Dear Friends -

I am so happy to announce that my labor of love, The Cure For Money Madness, from Broadway Books is now avaialble for purchase.

Here is a short video explaining Money Madness, and why it it so critical that we change our relationship with money. Join my group "Help Save The Economy' and share your story.

If you can, take a look at my website and consider buying the book. I think you will love it and that it will change your life around your finances forever.

Blessings,

Spencer

I have found that many people don't take the time to invest when they should!! Take the time for your financial future as well!

With Central Bank’s all over the world making the decision to buy stakes in privately held banks along with statistics showing that most investors have capitulated by the end of last week (more money was liquidated from equity mutual funds last week than any other week in the last few months, which just goes to show that left to our own devices, human beings as a group prefer to sell low than to sell high), this is an excellent time to let go of your own money madness and invest. 

In other words, if we examine the investing world objectively without our emotions (which hardly ever guide us wisely in crisis situations), we find that everyone who bought in past situations like this made a fortune in the subsequent 10 years.  So instead of thinking about what might happen, think about the common sense wisdom of buying low, which has always, always worked, and buy a diversified portfolio today.

If you would like to hear more on this topic, please invite me as a friend, and join my Money Madness Group.

 

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful…Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over. –Warren Buffett

 

If I had to name one person who has cured his money madness it’s Warren Buffett.  He’s one of the very best investors of all times because he keeps his cool, he stays centered, and he does the thing that has been 100% successful  in investing:  he buys low.

 

No other area in life is as simple as this:  Buy low, succeed.  That’s it.  Most of us are confounded by money madness and allow our emotions to guide us to do the opposite.  Now is the time to buy, not run for the exit signs.  Now is the  opportunity to invest , to find new income possibilities, to buy a house that you were never able to afford before, to be generous.  The people who realize that their abundance comes from within, not from without, will stay calm and centered and, ironically, make a lot more money.  Many people have fantasized about a number which will bring them to financial freedom.  That number is a fiction.  Nobody feels free when they  get to that number.  The goal for your finances should be to feel sufficient right now and to believe in your competence and ability to be creative and resourceful and successful.  

 

This post is a response to this New York Times Op Ed Article.

I wanted to offer you all a little good news about this economic turmoil we are all going through, and that good news is, that you can relax and turn this into a positive experience! Let me explain how.

I know that my house fluctuates in value.  But I don't stand in front of my house  month-by-month or day-by-day, let alone minute to minute watching a ticker-tape of my home's value going up and down.  We all know that house values fluctuate, especially during a natural disaster like a hurricane or an earthquake.  But because I have no knowledge of the actual decrease, I don't think about selling my house as it decreases in value.   I think, instead, that I'll be in my house for a long time and the house value will recover over time.  Thankfully, there is no one to tell me how much my house is worth on a daily basis!  Knowing that information would, at best, ruin my sleep and at worst, provoke me to react in a financially self-destructive way.

Unfortunately, the information on the daily movements of my investment portfolio IS available to me.  Most of my money invested in the stock market is there to cover my expenses in the next 15-50 years; therefore, for some reason I think it's critical for me to know how my portfolio is doing minute to minute.  When I log on to  financial websites or listen to the news with up-to-the-minute information on the market, the news has the illusion of being useful.  And the media is being paid by advertisers to convince us that the information IS relevant.

The stock market is doing its best to provide a daily appraisal of the value of thousands of public companies.  But we're currently in the middle of a financial hurricane.  We all know it's unwise to sell a house in the middle of an actual hurricane, like Katrina.  So why would we sell our stocks in the middle of a financial hurricane?  History has always shown us that we must wait for financial storms to subside before the markets will fairly appraise our homes and portfolios.  Once  the storms subside and  the skies clear, the public, acting as an appraiser, is able to restore normal valuations.

It's simple :  keep your money diversified and take advantage of opportunities as they arise. Some of the richest people in the world made their money by staying centered and awake during the darkest days of a storm.

