Personal Roadblocks


The next step in developing the skills and attitude to make you successful is to find out why you are doing this in the first place. What is the core purpose for which you seek to make money?  Unless you have the right reason for doing all the hard work, save, sacrifice your current lifestyle, do the research and take the risks then whatever you achieve will not stick. You will lose it again in the end.

So let’s begin by establishing who the vast majority of the wealthy really are and why they do what they do. Let’s bust some misconceptions that may be subconsciously holding you back from reaching their ranks. Contrary to popular media-inspired myths, the wealthy are not usually self-indulgent playboys who drive the latest luxury cars and designer label clothing. Get it in your brain right now; this image is false! Perhaps only 1-2% of the wealthy fall into this trap, and these are the celebrity types, sportspeople or immature heirs such as Paris Hilton, who have come into easy money. They don’t know how to look after it properly so become easy media fodder. If you have this image of who the wealthy are, then you would probably not want to be part of their world, and rightly so. In fact this image could be one of the sub-conscious reasons why you have not wanted to move ahead financially. This is why I need to correct this fallacy.

Perhaps another 20% of the people we call wealthy have grown up in an upper-class family, learned the culture of financial success from their parents, and have gone on to do well. These are the Rupert Murdoch’s of the world. However, self-indulgence and upper-class upbringings do not play a big part in the motivation of the other 80% of people who are wealthy. The vast majority of millionaires all started out as ordinary hard-working people who have taken the risk of starting their own business or who have learnt the principles of investing, or both. Over many years they have lived below their means and squirrelled away their savings to invest or expand their business. Some have gone on to great financial success and become household names. They have built up their car dealerships, farms, caravan parks, pest control business, auctioneering firms, dentist practices, law partnerships and retail shops etc so that they are a cornerstone of the local community. They are family people who divorce at a much lower rate than the average couple. They also sacrifice for their children’s education. They did not inherit their money but built it up slowly over a decade or three. They are fastidious investors and will usually put 20% or more of their after-tax income into their investments. They still work and they work hard, often more than the average person. The difference is that they love what they do and could walk away from their work at any time with millions of dollars in retirement funds at their disposal. They often live in a house near you and don’t often drive a flash new car. They are stable people who made decisions years ago that put them down a fork in life’s road that was initially 5% different to yours. As time went on this 5% has taken them further and further down a divergent financial path. The gap has widened with time until they are now wealthy and you are still paying off mortgages and credit cards.

Perhaps by now you can start to see what really motivates millionaires. It is primarily family, to give their children and a better leg up in life. It is also lifestyle and challenge, career and competitive spirit. It is often about providing a quality service to the community. These are the foundations of purpose behind the drive that takes ordinary people and turns them into wealthy people a decade or two later. So please stop seeing the wealthy as self-indulgent brats and begin to see them as just like you and me. Think of the wealthy as a household rather than individuals. This will help greatly in allowing your conscience to see wealth as a legitimate pursuit. I did it because I didn’t want my family to live in poverty if I was ever injured again. Give yourself a legitimate reason for doing this investing thing and it will stay with you over the long term. Throw away any dreams of self-indulgence or displaying high status. Do it for those you love, not for yourself.

If you would like to know more about who the wealthy really are then I highly recommend the book The Millionaire Next Door by Thomas Stanley and William Danko. They had specialised in doing market research for firms wanting to sell goods and services to high net-worth individuals but kept finding that the wealthy they interviewed didn’t fit the stereotype of the big-spender portrayed in the media. So they set out to do their own research and find out who the typical American Millionaire was. They interviewed approximately 18,000 people and the results were fascinating. What’s more, they are applicable to most countries around the world, regardless of culture or religion.

In summary, Stanley and Danko came up with the following list of attributes a person usually has that helps them become a wealthy person later in life: Live below your income: Allocate time, energy and income in ways conducive to building wealth: Believe financial independence is more important than displaying high status: Don’t keep paying for your kids into adulthood, teach them to be financially independent: Learn how to target market opportunities when they come up: Choose the right occupation.


So now we know that financial independence is a long and fascinating journey, not a glamorous Hollywood destination. To achieve financial independence will require enormous commitment, tenacity, patience and drive. There will be failures and there will be mistakes, there will be dead-end turns and painful learning experiences. You have already read about all of mine. You too will have your own scary stories to tell by the time you have finished your financial apprenticeship.

