There’s Always Something Else
I had a phone call today from a man representing a sports arbitrage company. His company had sent me a brochure a week earlier, and this was a follow-up.
What is sports arbitrage, you might be asking? I certainly had no idea. Arbitrage is where you take advantage of pricing differences in different markets, buying in one and selling in another, to make a profit. Ideally, the transactions happen at the same time, making a risk-free profit. Sports arbitrage is doing it by placing bets on sporting events.
It was interesting to talk to him. He asked me which sport I followed. After I named a few sports which were out-of-season or for some other reason unsuitable, he steered me towards the Australian Open Tennis, which is on as I write this. I was surprised by this; surely he needn’t have bothered finding a sport I cared about - the whole point is that you don’t have to understand the sport or the contestants, you simply look for suitable odds. He could have picked a cock-fight in some remote Vietnamese village, for all I cared.
Anyway, he found a tennis match in progress, found two suitable sets of odds in different parts of the world, and showed how he could take $1000, place a bet in each market, then end up with either $1067 or $1064, depending on the outcome (a 6.7% or 6.4% return)
Easy money, hey? Only it’s not completely straight-forward. You need access to hundreds of online betting agencies, to find the mismatching odds. You can be sure that there will be other people or companies searching for exactly the same thing. because there’s a profit to be made. Then there are technical issues with losing some money on exchange rate conversions, making sure the bets are accepted at the same time, before odds change, not to mention the upper limits to how much bookkeepers will take before changing their odds, or refusing to take more bets. Plus his company took the first 5% profit for each transaction, so the actual returns promised were pretty small.
At the end of his explanation, he invited me to hand over $8000 and start an account with them. They would take care of everything else. This is where I said no, and we ended our call.
At least arbitrage is in theory risk-free. Some investment systems I find comical. One company was trying to sell me horse-gambling software. If I diligently typed in horse data - results, odds, and so on, from all the different venues, for weeks on end, it would tell me what bets to place. I remember explaining to the sales person: “I like commercial property, because I like the safety of a legally-enforceable lease”. She countered with “but this is as safe as commercial property”. I wondered what my bank would say if I tried put up my house as a 30% deposit, and borrow 70% to bet on horse-racing, explaining that it was just as safe as commercial property, and should therefore attract the same LVR.
I know someone investing in rare artwork. He expects to make a good capital gain, and thought I might be interested. I told him that he may well be right, but that I need cashflow in the meantime. I’m not investing to get some lump some at the end. I’m investing to get cashflow now. My lifestyle depends on my investments paying me money now.
I also know people who honestly believe their best chance of getting rich is to win the lottery.
I don’t know if I attract these people, or everyone gets this: I had a consultant come around to offer me a crop of trees. I wouldn’t get to own any land, just a certain number of trees, which would be cut down in about 10 years time. I was amazed at the low return. Yes, you would double your money over 10 years, but that worked out to be a pretty low rate of return. After his presentation about trees, he moved onto a questionaire, including the question “what rate of return would you like to receive?”
I thought about this. I’ve talked about how I like to make a rapid capital gaid soon after purchasing. I like to make my deposit back in the first year, equating to a 100% return of the money I put in. I thought that sounded a bit high, so I scaled it down and said “Probably 50%”.
“OK, 15%,” he said, writing earnestly into his questionaire. “No, 50%” I said. I wasn’t trying to be boastful, but he stopped writing, and looked at me to check if I was serious. When he realized that I was, he was gone within five minutes, and never did the follow-up call that he promised.
As long as it doesn’t take up too much of my time, I enjoy hearing about opportunities. Even if I’m going to say no, I like to understand it first, so I know what I’m saying no to. When people or companies offer me ways to make money, I generally listen, because it’s interesting to hear different approaches. I see what I can learn from them, evaluate them critically, looking for flaws in systems. For example, when I asked Tree-man what happened if a storm or fire destroyed my trees, he said I would get my money back. Get my money back! I would be devastated if after 10 years I got back what I put in! Talk about going backwards.
There are so many opportunities to put your money into different things. Thus far, I’ve always come away concluding: “I prefer real estate.” To be fair, I’ve only been talking about the more unusual types of investment here. What about the stock market?
This past year, I’ve been bombarded by the media, telling me again and again how much money everyone is making in the stock market (at least until the sub-prime issue dented prices somewhat).This is OK. I would need to undergo a massive education process to do well in stocks. I don’t have the expertise. If I went in without the expertise, I would be gambling. Fundamentally, I don’t like gambling.
When you hear all these different things, it’s tempting to move around, from one investment type to another, looking for that big return. The grass does often look greener elsewhere. Alternatively, you might try to put your money into everything at the same time, trying to cash in on all market sectors,. Instead you spread your money too thin and dilute your profits.
At this point in time, and for the foreseeable future, I’m very happy with my choice to stay with real estate. If the media tells me that others are making fortunes elsewhere, good luck to them. When I worry about what other people are doing, that’s when life becomes less peaceful for me.
If you don’t have one already, the sooner you can develop a very clear strategy for wealth creation, one that you can stick with, the better.