As an eighth generation descendant of Benjamin Franklin, and as two men who carry much of the same philosophies of freedom, intellectualism, money and practicality, it shouldn’t be surprising that Mark Skousen appears at this American Investors Symposium luncheon as Old Ben himself.

Conducing an experiment equally as memorable as the “kite-and-key” experiment tried by Ben some 200 years before, Mark Skousen gets the crowd into a little “foolery,” just along the lines of his great-grandfather’s sayings.

Check back soon to view a short video clip!

HOW THE RICH BECOME SUCCESSFUL

Becoming financially independent by investing in the stock market, mutual funds or real estate is not an easy task. Indeed, it is an uphill battle for most investors who are not suited to the rigors of market discipline.

You are probably familiar with Forbes magazine’s annual survey of “The Richest People in America,” known as the Forbes 400. Many analysts have misinterpreted the findings of the Forbes 400, often stating that the majority of rich people made their fortunes in real estate. But this is not the case. The majority of the Forbes wealthy did not get there by investing in real estate, or by investing in the stock market, for that matter. According to the most recent survey, only 72 out of the 400 on the list were real estate investors, and even that can be misleading. Many of them made their original fortunes in other areas, and then diversified into investment properties. Others inherited their real estate.

The fact is that the single most popular way to riches was not real estate, not the stock market, not mutual funds – in fact, it was not “investing” at all. The most common path to financial independence was through one’s own business! Whether it was manufacturing, automobiles, department stores, commercial banks, shipping, insurance, computers or one’s own profession, the Forbes 400 made it primarily through creating and developing their own businesses.

Moreover, according to several recent Wall Street Journal articles, numerous retirees actually lose their fortunes after they sell their lifetime businesses and become investors.

How should these facts affect your attitude toward investing? Let’s look at several modern-day examples.

How do you make a million dollars in today’s financial world?

THE REAL WINNERS IN THE STOCK MARKET

Well, you don’t become a millionaire by investing in the stock market. You make it by being a stockbroker, or better yet, by starting your own brokerage house. That way you earn a commission on every trade whether your customers are buying or selling, whether they are making a profit or a loss.

You don’t make a million dollars by buying penny stocks. You make a million by selling penny stocks, not as an investor, but as a penny-stock broker. The penny brokers are the principal ones making a killing in the penny stock business, not the naive investor. The commissions are huge in the penny stock business.

Buying new issues is not a secure way to make a fortune. But “going public” is an excellent way for a businessman to increase his net worth by a million or two, letting other investors share in his risks. Selling new public stock can be extremely profitable for the corporate president, company directors, the underwriters and other founders who are given the opportunity to buy “insiders’ stock” at 30 cents on the dollar of the new issue price. There are risks, of course, but the risks are lower than those taken by the retail customer who pays the full new-issue price. And if the stock is “hot,” the premium price can sometimes jump to two or three times the official new-issue price before the average investor gets in. The retail customer is usually the last man on the totem pole to make any money.

You don’t become a millionaire by investing in a mutual fund. You make a million by starting your own mutual fund, which is probably the fastest growing area of investing today. In the early 1980s, there were only 400 mutual funds. Today there are over 1,400. Why the rush? Passive investors want an easy way to participate in a bull market and want to rely on expert, professional advice. The management fees on these funds can be very lucrative. Many mutual fund managers make half a million a year, or more. And, remember, the money manager makes that kind of money whether the fund is performing well or not. (Granted, the money manager makes more money if the fund is a superior performer, but still the fees can be substantial, even in a down market.)

Very few investors make a fortune trading commodities. But commissions mount up for the floor trader in Chicago, the commodity broker in New York, or the commodity pool manager in Dallas. Trading commodities is high risk, but selling commodity contracts (short or long) is the low-risk way to make a million.

