Historical article note: This article was originally published on 2019-09-12. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
The five words in the title are the title of the autobiography of former Federal Reserve Chairman Bernanke. These five words are very powerful, and I particularly like them, so I borrowed them to write an essay about initiative. Many previous articles have mentioned that the accumulation of tangible assets is directly related to initiative, which is a fact that is easy to discover when looking for causes through outcomes. Such a simple truth—why then does the wealth gap continue to widen, and why is it that the poorer people are, the more reluctant they are to take action?
The action I am talking about refers to the correct actions that change the current situation. First, one must know the correct direction of action; second, one must have the courage to change the current situation; third, one must take action to change the current situation. Taking real estate investment as an example, 90% of people have the desire but lack the ability. The correct direction, the courage to act, and the final action—every step is difficult. Let's start with the correct direction and the courage to act.
The courage to act comes from correct understanding.
Since I have borrowed five words from someone else's book title, I should introduce the content of this book to show my gratitude, while also using the methods and results of handling the financial crisis to demonstrate the relationship between the right direction and the courage to take action.
In 'The Courage to Act,' Bernanke, besides explaining the causes, consequences, and process of the subprime mortgage crisis, conveys only one attitude: bringing economics from the blackboard to the real world is not an easy task. If nothing is done, history will repeat itself, and the financial storm of 1930 will lead to an economic depression. Taking action not only requires courage but also entails bearing the consequences. Watching 'The Courage to Act' together with 'Too Big to Fail,' one can see that Bernanke is a scholar who studied the Great Depression, and even before entering politics, he had already researched its causes. When history truly repeated itself, he happened to be the Chairman of the Federal Reserve. Coincidentally, at that time, Treasury Secretary Paulson was the most streetwise secretary of the treasury, and the two of them working together greatly increased the courage to act.
After the real estate bubble burst in 2008, facing the subprime mortgage crisis, the actions taken jointly by Bernanke and Paulson included: cutting interest rates to relieve debt pressure; bailing out systemically important institutions, rescuing AIG; providing liquidity by purchasing large amounts of bonds; offering debt guarantees to eliminate panic; nationalizing or facilitating mergers of systemically important institutions, and bringing Fannie Mae and Freddie Mac under government control. These measures touched the limits of the powers granted to the Federal Reserve by the Constitution. They were all strong medicine, and one wrong move could have caused the century-long accumulation of capitalism to collapse. From today's perspective, the third round of quantitative easing was really unnecessary. According to Dalio in 'The Debt Crisis,' it was like 'pulling on a rope,' superfluous and ineffective, creating obstacles to tightening it later. In 2001, Japan pioneered quantitative easing, but due to its potent effects, eighteen years later, Japan still cannot raise interest rates, and inflation has not risen. In 2019, the Federal Reserve's rate hike process was abandoned midway, in part because of Bernanke's overly aggressive policies at the time. Flaws aside, Bernanke was a capable and courageous Fed chairman, and the bravery of his actions deserves praise. So where did this courage to act come from?
Bernanke and other economists who studied the Great Depression discovered that there are only two sources of money: printing currency and credit. After the stock market collapsed, banks were hit hard and busy dealing with bad debts, so they didn’t dare to lend at all, reducing one source of money in circulation. In 1930, the Federal Reserve did not realize that the decrease in circulating money was caused by a credit contraction, nor did it remedy the situation by printing money. As a result, the financial crisis developed into the Great Depression. Bernanke, noticing history was about to repeat itself, immediately resorted to helicopter drops of money, averting disaster and stabilizing a collapsing system. The courage to act comes from a correct understanding of the root of the problem. If Bernanke had not known the right course of action in advance, he would not have had the courage to act.
02 There is a 'cost' between courage and action
Correct cognition determines the courage to act. Does having courage necessarily lead to action? Not necessarily.
With courage, whether to take action depends on the cost. The cost for Bernanke to take action was that if he failed, his reputation would be ruined. For ordinary people, knowing the right direction but not taking action has two reasons: 1. they cannot calculate the cost; 2. they miscalculate the cost.
Investors planning to buy investment properties have a borrowing capacity of $200,000 for investment properties, and in Toronto, it is very difficult to buy properties with investment value. Now there is an opportunity to increase the mortgage on the primary residence without increasing the loan amount of the primary residence, only extending the original 23-year repayment term to 30 years. The goal is to reduce the monthly payment of the primary residence mortgage, with an increased mortgage handling fee of $3,000. After increasing the mortgage, the borrowing capacity for the investment property will rise to $350,000 because the monthly payment of the primary residence mortgage is reduced, and only with this borrowing capacity is it possible to buy a property with investment value in Toronto. Investors who take the action of increasing the mortgage bought an investment property two months later; investors who did not take this step continued saving and did not know in which year they would be able to buy an investment property. Whether one calculates the cost determines the action. If the cost is calculated incorrectly, one loses an opportunity to act, and the amount of tangible assets is directly related to the number of correct actions taken. I have always used the term 'cost' in the sense of 'price paid' rather than 'cost' or 'price' because it includes both monetary cost and time cost.
