A former acquaintance of mine (I call him Wall Street Tycoon) likes to live large. He drives a Bentley, lives in the middle of the Village of Southhampton, New York; and only dines at restaurants where the bill for dinner for two is close to two hundred dollars.
But he's broke. One day, utterly perplexed by how he continues to live at the level he does when he complains that he's literally being crushed by the weight of his debts, I asked, "how do you afford it?!" He replied, "arbitrage." He stomped me for a moment. "Arbitrage?" I asked like a dummy. "What do you mean? What is arbitrage?" "Look it up in the dictionary," he said.
I looked it up. It means "the purchase of securities on one market for the immediate resale on another so as to profit from a price discrepancy."
Sounds brilliant? It is, if done properly. When handled by amateurs, however, global recession can be the result - I am talking the apocalyptic colapse of major economies. So be careful. Be so very careful.
The small business owner has to become adept at arbitrage, to handle it like a pro. Donald Trump is someone who seems to do that well. As does a lot of highly successful business people. They use other people's money to make money for themselves. Obviously, Donald Trump is not broke like my Hamptons acquaintance. At least I don't think so. The fact that his latest project in Chicago is said to be about $1 billion dollars in the red at this point is academic. He'll find a way to restructure, leverage and pull a rabbit out of a hat. I am sure of it. He is king of aribitrage!
But both of these men, in their own capacities, know how to leverage debt, and leverage other people's money to amass either a fortune (as in Mr. Trump) or the high life (as in Wall Street Tycoon).
Arbitrage. But don't let the roof fall in on your head.
3 years ago