RARE PROFITS IN RARE COINS

How many private investors really maize a million buying and selling rare coins? Not many, unless they are rare coin dealers! The average markup on numismatic gold and silver coins is 22%. That’s quite an incentive for the casual businessman to get into numismatics. It also means that a coin buyer has to recoup 22% just to break even. So, even in a bull market, it may take a year to make a profit. And that’s assuming the grading of the coin is accurate. The chances of getting an over-graded coin are increasing, because in any market where there’s greed and lack of information, the fraud peddlers enter. Many coin dealers are going to be reluctant to buy your “MS 65″ gold coin when an “MS 60″ (also uncirculated) sells for one-third the price. The industry is already distinguishing between “technical grade” (trade standards) and “commercial grade” (retail standards), so you know trouble is brewing. Once again, my feeling is that the low-risk, big money is being made by the coin dealers, not the investors.

The classic example of malting consistently high profits has been in the insurance industry. You don’t become a millionaire by purchasing a whole life policy (unless the person you insured dies!), but you can make a million as an aggressive insurance salesman. The old traditional life returned on average 3% on a customer’s cash-value investment, while the insurance broker received 100% commissions on first-year premiums, with additional payments down the road. Today, of course, insurance products have become a much better deal for consumers, especially single-premium whole-life policies.

IS REAL ESTATE THE ANSWER?

Surely, you say, if there’s one area where the individual investor can make a million, it’s in real estate. It’s ideal for the “cash poor” investor, right? Admittedly, one can point to many success stories in real estate investing. I’ve met quite a number of successful real estate investors. But, looking at the overall picture, I can only conclude that it’s a small minority of real estate seminar graduates who become financially independent through real estate. You want to make a lot of money in real estate? The best way is to become a real estate agent, financier or developer! The real estate agent gets his commission, whether buying or selling, and he is sure to be one of the first to hear about the bargains (distressed deals).

The commercial banks, savings and loans, and financial lenders make the real money in real estate by collecting 2-3 points on every mortgage or refinancing, plus high interest rates on 30-year mortgages (the longer the term, the greater their profit). The vast majority of homeowners pay regularly like clockwork. The banks and financial institutions are the real money machines. Want to make money in real estate? Become a banker or financial lender.

Real estate developers take a chance, and many struggle to find buyers. But they also reap high profits. Recently an associate of mine bought a beach condo on the West Coast of Florida. He paid $140,000, and expects it to be worth $250,000 in a few years. But in my opinion the real winner was the condo developer and broker who sold him the condo. He probably doubled or tripled his investment, and his profits are secure, whether the value of the condo rises or falls a year from now.

The ultimate money-maker for the real estate developer has been time shares, where individual units are sold at huge premiums compared to the total cost of the units. Time shares are often touted as an investment, but they have yet to develop a secondary market, and customers are frequently disillusioned with the time-share concept after it’s too late.

Many investors are interested in the profit potential of foreign investments. But if you want to make a million dollars investing overseas, a better alternative would be to own a foreign bank or brokerage firm, or to become a financial intermediary for interested investors. In the 1970s, during the bull market for gold, silver and Swiss francs, a financial firm in British Columbia used to advertise its services, complete with an 800 number, to American investors who wanted to open Swiss accounts. The financial company received a commission from the Swiss bank and also received a percentage of future paper profits from the investor (but wisely did not participate in losses). The firm took in several million dollars during the 1970s, even though investors could have gone to the Swiss bank directly without having to pay any fees or profit-sharing. Many Swiss accounts were never really managed – they amounted to a simple silver bullion account.

WHAT IS THE LESSON?

What am I suggesting? Am I saying that you should go out and become a stockbroker, a coin dealer or real estate developer? Certainly, that is one alternative which could make you financially successful.

But that’s not really what I’m saying. What I mean by this exercise is this: if you want to be a successful investor, you have to give it the attention of your fu11-time business!

You can’t be a passive investor and expect to make consistent profits. Why have you been successful in your full-time business, and able to accumulate surplus funds? Because you concentrated on doing things right. You took the necessary time to educate yourself, to research ways to become more proficient in your job or business. You got involved. You relied on the expertise of’ others, but you didn’t let them do your job. They helped you, but they didn’t take over your work. You spent hours, often overtime, to make sure that you understood everything and that you accomplished your tasks.

