Thursday, April 17, 2014

Aeon Credit Q4 earnings up 22.6% to RM47.82m

Wednesday April 16, 2014

KUALA LUMPUR: Aeon Credit Service (M) Bhd’s earnings rose 22.6% to RM47.82mil in the fourth quarter ended Feb 20, 2014 compared with RM39mil a year ago due to higher fee income, including from sales of insurance products, point management fee and higher recovery of bad debts.

It said on Wednesday its revenue rose 42.7% to RM187.99mil from RM131.68mil. Its earnings per share were 33.21 sen. It recommended a dividend of 24 sen per share.

In the financial year ended Feb 20, 2014, its earnings rose 30.7% to RM175.35mil from RM134.12mil in the previous corresponding period. Its revenue saw a 44% increase to RM672.76mil from RM467.13mil.

A quality strategy - appreciating the future earning potentials of wonderful companies.

Though Warren Buffett popularized the idea of the moat, he credits partner Charlie Munger for bringing him around to the idea that "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

A quality strategy is a bet that the market doesn't appreciate wonderful companies enough, particularly their earnings potential many years out. 

As Charlie Munger said, "If a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with one hell of a result." 

(Of course, it's not easy to identify in advance firms that can sustain such high rates of return for so long.)

Thursday, April 3, 2014

Retailers Accounting 101 (A Conceptual Overview)

Investing in Retail:  Understanding the Cash Conversion Cycle (CCC)

One of the best ways to distinguish excellent retailers from average or below average ones is to look at their cash conversion cycles.

The CCC tells us how quickly a firm sells its goods (inventory), how fast it collects payments for the goods (receivables), and how long it can hold on to the goods itself before it has to pay suppliers (payables).

Naturally, a retailer wants to sell its products as fast as possible (high inventory turns), collect payments from customers as fast as possible (high receivables turns), but pay suppliers as slowly as possible (low payables turns).

The best case scenario for a retailer is to sell its goods and collect from customers before it even has to pay the supplier.

Wal-mart is one of the best in the business at this:  70% of its sales are rung up and paid for before the firm even pays its suppliers.


Looking at the components of a retailer's cash cycle tells us a great deal.

A retailer with increasing days in inventory (and decreasing inventory turns) is likely stocking its shelves with merchandise that is out of favour.

This leads to excess inventory, clearance sales, and usually declining sales and stock prices.

Days in receivables is the least important part of the CCC for retailers because most stores either collect cash directly from customers at the time of the sale or sell off their credit card receivables to banks and other finance companies for a price.

Retailers don't really control this part of the cycle too much.

However, some stores, have brought attention to the receivables line because they've opted to offer customers credit and manage the receivables themselves.  

The credit card business is a profitable way to make a buck, but it is also very complicated, and it is a completely different business from retail.

Be wary of retailers that try to boost profits by taking on risk in their credit card business because it is generally not something they  are good at.

If days in inventory and days in receivables illustrate how well a retailer interacts with customers, days payable outstanding shows how well a retailer negotiates with suppliers.

It is also a great gauge for the strength of a retailer.

Wide-moat retailers such as Wal-Mart, Home Depot, and Walgreen optimize credit terms with suppliers because they are one of the few (if not the only) games in town.

The fortunes of many consumer product firms depend on sales to Wal-Mart, so the king of retail has a huge advantage when ordering inventory:  It can push for low prices and extended payment terms.

Extending payment terms to their suppliers allow the retailers to hold on to its cash longer and to reduce short-term borrowing needs; effectively increasing the retailers' operating cash flows .

Additional Notes:
In retail and consumer services, most economic moats for the sector are extremely narrow, if they exist at all.

Therefore, not surprisingly, you don't find a ton of great long-term stock ideas in retail and consumer services.

The only way a retailer can earn a wide economic moat is by doing something that keeps consumers shopping at its stores rather than at competitors'.

It can do this by offering unique products or low prices.

Although you can do well buying high quality specialty and clothing retailers when the industry sees one of its periodic sell-offs, very few of these kinds of firms make great long-term holdings.

Asset Management Accounting 101 (A Conceptual Overview)

The single biggest metric to watch for any company in this industry is assets under management (AUM), the sum of all the money that customers have entrusted to the firm.

