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Apr 01

Is There a Magic Formula to Success?

Magic Formula to Success

Have you ever been around people where everything they touch seems to turn to gold? They just seem to have door after door open for them, and as a result, they have opportunity after opportunity.

Is it because they are smarter than you? Probably not. Did they have some top-secret information that you weren’t privy to? Hardly!

The truth is, there’s really no magical formula to success that separates you from someone who achieves more. The difference between those that achieve success and others that don’t is that successful people have simply found a way to identify opportunities and capitalize at the right time.  

If you’re wondering how you can do the same, consider the ways in which you can identify chances for success — and then act on them.

Don’t Shy Away from Adversity

Opportunities often appear at the most unexpected times, and this is why they’re not always immediately recognizable. Since many people don’t draw any correlation between adversity and the potential for success, they fail to see that negative events can sometimes produce positive returns.

Far too often fear drives many of the decisions that people make. As Warren Buffett said, “be fearful when others are greedy and greedy when others are fearful.” There’s a time and a place for fear, and financially speaking, that’s usually when everyone else feels fearless. But part of the formula to success is avoiding the influence of mass fear, and act to find opportunities instead.

When you buy into something that everyone else is getting out of, you can normally get it for pennies on the dollar. A perfect example of this is what happened following the economic collapse of 2008.

If you would have bought into a real estate mutual fund around the middle of 2009 and invested for just two years, you would have made a 157% return. Keep in mind that this is immediately after the real estate market freefall and when most investors were fearful of anything remotely related to the industry.  

While we don’t encourage market timing, we do believe that there are benefits to over-allocating in sectors or asset classes that are undervalued. At the same time, we also believe that when things get overvalued, it’s time to pull a little profit off of the table and reallocate over to something that is a little undervalued.

Understand the Fundamentals and Analytical Facts

Let’s say you were gifted an iPad back in 2008, and after that you decided you wanted to buy shares of Apple stock — but you would not buy if the stock was over $100 per share. Later that year, shares did go below $100.

If you watched Apple and understood their fundamentals, you could recognize that buying a share at $94 was an opportunity. And you’d also know, that even though $94 wasn’t the bottom and stock eventually settled at $78 per share, that the difference was likely irrelevant in the grand scheme of things — and you wouldn’t have been upset that you bought at $94 instead of $78.

Your research of basic information and facts would have paid off, as Apple shares tripled in value over the next few years.

Take another situation as an example. Around July of 2008, oil prices hovered around $145 per barrel. Fast forward to December of the same year and prices had fallen to $35. If you were invested in oil, you either lost a ton of money or liquidated your positions before you lost your shirt.

But if you understood the analytical facts around the oil market, you could have recognized that the price was undervalued and you could have then taken advantage of the volatility. It’s important to always take a look at your upside and downside potential to determine if an opportunity is the right move.

In the case of oil prices, the downside was around $10 – $20, while the upside was upwards of $100. Pretty much a no-brainer!

Be Patient

Our society at-large expects everything to happen in an instant. If we walk into a building and if we can’t connect to Wi-Fi, or if it isn’t high-speed — we get annoyed. If our smartphones or tablets take too long to open an app or send a message, we become impatient and frustrated.

While we’re all conditioned to expect “microwave” results, in wanting everything to happen instantly, we lose the patience required to hold out for more fulfilling opportunities.

When we get instant results and convenience in one area of our life, we inevitably expect other areas to follow suit and be just as quick and easy. However, this mindset can cause problems when impatience convinces us to pursue the wrong opportunities.

One of the key elements to any formula to success is patience. You can’t force good things to happen. Remember, you don’t have to make a move to keep moving.

Keep Money to the Side for the Unexpected

More opportunities that could lead to big success are missed because people lack the monetary resources to take advantage of them as they arise than any other reason. It’s important to have money earmarked just for unexpected opportunities.

Keep in mind that this money is completely different from your rainy day or emergency fund and is only meant to be used for opportunities that may come your way. Your emergency fund is there for safety and protection.  

Buying something just because it is on sale is not an appropriate use of your cash reserves. Part of your determining criteria should be whether taking advantage of this opportunity increases your ability to generate income or produce a solid return on that money.

Put simply, you want to be sure you’re making a viable investment as opposed to simply incurring an expense.

You don’t get advanced notice that opportunities are coming down the pipeline. But the formula to success includes finding the positive in a negative situation, understanding fundamentals, being patient, and having the appropriate cash on hand.

If you can put those actions together, you put yourself in a strong position to take full advantage when you recognize an opportunity coming your way.

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