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Thread: The Apple Tree

  1. #1
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    Default The Apple Tree

    The Difference Between How the Rich and Amateurs Invest

    By guest contributor Gerald Tay

    Years ago before the passing of my late multimillionaire grandfather, I had the fortune of frequent conversations and debate on investment and wealth with him. Although I missed him after his passing, his simple teachings had taught me many vital lessons on wealth.

    Is it important to know your Net Worth?

    Me: “Do you know your Net Worth and how much are you worth today?”

    Grandfather: “I don’t know and I don’t care.”

    Me: “I don’t understand. Why don’t you care and want to know your Net Worth? Isn’t
    that what defines you and makes you so rich today? ”

    Grandfather: “Young man, how do you grow a healthy apple tree that can produce many
    juicy apples for you?”

    How to grow an apple tree

    I know my grandfather will always give an anecdote to his teachings.

    Me: “You need to first plant the seed and watch it grow.”

    Grandfather: “For it to grow, what elements must come first?”

    Me: “A constant supply of water and fertiliser.”

    Grandfather: “Correct. For that apple tree to grow up and produce juicy apples, it needs enough water, sunlight, and food, not to mention patience and love.

    Me: “I still don’t understand.”

    Grandfather: “If you only focus on growing the tree to produce apples for you without
    ensuring it has enough water, sunlight, food, patience and love, do you think the tree is able to produce that many juicy apples?”

    Me: “No, definitely not.’’

    Grandfather: “Exactly. And it’s the same with wealth creation. If you constantly feed your assets with enough cash flow and patience, your wealth with naturally grow.”

    Me: “Now I understand.”

    The importance of cash flow

    Grandfather: “Besides patience and love, the other vital elements to grow your assets
    healthily so it can produce enough passive income for you, is to ensure a constant supply of enough cash flow. Cash flow is the food, sunlight and water. Net worth is the number of apples you can get from it.

    Me: “So, if I focus on ensuring enough food, sunlight and water reaches the tree, the juicy apples will come naturally. If I focus on bringing enough cash flow for my assets, my wealth and net worth will grow eventually.”

    Grandfather: “The reason why I focus on cash flow and never net worth is because
    your net worth doesn’t tell you anything, just like the number of apples may not necessarily tell you how healthy your tree is. It’s the cash flow that will determine your financial wealth and health, and as long as you’ve enough of that coming in every month, you’re financially wealth and healthy.”

    Me: “You mean you may have a high net worth, but you may not be financially wealthy
    or healthy?”

    The rich invest on cash flow, the amateurs on net worth

    Grandfather: “Yes. That’s why the rich always invest on cash flow, the amateurs on net worth.”

    Me: “Gamblers invest on capital gains. The rich invest on cash flow.”

    Grandfather: “Most of these amateurs think they’re smart to buy and sell on capital gains. It’s called stupidity not investment smarts. They ignore good cash flow, and invest on capital gains because they believe their assets will always go up in value. They want to be like the rich and hope to join the rich club. And they would just simply own any investment like a property so it can increase or add to their net worth, and they can feel richer.”

    Me: “So it’s not net worth that determines your wealth. It’s cash flow. That’s
    why remember you said before you never care about how much your home is worth and how
    much it can sell, because even though it’s sitting on a valuable 22,000 square feet of land, it doesn’t produce any cash flow for you.”

    Grandfather: “Exactly! And it’s not just cash flow. Your cash flow, like food and water, must be more than sufficient for the tree to grow healthily. If you give it the bare minimum, your tree may not survive. And if you cut the water and food completely, the tree will soon wither and die.”

    Me: “Your net worth will always fluctuate according to the surroundings (Economy). But with enough cash flow, your wealth (Tree) will continue to grow healthily and your assets (Apples) will also increase or least be safe no matter what happens. Focus on cash flow, never net worth.”

    Grandfather: “That’s the reason why I never care and don’t want to know what my net
    worth is. It’s the quality of cash flow I am getting in every month from my businesses, properties and other assets that define my wealth today, not the quantity of those assets I own.”

    Invest on Quality, Not Quantity. Invest on Cash Flow, Not Net Worth

    It is the quality of your income producing assets that will define your wealth, never the quantity.