An asset manager derives its revenue as a percentage of assets under management, AUM is a good indication of how well -or how badly - a firm is doing.

Unlike a bank or insurer, where big losses can cause the firm to become insolvent, big losses in asset management portfolios are borne by customers.

Big losses will affect fee income by reducing AUM, but an asset manager could lose well over half the value of its assets under management and still remain in business.

In a worst-case scenario, customers could withdraw their remaining dollars and the firm could fold if its fee income became inadequate to support its operations.

But because asset management requires almost no capital investment, these companies can pare back to the bone to remain in business.

Additional notes:
Asset management firms run money for their customers and demand a small chunk of the assets as a fee in return.

This is lucrative work and requires very little capital investment.

The real assets of the firm are its investment managers, so typically compensation is the firm's main expense.

Even better, it doesn't take twice as many people to run twice as much money so economies of scale are excellent.

This means that increases in assets under management - and therefore, in advisory fees - will drop almost completely to the bottom line.

All this adds up to stellar operating margins, which are usually in the 30% to 40% range - something you won't see in many industries.

Property/Casualty Insurance Accounting (A Conceptual Overview)

Property/Casualty Insurance Accounting 101


Premium revenue is used to fund claim payments, sales commissions for insurance agents and operating expenses.

Insurers typically express each of these expenses as ratios to earned premiums.

Claim expenses, for example, typically consume 75% of an insurer's net revenues.

Adding together these three ratios produces the combined ratio.

Combined ratio is an insurance company's key underwriting profit measure.

A combined ratio under 100 indicates an underwriting profit.

For example, a combined ratio of 95 means that the insurer paid out 95% of its premium revenue for losses.  The 5% remaining is the underwriting profit.

A combined ratio exceeding 100 indicates an underwriting loss.

For example, an insurer with a combined ratio of 105 paid out 105% of its premium revenue to cover losses, meaning that it had an underwriting loss equal to 5% of revenues.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer's competitive position is unusually weak.

Insurers unable to earn even the occasional underwriting profit will produce the industry's poorest returns and may be tempted to accept large investment risks to boost profitability.

Insurers also make money from investment income, which they often report as a ratio of premiums.

Adding the investment ratio to the combined ratio yields the operating profit ratio.

In many instances, investment income is a key profit determinant because it offsets underwriting losses.



The key asset for most insurers is investments.

In addition to float, most insurers invest a large portion of their own retained earnings as well.

The investments account reveals the size of an insurer's investments relative to its asset base and details the asset allocation employed.

As a starting point, look for insurers with no more than 30 percent invested in equities (unless the company is run by Warren Buffett).

Unearned premiums represent premiums received but not yet considered revenue.

When an insurer receives a premium, it is deemed to earn it gradually across the year.

After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed.

After six months, an annual auto policy would be 50% earned, and half the premium would be considered revenue.

Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.


Look for an insurer who is able to consistently earn underwriting profits on a large, growing customer base.

In effect, this insurer would be getting paid to profit from investing other people's money and could retain this float indefinitely (as long as it grows).

Unfortunately, for investors, these situations rarely occur.


Insurers enjoy a peculiar business advantage.

Premiums are received well in advance of the firm's requirement to pay claims.

This money is often referred to as float.

An insurer enjoys the use of this money between the time it receives a premium and the time it has to pay a claim.

Insurers exploit this by investing these premiums and keeping the money they make from the investments.

How much money they can make this way depends on market performance, the insurer's asset allocation, and how long the insurer holds premiums before making claim payments.

Insurers writing long-tail insurance hold premiums longer and, hence, can invest more in equities.

(The length of an insurance policy's tail refers to the time it takes for damages to become apparent.
Short-tail policies are those where damages incurred during the insured period become known quickly, such as a car accident.
Long-tail policies cover damages that may not become apparent for many years, such as an asbestos injury_

The Magic Words - A Healthy Attitude

Today, Earl Nightingale is remembered as the greatest philosopher of his time, and his best selling programs and books continue to sell daily, inspiring people around the world to reach their highest potential.

