It’s very easy to start with the question:
How do you make money through investing?
The problem with this question, though, is that it isn’t the right one to ask.
If you ask someone how do you make money through dividend investing, you’ll get a million different answers.
- Buy low
- Sell high
- Buy when the 50-day moving average crosses above the 200-day moving average, AKA the Golden Cross
- Get the $409 forex trade bot on Fiverr
- A gravestone doji on the candlestick graph is clearly bad news
- Go all in on Telsa
- Oh wait, Cathie Wood is buying Teladoc
- Shiba Inu Coin to the moon!
- …
The list could go on forever.
The reality is, all of these things are just tactics.
You can make money doing any of these things but only if you understand the basic foundation of a business.
Think about this, is it possible for a business to operate without profits?
Your Lemonade Stand
Throwback to the lemonade stand that you started at the corner of your driveway.
You most probably wouldn’t have shown up the next day if you hadn’t made 3 or 4 bucks on the first day.
That’s 3 or 4 bucks of profits after subtracting the cost of the lemons and the paper cups from the total amount you’ve got coming in.
And, oh, don’t forget the time it took for you to cut the lemons, squeeze the lemons, pick out the seeds from the juice, and stand there on the driveway for an entire afternoon.
Because time cost is a real cost.
(Keep this in mind as it’ll be an important concept later in this guide.)
For you to continue the hustle, that business had to make you a profit.
So that it, at the very least, justifies the risks of Big Mouth Joey from the class next door telling the whole world about your broke ass who needed to start a lemonade stand.
In business, if you can’t get profits, then you can’t make money.
That applies to all businesses.
Your business of investing isn’t so special that you get to break this rule.
However, before you can get the profits you need to maximize the revenue and push down the cost.
It’s why business consultancies talk about being “lean and mean” all day long.
You’ve got to get lean on the cost and be mean on grabbing that revenue.
To be frank, there’s not much magic to it.
Come on, you knew about this concept intuitively when you hiked the price of a glass of lemonade on the first day of the summer holidays.
Once you’ve boosted the revenue, you can then focus on keeping the cost low.
That’s when you went back to scavenge for a box of bruised lemons the grocery store was selling for cheap to get ready for the next business day.
Finally, once you have boosted the revenue and are able to keep the costs low, then you’re able to convert that difference into profits.
You just had to stick to it.
So the system of business that all businesses fall under is:
- Earn more revenue
- Push costs low
- Convert that difference into profits
No business, including your investment portfolio, can survive by thinking that they get to fall outside of this system.
It doesn’t work like that.
It’s impossible.
The Investor’s Dilemma
When people first learn about this system, they tend to feel like being caught in a rut.
They do everything that they can to follow these 3 principles to the mark but can’t seem to find success in investing.
Usually, it’s because they are stuck on the third principle.
They’ve hit jackpot on a couple of stocks and those have risen 10-20%.
They’ve got the money but it’s all on paper.
That’s not going to pay the rent for their studio apartment on the coming first Monday of the month, is it?
That’s not going to put the food on the table before their kids come back from school, is it?
That’s not going to keep the electricity and water and wifi on for their family, is it?
Nothing that they can do but be forced to sell out their hard-picked stocks to make ends meet.
How about all the time spent on screening stocks, reading annual reports, valuating stocks, being frustrated over which one to choose, worrying about choosing the wrong one, and regretting not buying both?
All is lost as well.
When you sell out a stock-holding to capitalize on the price appreciation, or simply because you need to cash flow to fund your daily expenses, not only do you lose out on the money from future potential gains.
More importantly, you lose out on the time expended on the entire investing process.
Remember we talked about the time cost of money.
I told you it’ll play a vital part in formulating your investing principles.
Time = life energy.
When you are spending time on designing your investment portfolio, what you’re actually spending is your life energy.
And unlike money, you can’t earn back the life energy that you’ve spent.
Once it’s gone, it’s gone.
Forever.
In fact, money is what we trade our life energy for.
Life energy is precisely what we’re giving up for money at our nine to five till we’re sixty-five jobs.
And the alternative to selling your stocks for profit?
Selling your life energy back to your day job in exchange for shelter, food, and utilities for survival.
Think about that for a moment.
Isn’t this situation what you’re trying to get out of when investing first peaked your interest?
Stepping off the hamster wheel?
Earning passive income to stop trading life energy for money?
But investing for capital appreciation alone put you right back to square one.
What a helpless feeling knowing that you’re looking at the reward but it’s just out of reach.
Your investment portfolio is no different.
That makes this whole investing thing sound scary but it’s not that bad.
Because you will understand the fourth principle of businesses.
The Fourth Principle Of Business
It’s a secret I’m going to let you in on, so you would be a leg up on most people.
So what’s the fourth principle?
Cash flow.
When you can get a cash flow going and you maintain that cash flow then the money is working for you rather than the other way round.
The cash flow keeps on pouring in without additional work from you.
And that’s a powerful thing.
So why bother with dividend investing?
Because dividend investing can help you work through all four principles of business:
- Earn more revenue
- Push costs low
- Convert that difference into profits
- Capture those profits as a cash flow
When done correctly, dividend investing takes care of all of these principles.
That’s why dividend investing can truly work for anyone with any kind of day job.
You are building a business that generates sufficient cash flow on its own so that you no longer have to work for it.
And now that you understand those things we can begin to talk about dividend investing.
I think we should kick off with what is dividend investing.
It sounds a bit silly to even discuss this because if you’re here you probably have an idea of what dividend investing is, but let’s be sure.
So what is dividend investing?
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