Don’t invest in stocks or real estate. I know, probably controversial, allow me to explain. I recently read a business book that really brought home an important point that has been living rent free in my head for a while. Investing in stocks (less so in real estate) when you’re young is not going to make you wealthy. If wealth happens to be your goal. Now allow me to substantiate my claim. Surely investing in stocks and real estate is a good idea, surely I should save money from my job and invest it? People get rich all the time investing in stocks and real estate, right? Well, that depends. If I spend 40 years saving a bit of money from my job every week, and retire with a million dollars or two, sure, maybe I’ve done well. But, the elephant in the room is always inflation, which will eat away at my buying power. The $1 million dollars 40 years from now, won’t be worth $1 million dollars in todays money.
Real estate is a bit better because the power of inflation is working for you not against you, it tends to be a bit of an “inflation hedge”. If you increase your power to pay down a loan over the years (i.e. earn more), the loan value 20 years from now will not be worth as much and you’ll have an easier time paying it off. For example, if you can borrow money at 0% forever but inflation is 2%, the loans value drops 2% a year. Hence why lenders tend to lose money in a hyperinflationary economy, while borrowers tend to benefit. A very important concept that is overlooked when giving retirement and investment advice is the time value of money. Basically, inflation. Also, inflation during a high inflationary time is deceptive. Because when you go through a few years of close to 7-8% inflation, and then drop down to 3% a few years later. In 5 years time since the start of the pandemic the compounded TOTAL inflation has been close to 20%. So if your stocks aren’t keeping up, you’ve at best broken even.
Whenever there’s a story of some 25 year old who made it big did they work a regular job for 40 hours a week, then diligently save 15% of their paycheque and invest in stocks, and boom 5 years later they’re a millionaire! Unlikely, if not impossible. There are sound statistics and facts showing that the people who are young (and also how many older people made their money) did so by building a business. The capitalist system is built around rewarding those who create something the marketplace wants. There’s only one Apple (inc.), but MILLIONS of us buy their products. Simple math says if you sell a million of something you’ll be a millionaire. In the system we are in you have to be a “producer” in order to make it big. Sure, maybe once in a blue moon someone hits it big on crypto (assuming they don’t lose it all in the next crash), or managed to time an investment that went up 10x in value. But the large majority of people who speculate on stocks hoping to get rich inevitably get burned, just ask my friends and I.
For some people, they may not have any ambition to be wealthy and they may just want to have a decent job, and enough money to have a decent life. But for the people who want to be wealthy, they have to realize a few things. 1. No one cares that you want to be wealthy. What can you do for me? That’s what drives buying decisions. Generally speaking, I don’t care that a corporation is profit motivated, I care about the thing I’m buying or the service they are providing me. Maybe, I make my buying decision emotionally because they have built a brand that makes what they are selling desirable to me. 2. No matter what business you’re in, you have to sell. Whether “selling” means getting to the top of search rankings, creating a marketing campaign, or paying for ads. You can have the best product in the world, but if no one knows about it, it’s as good as having no product at all. (Luckily, nowadays social media is a strong method of selling and brand awareness that is largely free, Google My Business is valuable, and word of mouth is also very much still alive).
There are more intricate rules and considerations to think about if you are building a business. Do you want to build a business that can eventually work without your inputs, would be nice huh? But you have to remember that at the beginning the business needs you to be the one forcing it forward, building it up, and doing the stuff that no one else wants to do. A thriving business isn’t magically going to appear on your doorstep because you “visualized it”. You have to be actively out in the world providing input to the machine so it can start cranking its gears. Spend less time thinking and more time doing. Speaking of stuff no one wants to do. That’s a great way to choose an avenue that is ripe for disruption. There are a million different businesses you could start, but it’s important to consider if there is a need in the marketplace (the world probably doesn’t need another personal trainer, or blog for that matter, owch…).
It’s a much better idea to begin a business in a market that doesn’t have a ton of competition, that being said, you’ll almost always find someone who’s “already doing it” and if that business is smart they’ll do their best to deter you from even thinking of competing. But if the barrier to entry is relatively high, and building that business would be “hard” and you think you could do it better, then you’ve got an opportunity to innovate. The higher the barriers to entry, the better the potential idea, you want to be in a space that is “hard” to work in (or where all the current options suck), because that will act as a moat to your business.
You also have to consider the scale of the business. Would it be feasible for this to be a national or international business? Or am I just going to open one restaurant on the street corner. Not saying you can’t have a thriving restaurant, but notice that the chains who are global have found a way to replicate their formulas using the franchise model. Again, depends on your motivations. Do you want to be global, or are you stuck thinking local.
As a bit of personal experience allow me to divulge a bit of an internal battle between two businesses. When I was originally thinking about real estate sales as a business, I was noticing a lot of the warning signs that this book pointed out and that I’ve mentioned above. Does the world need another realtor? Quite frankly no. Unless, you have a super innovate or weird business model, it’s an oversaturated market. Can the business be global? Not really, unless I was to start my own brokerage like Re/Max or Sotheby’s. Can I detach from the business in the future? Not really, unless I build a team of agents who handle all my clients for me, but even then many clients would likely just prefer to work with me if we have built up a relationship. Do I have control over my own brand? Somewhat, but also not really. I work under a brokerage company, and I have to use their brand in all my marketing. They are probably the one making the big bucks. 1400 agents under their belt. Yeah, that’s a nice business. But I will say, the owner/operators are VERY involved in the day to day operations, and the business needs their constant inputs to grow and build relationships otherwise it would likely fall apart and agents would begin to leave. But, eventually, they could train and hire people to handle their roles if they so desired, it’s a pretty well oiled machine.
