Hi Jesse!

Wow, again, lots of great stuff in your post! You've given me a LOT to think about.... :)

> *** Again, right on the mark. If I had to
> choose one single quote, to sum up the power
> of leverage, it would be the following from
> Billionaire J. Paul Getty:

> "I'd rather have 1% of the efforts of
> 100 men, than 100% of my own efforts."

I hadn't heard that quote, thanks for sharing it. I think it's right on the mark too.... :)

> This goes right along with your comments
> about having employees. Paying employees, or
> subcontractors, to carry out certain tasks
> for you, is certainly a viable and basic
> model for creating leverage.

> But here's something that's not the most
> comfortable point to discuss, but extremely
> important:

> If you have an employee working for you, you
> have to calculate your return on investment
> on that employee, just as you would on any
> ad or marketing campaign. This may sound
> somewhat cold and callous, but the truth is
> that you can only have people working for
> you if it is profitable. It is incumbent
> upon you, as a business owner, to calculate
> exactly what each employee is worth, as
> compared to what you are paying them.

Thanks, Jesse. I hadn't thought about that point, but the way you put it makes it crystal-clear.... I know what you mean, though, about how it may seem uncomfortable to some. However, the truth is, unless a business makes a profit, it can't provide employment in the long run anyway.... And for it to make a profit, the "return on investment" per employee must be positive....

So, while it may seem "cold" in the first instance, when you see the bigger picture, it's vital to the sustainability of the business and for continued employment....

> Now getting back to your point about
> "breaking the link between time and
> money," here's another very interesting
> fact to consider.

> The entire *concept of creating
> info-products* was spawned by the principle
> of LEVERAGE!

> Think about it for a moment. Why do people
> create their own products? It's so they can
> take their expertise, and be paid for it up
> to infinity, rather than be paid only for
> the number of hours they are able to work.
> It goes hand in hand with your lawnmowing
> example. An info product creator is limited
> only by the number of units that he or she
> can sell.

Yes, this is becoming clear to me too. :) And it's clear you can have many types of leverage, all working together in harmony.... Like an info-product along with an affiliate program (as JDB points out below).... :)

> *** Bingo! You hit the nail on the head.
> Virtually any *non-leveraged* activity can
> be translated into a highly leveraged
> revenue stream. This is the entire thrust of
> what I aim to do on a daily basis for
> ourselves and our clients.

Jesse, your business sounds like it's a good one for both yourself and for those who use your services.... :)

> *** This is one area of leverage where I'd
> be extremely interested in expanding
> discussions. I'd love to hear your thoughts
> (or anyone else's) on what investment
> vehicles, real estate ventures, or anything
> of the like, produce the greatest return, or
> highest leverage, and why.

Hmmm.... Well, here are the different types of investment "leverages" which come to mind for me....

Regarding real estate, first I should say that I don't have any real estate investments at present. Most people who invest in real estate use leverage by borrowing from the bank.... The way to make this work is to be sure that the rental money coming in from your property MORE than pays the bank's loan and interest fees....

One way to ensure this is to ask the real estate agent what they estimate you could rent your property out for. Then, compare that to what the bank will charge you if you take out a loan, and make sure that the amount of rent you'll have coming in, more than pays for what you're going to be paying the bank....

A good friend of mine does this, with good results. He also likes to look for houses which are structurally sound, but which may be cosmetically not very good looking.... He can then often get it cheap. Just a paint job and maybe some new carpet later, and it's ready to rent out at a higher rate.... However, it's important that you're sure it is structurally sound, and that anything "bad" about it is just "cosmetic," which can be easily fixed. (He never buys a place he'd need to do major renovations on -- that's a possible trap which I know some have fallen into! He always makes sure it's structurally sound before he buys it....)

Another approach with property is to use an option contract (which is another form of leverage). The essential idea is to get an option on a house, which means that you have the option to buy the house for a certain price, for a certain amount of time. This also gives you control over selling the property for a fixed amount of time -- that means that nobody can then buy the property, except through you. You then use this option to sell the house at higher than your option says you must pay for it....

I think the essential way this works is if someone offers you a higher amount for the house than you need to pay for the option contract, one way to do this is then to sell the option contract to them. So, for example, let's say you have an option to buy a house for $500,000, for a period of two months. Then, let's say you get a buyer for the house who is willing to pay $550,000. What you can then do is sell them the option contract for $50,000, and they pay the rest -- $500,000 -- to the property owners. You controlled the house for a period of time through your option contract, even though you never owned it.

However, I don't know many details about this method. I know Jim Straw has an info-product on this (someone who's bought it recently told me it's quite good, but I haven't yet gotten it myself.... It's on my "things to get" list. :) )

There are also other approaches too, which I've read about.... There's the "no money down" approach, and a couple others too.... I'm going to have to head back to my bookshelf and refresh my memory on those. :)

When it comes to stocks, there are also several ways of obtaining leverage.... However, there could be some added risk here too for some of these methods....

Again, you could borrow from a bank to invest in the stock market. The main problem here is that the value of your stocks could go down, but you'll still owe the same amount of money to the bank. A lot of wealthy people in the late 1980s went bankrupt this way. They were highly leveraged in the stock market, and when the crash of 1987 happened, they were wiped out. However, others use borrowings to greater effect. (Warren Buffett uses several forms of leverage, and borrowing is one of them, but he only borrows a relatively small amount compared to the total value of his investments.)

Another approach is by using margin loans. This is again a type of borrowing to buy shares, using the shares themselves as collateral for the loan. If the value of the shares goes down too much, they could force you to repay the loan back early on.

Another approach I'm aware of is one which Warren Buffett used early on in his career. He started a limited partnership, to invest other people's money. As the general partner, he paid himself a percentage of returns over a certain minimum amount. Essentially, the way it worked was if he made money for others by investing their money, he made money for himself too. However, if he lost money for others, although he would take that loss and count it towards the next year, he would not make any personal loss himself (he just wouldn't be paid).

At the same time, Buffett gave the investors a better deal than they would get with a managed fund -- who you pay whether they make money for you or not. You could also set up something like this using a company structure (which could be more flexible than the limited partnership structure). This is probably the lowest-risk way I can think of to use leverage in the stock market....

Other common ways of using leverage are by trading in options, or by buying and selling futures.... However, these approaches are often seen as high risk....

I don't know which one of these is the best, though, Jesse.... However, you've certainly give me more food for thought! I'm also going to look again at my property investment books and see what else I can find.... :)

> *** Here, I can only speak from personal
> experience. And I can say without question
> that the more leveraged I've been, the LESS
> risk, or exposure I have had. A large reason
> for this is because leverage, in many ways
> is synonymous with diversification. The more
> leveraged you are, the more people, ideas,
> documents, money, etc. you have working for
> you at any given time. Therefore, you are
> not solely dependent on any one income
> producer, as you are with linear income.

Thank you for clarifying this.... I was a bit unsure that using leverage could reduce your risk, but I thought that maybe it could.... And now you've clarified that! :) I do know in some cases it can increase your risk -- such as by borrowing from the bank to invest in the stock market, for example.... But there are other ways where you can use leverage to decrease it too.... :)

> Thanks again, Dien, for your input on this
> topic. It's certainly one that I'd be
> interested in continuing to talk about!

Yes, me too! Already, I finally see things much much clearer than I have ever seen them before.... :) I'm really grateful that you posted on this topic.... :)

> All the best to you and your mom...

Thanks Jesse! Your kind words mean a lot to me.... :)

Best wishes :)

Dien