Ryan is one of the smartest guys I know—and certainly one of the savviest real estate investors. His investing success made him a wealthy man, and he lived like one, in a sprawling, high-tech house, valued at $2.4 million, that he shared with his wife and two kids. Then about a year ago, just as the real estate market was starting to skid, and with both kids now in college, Ryan and his wife sold the $2.4-million house and “downsized” to a one-million-dollar establishment. And just recently I learned that Ryan had sold the million-dollar-house, at something of a loss, and was hoping to rent a little place somewhere.
I was sorry to hear it, but I didn’t need to ask the reason. Clearly, with his money tied up in a portfolio of properties that were fast losing their value, Ryan needed cash simply to stay afloat.

“How did you escape making a similar mistake?” my wife asked after I had told her the sad news about Ryan.

“I learned the lesson at my mother’s knee when I was seven,” I replied: “’Don’t put all your eggs in one basket.’ Didn’t you hear that when you were a kid?”

Janine thought for only a second, then nodded.

Of course, we all learned it. In my case, I think it was when I finally got tired of always being assigned to right field when we played baseball at school. “Maybe you should try another sport,” my mother suggested. “After all, you shouldn’t put all your eggs in one basket.”

I would hear the same dictum when I devoted so much time to studying math that all my other grades suffered. And when I got on an ice cream kick and wouldn’t eat anything else. And when I developed such a crush on the tallest girl in sixth grade that I had no eyes for anyone else. “Don’t put all your eggs in one basket,” my mother repeated as I sank into each of these disasters. “Keep your eye on the big picture. It’s a varied world out there.”

That is precisely what Ryan forgot. A business school graduate and an expert in all the complexities of real estate investing, he neglected this simple wisdom from childhood—and he put all his investing eggs into the real estate basket.

Does this mean that investing in real estate is a bad idea? On the contrary. It is a very good idea. As investment categories go, real estate, over ten-year periods, is typically a very good investment. What’s more, through the power of leveraging, real estate investing offers the potential advantage of “multiplied” gains, although that entails the risk of multiplied losses as well. That is, if you borrow money to invest in real estate—as most people do, putting up a portion in cash and the rest as debt—your returns are magnified on both the upside and downside. If the property increases in value, your gains are greatly multiplied because you’re getting a return on the whole amount invested, even though you only laid out a small portion from your own money. But if the property decreases in value, your losses are also multiplied: you’re responsible for the debt as well as the lost value.

That’s what happened to Ryan. And it happened, not because he was naive or because real estate is a bad investment; neither is true. It happened because Ryan forgot the childhood wisdom about not putting all your eggs in one basket. In investment terms, he concentrated all his resources in only one asset class; that’s why he’s hurting today.

What’s an asset class? Here’s how I define it in my upcoming book, The Cure for Money Madness: “An asset class is simply a group of investments with similar characteristics such that the investments behave the same way in the marketplace.” Specifically, the companies have similar size and growth characteristics, and so they behave similarly as investments. Large, fast-growing companies—Microsoft , Nissan, General Electric, and FedEx, for example— behave similarly to one another, even though they represent different industries. By the same token, small, slow-growing companies behave, as investment assets, like other small, slow-growing companies; stocks in small manufacturing companies, for example, no matter what the companies manufacture, tend to go up and down together.

So do real estate investments. They rise or fall in value as a class, as recent events illustrate: when mortgage money was readily available, demand for houses, to take just one example, outstripped supply; house values rose, and investors in housing made fortunes. As they did so, the investors’ tendency was to ply their gains back into more real estate investing, concentrating in this one asset class even more.

That’s what Ryan did, and for a good number of years, as his leveraged gains registered as nothing less than spectacular, plowing everything back into this one asset class must have looked like a good idea. Maybe Ryan grew giddy on this soaring wealth, and maybe the giddiness seduced him into concentrating more and more resources in these persistently rising investments. It was Ryan’s money madness gone wild; he was hitting not just home runs but grand slams on every at-bat, and it must have seemed to him that nothing could go wrong.