In its simplest form, financial independence is the process of becoming a professional in a new career. It is not the act of sitting on a beach while your money grows on trees. It takes work, lots of work. But it is work of a different kind. It is smart work rather than hard work. Others may look at you and see hard work, but if your hard work is building an asset base, you are working smart. To become a professional in any field requires the “right stuff” to overcome the hurdles and setbacks. Doctors train for 5-7 years, most professions and trades train for 3-4 years, and athletes usually take a decade to reach their peak. My wife, Annette, tells me it took four years to become a qualified hairdresser and another four to become an expert in colour. For all people who are in the process of training to be a professional, patience and dedication are the keys to success.

As a teacher in high schools, I had fellow teachers who were broke and others who had net assets of several million dollars. But all had roughly an equal salary! Some worked hard and some worked smart. The smart teachers committed themselves to patiently driving their income and assets in the direction of their dream. They came to work each day with a 5% different mindset. On a daily basis this made little difference to their destiny. But with time and patience, they were seeing themselves achieve their dreams while others frittered away their finances on trips overseas and expensive toys like new cars every few years.

If you want to become financially independent you must have patience because you will not reach your goal overnight. So many of us are now conditioned by our culture to expect quick and painless solutions to all our needs. We want the lotto solution. Patience is no longer required for so much of what we want. Not so in financial matters. Forget lotto, the poker machines, the races, and rich Aunt Martha’s inheritance.

In 1972, Walter Mischel conducted the now famous Stanford marshmallow experiment, which was a study in deferred gratification. In the experiment a marshmallow was offered to each child. If the child could resist eating the marshmallow, he was promised two instead of one at a later point. The scientist analysed how long each child resisted the temptation of eating the marshmallow. The study showed that waiting longer was correlated with future success. Interestingly, Mischel’s earlier experiment of the same nature in Trinidad found that children of intact families, who were nearly all of Indian descent, had a much higher ability to delay gratification than those of broken families, who were mostly of African descent. The tragedy of the slave trade lives on.

You cannot change your background, but you can change your future. You must decide to start delaying your own self-gratification today and plan for an entire decade of sacrifice and hard work, and it all begins with living simply. Make an inventory of where your money goes and shave off 10% from those items that are most self-indulgent. Live like that for a few months and then shave off another 10%. Impatient people spend easily, patient people spend slowly. To live simply you must be a slow and considered spender. Material goods will never make you happy so invest in your loved ones future comfort and you will not need the immediate material substitute for happiness.


Another illusion people live under is that being wealthy is about earning lots of money. We often hear the comment, “Allen’s doing well; he’s on big money”. People who think this way feel secure and successful when their superior wage comes in and correspondingly they spend a lot of it. They also borrow against their wage for the toys that our culture uses to convey messages of high status. Sadly, this is but an illusion of wealth. When the job finishes and the spending stops, the person feels poor and the bills have to be paid. Too many westerners have lived this illusion. That is why the western world is now becoming poorer and the Asian nations are becoming richer. They save, while we borrow to spend. We have abandoned our core Judeo-Christian values that made the western nations wealthy and now believe the lies and spin of the marketers, the welfare state, consumption and image. We have allowed our short-term greed to override sensible long-term planning. You cannot borrow your way to wealth. So do not fall for the trap of leveraged investing, regardless of what the spin doctors will tell you. Do the hard yards and save your hard-earned dollars first. You will then appreciate the true value of those dollars as you consider wisely where to put them so they will increase in value.

Consider the following acronym “I.S.S.I.” which I pronounce “issee”. I have developed this acronym to help people understand the secret to financial independence. I tell them that I.S.S.I. is their best friend. It simply stands for:

Income                                    Simplicity                                Savings                              Investment

All of us must begin the journey toward financial independence by earning an income. However, contrary to popular belief, it doesn’t have to be a large income. People just have to be earning something. I once read the story of a postman who was worth several million dollars through real estate investing over many years. By the time each of his daughters married he was able to give them a home each for a wedding present. He and his wife earned a low income but had mastered I.S.S.I. beautifully. They lived a simple lifestyle, saved a large percentage of their income and invested conservatively and wisely.

