4 lies that the Gurus will tell you

As I've ranted before, many Guru's are evil people simply interested in parting fools from their money. Most of these charlatans operate in the real estate investing world, but you can find them all over, from internet "work from home" gigs to day-trading seminars. John T. Reed has put together a great list that you should use to help detect whether or not a guy is offering you a empty dream or some solid education.

But the bottom line remains - Always ask yourself, if these gurus can teach you, a novice, to make millions in real estate, why are they teaching instead of making millions upon millions themselves? If it's because they are good-hearted and want to help people, then why are they charging $5,000-$30,000 for their classes?

They are taking advantage of the old-adage "when everyone is digging for gold, sell shovels". But in their case they are trying to convince people to that there's gold in the area first, and then selling them an over-priced "special gold-finding shovel, but stay quiet because it's a secret the miners don't want you to know about!"

Despite all of this, there are still plenty of people out there that fall for their schemes every year. Here's 4 of the common lies that they tell, why they tell it, and why those lies work, and what the real truth behind them is.

Lie #1 - At a job, you work hard to make your boss rich!

Why they tell it - These gurus aren't selling you a TV, they are trying to sell you a lifestyle. In order to pitch you on a new lifestyle, they need to make you resent/regret your current one.

Why it works - Let's face it, most people buck against authority. When you are a teen you rebel against your parents/teachers, and when you are an adult you tend to be at least slightly rebellious against your boss. Most people harbor some resentment for their boss, for reason ranging from their last raise (or lack of one) to some decision the boss made that you didn't approve of.

The truth - You aren't working to make someone else rich. You are working because you agreed to do a job for someone for a certain fee. When a plumber fixes the pipes in a house, he doesn't care what the house sells for afterwards. And if it sells for a large sum of money, does he resent the owner for not giving him a share of that? No, he was paid a set rate to accomplish a task and that's what he did.

If you are unhappy with your rate (i.e. your salary), then look for a job elsewhere. If that's not possible, blame your skill set, not your boss. Harboring resentment for other people due to their successes is petty and pointless.

Lie #2 - Financial security is a myth

Financial Security is a false concept that developed in American society based on the idea that security comes from the perceived reliability of a regular or planned paycheck. Many people, believing in the commitment of their corporations to their well-being, have found themselves downsized, layed-off, outsourced, transferred, or, in some cases, even fired. The immediate reality becomes harshly apparent and sadly disappointing.
Why they tell it - Scare tactics go back a long time. Our current conception of hell as a place of torture and flames comes from the Middle Ages when such vivid descriptions (which led to Dante's Inferno) were used into scaring the populace into embracing their religious beliefs.

Why it works - People worry. Most of the time, you don't need help figuring out what to worry about. By playing on a basic insecurity (can I support my family?) they hit you where you are vulnerable.

The truth - Yes, people get laid off all the time. People also get hired all the time. Your well-being is in your hands, not that of your employers. And the way you take care of yourself is to save money and invest for the long-term (whether that money is earned from a job or self-employment is irrelevant).

Ask any of your friends who are self-employed. Even when you own the company, you still have risks. Clients cancelling orders, deals falling through and unexpected business costs (a new roof, anyone?) can all hurt your bottom line and give you lean months. You can't get fired when you are self-employed, but when you have a boss you aren't responsible for paying all of the business bills.

Lie #3 - Mutual Funds are a Suckers Game

Why they tell it - Most of these gurus are selling an investment strategy to you (real estate, day-trading, etc.) They need to convince you that other investment strategies are horrible ideas, so that you will embrace their ideas.

Why it works - Compounding is a powerful tool. But the sad truth is that it often takes a long time to really get going, and we as humans have a strong need to see results right now! While a 10% return is great, someone who only has $5,000 invested probably doesn't feel like $45 a month is amazing.

The truth - While you should avoid high-fee mutual funds, in general stocks are the best low-maintenance investment you can make. I'm a firm believer in the power of real estate, but at least half of my net-worth is on the stock market right now. There are up-years and down-years, but historically the returns of a S&P500 index fund have been phenomenal. Anyone who tells you that major stocks are a bad place to invest a significant portion of your portfolio is simply trying to sell you something.

Lie #4 - You have to fail to succeed

Why they tell it - This lie is told to cover their asses. When their students fail to make money using their techniques, they can always point the finger back at you and say "Failing is the first step, now apply what you learned and go make some money!"

Why it works - Failure as a lesson is something that everyone has drilled into their heads as a child. It's a lie that parents tell their children to make them feel better when they don't succeed at something.

The truth - Experience is the real teacher, whether that experience was good or bad. People who don't learn from their success in life tend to not learn much from their failures either. We don't have to fail in order to learn, we simply have to try. And while minor failures along the way are only to be expected, major failures are simply the result of bad education, bad decisions, and a lack of foresight.

If you fail at real estate investing, it simply shows you how extremely un-prepared for investing you are. Such failure should lead you to your local community college to take some business classes, real estate classes or basic finance courses. Screwing up a $300,000 house does not qualify you for going out and buying 3 more houses.


Chris Lengquist said...

Gurus drive me crazy, as well. Their money comes from books and tapes. That's it. They talk about deals they were involved in from the 1850's.

Great post. Found you on the carnival.

eric281 said...

Good common sense stuff here. There is money to be made in real estate, and there is money to be made on the internet, but it takes hard work and good unique ideas to really be successful, not rehashed words in expensive books. I'll have to bookmark this and show it to all my friends that buy the no money down make 8 million a month real estate books.

Matt said...

Great article, but you do extend another myth in the process purported by critics of Christianity. The description of Hell didn't come from the middle ages though that was certainly popularized in much the same way the everyone and their mother (mostly non-Christians, though) prattle on about angels. Hell is referred to in the Bible sometimes as darkness, but also as Gehenna, which was the equivalent of a garbage dump outside Jerusalem where trash was burned (in unquenchable fire).

Eli said...

Great article so true!

Gogo said...

When I was thinking about getting into flipping houses a few years ago, I definitely went to John Reed's site.

In hindsight, it was good and bad. He definitely steered me away from the obviously "bad" gurus, but I came to find out that there were some things he was flat out wrong on, and I'm glad I understood to "pick and choose" from what he was saying or else I'd have never gone into what has proved to be a life-changing journey.

Now that I'm studying the marketing side of things, I realize that his "Shtick" is as much a niche marketing strategy of the "anti-guru" guru. A guru all the same.

The reason why I say this is that some of his blanket statements (and others of just plain "bias") which I took almost as fact are just plain wrong or overblown to prove his points.

Just my humble opinion.

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