I think that kind of madness is just human nature. We stop thinking when we’re on a high; we stop seeing things clearly. By the same token, when we’re low, we see too sharply and narrowly, and think too much. If only there were a mechanism to keep us level—at least where investing is concerned: to stop us when we’re carried away by some infatuation or other, and to move us along when we’re stuck in a rut.

There is. It’s the Rainbow Portfolio™, and I created it for just these reasons: to stop me in my tracks when I get giddy and to keep me going when I get low. In both cases, the Rainbow Portfolio™ is a fail-safe mechanism that automatically reminds me of what I learned at my mother’s knee.

Had Ryan been a Rainbow Portfolio™ investor, for example, it would have forced him to take some of his gains and diversify into other assets—large- and small- and medium-cap stocks, international and domestic, value and growth stocks, commodities and bonds. Automatically, the losses he is suffering today in his real estate investments would have been offset, or at least mitigated, by gains from other investments. What’s more, instead of being forced to sell his family home, as he must now do, he’d be able to stay put, despite the house’s dwindling value.

That’s why ‘Don’t put all your eggs in one basket’ is the most basic, most profound, most important investment mantra there is. It even trumps that other classic, ‘Buy low, sell high.’ Another friend is a case in point.

I’ll call him Frank. Like Ryan, he was a real estate investment wizard. So stunning was his fast climb to wealth that he actually disdained the kind of investing I advise, and we used to kid one another about our opposing investment ideas—mine for multi-asset, passive investing, Frank’s for go-getter, highly leveraged investing in real estate.

Until the day, not too long ago, when Frank phoned to say he was desperate. Plunging real estate values were reducing his net worth steadily and substantively. He did not know where to turn or what to do. What could I advise?

“How much of your portfolio is in real estate?” I asked.

Frank did some quick figuring. “Ninety-six percent,” he said.

I gulped. “Sell,” I said.

“But I’ll lose a fortune selling at the bottom of the market!” Frank protested. Such an idea—selling low, especially after having bought fairly high—was simply anathema to him, schooled, as we all are, in the principle of buying low and selling high. It’s an important principle, but in Frank’s case, it clearly came in second to the eggs-in-the-basket principle. Simply put, it is better to sell low and diversify than to have nothing at all.

So I refrained from mentioning that Frank was losing a fortune anyway. Instead, I argued that with that much concentration in a single asset, he was looking not just at loss but at wipe-out. “The first thing you need to do is avoid total disaster,” I asserted, “and that means reducing your real estate allocation from ninety-six percent to fifty percent. That way, even though it’s painful to sell at a loss, reinvesting what you earn on the sale might very well make you more money in the future. So for now, sell.”

Two guys who hit fantastic heights with their investing have now plunged to unexpected depths. The fault was not in the asset they invested in but in the concentration on that asset to the exclusion of others. The fact is that there are some simple rules about money that keep us safe and, like smoke alarms, alert us to impending disaster. When our money madness makes us giddy, luring us into thinking we just can’t miss, it becomes easy to forget the rules—and such forgetfulness is fuel on the fire.

Ryan and Frank forgot the simple rules—and were badly burned. They abandoned the wisdom we all learned as children: in investing, as in all of life, it pays to embrace the world’s infinite diversity.

It’s a reminder that now may be a good time to count how many baskets your eggs are in…

I am drawn to make others take a step back and think outside the box - especially with money. 

Have you heard the latest money joke? 

No? 

That’s probably because there isn’t one.

            Money is serious. Say the word, and people’s posture improves. It’s as if they were hearing a parent’s voice telling them to mind their manners and tuck in their shirt. I’ve seen playful looks freeze into masks of solemnity when the subject of money comes up, with worry lines around the mouth and anxiety wrinkles around the eyes. Money is stressful; as my father used to say, it’s “no laughing matter.”