    As an ordinary investor, if you want to be truly wealthy through property or any other investments, it is absolutely vital to focus on buying immediate cash flow, rather than capital gains (net worth). It sounds too tempting to buy on capital gains, knowing your neighbour or your friend just happened to make a $200,000 profit by selling his or her property.

    I know many property investors who boast about how many properties they own and
    how many fancy new launches they have bought recently. The big question here is,
    “What’s the quality of those investments?”

    Taking a Smart Risk versus a Stupid Risk Lady luck may be smiling on you, for the first or even second time you buy on capital gains, but let us be honest. How many times can lady luck be smiling on you for the next few decades of your life investing on capital gains?

    All investments carry some risk, but you do have a choice between choosing a smart or a stupid risk. You do not ride a bicycle on the road without protective gear, and neither would you drive your car without an insurance, or race your Ferrari at 180
    kilometers per hour and beat the red light on Bugis Street in the middle of the night, thinking there will be no cars. Maybe the first few times, you can get lucky, but unfortunately the guy who did just that chose a stupid risk, and this time round, it cost him his life.

    By guest contributor Gerald Tay, CEO and
    Chief Trainer at CREi Academy Group, and
    creator of ‘The 18 Irrefutable Laws of
    Property Investments’.

    http://www.scribd.com/doc/112956451/...eekly-Issue-77

  2. #2
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    Very lob-sided view.

    Capital value and cashflows goes hand in hand one.

    With Office Boy's limited financial knowledge, I know that if I strike $2.2 mil TOTO, I prefer they give it to me ONE SHOT NOW! Instead of giving me $4,400 for the next 500 months!

    DKSG

  3. #3
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    Thought it is a new condo's name.

  4. #4
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    Boy, the grandad is not wrong. While waiting for capital appreciation, good cash flow is vital.
    Quote Originally Posted by DKSG
    Very lob-sided view.

    Capital value and cashflows goes hand in hand one.

    With Office Boy's limited financial knowledge, I know that if I strike $2.2 mil TOTO, I prefer they give it to me ONE SHOT NOW! Instead of giving me $4,400 for the next 500 months!

    DKSG

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    The grandpa wasn't living in the money printing age.

  6. #6
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    Of course buying 1 condo in sg still worth more than 5 condo in m'sia. But being a small fish in a big pond is not fun either. Everybody in sg are millioners now. All the HDB dweller worth a million buck. Everybody holding a sg passport are millioners. Your taxi drivers are millioners too.

    We must change our website to www.millionerCONDOsingapore.com

  7. #7
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    Quote Originally Posted by DC33_2008
    Boy, the grandad is not wrong. While waiting for capital appreciation, good cash flow is vital.
    i agree.

    no positive cash flow...no need think of investment
    I took the road less traveled by, and that has made all the difference.” - Robert Frost quotes (American poet, 1874-1963)

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    That's why buying majority of units in ccr make no sense today except d1, d2

  9. #9
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    Quote Originally Posted by DKSG
    Very lob-sided view.

    Capital value and cashflows goes hand in hand one.

    With Office Boy's limited financial knowledge, I know that if I strike $2.2 mil TOTO, I prefer they give it to me ONE SHOT NOW! Instead of giving me $4,400 for the next 500 months!

    DKSG
    Give me $4,400 for the next 500 months rather than $2.2 mil 1 shot at the end of 500 months, if I'm still around.

  10. #10
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    Quote Originally Posted by l_wee
    Give me $4,400 for the next 500 months rather than $2.2 mil 1 shot at the end of 500 months, if I'm still around.
    Huh?
    2.2 mil @ 3% = 66k per year = 5.5k and u still get to preserve the 2.2 mil.

    Can u elaborate?

  11. #11
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    Quote Originally Posted by chestnut
    Huh?
    2.2 mil @ 3% = 66k per year = 5.5k and u still get to preserve the 2.2 mil.

    Can u elaborate?
    Didn't think about investing the 2.2 mil when I replied.

  12. #12
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    Golden nugget. Thanks Archachon.

    Boy am i glad my 'cashflows' are maintaining me well.

  13. #13
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    Quote Originally Posted by newbie11
    That's why buying majority of units in ccr make no sense today except d1, d2
    Why??? pls explain.

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