HOW HONEST ED TURNED $212 INTO $100 MILLION

Toronto landmark (or eyesore) Honest Ed’s is for sale. I often pass by this one-location-only discount store at Bloor/Bathurst. I haven’t been inside since I was a kid.

The 350,000 square feet of land (including the 160,000 square foot store) may fetch $100 million and get turned into more condominiums.

The Start

“Honest Ed’s … inception came at the time when merchants were notoriously unscrupulous.” --- Toronto Star today

How did Ed Mirvish start Honest Ed’s? It’s difficult to know. A common story is that he cashed in his wife Anne’s life insurance for $212. That’s $2,210 in today’s dollars (according to an inflation calculator from the Bank of Canada). Neither amount is big. Sometimes a little is enough. Maybe Ed was unable to get money from the banks and wanted to avoid loan sharks.

His father died when Ed was only 15 (the Cake Boss was 17 when he lost his dad). Neither father had life insurance. Like the Cake Boss, Ed left school and started working to support the family. Ed died in 2007 just days away from his 93rd birthday. There’s no telling how much life insurance he had.

The Capital

It’s easy to forget that permanent life insurance provides much more than a death benefit. If you pay more than the cost of the insurance, the excess builds up in a tax-sheltered environment with whole life and universal life insurance. You might lose this accumulation if you “buy term and invest the difference” because you might buy term and spend the difference.

You can access your equity in your permanent insurance by

• “surrendering” your policy for the cash value, as Ed did (which can have tax implications)
• borrowing from your policy via a policy loan (Walt Disney did this (Investopedia, Dec 2011) to help raise money for Disneyland)

Lenders sometimes want life insurance as collateral for a loan. In this case, a portion of the premiums may be tax deductible. Ted Rogers used life insurance in this way.

Hybrid

Some purchases give you more than one benefit. Ed converted life insurance protection into cash. That’s not possible with term coverage. He turned that cash into retail income and real estate. That’s not possible by renting.

What will happen to the Honest Ed’s location? How about a Walmart or Target with condos above? You cam still shop till you drop and then take the elevator home.

Links

• Honest Ed’s website
• Ed Mirvish (Canadiana Connection, Aug 2012)
• Iconic Honest Ed’s store has quietly been put up for sale (National Post, Jul 16, 2013) [nice photos]
• How Pink Floyd’s insights on mortality help you
• The best tax-sheltering in Canada
• Two drawbacks of investing in life insurance
• $1,000,000 after taxes on the investment growth
• How to afford the insurance you need
• The four steps in wealth management
• image courtesy of theMatthewBlack

Podcast 229

direct download | Internet Archive page | iTunes

PS Do you remember Sam The Record Man?

Does billionaire Seymour Schulich help you "Get Smarter"?

The sequel to Bruce Willis' Die Hard is Die Harder. So isn't Get Smarter the sequel to Get Smart, the 2008 movie that grossed $230 million US? Maybe you're old enough to remember the 1960s TV show about inane spy Maxwell Smart.

Get Smarter isn't a movie. Get Smarter isn't about improving your memory or intelligence. Get Smarter is a 2007 book with lessons for business and life from a wealthy Canadian. Seymour Schulich, then a 67 year old billionaire, targeted the 20-40 crowd. 

Canada now has 18 of the world's 793 billionaires according to Forbes (in $US): ranging from David Thomson & family with $13B to Michael Lee-Chin with $1.0B.

You probably got lots of free, unsolicited advice from "wise elders" like your parents. You can get more from self-help books. If you think that wealthier means wiser, you can read books by or about billionaires like Richard Branson, Donald Trump, T Boone Pickens, Bill Gates and Warren Buffett. Does the world need one more?

Schulich Who?

You can find out more about Seymour Schulich on Wikipedia. Although a billionaire, Schulich got support (money?) from the 

• Canadian Council for the Arts
• the Ontario Arts Council
• the Ontario Book Initiative
• the federal Book Publishing Industry Development Program
  

Was this taxpayer support really needed?

There are oddities you rarely find in a book. For instance, how long has Schulich been married? The Introduction says 38 years but the dust jacket says 37. If you forget an entire 365 days, would your spouse keep you until the next anniversary?

Here's another. The Introduction says that many books have "two or three main ideas" but Schulich wants readers to get "twenty to thirty ideas". Quantity over quality? The back cover quotes a reader who finds that most books have "two or three usable ideas" but this book has "twenty to twenty-five great insights". How convenient. This is similar to the odd self-promotion for Daniel Gross' Dumb Money.

You'll find incomplete statements that beg questions. Schulich says he drove the same car for 11 years but doesn't say what car. If it's a Honda Civic, kudos to him. If it's a Rolls Royce or Maybach, shouldn't it last? Does he have only one car? Is he usually driven by a chauffeur, which means he drives little? He also says he's lived in the same house for 30 years but maybe it's a magnificent mansion that's continually renovated. We don't know. Maybe he has multiple properties.

