Never Break The Copper Rule
Copper rule; what’s a copper rule?
As I discovered principles of penny capitalism one principle at a time, I thought there were no rules. Of course, I recognized the golden rule, “Do unto others as you would have them do unto you.” I knew about the more skeptical, “The man with the gold makes the rule” Too often I heard, “ Do unto others before they can do unto you.” Having been in one business or the other most of my life, and carrying the heavy burden of debt, I enjoyed the freedom of dealing in cash amounts equal to my ability to handle them. For all of my discovery, I had not yet discovered the copper rule.
As my reserve grew, I told myself the sky was the limit and there were no rules of restriction to penny capitalism other than legal, ethical, and moral rules. It was exhilarating.
The copper pennies turned into dollars and the dollars in my cash reserves began to grow. Following a schedule very similar to Stairway to a Fortune, the money began to roll in far faster than my schedule expected. The system is based more or less on a 10% net profit, but it wasn’t unusual to make 200, 300, or even 400% net profit on deals at the lower levels.
I was doing multiple deals at a time, risking capital on one deal before the last deal had matured to return a profit. My reserve capital was far larger than my scheduled deals. There were losses, but because I was dealing in amounts well within my ability and experience, the losses barely affected my reserves. I moved from one step to the next easily. Investment capital was never a problem. I always had more than I needed to fund the next deal. I was too busy following the golden rules to worry about the copper rule.
I began to risk capital in excess of the schedule. Mostly those deals made profits so they brought in even more cash for the swelling capital reserves than the schedule called for.
Finally, a great opportunity presented itself. I had a chance to buy a nice bread and butter three bedroom brick house in Mesquite, Texas at a nice discount. It had to be a fast decision and it had to be all cash. It was far above my scheduled risk level, but it was not so far from my reserve totals to be impossible. It would take most of my money, and it would leave very little to fix up the house, but I could own the house outright—no mortgage.
I went for it! I wrote out a check, paid closing costs; now the title was clear and in my name. I had started with nothing, found a penny, sold some aluminum cans, and bought and sold other things until I could pay cash for a nice brick house. That’s the American dream, right?
So there I was with a clear house at the peak of the housing bubble and not enough money to get it ready to sell. I didn’t care! I owned a house. I already owned the home I lived in, now I owned another. I wasn’t at the end of my investment schedule, but I felt pretty rich compared to where I had started with nothing.
While I scraped together a few bucks here and a few more there, my wife and I remodeled the house ourselves. It was a labor of love.
Then the housing bubble burst and the value of the house fell. After our hard work, the house was still worth more than we paid for it, but we didn’t want to sell while the market was low. We could rent it, but that would mean we would have our investment reserve tied up until the housing market returned to a decent level.
With all our cash tied up in one investment and that investment not ready for a sale for several years to come, we found ourselves unable to continue investing as scheduled. We had spent our seed capital. It was a good problem, but a problem nonetheless.
There was a rule that I had missed. Don’t spend your capital…even if you get a house in the bargain. When you risk your capital down to the last copper, you are out of business. I call that breaking the copper rule.
People from wealthy families know better than to consume their capital. Working class capitalists face great temptations as their wealth grows. Having never experienced wealth before, it is hard for them to refrain from spending once the money is theirs to do with as they wish.
Save your money and invest it with the wisdom and experience gained during your penny capitalist adventures and you will know gold and wealth beyond your dreams. Spend your capital before it has done its work and you will be down to copper and poverty before you know it. Don’t give in! Never break the copper rule.