Financial independence can only begin when we live below our means. The humble habit of personal savings is the time-tested foundation for the creation of wealth. You can save on the smallest of incomes if you have the mindset to do so. I have an ex-banker friend in South India named Kumar who teaches the poorest of the poor that they can still save if they want to become financially independent micro-business owners. He has over 200 all-female micro-finance teams who are lifting themselves out of poverty through the simple act of saving a little each day. Why are they all female? This is because in this poorest cohort men will usually consume money on substance abuse while the wives have to budget on what is left. Back in my own culture over 80% of household budgeting is also done by wives, including the Davis budget! So if you want to start saving get your partner involved, and marry one that is frugal!

If you don’t believe you have the capacity to save on your current income, guess what, you can’t. If you believe you can save on your current income, guess what, you will. It is as hard and as easy as that. If the poorest of the poor in India can be taught to save, then so can you. If you can’t then it is something inside your head that is the problem. The small income you earn isn’t the cause of the savings. The self-belief is the cause of the savings. Most people think that their next pay rise will enable them to begin saving. Wrong! Inflation will have already eaten into your purchasing power before you get the wage rise. Decide to save now. This one decision will change your entire future.

If you have trouble with the commitment to save, there will usually be one over-riding cause to your problem. It is called pleasure. Pleasure from spending is the root of much poverty. Some call it by the new sexy term “retail therapy”. If you cannot save money your problem will probably stem from having-wired your nervous system to get its pleasure hits from consuming material goods. To be held back from spending sends a pain signal to your brain. This conditioning is covered more fully in the essay on motivation but suffice to say here that you need to create a positive and pleasurable mental picture of the future that the new habit of saving money will create for you. This mental picture will have to be so frequently imagined and rehearsed that it drowns out the old spend/pleasure mindset. You already know how to do this because everyone saves up for at least some sort of small special treat. You feel pleasure as your savings get closer to your spending target. The problem is that when you reach your target you blow the lot. Use that same system to create a picture of the life choices that the successful investment of your savings will create. Saving money is only a means to an end. Investment for capital growth and personal independence is the real goal. Picture the independence as the ultimate and deserved treat and you will be rewiring your brain in the right direction.

A good way to help slow the spending habit down, increase the savings levels and reverse the pain-pleasure mindset is to count the future cost of spending. I used this concept with my children when they were small. They could spend their pocket money and it would give them pleasure, or they could allow us to bank it and we would add the same amount from our own pocket. They quickly became savers. When they are older, we used a slightly different version of the same idea. They could spend their earnings from part-time jobs, or they could give it with us and watch it grow in the stock market. This gave them both an incentive to save and taught them about company ownership and the world of global economics.

How much is your current spending pattern costing you in future wealth? A dollar spent is a dollar that could have been invested in a growing asset. Warren Buffet once joked that his car cost him millions of dollars in lost future assets. He was right! Your flashy new car or lounge suite is actually costing you hundreds of thousands of dollars in lost future assets. If that extra $2,000 you spent on the lounge was invested and earned 20% per annum over the next 30 years it would mushroom into about $383,000. You just blew $381,000! Think of all your current spending this way and you will quickly change your habits. Early in our commodity investment era we took a few thousand dollars which Annette had squirrelled away as extra payments on the house and placed it in what I thought was an undervalued nickel miner, the one profiled at the end of the last essay. In just a few months we had doubled our money as the world started waking up to a nickel shortage. From that point on Annette was much more willing to keep supplying me funds from the household budget, and it is amazing where she could find the money from when she knew it was going to grow! That initial investment alone out-grew our remaining $24,000 mortgage in a few years. Start saving today. Start with a single dollar if you have to. Just do it.


To a spender, time is your enemy. The further you journey through life, the more fearful you become of ending up on the old-age pension and struggling through your latter years, or worse. The mental picture you have of your future is anything but bright. I constantly see this fear etched into the faces of people I speak to, especially the baby-boomer generation. They were the first of the “spend it now” generation and many are suffering the financial consequences.

However, if you are a saver and investor, time is your friend. It is no secret, or accident, that many older people tend to be wealthier people. Their assets grow as they enjoy their journey through life. With life experience comes wisdom and with wisdom come smart investment decisions. Time is always essential in the creation of the best wines, the best meals and the best marriages. Time is likewise essential for the creation of the best asset bases. The older a dedicated saver and investor becomes, the easier it is for them to picture their future as one of independence, generosity and choice.

