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Increase Your Success at Anything with Warren Buffett’s “20-Slot” Rule

Charlie Munger

The best way to learn is by studying the best. Experience has value as long as it also has a foundation in knowledge. Reinventing the wheel again and again is a fool’s errand and not conducive to personal development.

Studying the best takes many forms. Working for someone at the top of their game is the best way to learn, but the opportunities to do so are limited. Formalized education communicates facts without always presenting the best in your selected field. The number one way to learn from the masters is to study them through intense research of their work. The greatest minds are available like never before. YouTube videos of their speeches and books and news articles on their practices give us massive quantities of material to learn from.

Today we will focus on a simple story shared by Charlie Munger, Warren Buffett’s friend and right-hand man at Berkshire Hathaway.




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Fighting the Profit Train

One of the mantras of the FIRE (financial independence, retire early) community is the owning of income property. With rare exception, investors do it all wrong, taking on extraordinary risk for no reason.

Side gigs are handled the same way. Whether you run a full-fledged business or a side gig, you probably make the same mistake real estate investor’s do.

Americans love to invest at home. There is a tendency for people from all countries to focus their investment dollars in the domestic market. The comfort of understanding the local business climate clouds the investor’s judgment. American’s are the worst. For decades I have recommended 70% S&P 500 index fund/ total market index fund and 30% international index funds for my American clients. This is still weighted heavily toward U.S. companies. The diversification in broad-based index funds with a third of the portfolio in international is a good mix in my opinion. Small business owners and real estate investors rarely make such a sound decision.




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The One Guaranteed High-Return Investment You Don’t Own

Every investment, even guaranteed ones, require priming the pump. Before you get paid by your employer you work; before you get paid a dividend or receive capital gains you must invest in the index fund first; before you get paid rent you need to buy the property and prepare it for tenants; before guaranteed government bonds pays you a penny in interest you must first buy the bond. You only get something out if you first put something in. This is true in every part of your life.

I grew up on a farm and after a few years living in town I moved back to the countryside where I feel happiest. Town still has a magical pull. Living in town means everything I need is close by. I can bike everywhere. The need for a car when living in town is minimal. If I lived in town I wouldn’t own a car. For long trips I would rent a vehicle. Uber, my bike and legs would handle 99% of my transportation needs.

Living on a small farm has advantages. The cost of living further from town is offset by the amount of free food, or nearly free food, I get. Raising my own meat (beef, chicken, fish and pork) means I know what is in it. Abundant garden produce means healthy living while the crops are in season. Asparagus in spring, radishes and other fast growing vegetables follow, and apples, apricots, cherries, peaches (yes, peaches in Wisconsin!) and grapes round out the abundant autumn harvest. There is so much good food and it is all free or nearly so. Too bad it doesn’t last all year round.

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Applying Cost Segregation on a Tax Return

A few weeks ago I wrote about the massive tax benefits to investment property owners and business owners who also own commercial real estate using a cost segregation study. Some of you took me up on the offer and now are up for a significant tax reduction. Then the problems started. I didn’t anticipate the large number of tax professionals who didn’t know how to handle cost segregation studies on a tax return.

Before you call your tax preparer bad names, know most tax professionals rarely, if ever, see a cost segregation study in their office. When the rules changed a few years back I doubt 1 in 100 accountants handled their client tax returns correctly as it pertained to the repair regs and tangible property rules. The good news is the changes only required certain actions in the first year of accounting method changes. The bad news is that most tax professionals don’t know how to handle a cost segregation study on the actual tax return when a client comes in with one. Not to worry. Your favorite accountant will spill the beans on how to get it done right.  No picking on your accountant either. This is advanced tax planning and tax law can be miles from tax application at times.

Tax professionals will find this helpful; taxpayers should find value, too. Knowing of a tax advantage is only worth something if you can apply it. There are two major issues surrounding cost segregation studies: tracking the components/elements listed by the study and taking full advantage of the additional depreciation allowed.

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What the Wealthy Accountant Owns and Why

In my last post I discussed how difficult it is for personal finance bloggers to find fresh material. There are a few areas where fresh material is always available: spending reports, net worth reports, and investment reports. My spending is boringly low so I rarely share those numbers. Net worth reports are fun to watch as people go from zero to millionaire; afterwards it becomes bragging and tends to discourage those starting out.