The government involvement and oddities made me cringe. Attention to detail and authenticity are keys to credibility. For your benefit, I read the entire book but skimmed Appendices II - IV. 

Lessons Learned

You'll find valuable lessons in Get Smarter. The cartoons are nice. The chapters are short and easy to read. 

Here are nine points that stood out

1. know your edge: as Seth Godin says in The Dip, "Average people are in the majority, but they're not in demand."
2. use reciprocity, the first of Robert Cialdini's six universal principles of influence
   
3. you won't get truly wealthy if you're paid for your hours rather than your results: read Timothy Ferriss' thoughts on how much you really earn
4. inflation erodes the buying power of your savings but helps you as a borrower: lock in your debt for years when rates are low
   
5. there are no overnight successes: read Outliers by Malcolm Gladwell to understand the importance of the "10,000 hour rule" 
6. be the promoter (and contract-writer), not the promotee
7. givers set limits because takers won't
8. the United States has 5% of the world's population but 70% of the lawyers; these lawyers take 3% of the GNP while the profits of the S&P 500 companies total 6% of the GNP
9. "Fusion power will power all cars electrically and power all homes."

If you're ages 20-40 and haven't read many books, you may find that Schulich shares many treasures. If you want to benefit from government support too, get smart: get Get Smarter from your library. If you want a laugh, watch Get Smart. The movie's funny and so is the TV show. 

Links

• Seymour Schulich biography (Wikipedia)
• Get Smarter website (www.gettingsmarter.ca); out of date
  
• Get Smart (2008) movie (IMDB)
• Get Smart (1965) TV series (IMDB)
• Richard Branson: When Your Servant Is Your Master
• Warren Buffett's Tough Career Choice
• Your Life Expectancy Exceeds 1 Billion Seconds
• The World's Billionaires (Forbes, Mar 2009)

Podcast

direct download | Internet Archive page

The Six Basic Fears From 70 Years Ago (Napoleon Hill)

[Update: It's now 2012, which means the fears are from 75 years ago. Here's a new video summary:
 
Now back to the original post]

In his classic 1937 book Think and Grow Rich, Napoleon Hill identified the six basic fears:

1. Poverty
2. Criticism
3. Ill Health
4. Loss of Love
5. Old Age
6. Death

Are we really that different 70 years later?

We're living longer, healthier and with more money. That doesn't mean the fears are gone. Let's look at the primary fear.

#1: Fear of Poverty

"(Warren) Buffett had planned to hold onto his money until his death, but he changed his mind after his wife, Susie, died in 2004." --- Fortune, Jan 2008

The fear of poverty is widespread. Even for those with lots. Warren Buffett didn't want to donate the bulk of his wealth until his death. In contrast, Bill and Melinda Gates plan to give away 95% during their lifetimes, which is causing their children to fear there won't be enough left for them.

Here are the symptons that Hill identified

Indifference

• lack of ambition
• tolerance for poverty
• mental and physical laziness
• lack of initiative, imagination, enthusiasm, self-control

Indecision

• letting others do the thinking
• sitting on the fence

Doubt

• excuses to cover up, explain or apologize for own failures
• envy or criticism of the successful

Worry

• finding fault with others
• spending beyond earnings
• neglect of personal appearance
• frowning; nervousness; lack of poise
• self-consciousness
• excess use of alcohol or other drugs

Over-caution

• seeking out negatives
• knowing all roads to disaster but none to avoid failure
• pessimism leads to indigestion, bad breath and a bad disposition

Procrastination

• putting off until tomorrow what should have been done last year
• working on excuses rather than finishing the work
• refusing to accept responsibility
• compromising

Links

• Melinda Gates Goes Public (Fortune, Jan 7, 2008)
• Fear #2: Criticism
• Fears #3-6
• The Six Financial Fears of Canadians
  
• The story behind the Six Fears video (new)

(You can download Think And Grow Rich for free. However, many sites use the book as a lure to sell you something. I couldn't find a link to recommend.)

How Much Do You Really Earn?

There is nothing more demoralizing than a small but adequate income.
--- Edmund Wilson

How much do you make?

Chances are, you think of your annual earnings. That's not the ideal comparison.

Suppose that Callie earns $100,000 a year and Sandy earns $50,000. We'd conclude that Callie earns twice as much because we ignore an important factor: the hours worked. Suppose Callie works 80 hours a week while Sandy works 40. Then both earn the same hourly rate. Now who's ahead? Probably Sandy who has more time to enjoy life.

The idea of looking at earnings on an hourly basis came from The Four Hour Work-Week by Timothy Ferriss. The book is one of my favourites. It got me thinking about wisdom acquired years ago: the cost of anything is how much of your life you pay (e.g., money, time, health). Too often we think only of the cost in dollars.

Tax
Since our tax system is "progressive", the more we earn, the higher our tax rates. In our example, Sandy likely comes out ahead when we look at after-tax earnings per hour.

