do not always sync and align with those of the shareholders.

This can cause various (and nefarious!) effects like:

•    Managers seeking to maximize their shorter term "cash-out" - high salaries, bonuses and the like -  irrespective of their effect on / benefit to the organization as a whole

•    Managers not pursuing potentially high returns, but also higher risk strategies as the personal benefits to them when successful (i.e. a pat on the back) are far less than the penalties when not (i.e. getting fired)

•    In worst cases, managers committing out-and-out fraud, treating the companies they are entrusted to lead as personal piggy banks (see Enron), with their only strategic calculus being whether or not they will get caught

In contrast, in most circumstances, what is best for the managers of a small business is what is best for its shareholders, as they are normally one and the same.

But there are three scenarios where this is decidedly NOT the case:

1.    When Contemplating Raising Outside Capital. For far too many small business owners, when they think about raising capital, they think too much about "control."

As in "I don't want anyone looking over my shoulder." Or "telling me what to do."

When I hear comments like this, the first thought I usually have is that it might be a very good thing to have someone looking over your shoulder and telling you what to do!
Why? Because usually the advice given is in the interest of the businesses’ shareholders…which to reiterate the largest one of these is usually the entrepreneur resisting “control!”

2.    When Contemplating Selling a Business. More often than not owners of businesses capable of attracting a buyer and being sold LOVE what they do, and they especially love being the BOSS.

So the prospect of selling out and no longer being the BOSS can be emotionally difficult.

Now, from the perspective of the Chief Shareholder, the right response to this should be, “Who Cares!”

With the risk of sounding harsh, this decision should be made solely on the strategic and financial merits - lifestyle and heartstrings considerations be darned!

3.    Contemplating Investing More of One’s Own Money in One’s Own Business. When one is lucky enough to have capital to invest, the Chief Shareholder “Hat” needs to be worn far more tightly than the Chief Executive one.

Because as the Chief Executive, it is just too easy to overlook portfolio diversification considerations, as it is not possible to “diversify” from the huge time and energy investments necessary to be an effective CEO of a growing company.

From this perspective, the right decision is to almost always try to invest as much as one possibly can away from and outside of one's own business.

I know, this is extremely hard to do as more often than not every instinct screams out to just pour more time, energy and treasure into it to the exclusion of everything else.

That is the Chief Executive talking and is the kind of “irrational” commitment to success that is at the heart of what makes being a small business and an entrepreneur so intoxicating (and admirable)!

BUT when the three scenarios and opportunities above present themselves, take a pause and listen to Mr. and Ms. Chief Shareholder, too.

If nothing else, your wallet will thank you.

To Your Success,

This post is a based on a thought piece I wrote for Entrepreneur Magazine last year. The original article can be viewed here.

Today’s B2B: Go Mobile or Go Home


How are the best business-to-business (B2B) companies and brands getting past the noise and the online clutter and connecting with their clients and customers?

Well, marketing research firm Motista recently surveyed 3,000 purchasers of 36 B2B brands to find out.

I encourage any executive whose business sells primarily to other businesses to read the full report here. It is chock full of fascinating and very high ROI B2B marketing and sales nuggets.

In it, I found three particularly prescient ideas as to the Mobile Internet Revolution we are all currently living through, and how smart entrepreneurs and investors are playing and winning with it. They are:

1. Mobile, Mobile, Mobile. Mobile browsing, shopping and buying is growing at such a rapid rate that it has become now virtually indistinguishable from the traditional, desktop-driven Internet.

This is obviously having a dramatic impact on not just consumer markets (i.e. tweeting and texting Millennials), but on B2B markets and interactions as well.

Which leads to takeaway number two…

2. Personalization. As well demonstrated by this awesome Grainger ad, even older line industrial companies and brands selling to other old line companies are now connecting their brands and messaging to the personalized needs, wants, fears, and aspirations of individual buyers.

In other words, it is no longer enough to just demonstrate business value (i.e. functional benefits and business outcomes), but personal benefits must be communicated as well.

Things like promotion, popularity, influence, and confidence.

AND do so in a way “that delights, inspires, and surprises…and makes a person want to own it, riff on it, and share with others…”

Yes, this is hard.

