THIS IS MY 172ND BLOG ON UNDERSTANDING MONEY
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July, 2019
BLOG 172-A
This blog is going to be similar to a blog I wrote several
years ago recapping my mistakes and issues in my business career. They may not be exactly what you might
incur, but try to relate them to what is going on with you, or your company so
it saves you money and agony.
Timing, government regulations, capital, size of projects, zoning,
demographics of town or city, and corruption are all underlying factors that
will impact your successes or failures.
I was only a fair student until I started taking graduate
business school courses; they had more context and relationships to projects so
I understood meaning, and relationship in life. I try to write these blogs with a story theme in hopes they
hold more interest and you can relate, then apply. Different from text book learning. I also try to give the exact occurrences and finance
information. These blogs aren’t
meant for everyone.
As this blog turned into something long, I decided to write
it in two blogs, Part A and Part B.
Let me start off with a statement from one of my best
friends, who passed away in February, 1992. His name was Jack Whitehead (Edwin C. Whitehead to be
exact). In 1967 he went public
with his company, Technicon, the first real blood analysis machine, and the day
of going public it made him the wealthiest man in the USA. He was on the cover of time magazine,
and in many publications. So, when
Jack and I brainstormed over the years until his death I paid attention. I also
worked with him on special projects.
His memorable statement to me was, “it’s easier to make money, than to
keep money”! I think it is more
like, “it is hard to make money, and harder to keep it”! This is true of so many people. Look at all the silver, gold and
oil/gas kings (commodities) who went broke. Look at the many once successful corporations that have gone
down the drain,
Remember, if you are lucky to get money or earn quite a bit
there are always people around who will be happy to relieve you of it; these
include banks, stock brokers, investment firms, unethical business partners
when times get tough, and even relatives.
With that said, let me proceed with my experiences for you
to learn from and some advice. One
first premise I should have followed was an offensive move may be much wiser
than a defensive move. In business
it is “stay on top of the game”, and be proactive or you may be out. Another suggestion in the big picture
of your life is that if you are lucky enough to make some “big bucks”, stash
some of the money so that you aren’t continually re-investing and have money
for retirement or a rainy day.
Let’s start with the “macro”/big picture. If you are thinking of taking a risk
with a business, perhaps starting your own business, look at the business
cycles. We have now pushed back
the normal free market business cycle growth to 9 years; which historically is
about 6 years. We’ve
prolonged it with borrowed money on all levels. On the national level Mr. Trump has taken us another $3
trillion into deficit spending to keep our country going. As I have stated over and over, there
is no way out except for restructure of our debt, including world debt, or
default. Eventually, continual
printing of money catches up with a county. We can’t re-build our way out of the debt we have incurred
over the years. (If you are interested in this, please read my blogs 133 through
145 where I have recaptured the picture of our debt from the standpoint of wars
1772 to present. The blogs are
fairly long, 50 pages, but I think you will find them of interest.) Our government fiscal year ends
September 30th. The
government was to run out of money again before that date, but it was agreed
upon by Congress and the president this week in July to increase the
budgets. Never ending deficits.
Not only US government debt, but city, county and many state
programs including pensions are under-funded. So, if you are thinking of taking a risk right now, it may
not be the right time…be careful.
Tough to start a new endeavor when the cycle curve has maxed out, and a
downturn invariably will happen.
If considering working for a government position, will you ever receive
a promised pension?
This first topic you may think terrible, but it is
real. If you are married or
thinking of marriage you might want to keep assets separated rather than enjoin
them. I had a female partner in
2001 and after. We thought about
marriage, but consulted with my personal lawyer. He advised “don’t”; set up trusts, life insurance and even
call her your wife, but don’t get married. I had two large real estate projects developing. In 2005 we started retail stores for
“my better half”, and I assisted with these. If a person marries both parties are liable for financial
failure, and lawsuits of any kind associated with business like personal
injury, workman’s comp, etc. In
these cases both of you could lose your money. I have known happily married couples who were advised to get
divorced to separate assets and protect each other from damages from outside
parties. You still live together, and most things remain the same. If you are younger, considering a
family this is a different matter and seek legal advice on protection of
assets.
