Shortly after World War I, Raymond Poincaré, the Prime Minister of France, decided against partnering with Royal Dutch Shell to fund the energy needs of the French people. One of his military commanders, Colonel Ernest Mercier, worked with 90 banks and businesses to establish a new oil company called French Petroleum Company (er, technically, Française des Pétroles Compagnie since they weren’t speaking English). The name might sound prosaic but keep in mind this was the era of “General Electric” and “Standard Oil”. The new undertaking began operations on March 28th, 1924.
Today, that business is known as Total, S.A. and it is one of the six supermajor oil powers on the planet. Over the past five years, it has generated cumulative sales of more than $716 billion and earned profits of more than $55 billion after taxes. Of that, it has paid out roughly $25 billion in dividends, reinvesting the remaining $30 billion in growth of property, plant, equipment, and intangible assets, among other things.
The Total, S.A. business is split up into 2,363,767,313 pieces. We call them shares, because each is entitled to share of any profits. If you could somehow get your hands on all of them, you would own the company lock, stock, and barrel. All $55 billion in profit would have belonged to you and you would have been mailed the $25 billion in cumulative dividend checks which you could spend, reinvest, save, or give to charity.
Every single one of those 2,363,767,313 shares is owned by someone. That is the nature of equity. Ultimately, each one of those pieces belongs, directly or indirectly, to a man or woman. From time to time, an existing owner wants to sell some of their pieces in the business. Maybe they want to buy a new car. Maybe they want to send their kid to college without student loans. Maybe they want to donate to charity. When they are ready, they approach a broker, and the process begins by matching them up with another person who wants to buy ownership in the firm.
Whatever they – the buyer and the seller – agree upon gets put in the newspaper and online as the most recent stock quote. To keep you informed, your broker probably updates your account with what is known as the market value – the price at which you could sell your entire ownership stake based upon the most recent transaction price if you could find someone to offer you the exact same amount per share.
It is worth repeating: Someone, somewhere, owns each of those 2,363,767,313 shares.
Make Your Money Work For You So You Don’t Have to Work for Money
Now, consider that as of the final quarter of 2011, the median household income in the United States was $52,377.21. That is, if your household earned exactly that amount of money before taxes, half of American households would earn less than your family and half would earn more.
Put another way, as of the most recent statistics, if your family earns more than $4,364.77 pre-tax per month, you are at the threshold of the top half of society. And not just any society; one of the richest societies that has ever lived in the entire history of mankind.
With a current dividend of $2.61 (translated into United States dollars), it would take 20,068 shares of Total, S.A. to throw off enough cash for you to sit at home and do nothing but read or play video games, while still generating a cash household income higher than 1 out of 2 American families. Those families have to get up in the morning, put on their uniform, commute to the office or factory, ask off to get vacation days, put up with co-workers, and deal with difficult people. You, meanwhile, would just have to go to the bank to cash the dividend check.
The stock price for Total, S.A., again in United States dollars, is $46.63 as of a few moments ago. You’re talking about an investment of $935,771. Throw in brokerage commission and let’s round up to $936,000.
What does that mean? Simply, if you owned 20,000 shares of the French oil company, costing you $936,000, you could sit at home and collect roughly $52,200 per year before taxes without having to work. Even better, you would be taxed 15%, not the 25% you would probably owe if you had earned your money from a traditional paycheck.
All you need is 20,000 shares out of 2,363,767,313 in existence to out earn the typical American family. That is only 0.00084610697% of the company. When viewed in that light, it really isn’t that big of a challenge.
Your Options for Specialization Are Nearly Endless
The best part: That is only one company. A single business. There are tens of thousands of other publicly traded businesses out there; far more private ones. If you don’t know anything about oil, you can find soft drink giants. Or pharmaceutical labs. Or discount retailers. Or autopart distributors. Or restaurant chains. Or community banks. Or insurance underwriters. Or water utilities. Or railroads. Or software developers. Or candy makers. Or jet engine manufacturers. The list is endless. Find what you know, study it, specialize in it, then acquire ownership at prices that make it highly probable you have a chance to make money.
How do you get your name on those stock certificates or title deeds, trademark registrations or patent filings so the checks get sent to you? The first, and most lucrative option, is to create the asset yourself. That is the interesting part. That is where the art, and science, of making money comes into play. For most people, the next best option is to sell something. Sell your time, vacuum cleaners, insurance policies, used cars – whatever your bailiwick is, sell something. Make sure you sell it at a high enough price that it leaves a surplus after you’ve paid your bills and expenses. We call this surplus profit.
That profit is your capital. It is what you can use to begin acquiring shares of ownership in assets that throw off cash. When you buy an investment, you should be buying additional household income. Then, wash, rinse, repeat. The cycle becomes self-reinforcing. Suddenly, you find your cash piles expanding on their own as dividends, interest, and rents roll in from past investments.
This is the heart, and soul, of making money. It is the underlying reality of becoming financially independent so you can focus on the things that really matter in life – spending time with your children, traveling, supporting important causes, and making the world a better place.
Find assets that are worth owning. Figure out who owns them. Then find a way to get your name on the stock certificate or title deed. Do it ethically, honestly, and by providing value to society. The rewards are enormous.
Footnote *: This article isn’t about Total, S.A. at all, as most of you can probably tell. That is merely an example I used because it is one of the largest companies in the world and my family has indirectly owned shares of the firm for years. I have no opinion about the stock, don’t recommend or disavow it, and could have just as easily picked any other mega capitalization enterprise to highlight the concept we are discussing.