But when done right, the rewards can be the kind of word-of-mouth viral campaign effects that to date have only been available to consumer brands and marketing campaigns (see Old Spice, DollarShaveClub).

3. Multiple, Digital Touchpoints. From personalization of message follows multiplication of medium.

With B2B buyers porting their iPhones and Galaxies-trained “always on, at my fingertips” sensibilities to the work place, B2B sales cycles are now increasingly “multi-dimensional.”

These cycles involve not just in-person and on the telephone analog selling, but also multiple digital touchpoints and nudges - texts, tweets, LinkedIn connects, YouTube favorites, Facebook likes, Instragrams, and more.

These are the new rules of the B2B marketing and sales game.

And we either learn to play by them hard and well…

…or we consign ourselves to being left behind in our mobile, so very personalized, sometimes annoying, but also so often delightful and always opportunity-filled world.

To Your Success,

The Rise of the Machines


Last week, I shared three themes percolating in the dynamic Internet of Things (IoT) movement: 1) Wearable Devices driving health and wellness breakthroughs 2) Embedded Sensors “incrementally” improving industrial productivity, and 3) The converging trends of miniaturization, affordability, and “de-wireization” driving energy efficiencies and cost reductions the world over.

These are big themes - breathtaking in their “macro” - but sometimes very difficult to translate to specific opportunities from which we as entrepreneurs and investors can individually benefit.

But try we must, both because of the sin that it is to see an opportunity and to not pursue it, and if we don't

…we run the very real risk of being overrun by transformations so profound and all-encompassing as to threaten to the point of obsolescence virtually every business and investment model.

Overly dramatic? I don't think so.

For if the last 20 years of technology advances have taught us anything, it is that global, online connectedness naturally creates conditions where choosing winning strategies don't just give companies a leg up, but allows them to capture all of the market (including its profits).

Examples of this phenomenon?

Think Google for search, Facebook and LinkedIn for social networking. Twitter for one-to-many communication.

And how about SpaceX for rocket technologies? WhatsApp for free SMS? EBay for online marketplaces? Craigslist for classifieds?

The list goes on and on.

And this coming Internet of Things - with estimates as high as 25 Billion devices being online in some form by 2025 - will provide far greater opportunities for new entrants to rapidly scale and for incumbents to be rudely displaced than your “Father's Internet” ever did.

The revolution here can be boiled down to one word.


And the need to manage and interpret the vast and ever-streaming treasure trove of it that will always be flowing from these billions of interconnected devices.

I thought General Electric's Head of Software Bill Ruh, explained it best at Kamal Ahmed’s and Ali Tabibian’s IoT event last month. The example he used was of the jet engines that GE makes for Boeing and other aircraft manufacturers that both create and allow for tracking on huge amounts of performance data.

Now when that data confirms the belief of the technicians managing those engines, it is used.

But, when it contradicts long held assumptions and beliefs, more often than not it is ignored.

In an IoT world, this belief system, this hubris, one’s qualitative judgments in contradiction with “the facts” needs to be quickly and ruthlessly discarded.

And it must be replaced by the conviction, faith, and sternly pursued managerial practice that these facts, this data above all else is king.

Sound harsh? Un-feeling?

A foreshadowing of a Rise of the Machines world where we humans are regulated to a feeble processing power second class?


But the optimists among us see many examples of long-held human prejudices cracking and disintegrating in the face of impersonal yes but also agenda-free data.

And another point – quality data analytics drives efficiency which in business and in life ranks right up there with sound strategy and impeccable ethics as pillars of asset and profitability growth.

When looked at this way, that in an IoT world good data analytics and analysis no matter the business trumps all, what naturally follows is that the particular business that one intends to start, build or invest in is almost secondary.

More important is one's relationship, one's willingness to let the data - well collected, accurate, and regularly and properly analyzed data - guide ones business decisions, strategies and tactics.

This is very hard to do in practice, as old habits and ways of thinking and doing die very hard.

But, as the habit is built, the competitive cost, and positioning advantages - built up incrementally over time in a business’ product and service offerings, in its marketing and sales conversion funnel, in its operational efficiencies - become unassailable.