The great American stock market speculator, William Gann was the only speculator to have his portrait hung in the boardroom of the Chicago Board of Trade. After a lifetime of experience, his observation was that it took about a decade or two for a diligent and tenacious individual to achieve financial independence. He had seen the process take place hundreds of times in people’s lives. He also saw countless greedy investors who were not prepared to wait these lengths of time and they inevitably lost their financial shirt. Over and over again, he would advise his students to learn the signs of accumulation in a company and hold it for as many years as it took before signs of distribution took place. In my own investment journey, I have slowly and painfully learnt the supreme value of time. My best investments were always the longer ones. At an opportunity cost of over a million dollars I learnt that it takes several years, not several months, for a great mining story to unfold. If only I had understood Gann’s wisdom earlier. Understanding the value of time in your investments will be worth your annual wage many times over in the end.

To be a master of the element of time requires the self-discipline called patience. Patience is the application of peace, calm and confidence to the daily journey through time. When we were young, a week felt like a year. Now that we are older, a year feels like a week. Patience comes with age but it can be cultivated. It must be cultivated. Invest wisely and time is your friend. Spend foolishly and time is your enemy.


To a layman, delivering a baby or doing open-heart surgery is a very risky task. Something could go dreadfully wrong and probably will. But to a trained professional the risk is much lower. There is a high probability of a positive outcome for both the doctor and the patient. Risk is the combination of the probability that something could go wrong and the potential magnitude of the negative outcome. In the case of childbirth the probability that something could go wrong is low but the magnitude of the error is very high! With the open heart surgery both the probability and the consequences are both high.

My experience with futures trading in the 1990’s was like open-heart surgery. In fact, it felt like I was going through open-heart surgery every time I entered the market! The probability of making a mistake was very high, and the consequences were instant and huge compared to the amount of capital at my disposal. My experiences with stock investing and real estate have been far less risky. It is like futures trading in ultra-slow motion. The risk of a loss slowly unfolds and the chances of success increase with the research you put in to the decision-making. With time on your side, a patient disposition, wisdom and experience, the risk decreases and the chance of success increases. When you graduate from your apprenticeship after a few years of learning, you will have developed a sixth sense for the bargains and market opportunities to come to you rather than you chasing them.

Risk is also relative to the size of your exposure. When you first start investing in the markets, in a business or in real estate, try to keep your exposure low, so that the inevitable mistakes are less expensive. If you start small you will make small mistakes. You will learn valuable lessons with small losses. You will be in control and feel safer. The first few years of investing are more about getting your thinking right than in creating enormous amounts of wealth. When your apprenticeship is complete you can increase your exposure a lot with only a small increase in risk.

Mistakes are essential for true learning to take place because we learn through the neurological avenues of pain and pleasure. When we first start walking, we start with small steps and stumble a lot. However, the pain of falling quickly gives way to the pleasure of walking. With wealth creation we do likewise. Mistakes are the tuition fees for the apprentice investor. When you enrol in a university course the fees are high and you are happy to pay them. Learning to invest is no different. You will definitely pay the tuition fees in losses and they will be extracted at the very moment you least expect them. Keep these tuition fees small to begin with when your investment experience is limited. If you have been around for a decade or more and your capital is growing, you will have by then experienced most of the ups and downs that market cycles throw at people. You will develop a “rat cunning” for what is going on with the silly herd of lemmings that drive the market. So start small and keep your losses small. Staying alive is the main task for the first few years. Minimising the potential for capital loss is more important than creating capital gains.

Too many investment novices look at financial markets through rose coloured glasses and throw buckets full of money into their first few investments thinking they will strike the mother-lode. In investing you are your own worst enemy. The market will strip greedy novices of their money quicker than lightening goes through a wet dog. Know your weaknesses, because from these personal blind spots will come the greatest risk of loss. There is a direct correlation between risk and ignorance, between risk and greed, between risk and fear. All of these traits must be eliminated or controlled to be a successful investor.