I’ll take some of my experiences chronologically in
life. I was successful after
college in real estate in Vail, Colorado.
Then, OPEC (oil) hit in 1973 and I couldn’t finance projects and
difficult to sell real estate that I was involved with. Resort areas were “red lined” meaning
no regulated financing. I sat on
lots I owned in Vail and Frisco, Colorado area. Tough to make a living, look at cycles, the unknown
happenings that may occur and move on to other endeavors or cities. Look at other pastures! There are only about 5 cities creating
the real economy; these being San Francisco, New York City, Boston,
Minneapolis, with the “old line” companies and perhaps Houston because of oil
and refineries. Remember with
successful cities comes competition, and it isn’t easy to just start anew
without great contacts.
Next, I was managing a well-respected real estate company in
Denver. In this occasion I did the
right thing, moving from Vail, but took too long to do so. Federal Reserve Chairman, Paul Volcker,
was raising interest rates to double digits and the real estate business
nationwide fell off significantly. The owner of the real estate company did the
right thing, selling the company.
Buy low, sell high or if the near future looks dim. All commodities were running a bull
market, oil, gas, diamonds, silver and gold.
I went into the oil business. If you read my past blogs you know I helped build up one of
Americas most successful oil companies, Energetics, from a few people to
hundreds and went public on the NY Stock Exchange in March, 1983. Then, another mistake of mine, I
furthered my energy holdings when President Reagan was de-regulating the
industry. Few realized the deleterious
effect over many years this would have on the US independent oil/gas
producer. Pricing cratered, thus
companies went bankrupt. A friend
saw the handwriting, I did not. My
friend bought up farms in Nebraska proactively and went into producing organic
grains like wheat for fine pastas.
By 1988 and being married I lost most of the significant money I had
built.
Right after Energetics, I started several companies, still
having some money and contacts.
These included the financing and business plans for various
industries. In retrospect permit
me to consolidate my thoughts versus explaining each situation. When times get tough, partners can turn
greedy. Be extra careful. I
witnessed more ways than I could ever imagine on how to steal money, unfortunately
a great deal from me. Get outside
audits regularly, have two signatures required on check amounts or money
transfers over a certain amount. You think partners are your trusted friends,
and they can be, but be smart and back up your finances with good accounting
and audits. I owned 18 oil/gas
wells in Texas with a couple partners.
The managing partner explained why our cash flow was off about $250,000
within a short period of time. He
explained this to be the result of operations in the field. An audit by us discovered he had added
two companies to “division orders” (percentages owned in wells and how you get
paid). These two companies were
owned by him. He made the grave
mistake of not adding different addresses from his main corporation’s mailing
address; all mail and checks to him.
He admitted the felony, but had transferred all his assets including his
wife’s to an irrevocable trust 12 months in advance of starting the theft. Colorado has a 12 month statute of
limitations, so we lost our money.
Here’s a newer “gig” happening all the time. Recently, I watched a development
project in the Phoenix, AZ area built that made little sense. The developers
took a ton of money out during the years of build-out and then the project went
under. This is happening in so
many cases; boils down to the developers financially raping projects on
management fees or specifying certain “A” grade quality and substituting “C”
quality. Smart banks and REITS are
auditing developers so that the materials going in are of the same brand and
quality as the specifications call for. I worked a brief time for a real estate
development company in Denver owned by a friend. It was discovered, through audit, that the architect/project
manager built a beautiful new home for he and his wife ordering more materials
than needed for the development.
Before investing in a project ask about money management. Managing partners are so frequently
using business money for their personal entertainment, travel and other uses.
Let’s end part A of this blog here. Please follow the next one where we
continue.
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