Then I started to muse about my YouTube channel where I posted engineering content for a period of time and now sits at 25,000 subscribers. I decided against posting about real estate content on that channel in the worry that I would upset my current audience 99% of whom subscribed from engineering videos. So I started to post some real estate content on a second YouTube channel and I had this realization of how brutally limited my market is. If I’m just talking about “Mississauga Real Estate” MAYBE at most 1,000,000 people are interested. But considering the demographics of Mississauga and that most of them aren’t on YouTube daily, it’s probably closer to 100,000 people who are relatively active on YouTube. Of those people, VERY few of them will be buying real estate because the average price of a home is $1 million dollars, and most young “Mississaugite” is probably not thinking about buying (or selling) anytime soon. That leaves the intersection of my online, “social media” market in “Mississauga Real Estate” to at most maybe 1,000 people. What a terrible business and waste of time. (If I sold houses to 1,000 people I’d be laughing, but social media and real life are very different). AND YET, I’ve been to so many “marketing training sessions” harping on how you should be posting to social media daily and how making YouTube videos about real estate is “essential”. But the market is inherently limited, unless you are building a separate online media “brand”. One way to overcome this limitation would be to focus on a larger market, all of Canada for example. But then your strategy won’t be relevant to the hyperlocal markets that all of “real life” real estate lives in. Two streets in the same neighborhood have very different dynamics, and that expertise is very boring to everyone except the clients you are working with at the time. The upside is that even if you get 1 sale from social media marketing you’ll probably see an ROI since commissions in real estate are so high. Real estate is a relationship building business, an “in-person” relationship building business, a local business. So if you can simultaneously build a unique online media business, while also working on your local real estate business, sure go crazy. But I don’t think from a strategic perspective a social media strategy is a good use of time for the average realtor. You’re better off just picking up the phone and calling people.
Now let me analyze my Engineering channel. What a great concept. My target market is high schoolers and university students. Who just so happen to be chronically online and advertisers love selling to the young crowd. Universities and colleges have never been more desirable, they are degree printing machines in the modern era, so channels with “studies” as their focus have the opportunity to grow. I also found a niche in Mechatronics engineering, since there wasn’t really anyone making videos on the topic online, yet the google search queries were quite high. Again, perfect unmet market need/opportunity. I hardly realized all this at the time, and it took me about 4 years to really put this all together. As a business with growth potential, and something that actually meets the needs of a market, an engineering YouTube channel is not a terrible business plan at all.
Now, one of the challenges of building an “influencer” business is that you are often at the whims of an algorithm that can be challenging to predict. So you don’t REALLY control the means of production, and control is important in a business. Likewise, for real estate you could say I don’t REALLY control how many clients I can get, but in theory you have more options to gain some control over your real estate business than you do in an “influencing” business.
Additionally, you really need NUMBERS for it to be a viable business model. Over the past year I got around 750,000 views, which worked out to an average of $300/month from ad’s that played over my videos. Now an extra $300 a month is fricken sweet (pardon my French). Especially considering that I’ve all but stopped posting to that channel and 99% the views are coming from old videos. But unfortunately, no one can live on $300 a month. If I didn’t know better I’d say this YouTube thing is screaming into my face “HEY THERE’S OPPORTUNITY HERE!” And you know what, it might be right.
The creator business model almost always has multiple components for generating revenue, and like any sound business requires a component of sales. Whether that’s building a product and selling something you think your audience may want, creating a course for people to take, or doing a “brand deal” and selling someone else’s product during one of your videos. Building an online brand requires a little more than just ad revenue to be sustainable. But the great thing is, that if there is demand for your content, those other things can often fall in place. Some other positives is that your reach is global, you have a lot of creative control, and once you make a video once it can continue to get views (hypothetically) forever. Creators often branch out to build traditional businesses around the “influence” they hold. Anything from merchandise, to experiences, to streaming platforms of their own, or “exclusive content”.
So, where do we go from here. Hopefully amongst all the rambling I was able to put across the idea that if you want to make money, you have to make something that other people (“the market”) wants. Once you’ve made a chunk of money, THEN I would highly recommend stocks as a passive income and wealth preservation tool (but if you don’t have any grandiose plans then, yes, please save and invest for your future). If you are doing something because “you love it” or “you want to work for yourself”, you’re doing it wrong. You work for the customer, you work for your audience. Once you meet their needs, then and only then will they help you meet yours. The world is a selfish place, work selfishly hard to build something other people want or need and become great at it. How do you know if other people want something? Throw it into the world and see what happens. Call up your friend and see if they’ll give you a $20 deposit for a service business, then provide the service and get feedback. Call 20 professional’s or small businesses in your market and ask them what they struggle with, then solve their problem. Look at your YouTube comments and find a common thread amongst requests and complaints that can help guide your future content. It’s not “what you can do” or “what skills do you have”, but “what can you do for me”. Give the people what they want.
Keep Investing,
Oliver Foote