This guest post from William Cowie is part of the “ reader stories ” feature at Get Rich Slowly. William has contributed to ConsumerismCommentary.com, BudgetsAreSexy.com and other personal finance blogs. Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.
Fresh out of college in South Africa in 1971, my goal was to be CEO by age 30. I actually accomplished that and the future looked great. What could possibly go wrong?
The company I worked for got sold. Because I was one of a few insiders who was granted equity, the sale brought my wife and me a nice little windfall. Add in some property investments, and we were in good shape. As things often go after a buyout, though, the atmosphere at the company changed and we decided this would be a perfect time to take an early retirement. At 30.
Rather than do nothing, I figured I could add some education to my experience, so we came to the States in 1983, where I enrolled in the Ph.D. program at a reputable business school in California.
There I learned about the economic cycle. Apparently not enough to prevent all our investments from being wiped out in the recession of the early '80s. And when I say wiped out, I mean wiped out, as in flat broke.
Getting back on our feet became a higher priority than higher education, and thus our early retirement ended ignominiously and I got a job as CFO for a start-up. I had never been laid off or fired before, so my nice new job felt safe. Buying a nice house with no money down, we eased back into our pre-retirement lifestyle seamlessly. What could possibly go wrong, right?
My job might have been safe, but that didn't mean the company I worked for was. Start-ups rarely are. Think of it as a well-paying job on the Titanic. Just like the passengers on the ship, even the officers, I never saw the iceberg until the scramble for the lifeboats.
It's no coincidence that business failures usually occur when work is hard to find. You'd think someone who'd studied about economic cycles and seen a secure financial life come crashing down before would be prepared the next time round. Wrong again. I discovered all there is to know about home short sales — from the short side. I vividly remember the person buying our house – what a killer deal they got! I started asking myself, “When will you learn?”
Eventually, things picked up again, as I became a contributor to the unemployment system again (as opposed to a beneficiary). I had learned my lesson. It was indeed possible to retire by 30. Or by 40. The trick, though, was STAYING retired. Small detail, but important.
When you turn 40 “they” say you're over the hill, and in some sense they're right. Standing on top of that hill, one does indeed begin to see things in a different perspective.
For us, the retirement thing changed from being a nice little joke to a real concern. We had nothing except the hope of Social Security. And, as Y2K approached, we realized that we probably couldn't count on that either. Oh, with lots of photographs and memories we had a delightfully fulfilling life, but as someone once said, “They don't take happiness at the Safeway.” We were going to need real money when we retire. So, we started saving like two little squirrels on steroids.
As the previous century drew to a close, I was working for a very good friend, Bob. Bob's business was flourishing. As the local economy heated up, I told Bob to stop expanding , even though his customers were beating his door down. Night after night he'd complain, “I've always dreamed of this moment when new customers beat my door down to do business with me. And now you're telling me to say no? You're killing me!”
But he listened and got out of debt and stashed away a good chunk of money in a savings account. When the recession came, as it always does, my friend struck gold. As his competitors went out of business, he'd go to their auctions and pick up new equipment for 10 cents on the dollar. But he was even smarter than that: each time he'd chat up the owner and, after commiserating, ask who his best employees were. Bob became the hero: the employees were ecstatic to get a job, and the employer was happy to see his best people taken care of. (Some of those people still work for Bob.) Customers flocked to him because he was a financially sound survivor. Bob became the leader in his field simply by side-stepping the crash of the economy. And so it was that he eventually brought me on board as CFO. The irony of that moment wasn't lost on me. He listened to my preaching better than I did. He owned a large and successful business and I owned nothing.
But, where there's time, there is hope. The two little squirrels on steroids kept doing their frugal saving thing, maxing out their 401(k) plans and putting the rest into assorted savings accounts.
The next recession made its appearance as the dot-com boom met its inevitable doom around 2002. This time, Bob was less fortunate. He had invested in a subsidiary in Colorado. Even though his own company was reasonably well managed, the acquaintance who ran the subsidiary racked up losses and created cash-flow drains that put the entire group at risk. Only people who have gone through this know the agony of failure and defeat. We would lose our investment, our reputation and any illusion of competence I might still have had.
But there's hope
Nobody has ever accused me being the brightest Christmas light on the tree, but after living through three recessions even I eventually got it. I knew in the mid-2000s that we were headed for another recession.
And I knew what we needed to do: keep our assets as liquid as possible, be debt-free and be ready to pounce when the opportunity presented itself.
When the stock market crashed in 2008 and the Colorado business foundered, I was up late at night learning all I could about those new investment opportunities.
My wife called it going to “night school.” To some degree it probably was an escape from the day business, which was increasingly filled with acrimony centered around getting out of debt. As stressed as the day business was, night school was exciting as I learned from Warren Buffett, Motley Fool, Seeking Alpha and IIAA.
What made it more exciting was I had cash to invest and the crashed stock market was bursting with opportunities. It was like shooting fish in a barrel; I could not believe the bargains. Every day I'd learn about another company whose stock had just fallen to ridiculous levels, and I'd just want to buy it. But then I'd hold out in case I'd find an even better deal the following night.
Even in the best of times the media loves to peddle negativity, but those days they were simply flooded with doom and gloom. However, the previous recessions that wiped me out left me with a burning conviction that I am NOT going to miss out on this opportunity. And so, despite all the doomsday media, I resolved to buy.
Biting the bullet
The market was still falling, but I was convinced the five stocks I bought could double over the next two years. The week I jumped in was the week after the market hit bottom.
One Saturday morning, we talked over breakfast about the stark contrast between the failing business and the eye-popping stock market. As it became clear that there was no option but to shut down the business, the inevitable question was: what next?
Why not retire? The more we thought about it, the more the question grew. This time around we were old enough, and this time around we had no debt, other than the mortgage on a reasonably modest house. That meant we could make this one stick.
The exact timing was not our doing, but the preparation was: getting out of debt, denying ourselves to save, and getting liquid when everyone was buying . Even though we had started at close to 50 years of age, we had built up our money fund enough that we could live on it without Social Security. Since I invested in those first stocks, our portfolio has multiplied five times. In just over three years.
If I was smart, we could have retired a lot earlier and started a blog called Retire by 40. Too late now. I guess the good news is that there's hope for all of us even if we're not smart. And even if we're not under 50 anymore.
The key is understanding the big picture of the economic cycle. It can wipe out your best-laid plans. Or it can turbocharge a simple and lean beginning. Ignore it at your peril, or profit wildly from jumping on it.
I started my new blog to help people who get this, or want to. While at the Fincon12 conference, we all got challenged to define WHY am I doing what I'm doing?
Ben Franklin was wrong: the only sure things are death, taxes… and recessions. I don't want to see a single person hurt by the next recession — that is totally needless! And it's not rocket science (if I can learn…).
I want to see a nation taking care of itself by doing the big things right. What's the point of saving $1.53 on a purchase, and then buying a house that leaves you underwater on your mortgage? But the time to prepare is now. “Then” is too late.
There is hope and you can do it.