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April 27, 2009
By Steve Greenfield
Confession. I am not rich. Not poor. I'm comfortable,
which means I can choose to work at this blog and not
have to report to a 9 to 5.
In America these days, to be truly rich you need to have at
least $5 million in a liquid portfolio, not counting home
Most people in America, or around the world for that
matter, want to get rich. But only an infinitesimally tiny
fraction of humans ever get rich. Why? Why? Why? What
secrets do the rich know that we mere mortals do not. I
can tell you a few I have noticed in watching how the rich
1. The Rich Have Better Eyes. It never ceases to amaze me
that people who don't have money wonder how the rich
get rich. The rich get rich by getting there first. They get
rich by seeing in month 1 what most other people don't
see until month 20. Most very wealthy people always have
some portion of their holdings in stock. Most of them are
now buying stock while the rest of us are panicking. They
buy when we wait. They buy when things are bad, so the
stocks are cheap. We buy when things are good, so the
stocks are expensive.
How do the rich see things differently? Take the current
state of affairs around the world, for example. As I write
this column, every economy on the planet is in a tailspin. In
the US, banks are on the brink of failing. Failing. The US
has taken over 80% of the world's biggest insurers. The
car industry is on life support with deadlines looming to
come up with new survival plans -- or else. We are seeing
chaos. We are seeing panic. What are the rich seeing?
2. The Rich Have Better Noses. The rich don't miss the
smell of opportunity. It happens when the rest of us are
scared. We give off the stench of fear. That's when the rich
start sniffing. And smiling.
People are terrified. People have lost 70%, 80% of their
There's blood in the street. So what are the rich doing?
What are the rich doing when people are panicking,
paralyzed, afraid to do anything? The rich are buying.
Why? They see that the government has decided that
certain companies are "too big to fail". These companies
--Citibank, AIG--are trading at historically pitiful prices.
Last month a share of Citi would have set you back 97
cents. A share of AIG only costs about $1. A buck.
So the rich are looking at stocks like these which are selling
for next-to-nothing, they see that the government has
limited the downside to zero, since Uncle Sam won't let the
companies go bankrupt, and they see a bargain. We see a
disaster. They see a deal of a lifetime. See what I mean
bout the rich having different eyes?
It's a gutsy call. And most of us don't have the spare
money to risk the call. But that in a nutshell is the kind of
thinking that makes people rich. They may buy 20,000
shares of Citi when it's a buck, then when things
normalize, and Citi is around $20.00 a share, that 20,000
shares will be worth $400,000. Ka-ching!
3. The Rich Protect Themselves from Distorted Thinking.
Ever wonder how people keep their heads when every one
else is losing theirs? They stay focused. They keep their
poise. They keep their minds clear and calm. Nobody ever
ever makes money when they're angry. To make money, to
see opportunity, you have to remain calm. Even as you get
closer to the edge. Even as stocks are falling. Stay calm,
and search for the nuggets on the ground that people are
dropping as they head for exits in a panic.
America's economy is in free fall. The free fall started with
the sub-prime mortgage market, so-called "toxic assets",
then it spread into a general fear, then fear became a
panic. Now, the fear is palpable, You can taste it. You can
smell it. Guess where the smart money is. Lining up to take
part in the government's fire sale of the very same "toxic
assets" that the banks now have to sell. That's right. They
will buy billions of loans for pennies on the dollar. Not all
the loans will pay off. After all, too many people have lost
their jobs. But enough of them will pay. And if you by for
low enough, not that many people have to keep paying
their mortgages before those "toxic assets" start to look
like exactly what they are. Another gold mine.
And the rich will keep on getting richer.
Find out more information on how to navigate the financial
crisis: Brother -Can You Spare a Euro? / Work At Home
Recommended sites: seeking alpha (brokers and financial