How To Build Wealth From Scratch

An acquaintance of mine serviced vending machines near campus as a part-time job in college. At some point, he purchased and acquired actual ownership of seven of the vending machines that he previously serviced. I admired his energetic and scrappy approach to getting his hands on a cash-generating asset.

Entering 2018, the average vending machine earned a monthly net profit of $111. With seven machines, the typical profit would be somewhere near $777 per month. If he is wise, he would have incorporated his ownership via a single member limited liability company, and then regularly extract the profits into some type of tax-protective vehicle so that the money could compound tax-free (and if he reached a point where he could stomach the up-front expense of a few thousand dollars in legal fees, he could actually use cash in a vehicle like a Roth IRA to purchase the vending machines themselves so that all of the profits from the vending machines would be forever tax protected and all the profits that flow from them could be used to purchase more conventional assets such as publicly traded stocks if he wished).

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Warren Buffett’s Stock Advice That Changed My Life

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I want to share with you this short excerpt from Warren Buffett’s 1988 Letter to Shareholders of Berkshire Hathaway, because it is on the short list of investing quotes that have had a long-lasting effect upon shaping my general investing philosophy:

 “In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.  We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”

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Originally posted 2013-06-24 20:42:56.