That’s the same attitude you need when it comes to investing. You can make money in the stock market, penny stocks and rare coins, but only if you take the time and money necessary to learn what it’s all about. Learn all about the fundamentals of a public company – earnings, profits and potential for growth. Check the technical chart patterns. Establish “stop loss” positions when you invest. You’ll undoubtedly make mistakes, but you will learn from those mistakes and become better at it, just as you did in your business. You can make money buying and selling rare coins, for example, but only if you learn all you can about grading, scarcity, auctions, coin shows and supply and demand factors. You can make millions investing in real estate, but only if you know as much as possible about real estate in your area, where to look for bargains, how to negotiate to your advantage, when to sell, what the tax breaks are, and so on.

In every investment area, you must recognize how to tell whether the deal is good for you and not just for the salesman. That is the key. Most importantly, get a grasp of local, national and world economic trends in the investment markets you’re interested in. Follow the trends for inflation, interest rates, and economic policy – they will have an impact on your investment decisions.

You might say, “You’re right, Mr. Skousen, but I’m too busy in my own business to take on another full-time business of investing. I’d rather rely on a professional money manager.” In that case, my response is this: If you feel you can’t take the time in investigate an investment area thoroughly, don’t get involved. Stay only with areas you are familiar with or are willing to learn about. If that means bank CDs, money market funds, and a few pieces of real estate, so be it. I would hope, of course, that you would be willing to learn about some of the exciting investment alternatives on the market today. Certainly there are plenty to choose from! Select the ones you are interested in, the ones you sense an ability to profit in, and get going. Subscribe to newsletters, read books, attend conferences, seek advice and start trading. Believe me, you’ll be better off.

Remember the lesson: Invest as though it were your full-time business, or don’t invest at all!

– Mark Skousen

Mark Skousen’s
“CRATER LAKE” SPEECH:
UNCENSORED, OFF-THE-RECORD REMARKS STUN INVESTMENT AUDIENCE

Good afternoon, fellow investors. I have a special request today. Please take it seriously!

I’m asking the sponsors of this conference and all of you in the audience to turn off your tape recorders, so I can speak freely and openly about some very sensitive issues. I want to expose some very bad advice being given these days, and more importantly, to warn you to stay away from some bad investment deals currently being promoted. I also want to warn you about some very disturbing activities that are going on in Washington. And I don’t want to have to temper my remarks, so please, no tape recordings!

A few days ago, as I was preparing for this conference, I was several thousand feet above sea level overlooking one of the most spectacular wonders of the world, Crater Lake. There, in beautiful southern Oregon, the air is crisp, the water is pure and the population is sparse. One gets a better perspective on life. Crater Lake inspired me to come down from the mountain and deliver this speech – a financial volcano, if you will. What is the Greatest Threat to Your Money?

The topic I was assigned at this conference was, “The Greatest Threat to Your Private Wealth Today.” Normally, I talk about the government as the greatest threat.

Indeed, it is a serious threat, but I’m afraid that there is a greater threat today. The biggest threat to your wealth isn’t the federal government, it’s this conference!

The government can take up to half your income, but as a result of attending this seminar, you could end up losing all of your money – 100% – and sometimes more, if you borrowed funds to invest. How can this happen? By following the advice of some hot-shot high-pressure salesman who is disguised as a respectable speaker up here on the podium! You get talked into some crazy unorthodox investment scheme that promises big profits but only delivers margin calls and tax losses. And don’t think it can’t happen to you, folks! I’m speaking of a very unfortunate new trend in the investment seminar business. It used to be that the podium was reserved for independent investment writers, security analysts or investment bankers – experts who didn’t have a vested interest in what they were saying. The exhibit hall was reserved for salesmen or brokers who sold the investment products that may or may not be recommended at the podium. But today a lot of charlatans are up here on the dais pretending to give you independent information and unbiased advice, when they are actually pushing their own pet investment programs.

LADIES AND GENTLEMEN, YOU’RE PAYING $495 TO HEAR A SALES PITCH.