And then, in the eternal words of the great Charlie Munger - Warren Buffet's investment partner for over 50 years - a business approaches a Low Cost, Hiqh Quality nirvana where assets and profits build steadily and wildly over time.

Hail to the Machines.

To Your Success,

The Internet of Things


I had the good fortune to attend GTK’s and Pillsbury’s amazing Internet of Things Private Executive Event in Palo Alto last week.

It was a star-studded, technocratic affair - drawn from Kamal Ahmed’s and Ali Tabibian’s amazing Silicon Valley network, by the high-profile speakers and panelists including Qualcomm’s chairman Paul Jacobs, General Electric's Head of Software Bill Ruh, Cisco's Vice President Tony Shakib, Splunk CTO Todd Papaiaonnou and by the incredibly exciting and timely topic itself.

Whatever name you want to call it - the Internet of Things (IoT), the Internet of Everything, Machine-to-Machine Computing, the Embedded Internet, Smart Services - the fundamental idea is that we are moving rapidly to a world where online connectedness exists not just on our desktops and smartphones, but rather is woven into the very fabric of our world (cars, planes, factories, our bodies and more).

This coming reality is scary to some for sure, but the myriad of productivity and efficiency gains an IoT world promises is as exciting as business gets.

And so the attendees - from Fortune 500 tech stalwarts like Intuit, Amazon, HP, and Oracle, to high-profile VCs like Andreessen Horowitz and Google Ventures, to some of the hottest IoT start-ups in the world (StreetLine, Jasper Wireless, Liquid Robotics) - listened as the speakers shared both the key IoT tech. advances (miniaturization, affordability, de-wireization) and the corresponding best areas of business opportunity.

My Three Takeaways:

Better Health and Wellness. Any fears of big brother and losses of privacy in an IoT world are well offset by the opportunities to save and prolong lives via inexpensive, unobtrusive, and accurate monitoring of “on the body” health data and events.

We can see the possibilities in the early successes of the quantified self-movement, pioneered by companies like FitBit and Jawbone that monitor sleep, exercise, diet, heart rate, and body temperature, and more.

As technology and the collective data sets naturally grow and improve, the opportunity to intervene quickly (and remotely!) in both catastrophic and chronic health events is incredibly exciting.

The Industrial Internet. General Electric’s Billion Dollar Bet to transform the 122 year old company from one based on building and selling large and complex machines - jet turbines, locomotives, and power plants - into one based on selling analytics and services to ensure that these machines run incrementally ever-more efficiently highlights the promise of the Industrial Internet.

Its decidedly low glamour goal? To apply a form of Moneyball to the gigantic Old Economy backbone of our modern world and “eek out” 1%, 2%, and 3% efficiency gains that in their aggregate represent trillions of dollars of increased productivity and profitability.

Energy. Energy is a HUGE area where converging and coalescing IoT tech advancements are starting to allow for massive reductions in our global carbon footprint while making the energy to power our cars, drive our factories, and light our homes cheaper and more accessible and reliable.

Great for those of us in America, but life-changing for the three billion people around the world without daily access to electricity, heat, clean water, and reliable food.
An overly optimistic take? Perhaps.

But even if only 1/10 of the productivity and efficiency promises shared in Palo Alto last week come to pass, IoT represents a business opportunity so large, multi-faceted, and all-encompassing as to make even the most grizzled and cynical market observers more than a little giddy.

And that about sums up my time in Palo Alto last week - a bunch of big, technologically literate kids talking and acting as if we all together are about to enter one of the biggest candy stores in any of our lifetimes.
To Your Success,

Today’s Market: A Bubble Waiting to Burst?


The incredible prices paid for high flying technology stocks this past year - whether it be in the form of acquisitions, in the cases of Dropcam, Open Table, WhatsApp, OcculusVR, and Nest, or in the form of financings, in the cases of Uber, Airbnb, Dropbox, has raised the age old questions, worries, and doubts about whether this market and these technology deals constitute a bubble.

And if so, when and how it will burst.

