One beautiful thing about money is that it generally represents the effect of a win-win transaction. I think most people view money as a fight between the haves and have-nots. The standard view is that there is a given amount of wealth available, and that wealth is simply redistributed around by money transactions. That’s not really right.
Lets take a simple example. I have a lamp that I inherited from my grandmother. It has ugly flowers and nasty earth tone colors because Grandma bought it back in the 70’s. To me this lamp has a value of $0. I would love to throw it away, but instead I decide to sell it in a garage sale.
Some hippie chick that’s totally into retro furnishings sees it and falls in love with it at first site. She just has to have it. She sees on the sticker that it has a price of $20. She thinks to herself, this thing would totally tie the hippie living room together and she’d pay $100 if she had to in order to take this lamp home.
The hippie chick offers me $5, correctly guessing that I’d be happy just to get the hideous lamp off my property. I counter-offer with $10 (already happy to know I’m going to make $5). She accepts my deal, and is excited because she just got a lamp worth $100 to her for $10, and I laugh knowing that I would have thrown the stupid thing in the garbage if she hadn’t come along.
So what happened there? We created wealth for both of us. I just got $10 and can go enjoy a date with my girlfriend at McDonalds, and the hippie got a lamp worth $90 to her. We created $100 of wealth in a win-win transaction.
Most financial transactions are win-win, but there are lots of win-lose transactions. I would like to avoid those win-lose transactions, because I want to create wealth, not just make myself wealthy.
I hate hearing people say, that it’s just so unfair that one person can be so rich. If that person got so filthy rich by a lifetime of win-win transactions, then that’s wonderful this person is so stinking rich, because he has generated wealth for others on the way, not taken it away.
So, in my quest to get stinking, filthy rich my ground rule number 1 is to seek only win-win money making schemes. Things I will not do are:
Credit Card 0% Balance Transfer Arbitrage
You know the deal, you use your really great credit score to get money for 0% interest for some period, stick the cash in a high interest savings account, and pocket a few grand with virtually no risk.
Why this is win-lose: You are making money more expensive for everyone else by doing this. The “evil” credit card company is owned by investors like us seeking a return on our investments. It costs them money to loan you money, and they make nothing, while you profit. You win, credit card company shareholders lose.
Not gonna do it.
Play online poker
I am good at math. I understand probability and statistics very well. I could likely discipline myself to sit at a computer and play poker online day and night and eek out an ever growing living. But poker is a zero-sum game, there is an equal amount lost for every dollar won (and the lost rake fees, but the gaming company gets that as their win).
You can argue that playing poker online is fun, so the people that lose money to you are being compensated by the fun they are having, but I will argue that only winning in poker is fun!
Multilevel Marketing / Pyramid Schemes
If you are wondering why this is win-lose, please get off my blog, and don’t ever come back. Ever.
My investment style is long term. Maybe there could be some quick money to be made through being a day trader, but day trading is simply hoping for a win-lose situation. You outsmart the rest by seeing some trends or whatever and make cash that others missed out on.
Warren Buffet proposes a 100% tax on capital gains earned by holding stocks for less than a year. I believe everything that guy says.