Before delivering this speech today, I went through the conference brochure and the biographies of the so-called “speakers.” I was shocked to find that 60 out of the 80 on the program were nothing more than merchandisers, wolves in sheep’s clothing, who don’t have any broad background at all in the general field of investing. Some, I happen to know, have highly questionable backgrounds and have been involved in fraudulent deals in the past.

Now there’s probably an economic reason for this sudden shift. The “high interest, low inflation” economy has not been good for the seminar business, and some seminar promoters (fortunately not all – I certainly don’t include Jim Blanchard, Howard Buff or Bob Kephart in this category) are making it up by having shady salesmen come to the stand, because they are willing to speak for free. In fact, I’m sure most of you are unaware that many of these exhibitors actually paid the sponsor of this seminar for the opportunity to speak! They must have high hopes for your money.

When I learned this, I began to wonder if those of us who are independent investment writers aren’t giving tacit approval and endorsement to a bunch of questionable characters in the business by sharing the same platform.

I suggested to the sponsor that in the future, speakers be identified by three categories:
(1) those traditional speakers who are paid a fee;
(2) those who pay their own way; and
(3) those who pay to speak. Then attendees can know what each speaker really represents.

Now don’t get me wrong. I’m not speaking out against using brokers and salesmen in general as speakers. I’ve held conferences myself where I’ve had them as speakers because they were the only ones who had expertise on a particular subject. No, I’m not talking about honest businessmen who have a good product to sell – I have the highest regard for many of them, and they are doing a service for the investor. I’m talking about hucksters, masquerading as legitimate speakers, who will sell you a bill of goods. And, unfortunately, for monetary reward, some conference sponsors are giving them legitimacy by making them bona fide speakers.

BEWARE THE FINANCIAL PLANNER’S VESTED INTERESTS

Another trend that deeply concerns me is that so-called “financial planners” are starting to take commissions or enter into joint businesses with dealers to sell investments. It’s probably inevitable, but it’s not without pitfalls. When an independent counselor knows he gets a commission for recommending an investment, it can distort or cloud his vision, often without his even knowing it. It causes him to lose his objectivity, to subconsciously push a more expensive product sometimes, or even the wrong investment, because of the monetary reward. Many financial planners disclose their business connections, and that’s honorable. But even disclosed business interests can lead to biased advice.

LONGT-TERM INVESTMENTS ARE HIGH RISK IN THIS HIGH INTEREST RATE CLIMATE!

But why invest at all in the investment programs that these promoters will be touting over the next few days? Most salesmen and brokers want you to make a long-term commitment. But, in this Age of the Dollar Boom, where interest rates are high and inflation is low, it’s a mistake to make a long-term investment in anything – stocks, bonds or gold. Beware of anyone who says, “This is a great long-term investment, but be prepared to hold on for several years before profits are realized.” If you read between the lines, it usually means that the promoter is getting big commissions, or that there’s no secondary market if you needed to sell quickly. (And no secondary market means you’re forced to hold long-term whether you like it or not!)

There is no sound long-term investment in today’s volatile, uncertain economic climate.

Not stocks! Not bonds! Not gold! Not silver! Not Swiss francs! Not real estate!

There are no permanent investments anymore, except maybe a money market fund. Stocks, bonds and hard assets are short-term, trading vehicles. Don’t make the mistake of blindly investing long-term with an individual stock, bond, mutual fund or gold coin, expecting inflation or recovery to make your profits for you. They all need to be monitored constantly, and sold if the investment climate changes.

I think the worst advice given by investment counselors today is to invest for the “long term,” to buy X investment and “forget about it.” More money has been lost in “forgotten” coins, penny stocks and Swiss bank accounts by following this unsound principle than in anything else. It does matter when you buy, it always pays to watch the value of your investments, and it’s important to sell when necessary.

The only exception is a highly liquid, short-term money market instrument, like a money market fund or Treasury bills. You have instant access to your funds, and can move them in or out of a short-term speculation without any problems or delays. In this “high interest, low inflation” environment, there’s nothing wrong with having a majority of your funds in a money market-fund, or even an insured bank certificate of deposit six months or less if you can’t control your spending. It may not be the most exciting investment in the world, but it will preserve your capital, and keep you from losing your shirt in other speculations. In fact, I recommend this approach for most traditional savers and conservative investors.