Success is not a matter of luck or circumstance. It's not a matter of fate or the breaks you get or who you know. Success is a matter of sticking to a set of commonsense principles anyone can master. In Lead the Field Earl Nightingale explains these guidelines: the magic word in life is ATTITUDE. It determines your actions, as well as the actions of others. It tells the world what you expect from it. When you accept responsibility for your attitude, you accept responsibility for your entire life. Earl Nightingale -- the "Dean of Development" -- offers you a treasure trove of uplifting and insightful information like: * The importance of forgiveness * How "intelligent objectivity" can improve your professional life * The usefulness of constructive discontent Now it's your turn to bring positive changes to your own life, changes that will allow you to lead the field yourself!

Wednesday, April 2, 2014

Financial statements of Life Insurance Companies (A Conceptual Overview)

Life insurance companies offer products that allow people:
(1) to protect themselves or their loved ones from catastrophic events such as death or disability or
(2) to provide greater financial protection and flexibility for situations such as retirement.

A life insurer pools the individual risks of many policy holders.

The life insurers then strives to earn a profit by taking in and/or earning more money than it is required to eventually pay out to its policyholders.

A bizarre fact of the industry is that when an insurer sells a policy, it doesn't really know how to effectively price that policy because it doesn't really know how much it will eventually cost.

Despite the best efforts of a life insurer's actuaries to estimate variables such as future investment returns, policy persistency rates (the length of time that customers keep their policies), and life expectancy, it can take years before the insurance company knows whether it made money on the policy.

Financial statements for life insurers (A conceptual overview).


On the asset side of the balance sheet are two major items:
(1) investments (the accumulated premiums and fees that an insurer builds up before having to pay out benefits to its policyholders) and
(2) deferred acquisition costs, which is the capitalized value of selling insurance or annuities policies.

For firms that sell variable annuities, separate account assets, which represent the funds that variable annuity owners have invested, constitute a third important asset type.

Because variable annuity owners manage their own investments, these assets are segregated and the separate account assets are offset by an equivalent amount of separate account liabilities on the opposite side of the balance sheet.

A life insurer's other liabilities basically consist of the actuarially estimated future benefits that need to be paid to the insurer[s policyholders.


The two main sources of revenue are:
(1)  recurring premiums and fees and
(2) any earned investment income.

The two main expenses are:
(1)  benefits and dividends paid to policyholders and
(2) amortization of the deferred acquisition costs.

Given how few revenue and expense lines there are, it is vital to keep track of their growth trends.