If you're paid a salary or commission, you probably don't know what you earn per hour. You may be shocked once you do a quick calculation.

I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes. --- Edward Gibbon

Nothing hurts more than having to pay an income tax, unless it is not having to pay an income tax. --- Thomas Robert Dewar

THREE PRACTICAL WAYS TO INCREASE YOUR NET WORTH

If your out-go exceeds your in-come,
your upkeep will be your downfall.— Unknown


Here are three practical (i.e., boring) ways to increase your net worth.

1. Save More (Spend Less)
   
2. Earn More
3. Invest Better

Save More
The best technique is to "pay yourself first". Have a portion of your pay (e.g., 10%) deposited into a savings vehicle from which withdrawals are more difficult. You're less likely to spend money you don't see. Similarly, you can save a salary increase (or a portion of it) instead of spending it.

For those who don't payoff their credit card balances each month, an idea to pay for everything with cash. You keep one credit card for emergencies and cut up the rest. Put this credit card in a metal can, add water and freeze. Why? If you're tempted to make a purchase, you'll have to wait until your card thaws. By then, the urge to spend may be over. Why the metal can? So you can't use your microwave oven to reduce the wait time.

Earn More
You can increase your income by learning more and applying what you learn. I listen while driving in my 'university on wheels'. Traffic jams are no longer annoyances. They're an opportunity to listen longer ;)

Learning is also a strategy for remaining employable in the uncertain days ahead. Learning doesn't have to be in a classroom setting. You can learn plenty online for free using your favourite search engine. Blogs are an excellent --- and interactive --- tool.

Invest Better
Investing is a contentious topic. Who doesn't have an opinion or two? Relying on the advice of others over the years, I've lost money in shares, mutual funds, warrants, etc. Our current focus is paying off our mortgage while getting better educated about investing.

Interconnections
These ideas are related. Saving more and learning more help in investing better. Learning more is a form of investment. You can can the increase in your earnings from the increase in your learning.

Do you have other practical tips?

Learning From Brian Tracy Live

It's always hard before it's easy
--- Brian Tracy

Brian Tracy spoke at a corporate event earlier today. I heard part of his presentation before I was forced to leave. Brian helps people improve their lives. I know him primarily through his audiobooks. Last year, I learned that he's Canadian. You know how we complain about the weather. He actually did something ... moved to California :)

Brian was discussing ways we can make more money. Unlike many others who discuss this ever-popular topic (see Too Good To Be True), his ideas work. But take work.

Learn and Apply New Skills
Brian explained that a Mercedes car is lost on the back roads. In comparison, a rusted jalopy on the highway goes faster and further. Our mind is like the Mercedes. We need to put it on the right track.

Aside: can't someone who can afford a Mercedes buy a GPS navigator to get back on track?

We are our most important assets. The world is moving ever-faster. If we don't continue developing our skills, we aren't standing still. We're falling behind. Eventually we're so far behind that we think we're first.

Affirmations
Self-esteem is critical and ours can suffer for many reasons, starting with how we were raised as children. We can replace the negatives with affirmations such as "I like myself" and "I love my work". Frankly, I was skeptical when I learned of affirmations from his video seminar "Achieving Personal Excellence" back in 1992. I tried them though, and they work. Try your own. With enthusiasm!

Brian also taught me

• The Law of Attraction
• modeling (do what the successful do and you'll be successful too)
  

While these ideas are available from other sources, they were new to me. He explained in ways I could understand and apply.

That's It?
As I was dragged out, Brian was talking about the Efficiency Curve, borrowed from the Boston Consulting Group. As we learn, our work takes less and less effort.

What I learned didn't make leaving any easier :(

Inflation and Installing Summer Tires

Inflation (noun): When you pay $20 for the $10 haircut you used to get for $5 when you had hair.

How much does it cost to have your winter tires taken off and replaced with summer tires (all on rims)?

My dealership always charged $48+tax. This time, the price jumped by 42% to $68+tax. That's a huge hike for a simple, routine process repeated twice a year. Well above the rate of inflation.

Recycling Gone Too Far
Also, the snow tires were put back into the same bags the summer tires were in --- not the cleanest after months gathering dust in the garage. Since I have a midsized sedan, two tires were put on the back seat. In the past, they've always used clean bags. Recycling is good, but cleanliness also matters (or so my better half tells me).

I had to stop driving my car for a while ... the tires got dizzy.
--- Steven Wright

I believe in getting service done at the dealership (e.g., they also did a software update under warranty). My lease is up in a year and I'm wondering whether to keep my car (only 29,000 km in 2 years). A big concern is the cost of maintenance and long term reliability. This visit was an eye opener. If the prices shoot 42% for routine service I can get anywhere, what will happen for specialized service when I don't have a choice? Will a $1,000 bill now become $1,420 + tax?

The Result
This visit provided less,cost more and created anxiety about future maintenance costs. A poor combination.

I'm glad I didn't get the wiper blades changed!