Speculators want something more exciting. I understand that. Personally, I’m into the stock market and out of gold, but that could change at any time. I watch my investments closely. Frankly, many speculators could do a lot better forgetting about all those enchanting opportunities and just adding to their money fund every day. The conservative tortoise almost always beats the speculative hare.

My experience has been that the most profitable approach for the vast majority of people is to invest their money in their own business and keep any surplus capital in the bank or a money fund, and perhaps some real estate. Gold should be held primarily as insurance against bad times, not as a profitable investment. I doubt that very many of you will take this advice. You didn’t spend hundreds of dollars to come to this seminar and be told to invest in a money market fund! Yet it’s the safest course, and many of you are going to do a lot worse than a money fund by getting into some risky investment because of this seminar.

You want my advice to make money at this seminar? Don’t do anything for at least two weeks! That will keep you from getting involved in a bad investment deal in the heat of the moment. The exhibitors aren’t going to like this advice: but it will help you separate the wheat from the chaff. Many attendees near the end of a big conference come up to me and complain, “I’m so confused, I don’t know what to do.” I say, “Good!” When you’re confused, you’re immobilized. You won’t be tempted to waste your hard-earned funds on a bad investment. I’m not saying you shouldn’t visit the exhibit hall. Go ahead, and pick up all the literature (although I wouldn’t give them my real name and telephone number). And buy some good books on various investment topics. I’m a firm believer in education – better to learn from knowledge than experience!

WATCH OUT FOR UNORTHODOX “INVESTMENTS”

Before I move on to another important topic, I want to warn you about one more thing. Be skeptical of unproven, non-traditional investments. Most of them are artificial, phony markets. I can think of several recent examples: diamonds, gemstones, jojoba beans, newly minted coins and medallions, certain collectibles and many private placement tax shelters. Even penny stocks often fit in this category. Common characteristics include:

1. highly illiquid, i.e., little or no secondary market

2. high or excessive commissions for the seller

3. artificial “limited” editions or new issues

4. must be held for the “long-term,” usually 4-5 years, before “profits” can be realized.

I look back at the so-called “investment grade” diamond market in the late 1970s as a classic example. Huge profits were promised by promoters and hard-money investment advisers because diamond prices were controlled by DeBeers and had never had a “down tick.” Dozens of new diamond dealers exhibited at seminars. Today, of course, the story is quite different. At the same seminars I now attend, I don’t see a single diamond dealer. Many of them are out of business. I read an article the other day stating that a top-grade one carat diamond that sold for $69,000 in 1980 is selling for $12,000 today! Unfortunately, most people bought in 1980, and where are those stones today? Still buried in a plastic case in a safe deposit box! The original buyers are still holding on, waiting in vain for their diamonds to recover. Even if they wanted to sell, it’s often very difficult to find a buyer for an “investment grade” diamond.

Today the “hot” investment is penny stocks, and it’s the same old story. “Buy a dozen penny stocks, sock them away and forget about them – you’ll be rich someday!” Meanwhile, the penny stocks have fallen out of bed. They may have cost you a dollar a share to buy them, but today they truly are “penny” stocks!

Let me ask you a question: How many of you have tripled your money in a penny stock? How many of you have actually bought and sold a penny stock and made 200% or more? (Note: not a single hand went up.) I rest my case.

Well, I have a confession to make. I did triple my money on a penny stock! I’m not trying to be egotistical (I’ve had my share of bad investments too), but I’m trying to make a point. The reason I tripled my money in a penny stock was because:

· First, I bought at the right time, during a period of time when penny stocks were moving up in value.

· Second, I monitored the stock closely.

· Third, I had a goal in mind. When the penny stock’s price rose 200%, I figured I had made enough money, so I sold out. I didn’t become greedy.

Another reason I made money was because I didn’t view it as a “long-term” investment. I held the stock for less than six months. Fortunately I didn’t have to worry about the tax consequences because I used my tax-free pension funds to invest!