Someone called me to ask about the loan situation on behalf of a friend. The case is very simple but worth thinking about. A certain person runs a small business and declared very low personal income, so when applying for a home loan, he borrowed from a private lender. When the private loan matured, his income was still the same, making it impossible to transfer to a bank loan, and the interest owed was too high, so he took out a second loan. When he came to me, with both the first and second loans combined, the loan amount reached 80% of the house price. However, his income situation had changed; he sold his small business and went to work for someone else. His salary is not bad, but still far from enough. I asked why he didn't accelerate repayment of the principal on his residential mortgage after selling the business. The answer was that he used the money from selling the business to invest in other business opportunities. I roughly calculated in my head that this borrower in distress would have to pay 40,000 to 50,000 yuan a year in mortgage interest, and the money taken from selling the business to invest elsewhere could not possibly exceed the cost of his high-interest home loan. Helplessly, I said the truth over the phone: if you like entrepreneurship and taking risks so much, it would be better to sell the house and rent, then why buy a house at all? What I want to convey to readers here is that many people simply cannot calculate the cost, so their actions are purely a losing deal—like selling a child to buy a monkey—and the harder they try, the poorer they become.
Turning cost into profit is the strongest motivation for turning courage into action. A couple had high income in the past few years and bought some investment properties. Because the timing of the transactions was concentrated, the down payment was taken from the credit limit of their primary residence. After the loan balance on the primary residence exceeded 350,000, buying another property became difficult. The solution was: first pay off the loan balance on the primary residence, then perform refinancing on the investment properties, allowing them to continue investing in real estate. Their relatives and friends supported them with 350,000, paying off the loan balance on the primary residence. Then they gradually refinanced their three existing investment properties, withdrew 650,000 in cash, used it to repay the support from relatives and friends, and used the remaining cash as the down payment for new investment properties. Huge profits or investment opportunities can make the cost seem negligible. Only by calculating cost and benefit clearly can courage be turned into action. If you can't calculate properly, are overly concerned with gains and losses, or calculate incorrectly, it will delay opportunities to take action. The fewer actions you take, the fewer tangible assets you have—don't forget this rule.
03 Driven to action by satisfaction or fear
Last year, someone called me. I answered all the questions and then gave them an answer: fill out two application forms, one to add a mortgage to an existing investment property, and one for the next investment property. The total cost is 750 yuan to get an additional property. The other party's response was: Oh, that's great, but the loan contract for my investment property hasn't expired yet. Adding to it now would incur a 2,000 yuan penalty, so let's do it after the loan matures in three years. This reaction wasn't because of a miscalculation or inability to calculate—2750 yuan to buy a property, is that expensive? Last year, 2018, there was a heavy sense of pessimism in the real estate market. The response from the other party was: fear outweighed the desire for profit.
The motivation for people's actions comes from two opposite directions: satisfaction or fear. Some readers, who had never invested in real estate before reading my articles, became completely addicted after trying once; their motivation came from satisfaction. The joy of suddenly fulfilling a long-term desire to accumulate wealth drives them to keep taking action. Fear—the fear of uncertainty regarding future income—also prompts people to take actions to escape their current situation.
If the fear of change exceeds the desire for it, people usually take no action. A person who is painfully stuck in place, surrounded all day by poverty, anxiety, and contempt, will remain in the same swamp if their fear of changing their situation is greater than their desire for wealth. Gradually, they will be comfortably suffocated by the mud until they are overwhelmed. Such hopeless individuals complain about the government, blame their employers, curse capitalists, and lament the unfairness of fate, yet refuse to do anything to change themselves.
04 The amount of tangible property is related to actions
Henry Ford loved studying engines, and he showed his talent as an engineer while working under Edison. His courage in action was reflected in resigning to specifically study engines and automobiles. He pioneered assembly line mass production of cars, bringing automobiles into ordinary households and changing the course of urban development and people's lifestyles. Although the car was invented by the Germans, the spectacular mission of cars ruling the world was accomplished by Ford.