If your fear of loss is very high you could even practice for a few months with a hypothetical investment portfolio. This is perfectly legitimate. Nurses train on sophisticated dummies, mechanics train on old vehicles. Even future Singapore Airlines pilots do months of training on two state-of-the-art flight simulators at our local airport. Practice your craft. Remember that financial independence is simply the skill of becoming a professional in a new field of work. Professionalism requires training and training requires practice and effort. All these processes eliminate risk.

Traditionally stock market risk has been defined as the potential for financial losses from excess market volatility. Implied, but not stated, in this definition is the opposite potential for volatility to result in great gain. You see risk is a two-sided coin. As they say; “high return, high risk”. Some investors are very happy with higher risk levels than others. It comes back to the doctor training analogy above. With experience and training comes a peace with handling more risky situations, especially when you have seen it all before. My pet area of investment is the junior gold mining sector of the stock market; a very risky area for most but I love it! I have seen the huge returns this sector can bring during a commodities boom. However I have learnt, through multitudes of small and not so small mistakes, company failures, gold bear markets and stock market crashes, to reduce my risks by only investing in companies that tick the following boxes:

1. The manager has a high level of ownership

2. The company must be already in production or within three months of starting.

3. It must be debt free.

4. It must operate in a stable political jurisdiction.

5. The ore body must have a high grade and it must be growing in size faster than production.

6. It must have a growing production profile.

7. It must have had a slide in stock price so it is on one of those twice yearly lows that seem to come around like clockwork.

When all these ducks line up the stock price will rise very substantially in the coming months and years. I try to get there about three to six months before the crowd turns up. With my countless hours of searching I still only find about one of these a year. That is how I eliminate risk.

I also keep a very careful eye on global economic developments as these can very quickly affect the entire commodities market. In this way I hope to decrease my sector risk while still expecting a high return relative to other sectors. I first entered the commodities sector in 2003 when I read up on the emerging China development story. I moved into precious metals when I first learned of the coming financial crisis back in 2005, three years before it hit. Next I moved some funds into water and food solutions in 2010, but these turned out to be poor investments so I returned to precious metals and have benefited greatly from all the central bank money printing since 2010. The investment opportunities coming my way will never end and when you read the up-coming essay called “Buying In” you will see what I mean. You just have to work out where these opportunities will come from and find a good company in that area at least 12 months before the world wakes up to it.


Appetite for risk is greater in men than women. I am stating the obvious here aren’t I! Young men in particular love the adrenaline rush that comes with high-risk behaviour. Women, generally speaking, are more cautious. When the typical husband and wife team come to the arena of investment, hubby will be gung-ho while his wife will be very cautious or worried. Would you believe me if I told you that women tend to be the better investors due to their ability to preserve capital. Men will rush in to investments that, in hindsight, were obviously foolish. Husbands, I plead with you to listen to your wives and partners. I am speaking from experience here! Many of my hot-headed decisions were made with my ever patient Annette asking me to re-think the wisdom of the move. I am thinking here of one particular investment that cost me $90,000 due to not listening to the message of caution coming from Annette.

Men speak an intellectual language while women speak an intuitive language. Therefore, to have a good marriage you have to be bi-lingual! The wisdom of a good investment team comes from each spouse learning to listen to the style of the other rather than insisting the other speak in the language they themselves understand. For further understanding in this area I recommend the excellent book “Men are from Mars, Women are from Venus”. You never thought of this best-seller as an investment book before did you! With my investment decisions I have now learnt to consult Annette and appreciate her cold-shower suggestions. We would be a twice as far down the road toward financial success if I had learned to listen about a decade earlier.

The order of your birth among your siblings is another strong influence on your risk appetite. I created the following summary from a 2007 Time Magazine article on the influence of birth order and personality. It clearly demonstrates a link between your position in the family and your appetite for risk.

