Road To Becoming A Rich Idiot
Ever met a rich idiot? I’ve known at least two. Not counting my telephone conversation with self-proclaimed Rich Idiot and multimillionaire Robert Shemin (author of “How come THAT idiot’s rich and I’m NOT?”), I’ve also shaken hands with a guy who impressed me with his simplicity and wealth. We met briefly in a parking lot before a company meeting: I was dressed in standard corporate attire; he wore a khaki jumpsuit with his first name (“Don”) stitched in red. A college dropout, Don had just purchased my employer, a food processor with an Ivy League grad as its chief executive and a Ph.D. at the helm of its largest subsidiary. So what do Robert and Don (#346 of Forbes’ The Richest Americans in 2005) have in common?
Other than being action-oriented and not overly analytical, they both aggressively bought or controlled assets offering future benefit. Robert acquired rental properties in Nashville, Tennessee. And Don (Tyson) as President and CEO of Tyson Foods led the Arkansas-based publicly-held company on an asset safari, acquiring Mexican Original in 1983; Holly Farms, 1989, Arctic Alaska Fisheries, Inc. and Louis Kemp Seafood, 1992; Cargill’s U.S. broiler operations, McCarty Farms, Inc., and Culinary Foods of Chicago, 1995; and Mallard's Food Products of Modesto, California, 1997.
In his book, Robert tells readers that “…true assets share these three characteristics:
- They have value.
- You own or control them.
- They provide you with future benefit (a.k.a. money).
Rich Idiots check off each of these essentials before they buy anything.”
In Robert’s ideal world, you too will be a rich idiot, owning or controlling assets that generate income, spending time with your family and friends, and enjoying your favorite activities, all without stressing about money or your to-do list. Here's his map (partial list) of the road to riches:
1) Set a goal for the amount of money you’d like to accumulate and your time horizon, which may range from 5 to 30 years. Don’t set multiple goals: set one goal that you will pursue relentlessly. Per Robert:
“Setting too many goals is like taking aim with a shotgun. Setting one goal is like taking aim with a laser beam.”
2) Figure out a way to produce income that doesn’t require direct, daily actions from you (aka residual income or as Robert mentions making money while you wash your hands or comb your hair) such as:
- Investing in the stock market
- Owning rental properties (Robert says that rental properties should always generate a positive cash flow; borrowing on the right property at a low interest rate can increase your investment return via Rich Idiot Debt Thinking; see my Rental Property Cash Flow Evaluation spreadsheet that helps me understand his idiotic thinking)
- Running a business that allows you to benefit not only from your work but also from the efforts of others
- Creating intellectual property that will generate payments (e.g., royalties from a licensing agreement, patent, or creative work)
3) Do one thing each day that will bring you closer to your goal. Take action rather than (over) analyze what you should do.
4) Learn from the “repercussions of your previous actions,” making mental connections to what has succeeded and failed in the past, and always applying what you already know to new business ventures, office procedures, investing strategies, etc.
Sound simple? It is. Nevertheless, I found it helpful to consider that radically changing or slightly modifying my actions based on my experiences is much more effective than pure persistence.
5) Access the power of other people (what Robert calls "OP Power"), rather than trying to do everything yourself.
There are 4 types of other people you should engage:
- Mentors who have experienced success in the fields you are pursuing
- Idea people who have an idea but need business expertise (yours) or have developed a business model that you can replicate
- Team members who contribute to your productivity by doing things that are time-consuming for you and/or just not your expertise (professionals such as CPAs and attorneys as well as employees, independent contractors, or outside firms who provide services to you and your company)
- Investors who will help fund a new business, major asset purchase, or project
The OP Power concept and Robert’s discussion of working all the time or thinking he should be working while managing his business resonated most with me. He handled all the day-to-day operations associated with his rental properties such as finding renters, collecting rent, sourcing contractors, and keeping the financial records. Here’s his story:
“…though I was working all the time, I wasn’t making a ton of money. Even my weekends were filled with business, because whenever I took a Saturday off, I’d spend it worrying about all the stuff I hadn’t finished on Friday. And when I took a Sunday off, I’d spend it worrying about all the stuff that was waiting for me Monday morning.
What’s more, I felt tired, cranky, and fearful that I’d make a lot of mistakes that would cost me my hard-earned money. The point is I was trying to do everything.
What happened? I got some really good advice and took it. What was the advice? It’s the same advice I’m giving you…Don’t do it all alone.”
How should you find qualified people to help you run your business? I asked Robert that question when we spoke. He told me that I should find them the same way I might locate a good doctor (or mechanic or beautician):
- Ask people you trust for recommendations
- Check references and verify credentials
- Arrange a meeting
- Make sure that you feel comfortable working together
Robert assured me that many successful people are willing to help those who are genuinely interested in receiving guidance.
But don’t stop there. Monitor what your other people are doing, check your results periodically, and adjust your actions as needed.
6) Anticipate and prepare for potentially asset-robbing events such as natural disaster, divorce, death, disability, and taxation. Robert advises to get insurance coverage, sign a prenuptial agreement, and exercise tax deduction and tax reduction strategies.
7) Keep cash flow positive.
Even the asset rich can run out of cash as Robert learned when tornadoes blew through his hometown of Nashville, Tennessee (USA) and location of his 40 or so rental properties. He had to spend thousands of dollars in repairs and came close to running out of cash and credit while waiting for his insurance check. When his son asked to go to the movies, Robert scraped coins out of a jar to buy their tickets.
He did get his property insurance payments in time to avoid bankruptcy but retooled his business approach (see #4) and began tracking cash flow and reviewing his cash position every Friday.
What is the one thing that holds people back from acquiring assets and becoming wealthy? “Fear of making mistakes,” Robert told me. So go ahead and try, learn, and move forward because “the wealthy make a lot of mistakes.”
I received a copy of "How come THAT idiot's rich and I'm NOT?" in exchange for a book review. Though I've never sought to emulate Don Tyson, I was intrigued by his grassroots approach to interacting with people: he personally handed out flyers to hourly workers guaranteeing their benefits, quickly winning their support for Tyson's acquisition of Holly Farms.
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