From Henry Ford, we see that revolutionaries of the industrial era all identified the right direction, gave up their original career paths, and created success in their own right. The courage to abandon the original path is the most critical step in realizing one's social value. Rockefeller became an apprentice at 16, discovered the immense potential of the oil industry while working, entered the industry at 21, developed the corporate trust model, and eventually became an oil tycoon. When Sam Walton got married, his wife had only one requirement: live in a small town, not a big city. Seeing the potential in retail, Sam opened his first grocery store in a small town, which later became a supermarket. Walmart's headquarters is still in this small town, and Bentonville has been upgraded to a 'city,' becoming the ninth largest city in Arkansas. Cao Dewang of Fuyao Glass was a purchaser at a village glass factory, making water meter glass. In the process, he discovered the opportunity in automobile windshields and went on to become a disciplined, business-oriented, Zen-like entrepreneur. Obama even made a film about him.
Not seeing the goal clearly is not important, but when you know the direction is right, you should start acting. The goal will become clearer the more you act. A northeastern Chinese expression captures the idea simply: 'Just do it.' 'Starting to act' requires courage; once you start, the goal will become clearer and clearer, and conditions are created by people, created in action.
Repeating Jack Ma's story, everyone don't get annoyed, I want to say that not only the industrial era requires taking action, but the Internet era requires rolling up your sleeves and getting things done even more, and you have to do it quickly, otherwise if someone else does it first, you won't be able to. When Jack Ma was a translator, he went abroad once, discovered the Internet, and after returning, started working on Internet Yellow Pages. In the first few years, people either considered him a fraud or a lunatic, and no one took him seriously. This number-one 'fool' kept working, and finally found his own path. Zeng Ming wrote a book, "Intelligent Business," which introduces the journey of Taobao and his vision of future business, repeatedly emphasizing that Taobao's success today was achieved through action, not design and planning. No one knows what the future will look like; your own future is discovered through continuous practice and experimentation. Without action, even if you find a direction, you cannot face the challenges of the future.
05 The Price of Inaction
Things that can be done now, but you are unwilling, so you don't do them; things that cannot be done now, you blame heaven and people, and still do not do them. Inaction actually does not require courage, only inertia. Why does a person get stuck and nitpick? There's only one reason: because they only see the point they are at, without seeing the line that this point lies on, the surface that this line belongs to, and the body that this surface is attached to.
A senior in the real estate industry introduced a client to me. I truthfully reported that the maximum loan amount is five times the annual income, and with the down payment, that's the maximum house price. The senior said, 'No, with this budget, you can't buy a house; the client has requirements for the location.' I politely replied: 'We also have requirements for income. Buying a house is to get rid of renting. Be realistic: whatever you can buy, get in the car first, and gradually upgrade. Income will increase, house prices will also rise. Now you are single, later perhaps married, and one person’s income becomes two. A person cannot buy only one house in their lifetime.' In other words, buying a house is a line, not a point. Obsessing over a single point and insisting on buying a house that you can live in for a lifetime right now, your income also needs to support it, right?
The same goes for real estate investors: reduce monthly mortgage payments for your residence, maintain income, and add investment property. These three standard steps—if they can move you forward even one step, do not hesitate, act immediately.
“What is a miserable and hard life? It is to be a diligent point on a normal plane, because the plane itself has no momentum; no matter how diligent you are, you are just living your life as a point. So what is an even more miserable and hard life? It is when the plane where you are striving is sinking. And what is the most miserable and hard life? It is when the economic system that the plane belongs to is sinking, and your entire life only receives the immediate returns of point-like efforts, never once enjoying the results of a linear cycle. This is called the life of diligence for the poor.” — Liang Ning.
“I’m busy with exams right now, so I don’t have time to provide documents to apply for a loan.”; “For this additional mortgage, I can only come up with XX ten thousand yuan now. If my income is higher in two years, I might apply again and maybe be able to get a bit more out.” If you don’t act, I don’t need to know the reasons; this is your own matter. Staying at the original point, not acting, and still hoping to change the situation—there’s no way it will happen.
The weakness of human nature is overestimating the likelihood of seeing the results we hope for and underestimating the likelihood of seeing results we don’t like. Waiting for a better environment, waiting for more certain conditions, hesitating, doing nothing—this kind of waiting is just fantasizing about the future. Don’t forget, life is a one-way street, and you can’t go backward. The cost of not acting is eternal regret. What you don’t do at this moment, you will never do at this moment again.
The courage to act comes from internal factors; it is the result of the desire to change the status quo battling with the fear of the future. The greatest role of external factors is to help oneself see the direction of change clearly. Canada’s cultural environment, economic system, property laws, and market order are very different from China’s. I hope my articles on the official account help everyone better understand external factors, find the action route that suits you, muster up the courage to act, change the status quo, and meet a better self through practical actions.