Posted by Rob Minton
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Control is a very, very important part of wealth-building. There are lessons all over right now about what happens when you don't control your investments. The Bernie Madoff ponzi scheme and the failing of some 529 college savings plans are a couple of recent examples of what can happen when you give up control.
Let’s start out with my definition of control:
Investing Control: The ability to influence or impact the future value and net income of the investment.
Investing control is important for almost any type of investment.
For the stock market, this means controlling a majority of a company’s shares. Now, this is extremely difficult for average people, like you and me. This is why we should invest a smaller portion of our money into the stock market.
However, you could invest and obtain control of smaller, non-public companies. By having control, you can directly impact the growth, income and expenses of your investment.
For real estate, the best investors want active control over their properties. Active control can be obtained in partnerships and individual investments alike. Most people would rather be passive real estate investors. The tiny few who grow wealthy prefer to be active investors.
The majority of families focus their investments into assets they do not control. This is why they struggle to accumulate “real” wealth. This is also why many people will not have enough money accumulated when they retire.
In fact, it boggles my mind that most people prefer not to be in control of their investments. They would much rather have an mutual fund planner, stockbroker or someone else control their money. “Done for you” wealth is not available. You are going to have to do much of it yourself. You do it by controlling assets.
It is perfectly fine to invest a small portion of your money into investments you do not control. But I would be very careful investing large sums of your money into uncontrollable investments. I have investments into assets that I do not control. However, these investments represent a small portion of my net worth. I have control over the assets in which the majority of my money is invested.
These same assets also represent the largest portion of my net worth.
If you study wealthy people, you’ll quickly see that they do the exact opposite of everyone else. They desire, fight for and cherish control. Everyone else desires, cherishes and pays big money to have no control. Notice the difference.
I remember reading a biography on Kirk Kerkorian, a billionaire. In every single investment Kerkorian made, he fought for control. When he didn’t have control over an investment, he quickly divested himself of the investment. Same goes for Wayne Huzienga, who built three separate billion-dollar companies (Waste Management, Blockbuster and Republic Industries).
I believe most people prefer passive investments because they are easier. Passive investments allow the investor to invest without having to take any responsibility. Passive investments do not require the investor to be decisive. Passive investments do not require the investor get his hands dirty.
Control requires that you take responsibility for your investments. Control requires you to be active. Control requires that you pay attention. Control requires that you be decisive. Control requires you to roll up your sleeves and get dirty every once in awhile. Some believe control is risky. I believe lack of control is risky.
Once you have control of your investment, you should work hard to increase its value. You increase value by increasing its income.
One of the most valuable wealth-building skills you can have in life is the ability to increase the net income of your investments. With this skill, you can literally write your own ticket.
For example, Kerkorian purchased enough stock to control MGM Studios in the late 1960s. By the early 1970s, he had built the MGM Grand hotel in Las Vegas. This hotel and casino dramatically impacted the value of MGM’s stock. Guess what happened to Kirk’s wealth? Within three years, his wealth was in excess of $100 million.
This is how powerful control can be. Could Kerkorian have created $100 million if he wasn’t in control? No.
You must strive for control over your investments. Control is critical for true wealth. Don’t be lazy. Don’t copy the masses and happily turn over control to your hard earned money.
Great post. Control is key. This is another good one on the subject - the first few paragraphs at least.
http://www.fourhourworkweek.com/blog/2008/11/03/rethinking-investing-part-2-plus-election-thoughts/
Posted by: Eric Polatty | June 11, 2009 at 05:25 PM