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Maybe the biggest psychic rewards come from finding the next Dell at the beginning, but the price you pay for buying unpredictable businesses far outweighs the gains most of the time. It's much safer and much more lucrative to buy a big, well-known business when it is massively underpriced because we can know it is massively under priced.
How are you going to know the Rule #1 value of a startup? Even the Venture Capital guys have no real idea.
Stick with businesses that have already built big moats. You might not have the thrill of a new venture blasting to the moon, but you'll have the thrill of chillin' in your old age with no worries about money. And if, like me, you just can't stop yourself from investing in a few of these potential world-changers, do it in the Risky Biz portfolio with a small piece of your capital. (See Chapter 15 about Risky Biz rules.)
Phil Town suggests to be gentle. As much as he loves you dearly, telling you to do this on your own goes against every paradigm he believes in. In addition, he really doesn't want you to become financially literate because then you won't need him. Tell him you know it's stupid to do this on your own but you can't help it and you hope that he will be there for you down the road. Then go out and make 20 percent your first year while his recommended mutual funds did 0 percent. Show him what you did and then ask him if he thinks 20 percent is good.
Get my RULE #1 book and read it. It lays the whole process out for you in detail, from start to finish. The hardcover of Rule #1 is available now. The paperback edition comes out August 28, 2007 and is available for pre-order.
Check in on my Rule #1 blog. I use it as a virtual chalk board to read and critique "homework" submitted to me by new Rule #1 investors. This is the best way to see The Rule in action.
Once you're feeling comfortable, start following the steps in my book. Do your Three Circles assignment. Dig around in the Industry Sectors on Yahoo! Finance. Assemble a Watch List of wonderful companies you may want to buy. And then apply the 4M analysis. It's all there in the book and on the blog.
Phil Town says that one of the great advantages of being in the Special Forces a long time ago is that I don't get too worked up about the little things that go wrong in my life now. Once you've been shot at, everything else seems relatively minor. So the first thing I can tell you about having too much debt is to keep it in perspective. Think about it like Special Ops after something bad happens: Nobody died, we're still healthy, we're still in the game.
BUT, let's be realistic here, it's still hard to shake the pressure that debt puts on you. It's like you're on a treadmill and no matter how fast you run, you get nowhere. So to fix this we've got to get better training and we've got to do stuff differently. First, the training: Read books by people like Suze Orman, Bill Danko and David Bach. Their books will help you start finding money even while paying down the debt.
Based on what you learn, make a plan and stick to it. Keep the goal in mind and in a couple of years (or maybe five or so, doesn't matter) you'll be both debt free and you'll have money to invest.
Meanwhile, while you're paying off the debt, you're going to be banking the most important thing you can bank: investing experience. I would recommend this whether you have debt or not: if you're a new Rule #1 investor, then I want you to paper trade $100,000 until you know you know what you're doing.
I discuss paper trading in my book: you basically keep track of your profits and losses in a notebook, as if you'd actually bought and sold in the real market. You can also find online market "simulators" that facilitate your fake paper trades and track your investing.
It might take you two months. It might take you two years. But that's okay because you are banking experience. And meanwhile, you're getting rid of the debt.
Call any of the online brokers and they will point out how to do a rollover without any penalty. They do it all the time.
However, sometimes you can't because of company policy so you are stuck with the 401k mutual funds. In that case, put each of the available funds on a Watch List, use long-term Tools and pull out when they go red and go to the money market account.
If you'd done that between 2000 to 2005, a fund like the Janus 20, which dropped 40 percent of its value, would have given you a 15 percent per year return.
I'm not a fan of 401k plans because they assume you are incapable of making your own investing decisions, so they force you to give your money to the mutual fund managers and then you could end up with a zero return for 20 years or so.
Having said that, however, if they are matching funds it's a good deal and if you can, get a SIMPLE IRA plan put together in your business. You can bank some serious money pre-tax.
For more on this topic, see Chapter 14 of my book. Depending on your income level and access to certain types of retirement accounts, your situation may be different. There are many difference kinds of IRAs, each with its own features and limitations. An accountant can also help you determine which one will be best for you.
The key is to have the most tax-saving account possible and be able to freely buy whatever you want in the market with no restrictions. You want the account to be "self-directed," meaning you control it.