Oldest Siblings

  1. Often better educated than younger siblings
  2. More likely to hold a high paying professional position
  3. More concerned with meeting parents expectations
  4. More likely to serve as the family historian and guardian of aging parents
  5. On average they have a 3 point better IQ scores than the second children
  6. Often taller and stronger than younger siblings
  7. More likely to be leaders (43% of CEO’s and over represented in parliament)
  8. Handle incremental change better than high risk change
  9. More serious, dogged and determined than younger siblings

Middle Siblings

  1. May take longer to choose a career or job than other siblings
  2. Less concerned with family and more with friends
  3. May de-identify from firstborn, making opposite choices to create identity
  4. May develop self-esteem issues due to lack of parental recognition
  5. On average they have a one point better IQ scores than the next child

Younger Siblings

  1. More tolerant of risky behavior, for example extreme sport & substance abuse
  2. More likely to be an artist, adventurer, entrepreneur, less locked in than older siblings
  3. Tend to live more exciting lives
  4. Often physically smaller than first born children
  5. Frequently funnier than older siblings, this gets them attention in the family “crowd”
  6. More likely to be protesters, to question things and are over represented in demonstrations
  7. Handle transformational change better than older siblings, they have less to lose
  8. High self-esteem visionaries and gamblers

This summary is not perfect and will only ever be a generalized representation of society. Nevertheless it demonstrates in no uncertain terms why I was out there chasing my dream through investments. I was the second youngest of five. I have many of the traits of a youngest child and you can see them coming through in great detail in the personal stories I have told you so far.

Think for a minute about the financial and investment decisions you have made over the years. Have they been subconsciously influenced by the total accident of your birth order? Tolerance for investment risk generally increases as you move down the birth order. Both eldest and youngest siblings can equally progress up the financial ladder, but will usually take different paths, with each scratching their heads at the odd decisions of the other.


As a summary of what I am trying to teach you in this chapter I am going to briefly share Stanley and Danko’s research into a special sub-group of America’s millionaire cohort, the Scottish descended Americans. Scottish Americans embody the principles outlined in this chapter of strong purpose, financial patience, good savings habits, using time wisely and taking risks. The Scottish ancestry group makes up only 1.7 percent of all American households, but it accounts for 9 percent of the millionaire households in America. Thus, in terms of concentration, the Scottish ancestry group is more than five times more likely to contain millionaire households than would be expected from its overall portion of American households. About 20% of all Scottish/American households are in the millionaire category. Wow!

What explains the Scottish ancestry group’s high ranking? If an ancestry group has a high concentration of millionaires, the expectation is that the group would have an equally high concentration of high-income families. Income is highly correlated with net worth. In the year 2000, when the book was written, more than two-thirds of the millionaires in America had annual household incomes of $100,000 or more. In fact, this correlation exists for all major ancestry groups but one: Scottish American households! More than 60 percent of Scottish-ancestry millionaires had annual household incomes of less than $100,000! No other ancestry group had such a high concentration of millionaires, and they did it from a lower income base. This is astounding! Their incomes are relatively low while their assets are relatively high. That is encouraging as it means the rest of us can emulate the Scottish.

The reason for this unusual situation is the famous frugality and thriftiness of the Scottish. Given a typical American household’s income, there is a corresponding mathematical expectation of level of consumption. Members of the Scottish cohort do not fit such expectations. On average, they live well below the norm for people in various income categories. They live simply and resist the urge to spend on all the “toys” on offer in America. A Scottish/American household usually consumes at a level 20% below the average for that income group. Being frugal allows them to save more and invest more than others in similar income groups. Thus the same income-producing household of Scottish descent saves and invests at a level comparable to the typical American household that annually earns nearly 50% more. They follow the principles of I.S.S.I. perfectly.

Is it time for you to start living like the Scottish? In 2003 the Davis Family began to live like the Scottish. Even though we were renovating at the time we still found a way to siphon funds into stocks. We lived well below our means, and well below the consumption patterns of our peers. We earned the equivalent of 1.2 teacher’s wages during this time and still created $2.3 million in assets in 13 years from a starting base of $23,000, a 100 fold increase. We enjoyed living on little as we could see a better future slowly unfolding further ahead.

You must master these six roadblocks of lack of purpose, impatience, inability to save, wasting time, avoiding risk and family dynamic. If you can and apply the wisdom I have shared, you will be well down the road to becoming like the Scottish. If you have the wrong purpose you will end up destroying yourself chasing meaningless materialism. If you are impatient then time will never work in your favour, but against you. If you are a spend-thrift instead of a saver, you likewise will not reach your goals. Do an inventory on yourself now in these six areas. Ask close friends to assess you and see where you need to pick up a little. Life is about inching forward toward the future. It is never too late to start correcting your character faults, but it does get harder as you grow older.