Article Tags : Buffett . compounding . earnings . finances . fortunes . leverage . Money . money machines . multiples . other people's money . P/E ratio . wall street . wall street monopoly . wealth
True financial success is where money never sleeps but works for you 24/7/365 year in and year out.
Fortunes are made when money compounds. For example, many people offered 1 million dollars today or the sum of a penny doubling every day for just 30 days would take the million dollars and run. Right move?
Actually, you’d be better off taking the penny doubling in value every day. This is the power of compound interest and what Einstein is said to have called the 8th wonder of the world.
What are the factors behind Wall Street’s monopoly on money?
Wall Street has been able to move money better than anyone to get it compounding for itself and its clients. Most great fortunes required money to grow and Wall Street has been the master of raising capital to fuel growth.
Wall Street operates in a number of ways to be the middle person or tollgate to access money. Wall Street "monopolizes" the movement of money and like compound interest, Wall Street learned you make money on money.
Go where the money is and the odds are greater that you will make money. Wall Street titans learned early on that if you had access to money, you could buy companies, stocks and bods at discounts. This is the basis of Buffett’s fortunes. Buy bargains. Let the profits compound. Invest other people’s money. Get a piece of the action.
In numerous ways, the key is never allow your money to go to sleep by spending it on things that have little value or investing it where your principal can be lost without a very high potential return.
Clearly, you are not going to have all winners. But, the great investors and Wall Street position themselves to have their winners pay for their losers and then some.
What makes for great fortunes is compressing time. Gates, Buffett, Jobs, Brin, Page, all built what I call money machines that spewed out more and more cash. Wall Street brought them other people’s money (borrowing other resources – which I call leverage) and this fueled the money machines that we see today.
Investors pay multiples of earnings (P/E ratios) or cash flow. So, the more cash flow the greater the value if the P/E ratio remains the same or increases. Wall Street brings companies public usually getting a high P/E ratio than if a company were private. Another way to accelerate the value of the company.
Wall Street uses for itself and for its clients compounding, leverage (other resources) and multiples (such as P/E ratios) to compress time and accelerate wealth. For this role, Wall Street has maintained a monopoly, moving money in ways that never sleeps. If you want to build a fortune, learn the ways of Wall Street.