Friday, March 21, 2014

Think and Grow Rich by Napoleon Hill

A summary of various chapters
Author’s Preface
Think and Grow Rich starts with Hill’s preface that discusses how he came to learn the secrets of success. He shares the story of meeting Carnegie and being challenged to spend twenty years or more interviewing other successful people and compiling their strategies into a philosophy of success. Hill reports that Carnegie believed anyone could build wealth and that the strategies of success should be included in traditional education.
Hill provides a list of many of the interviewees including Henry Ford, William Jennings Bryan, George Eastman, John D. Rockefeller, and Clarence Darrow. He also points out that as well as interviewing successful people, that he had others test the ideas to great success. A clergyman used the strategies to develop an income of $750,000 per year. A tailor used it to save his nearly bankrupt business.
Hill refers to the strategies as a “secret” and says that the purpose is to convey “...a great universal truth through which all who are READY may learn, not only WHAT TO DO, BUT ALSO HOW TO DO IT! and receive as well, THE NEEDED STIMULUS TO MAKE A START,” (author’s emphasis, p. 12).
“TRULY, ‘thoughts are things,’ and powerful things at that, but when they are mixed with definiteness of purpose, persistence and a BURNING DESIRE for their translation into riches, or other material objects.” Hill opens the book with the essence of the law of success; that thoughts can influence outcomes and that pared with purpose, persistence and desire can lead to great achievement. He continues by sharing the story of Edwin C. Barnes who wanted to partner with Thomas Edison, not simply work for him. The only thing stopping him was that he couldn’t afford to get to Orange, New Jersey and he didn’t know Edison. Once overcoming those obstacles, he needed to convince Edison to let him work side by side. While Edison didn’t take him on as a partner initially, he did recognize Barnes’ desire and passion and offered him a job. Eventually, Barnes did become a partner by becoming the major distributer of the Edison Dictating Machine.
Hill shares several other stories such as Three Feet from Gold in which Mr. Darby sought to mine gold, but after several failed attempts, quit. He sold his equipment and left town. The buyers of the equipment did some research, and found the vein of gold three feet from where Mr. Darby finally quit, highlighting how easily people give up just before success arrives.
The introduction finishes with a letter from Jennings Randolph, a member of congress who had seen Hill deliver a commencement speech at Salem College in West Virginia. The letter, written in midst of the Great Depression says, “There are thousands of people in America today who would like to know how they can convert ideas into money -- people who must start at scratch, without finances, and recoup their losses. If anyone can help them, you can.”
The first step toward riches, according to Think and Grow Rich is desire. Hill says that desire is more than hope or a wish. Instead it is burning and definite. Hill provides six steps by which one can use desire to attain riches:
  1. Determine the exact amount of money desired.
  2. Decide what will be given in return for the money (there is no such thing as something for nothing).
  3. Set a date by which the money will be attained.
  4. Create a plan and implement it immediately.
  5. Write a clear statement that includes steps one through four.
  6. Read the statement aloud twice daily, once in the morning and once at night.
Hill encourages readers to follow the six steps even in the face of challenges or nay-sayers. He says that failure brings with it the seeds of success, highlighting Edison’s 10,000 attempts to create the electric light bulb. He provides a list of people who were not only ordinary, but who often failed and had to overcome extraordinary obstacles including Edison, Abraham Lincoln, Henry Ford and Helen Keller.
Hill finishes the chapter by sharing the story of his son who was born without ears, the prognosis of which was that he would be deaf and mute. Hill chose to believe a different outcome. His desire for his son to hear and speak were transferred to the boy, who eventually did learn to hear and speak, and became a success in his own right.
The second step toward riches is faith. Hill admits that developing faith in a goal is difficult when circumstances operate against the goal. He indicates that affirmations or auto-suggestions are the key to developing faith. “Faith is a state of mind which may be induced by auto-suggestion,” (p. 59).
While difficult to cultivate, Hill reports faith is essential to success. “Faith is the only known antidote for FAILURE!” (p. 60). Like Law of Attraction experts of today, Hill says that faith impacts thought vibrations and is the only way that the “cosmic force of Infinite Intelligence can be harnessed and used by man,” (p. 60).
Hill suggests building faith by:
  1. Believing in the ability to achieve the goal, being persistent and taking consistent action.
  2. Recognizing that thoughts influence action and therefore spending 30 minutes a day focusing on the desired outcome.
  3. Using auto-suggestion 10 minutes a day to build self-confidence.
  4. Writing down the definite purpose or aim in life.
  5. Committing to give back and take action that also benefits others.
Hill provides several real life examples of developing faith from Abraham Lincoln and Charles Schwab. But the best example of the importance of faith is the verse:
If you think you are beaten, you are,
If you think you dare not, you don’t.
If you like to win, but you think you can’t
It is almost certain you won’t.
If you think you’ll lose, you’re lost
For out of the world we fin,
Success begins with a fellow’s will --
It’s all in the state of mind.
If you think you are outclassed, you are,
You’ve got to think high to rise,
You’ve got to be sure of yourself before
You can ever win a prize.
Life’s battles don’t always go
To the stronger or faster man,
But soon or late the man who wins
(p. 65)
Auto-suggestion is Hill’s third step toward riches. He reports that auto-suggestion refers to all suggestions and self-administered stimuli that reaches the mind through the five senses; or in other words, it’s self-suggestion. The goal of auto-suggestion is to program the subconscious mind for success. For example, the steps to build desire require reading a wealth goal statement twice daily. This action tells the subconscious mind what the desired outcome and builds faith.
For auto-suggestion to work, Hill says that one must be able to feel the words. “Plain, unemotional words do not influence the subconscious mind. You will get no appreciable results until you learn to reach your subconscious mind with thoughts, or spoken words which have been well emotionalized with BELIEF,” (p. 83).
Hill also says that concentration is also crucial to success in auto-suggestion. When following the six steps in the Desire chapter, he encourages readers to create a picture of the exact amount of money desired and holding the thought.
Hill’s instructions for using auto-suggestion are:
  1. In a quiet place, such as in bed at night, close your eyes and repeat aloud your statement about the amount of money you plan to accumulate. Visualize yourself as already having the money.
  2. Repeat this exercise every morning and night until you can picture in your mind the a money you plan to have.
  3. Place a written copy of your statement where you can see it. Read it every night and morning until you’ve memorized it.
Hill admits that some people might be skeptical or find the exercise odd, but he presses on saying that, “Man may become the master of himself, and of his environment, because he has the POWER TO INFLUENCE HIS OWN SUBCONSCIOUS MIND, and through it gain the cooperation of Infinite Intelligence,” (p. 88). He also recommends reading this chapter out loud once a day until the principles of auto-suggestion are ingrained.
Specialized Knowledge
The fourth step toward riches is specialized knowledge. Hill makes important distinctions between general knowledge and even education saying that neither brings money. He points out that most teachers and professors don’t have financial wealth. Further, many of the success stories used in Think and Grow Rich involve men with very little formal education.
Hill says that “Knowledge will not attract money, unless it is organized, and intelligently directed, through practical PLANS OF ACTION, to the DEFINITE END of accumulation of money,” (p. 92). In essence, Hill believes the failure of education is that it doesn’t show students how to organize and use the information they learn. He uses the example of the libel case Henry Ford brought against a Chicago newspaper for calling him an ignorant pacifist. The paper’s attorneys put Ford on the stand and asked him general questions designed to reveal that he was ignorant. When Ford tired of the questions, he asked the lawyer, “...WHY I should clutter up my mind with general knowledge, for the purpose being able to questions, when I have men around me who can supply me any knowledge I require?” (p. 93). Hill points out that education isn’t about how much you know, but in your ability to find the answers.
The chapter continues by saying that earning money requires a specialized knowledge of the services, products or profession that will be used to earn it. The goal and means to which one plans to achieve the goal will reveal exactly what is needed to learn. After that, one has to decide how to gain the knowledge. Hill lists several sources of knowledge including:
  1. Personal experience and education
  2. Experience and education of others through a Master Mind group
  3. Colleges and universities
  4. Public libraries
  5. Specialized training courses