These concerns are mirrored in the recent price run-ups in both the stock and real estate markets.

As detailed last week, since March 2009 the S&P index has almost tripled, while real estate prices are up 10.5% this year and are now approaching their 2007 highs.

So, will it all inevitably come crashing down? Again?

And more importantly - whether it is or isn't a bubble - how can the individual entrepreneur and/or investor profit and win in the current conditions?

Let's take the bubble question first.

By almost any objective standard, paying into the billions of dollars for businesses with little revenues and/or significant operating losses - as is the case with all the companies mentioned above - is absurd.

There are very few plausible scenarios where the cash flow that these companies will be able to generate can any way justify the prices being paid for them now.

It is just hard to see how Nest will ever be able to sell enough thermostats, Occulus enough virtual reality headsets, Uber to take on enough ride shares, Airbnb enough spare bedroom rentals to justify the prices being paid for their businesses.

So, in this context yes, these businesses are wildly over-priced and there is a very good likelihood that the investors in them will experience a painful comeuppance.

This, however, represents a theoretical view of pricing, one driven by the relationship between current and future cash flows.

In the real world however, prices are determined by supply and demand.

And more to the point, by the relative abundance or paucity of Next Best Alternatives.

In this context, these prices make a LOT of sense.

You see, what we have in the world today is a lot of cash chasing a very small number of growth opportunities.

Some of this cash comes from expansionistic Monetary Policies pursued by the Federal Reserve and other Central Banks.
And a lot more of it comes from massive commodities-driven wealth in places like Russia, Africa, South America, and the Middle East.

And the owners of all this cash - trillions upon trillions of dollars of it - are naturally seeking to put it to work.

And their options for doing so are far more limited than one might think.

Bank interest rates the world over remain pathetically low.

Political instability, corruption, immature financial systems and securities laws close off private equity-type investments close to home.

So when it comes to true growth opportunities – the kinds driven by technologies that transform industries and markets - businesses like these are extremely unique and relative to the amount of cash out there seeking to be put to work, also in exceedingly short supply.

These global macroeconomic conditions show no sign of abating, so from these perspectives No are not high and the current conditions can and should continue for some time.

So that leads to our second question - how can today's investors and entrepreneurs benefit and win in these markets.

Well, as discussed last week, first of all by cultivating a bullish mindset in line with these strong economic times.

By recognizing the Sucker’s Bet that cash now is and likelihood will remain for the foreseeable future.

By fully embracing that this is not 2009 anymore - that the Great Recession has ended and that we are in the beginning stages of a Technology-Driven Growth Boom with no end in sight.

And to be resolved to grab your piece of it.
To Your Success,

Getting Robbed at the Bank, Part II


Last week, I talked about Getting Robbed at the Bank - how today's Low Interest Rates (0.1%!) combined with High Inflation Risk make this one of the worst times ever to build wealth via savings.

Thankfully, this may also be one of the best times to invest, as never before have there been so many well-performing alternatives.

Start with Housing: 95 of the 100 largest US Metropolitan areas have seen housing prices rise since last year, with CoreLogic’s much-watched Home Price Index showing an average 10.5% Year-over-Year increase.

This has mirrored a solid rise in the Public Stock Market, which despite its extremely Poor Long-Term Performance, is up 5.5% this year.

And for those that can still remember the 2008 talk of Doomsday and of the collapse of our financial system, it is heartening to note that the S&P is up an amazing 189% since its March 2009 nadir.

And as good as the news has been in the Housing and Stock markets, it pales in comparison to this Golden Age of technology and venture investing that we are currently experiencing.

Almost every day comes barely able to believe valuations on technology company financings, acquisitions, and public offerings.

From last week's news of Open Table being purchased by Priceline (itself once an incredibly high flying Internet darling) for a whopping $2B, to transportation service Uber commanding the highest pre-public technology company valuation ever, to the fantastic and quick riches made by the early investors in companies like Nest, Occulus VR, and WhatsApp, the list just goes on and on.

And while it is human nature to feel more than a little jealous of those lucky enough to be the Founders and the Early Investors in these companies, what we really should feel is gratefulness for their roles in helping to right our national economic ship.