            Well, it should be. All this gravitas around money is actually an obstacle to money success. It keeps us from thinking clearly about money, from looking at it realistically and making wise decisions about it. We feel weighed down by the ponderous complexity we assume surrounds the issue of money. The bulk of all that information hurled at us by the media displaces our common sense. And the freight of a culture that equates financial worth with self-worth produces the kind of stress that makes us react to events when we ought to be responding with objectivity and common sense.

            That’s why one of the things I always try to do in my workshops is to get folks to lighten up about money. So when I found myself staring at a money boa in a San Francisco novelty store one day, I bought it instantly.

            What’s a money boa? It’s about a hundred folded up hundred-dollar bills—fake ones, of course—strung together like a scarf. The fakes are pretty authentic-looking, so at a glance, I really do appear to be “wearing” $10,000 around my neck. 

            I first wore the money boa at a curing money madness workshop I did in New York for 500 people. I knew, because it’s always the case, that a lot of the workshop participants were feeling stressed, hopeless, and frustrated about their money situation. Yet even as I approached the podium, boa flapping as I moved, I could hear a few embarrassed titters. Then some chuckles. And by the time I was center stage, the place was downright mirthful. The point was made. A weight had been lifted, and in this more buoyant environment, it was a lot easier to help participants cure their money madness.

            A few days after the workshop, I had to fly east on business. To my dismay, I found that I couldn’t really pack the boa; the hundred-dollar bills could not be refolded. So I simply wore the boa, and the reactions this provoked were pretty astonishing.

            As I made my way through San Francisco Airport to board my plane, kids ran up to touch the boa and to ask for money. Adults smiled at me and shouted out questions; I just responded that I wanted all of us to lighten up about money, and every one of them agreed and thanked me for the reminder. A security guard asked if the money were real, and once I boarded, my fellow passengers were quick to start chatting; all by itself, the money boa broke the ice.

            Then I arrived in New York. Cold, distant, unfriendly New York, as legend has it, money capital of the world. In fact, despite the fact that it was May, New York was chilly and windy—at least, until I walked its streets wearing my boa.

            People laughed. They waved. Cops directing traffic at the world’s busiest intersections blew their whistles. New Yorkers wisecracked one-liners at me. Yes, there was a man living on the street in Times Square who tried, somewhat aggressively, to rip some “money” off the boa, and there were a number of people who simply didn’t notice at all, but for the most part, the reaction was: that’s funny.

            All of this says to me that there is an untapped reservoir of lightness about money that has been pushed down inside us by a lifetime of stressful conditioning. The conditioning affects different people in different ways: some are obsessed by money, some are determinedly oblivious to it, some find it a distasteful necessity. But it seems to me that if we can access that reservoir of lightness, going back to a time before the conditioning planted distorted childhood money messages in us, we might clear the way for curing our money madness and making better, more successful money decisions.

            How to do that? Remember back when you were seven or eight years old and were given a five-dollar bill to spend as you liked? If you could recapture the sense of wonder and excitement those five bucks incited in you, you’d be halfway there. So here are three suggestions for putting the fun back in money:

1.                      Save in a shoebox. Literally. Identify something you want to save for, find a shoebox (or piggy bank, or similar), and start putting in loose change on a regular basis. Even better, save with a friend: maybe plan a vacation together, and determine that every time you get together, you will each put ten bucks into the vacation kitty. Watch your savings grow, just as you would if you were seven or eight—with a sense of wonder and delight—and have fun spending it.

2.                      Consider the path your money travels next time you pay for something. The dollar that bought you today’s newspaper, for example: it helps pay the bills of the newsstand vendor, the salary of the driver whose truck delivered the papers, the reporters and photographers who covered the stories you’re reading, the editors, production team, and so on. Money works; it has a function. But it travels light; money is not leaden.

3.                     Come up with three reasons why you are overpaid for your work. Maybe it’s the lunchtime use of the office computer to do your shopping. Or the skybox at the stadium you get invited to regularly. Or the secret fact that you would do this work for nothing. Think about it, come up with your three, and write them down. No, this is not a joke.

I often face conflict with myself and scheduling. 