BEWARE OF FOREIGN OFFERINGS THROUGH THE MAIL

Let me discuss another concern. There are many fraudulent deals being promoted by unscrupulous operators outside the United States, and you ought to be concerned about them. Many of you in the audience may have one of these “secret” offshore investments, completely unaware that your money is gone forever. So sit up and take notice!

I have a sad story to relate. Several weeks ago, I was awakened at 7 a.m. by a telephone call from a subscriber who was distraught about a foreign mutual fund he had gotten into. He had tried for six months to make a withdrawal from the fund, but without success. After numerous telephone calls, letters and even one trip to Europe, he was still unable to get his money back. The mutual fund finally sent a check, but the check bounced! Desperate, he was calling me for help.

I told him that I had warned my subscribers about this firm in a recent issue of my newsletter. He was surprised and said, “I don’t remember your mentioning it in your letter.” I told him that I didn’t mention it by name because I didn’t have absolute proof that the company was a fraud. I told him that the company president is known to slap lawsuits on publications which are critical of his fund, and without proof my publisher and I were vulnerable. (You think we in the newsletter business are free to say what we want? Not when the courts are so willing to challenge the freedom of the press.)

So I did the next best thing. I didn’t mention the mutual fund by name, but I did emphasize several warning signs to avoid offshore seams, describing this company and its promotions to a “T.” Particularly, I told subscribers to be leery of mail-order solicitations of foreign-based newsletters, which offer “funds” with a spectacular past performance. Legitimate foreign funds don’t solicit business in the United States unless they are registered with the Securities & Exchange Commission. (Needless to say, the fund in question hadn’t registered, and was on the SEC’s foreign restricted list.)

The subscriber had failed to realize that this advice applied to all such promotions, even the one he was interested in. He invested his entire life savings in this fraudulent mutual fund, as well as his wife’s entire savings! It totaled $250,000. I couldn’t believe that someone who reads my newsletter could be so naive and foolish. Even if it had been a legitimate deal, how could anyone in his right mind invest all his savings in one investment? That’s financial suicide. Such a fundamental principle as diversification shouldn’t have to be emphasized constantly, but apparently it does.

I have since learned that this mutual fund is in deep trouble and may never pay anyone back. It’s a bitter pill to swallow, but my subscriber can get back on his feet if he follows some simple rules, such as diversification, staying with traditional investments and being in control of his own funds. I can’t repeat it too often: Stay away from unorthodox, nontraditional investments, particularly those that prey on your privacy. This particular off-shore fund seemed very attractive to hard-money investors. It offered secrecy, high returns in precious metals and “hard” currencies and no commissions. But I’m afraid this “no-load” fund turned out to be an “all-load” fund!

If you’re tempted to invest offshore, keep it simple. Open a Swiss bank account, invest in U.S. dollars and don’t worry about speculating from thousands of miles away. You’ll sleep better.

BE A LOW PROFILE PRIVATE INVESTOR

I have raised a great many key issues and deeply disturbing facts in this talk. I don’t want you to be unduly alarmed, however. Don’t panic, or act hastily. But you should seriously and carefully consider these things. Your personal and financial affairs are threatened, now more than ever. The best approach is to quietly arrange your affairs and protect yourself from the high-pressure salesmen, professional fraud peddlers and aggressive government agents who fill the land.

We live in an Age of Envy, as Gary North calls it. You have to fight back to keep your private wealth from being stolen, sued or taxed; but do it in a low-profile way. Your freedom depends on it. Good luck.

–Mark Skousen

Televised nationwide on C-SPAN, Mark Skousen’s lecture on “Puzzles and Paradoxes in Economics” at the Cato Institute on October 10, 1997, took the “ho-hum” out of economics. He explained common paradoxes like, “Why are all the best Washington apples found in New York City?” and “Why are diamonds (impractical) more expensive than water (extremely practical)?”

In this clip of the speech, Mark Skousen reveals the reasoning behind a common grocery store paradox — why ketchup is more expensive in the larger bottle than the smaller one.

Check back soon to view a short video clip!