Start with jobs - unemployment went from a very impressive low 4.4% in 2007 to a very discouraging 10% by October 2009.

But with the addition of another 217,000 jobs in May, Unemployment now stands at a very manageable 6.3%, and there are now more people with jobs in the United States than ever before.

And when asset values go up, when purchase and sales transactions occur that result in huge capital gains, when people are working and earning good wages, Tax Receipts increase too.

And, in turn, the National Credit Rating improves.

After being embarrassingly downgraded in 2012, S&P now says that they are prepared to increase the rating back to AAA as the ongoing evidence of the economic good times (and Congressional Good Behavior) continues to build.
So for investors, this is as good as it gets. Real Estate, the Stock Market, Technology and Private Equity, Jobs, the Deficit, and more.

All that is lacking now are those “psychological” final pieces of the puzzle: Optimism and Confidence.

There is still a holding back, an unwillingness to believe that all of it is real and not a mirage.

And as a result, when it comes to those very precious dollars that we do not spend, that we put away for the future, we are still saving too many of them and investing too few.

Yes, we must proceed carefully and deliberately - because investing always involves risk - but we most proceed.

Leaving money in the bank is not a viable option anymore, not when interest rates are so low, not when the threat of inflation is so high.

And certainly not when the investment pickings are so good.
To Your Success,

Getting Robbed at the Bank


I took my six and eight-year old sons to the bank this weekend to open their first savings account.

It felt like the right thing to do - they are at an age where they can understand the power and importance of money, albeit if mostly from the perspective of the things that can be bought with it.

But the hope of course is that the habits of savings, of delaying gratification are ones that will stay with them for a lifetime.

So off we walked to our local Bank of America branch - both boys clutching around $100, and proudly announcing our intentions to the teller.

We were then escorted to a BofA “personal” banker, who graciously walked us through the account opening process.

All was going quite swimmingly, and then I did something that I knew I shouldn't but couldn't resist.

I asked what the interest rate was.

And our banker glibly informed me that it was one tenth of one percent. 0.1 %.

And then instead of feeling all fatherly and a great role model…I felt like a real chump.

Every year my boys will earn one dime in interest.

Let's say they really button down and build up their accounts to $1,000.

That will get them one dollar per year.

Heck, how about those folks that work hard and save for a lifetime and accumulate $1 Million in savings?

Well, in the bank they are now earning a beyond miserly $1,000 per year.

Sure there are savings accounts that pay a little more, but has there ever been a time where the risk – reward gap between saving and investing was greater than it is right now?

Let’s define savings as what I did with my boys this Saturday: Putting and leaving money in the bank.

And let's then define investing as pretty much everything else: Public and Private Stocks, Bonds, Real Estate, Commodities, Collectibles, and more.

When it comes to return (0.1%), the comparison is an utter and complete joke.

But, it is when it comes to Risk, well…
…Investing, of course, involves risk. Always has, always will.

And while it is understood that while cash savings offers far lower returns, the tradeoff always was the assurance that your money was safe in the bank.

But in today’s economy, very unfortunately it simply is not.

Why? Because of massive inflation risk.

As in 10%, 15%, 20% annually or more.

And potentially coming not in the distant future, but very possibly in the next few years.

Since 2008, our Gross National Product has increased approximately 10%.

In that same time, the Federal Reserve has expanded the Money Supply more than 400% - from $800 billion in 2008 to over $3.9 trillion today.

As in four times as many dollars floating around here and abroad than there were six years ago.

Even generously taking into account the fact that the Greenback remains the reserve currency of choice the world over, this can only account for a fraction of the money supply increase.

Inflation – and lots of it – will eventually cover the rest.

And when it does, the savers amongst us are in for a world of hurt.

This is sad, because in so many ways the savers are the responsible ones - delaying gratification.

Planning for the Future. And for a rainy day.

But when the inflation deluge comes, our poor and pathetic savers probably won't even be able to afford an umbrella.

When I think of it like this, next week I'm marching my boys back to the bank and we're closing those accounts.

On the walk back, I'll teach them how to invest.

To Your Success,


Jay Turo




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