What is Real Investing?

Before we can get into investing and what it really is, you must first look at yourself. We need to figure out where we are. If we don’t know where we are, we can’t know where we are going.

I’m going to briefly remind us of our Cash Flow Quadrant and then we can determine what real, ‘I’ quadrant investing is, and what it isn’t.

Below is the MASTERINVESTOR’s Quadrant.

We inhabit at least one of these quadrants, depending on where our cash comes from.

Investing does not have to be difficult. Even though is a complex subject. We are here to provide high quality financial education made simple.

Here are what the letters in each quadrant represent:

Employee

Self-employed or Specialist

Business owner

Inside Investor

Where are we in the MASTERINVESTOR CASHFLOW Quadrant is determined by how you generate income. Employees earn income by working for other people. Self-employed people or specialists earn income by working for themselves. They own their jobs. Business owners earn income from the businesses they own. Investors earn income from their investments — money generating more money.

Some of our rules to live by:

1- We make money work hard for us.

2- We acquire assets. (real assets)

3- We raise capital.

4- We sell without selling.

5- We use debt to buy real assets.

Think about how we generate most of our income. In which quadrant do we primarily fall? Knowing the answer will help us chart our course into the future.

Generally speaking, people in the B and I quadrants reach their financial goals more quickly than people in the E and S quadrants. If you inhabit the left side of the MASTERINVESTOR’s CASHFLOW Quadrant, the good news for you is that we don’t have to be stuck there. We can move to the right side. Indeed, if we want to be financially free, we have to move to the right side—if not to the B quadrant, then at least to the I quadrant. Moving quadrants is a matter of choice and financial education.

Changing quadrants means altering who we are, how you think, and how you look at the world. The change is easier for some people than for others, simply because some welcome change while others fight it.

When I explain the CASHFLOW Quadrant many people get a little confused. People who invest in the stock market and have a 401k often think they are inside investors. Ins’t that real investing? No.

I hear that question so often I think it takes some explaining so we can determine what real investing is.

Each quadrant has its own mindset.

People in the E quadrant dread economic uncertainty and have a strong need for security. They often say, “that they are not that interested in money.” What this really means is that they are not interested in making the life-transforming changes necessary to leave the E -quadrant nest. For them, job security — which may be just an illusion — is often more important than money.

Employees can be janitors or presidents of companies. It is not what they do or how much they earn that makes them E’s, but rather the fact that they are working for others and earning salaries and benefits. A benefit is a defined and assured compensation over and above their salary. It is the employee.

Does this sound like an investor? They are not investing when they receive their 401(k). They are receiving a benefit. This is not investing. It is playing it safe for the illusion of security.

Let’s discuss what an ‘I’ quadrant person looks like. Regardless of which quadrant people make their money in, if they hope someday to be truly wealthy, they must ultimately move to the I quadrant, that is where money converts to wealth.

What is wealth?

Wealth is measured in time, not money. It is the number of days we can survive without physically working and still maintain our standard of living. I’s don’t have to work because their money is working for us.

The I quadrant: The playground of the rich

I want to take the ‘I’ quadrant individual a little deeper.

The ‘I’ stands for inside investor but not limited. And that is where the 401(k) confusion comes in. Let me clarify what an ‘I’ quadrant person does.

To be clear, I am not talking about inside trading (traders are not an inside/master investor) like what Martha Stewart went to jail for. What I am talking about is moral, ethical and legal.

An Inside investor is someone who puts deals together. While the ‘E’ quadrant individual is thinking his or her 401(k) is an investment, The Inside Investor is the person who actually creates the deal. They create and package all the mutual funds and 401(k) deals together. They don’t invest in mutual funds of 401(k)s. They look at them from the inside of the deal.

When a person receives his or her 401(k) they are outside the deal. Usually, they know nothing of the deal and have a broker managing it for them. They are so outside that they never even look at the deal. The true ‘I’ investor is looking at the deal from the inside.

Let me give an example. I have never bought gold ETFs. That is outside investing. There is no knowledge required to buy ETFs. When people buy an ETF they did not enter the deal on the ground floor. They are merely one of millions of people being offered the same deal. They are on the outside. I have, a couple of partners who in times bought actual gold mines, made them profitable, and sold stocks in their mines. Such was on the inside, creating the deal for the outsiders.

When I invest, I only invest with Insiders. Let’s quickly explain what private equity deals are so we can see what it is like to be on the inside.

[Full disclosure: We will never tell you who to invest with or how to invest. That is our own personal decision.]

When natural resource firms need to raise money to do things like drill for oil, explore for gold or uranium, or develop a gold mine, they often do it through “private placements”. And they do this to raise money from high-net-worth investors who understand the opportunity and the risks.

A private placement also allows a company to sell shares to investors that are not listed on the stock exchange yet but will be shortly. In a private placement, companies typically offer shares at a discount to the current market value. This discount is often in the 5% – 25% range. The price of shares and the dollar amount raised is negotiated in advance.

For large investors, negotiating the price and the amount invested in advance is a huge positive. It means they can acquire large blocks of shares without dealing with the market’s day-to-day fluctuations.

It means the share price can’t “run-away” and shoot 25% – 50% higher while a large investor is trying to acquire a position.

Being able to acquire a large number of shares in a company at a set discounted price is enough to make private placements a very attractive investment vehicle for large investors.

But there’s another aspect of private placements that makes them even better. It’s like icing on the cake. That icing is called “warrants.”

A private placement offering can also include stock options in the deal. These stock options are called “warrants.” Warrants act like stock options in that they allow investors to buy a stock at a predetermined price in the future. They have finite lifespans.

Some warrants expire in one year. Some expire in 2, 3, or even 5 years. And just like stock options, warrants can soar hundreds of percent in value when a company does well.

Warrants have the ability to supercharge the return.

Because we can buy the private placement at a discount AND get a warrant, the right structured deals in the best companies are in high demand with wealthy individual investors and larger institutional investors.

This demand makes private placements a way for companies to raise large amounts of money quickly and easily, with the best investors in the business. But the best Private Placements are never easy to get into.

The person must be an extremely wealthy individual with multiple high-profile brokers that have access to the best private placements. Or have to be buddies with guys like Lukas Lundin, Frank Giustra, Ross Beaty, Pat DiCapo, or Richard Warke.

The chances of getting in on the next big Private Placement put together by a guy named Frank, Ross, or Richard is close to zero.

However, that is why we have created are own deals and connections, so we can allow people, the ability to invest in private placements. We learn how to raise capital and sell without selling, by putting our own deals and building at our companies from scratch. Inasmuch as finding others inside investors who need inside investors to get it off the ground.

MASTER INVESTOR

Do we see the value of being an Inside Investor as compared to an Outside buyer, 401(k), mutual fund, ETF investor? They are two different worlds. Two different quadrants. The ‘E’ quadrant does not have “investments”, it has “benefits”. The ‘I’ quadrant invests from the inside where the knowledge is and where the deal begins, not after everyone else gets their hands into it.

There are other ways to Inside invest. we can Inside Invest with real estate like I do with our real estate advisor. He has so much knowledge that every deal he does is from the inside. He may build an apartment complex from the ground up, or he may buy an existing apartment complex where he conducts so much due diligence on the property that he knows more about it than the person he’s buying it from.

An insider can also be someone who builds a business from the ground up. Like I do. We know every nook and cranny. We are completely inside every deal that business makes. We know the deal from the inside. We see the complete picture, both the big and small perspectives.

Let’s go back to the original question what is real investing? A person who has a 401(k) and buy shares is that investing?” No. That is not real investing, is not an inside/master investor.

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