Often I arrive just in time for performances—out of breath, heart racing, adrenalin flowing—and then relish my sense of victory…we made it! No matter how mediocre the play or show or concert, I’ll remember crossing the finish line before an usher might say, “I’m sorry, but I’ll have to seat you after intermission.”

 But recently, I’ve been noticing the connection between this behavior and my old style of accumulating money: for years, I was so focused on achieving a million dollar net worth that I never noticed my energy was all about striving and adrenalin, not about what I’d actually do with the money once I had it.

 Flash forward to a recent Saturday.

 I was commanding my minivan, filled with three adults and five kids, en route to Cirque du Soleil, and I had vowed to allow plenty of time to arrive at a sold-out event as expensive as this one.

 The show began at 4pm, and just as planned, we arrived at 3pm with plenty of time to find parking. That’s when my money monster spoke up:  Hey—if you have enough time to avoid the overpriced, designated parking and find off-site parking, why not go for it?  Plus, you’ll avoid the crowd of exiting cars when the show is over…

 I steered the minivan out of the designated Cirque parking and toward a city garage. The first garage we pulled into wasn’t open to the public, and the attendant directed us further down the street. We entered the next garage, got our ticket and parked. The eight of us walked down to the ground floor—only to discover a chain link fence blocking the entrance. After unsuccessfully trying different floors and wondering why the cashier’s office was closed, we saw the sign: Garage open Monday-Friday only.

 A wave of panic flooded us adults, and then the kids got it – we’re trapped. We called the posted emergency phone number and were told to exit through an emergency pedestrian door.  They would send someone out after the show to open the gate—the charge for this service was $100.00.

 We raced to the theater and arrived at 3:55.

 

During the show, all I could think about was finding away to not pay their $100 retrieval fee.  Then I noticed that the fear and anger around this fee were absorbing my attention much more than the performance I paid so much to attend.

 So I did the opposite of my habitual reaction; instead of ignoring my feelings, I opened to the anger and fear. And what do you know, they were all familiar!  I know this variety of anger and fear very well, because it’s been with me since I was five years old. I did a few money breaths, and my first insight occurred: I don’t know what will happen with the car after the show, but right now, I’m at the show, and I need to just watch it.  I instantly felt my heartburn dissolve. My second insight was this: my anger and fear have nothing to do with the actual garage and everything to do with berating myself for being someone who parked in a closed garaged.

 Then I had yet another insight: maybe the machine malfunctioned and should never have let me in.  In other words, maybe it wasn’t my fault, or anybody else’s fault, either.

 And just like that, I was suddenly free to enjoy the show.  I still had the possibility of losing $100, but I felt full of life. When the show ended, I was determined to find someone leaving the garage, and I did, so I even got to park for free.

 Later, I called the garage owner again and told her I got out.  She said, “I’m glad, because the machine malfunctioned.  It never should have let you in.”

When I am able to be totally honest and open with my family and friends. When I was a young boy, I had a hard time learning this, especially with money. Here is a story that I remember from way back then.

I am eight years old. I am standing in the narrow galley kitchen of our modest apartment in Queens, and my father is seated at the table. That very day, my pals and I have been talking about money; some of them have confided—boasted!—what their fathers do for a living and how much money they make. So as children of that age do, I ask my father how much money he makes. My father does not answer. He just stares at me, coldly and angrily. This silent rage speaks volumes. It tells me that I have approached a figurative high-voltage wire that is dangerous and absolutely off-limits. In a split second, the atmosphere of calm benevolence has been transformed into one of chilling, roiling, and barely suppressed fury.

The effect on me was a two-pronged hammer blow of rejection and fear. Even mature adults aren’t too good at dealing with rejection and fear; for a kid, the whole thing was simply beyond my ability to understand, much less cope with. In the parlance of psychology, I internalized the hammer blow, and that Childhood Money Message—that money was scary, profound, and a very private secret—was almost literally stamped into my subconscious; that day, my personal Money Monster began to take shape. 

Now that I am able to face my money monster, I can accomplish so much more. I have begun my  Cure For Money Madness!