Even though we all have a timeline where we reduced/eliminated debt and built our net worth, each personal story is a marker along the road to financial independence. Readers love these stories because it provides a framework as they reach for their financial goals.

Killing debt is hardest once the habit is established. It seems impossible for those buried in debt to see any light at the end of the tunnel. Hell, they think the tunnel is a bottomless pit. And it can be if they don’t crucify their old habits! Dear Debt is an awesome example of a young woman breaking up with debt and getting her life back. She said it better than I ever could because I didn’t dig the hole as deep in my younger days. And not because I am smarter. I just had fewer opportunities to be stupid. (Note: You are not stupid, Melanie!)

Net worth reports are great for illustrating how fast a nest egg can grow. When you start it looks so small at first. Debt is gone and you amassed a whopping $10,000. Big deal. Well, it is a big deal! Financial independence is gained one dollar at a time. Watching others further along in the process is motivating for some. Here is another young woman well on her way to financial independence at the ripe old age of 26. She will reach FI sooner than she plans. It’s how it works. And here is a blogger who planned on reaching FI in 1500 days and showed up early. How rude! They should have made an appointment first.




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Here is How You Can Piss Off Donald Trump

Disclaimer: This is not a political rant! The time is ripe for this message and Trump happens to be President. It is meant as satire wrapped around a serious message you must follow or suffer the financial consequences.

Nothing is more fun than good times. The recent run in the stock market in nothing short of incredible. After years of slow growth economy and low inflation coupled with a rising stock market, the stock market has exploded. The chart has gone parabolic! But this is not a story about investing or the stock market, however. This story is about pissing off Donald Trump.

Promises of faster economic growth and more high paying jobs face reality after Election Day. President Trump has hitched his wagon to a promise of hyper economic growth, in the neighborhood of 4% or higher. Depending on the day, a lot higher. I’m guessing if things go well we can see wages double every three, maybe four, years. And the best part, no inflation while the government pays off the national debt and increases spending across the board. Such are the promises of politicians.

And in these “best of times” you think it will last forever. Think 1929 or 1987 or 1999. Oh, for the heady days on 1999 when broad stock indexes sported triple digit P/E ratios. How can you lose? The future is clear to the horizon. Life is good, just ask the government.

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Leaving a Legacy Without Destroying Your Children

Reaching financial independence requires a consistent set of skills and persistence. The habits that allowed you to amass a sizable nest egg don’t die just because you pass some arbitrary border. Education, job, and family life consume all your time in the beginning.

After college it is time to earn a living. After finding a job it is time to climb the ladder, all the while saving a massive percent of your income to reach your financial goals.

Family is a priority. A significant other and children take time and money. You increase your saving and investing skills. Raising a family is expensive only if you don’t know how to shop. You hit the rummage sales and thrift shops for kid’s clothing, toys, height chair, car seat and other stuff the youngsters will grow out of quickly. Later you sell the kid’s stuff for about what you paid for it at a rummage sale of your own, passing the same opportunity you had to another young couple.

And then it happens. Your hard work, intelligent spending and diligent saving pay off. You reached financial independence earlier than planned. Now you have another problem you never gave much thought to before: your legacy. If you reach financial independence early, how large will your net worth grow before you leave this world?

Thinking about your legacy when you are still in the building stages is hard. It requires looking into the eyes of the possible: early death. What happens if you die while the kiddos are still minors? A plan is needed. Even if the kids are grown, a plan of succession is necessary. And what if kids are not part of the picture? Then what happens to your legacy? Let’s explore the possibilities.

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Deal Breakers for Investors and Business Owners

The most dreaded words a salesperson can here are, “I need to talk it over with my accountant.”

Accountants have a reputation for breaking deals. Behind the scenes we are actually called ‘Deal Breakers’ as a derogatory term. But the name isn’t fair. What we really are doing is protecting our clients.

The investor or business owner already thought of all the things that can go right. Accountants throw cold water on the deal by examining the numbers. They don’t always stand up to the hype.

And then there is my last blog post where I play a Sad Gus with robo-investing and Betterment. I think a lot of people really believed the tax benefits were much higher than they really are. There are real benefits, just not as many as some would have you believe.

That is where accountants shine. If you are going to serve your client you had better have the stomach for laying the truth on the line, even if the client doesn’t want to hear it.Continue reading

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