Imagination - The Workshop of the Mind
Imagination is the fifth step toward riches and is instrumental in creating plans for success. It’s where desire is given form and the necessary action is formulated. Hill explains that imagination is what has led to man’s greatest feats such as flying.
Hill describes two forms of imagination: synthetic imagination and creative imagination. Synthetic imagination involves arranging concepts, ideas or plans into new forms. Creative imagination connects with Infinite Intelligence and materializes in the form of hunches or inspiration. Desire, faith and auto-suggestion all play a part in connecting with the Infinite Intelligence and creative imagination.
He gives an example of how creative imagine has spawned a fortune in the story of the old kettle. A doctor approached a pharmacy clerk hoping to sell an old kettle, wooden spoon and recipe. The clerk purchased the items for $500. Hill reports that more than buying an old kettle, the clerk bought an idea. The clerk mixed the recipe, added one of his own ingredients, and created Coca-Cola. Hill writes that Coca-Cola’s “... empire of wealth and influence grew out of a single IDEA, and that the mysterious ingredient the drug clerk --Asa Candler-- mixed with the secret formula was...IMAGINATION,” (p. 119).
Hill emphasizes that wealth comes from ideas and that ideas come from imagination. They have a power to outlive their creator, as illustrated by Jesus (the Golden Rule), Asa Candler (Coca-Cola) and Henry Ford (assembly line).
Organized Planning
The sixth step toward riches involves transforming desire into action. The processes of wealth starts with desire, begins to form in imagination and evolves through planning. In the Desire chapter, Hill outlines six tasks required to generate wealth. The fourth of those tasks is creating plan. Hill provides four steps to developing a plan:
  1. Form a Master Mind group by connecting with people who are needed to assist in carrying out your plan.
  2. Determine what to offer the people in the Master Mind group.
  3. Make arrangements to meet with Master Mind members at least twice a week or more.
  4. Maintain harmony with members of the Master Mind group.
Hill reports that plans can be created by an individual, but that details of the plan should be checked by members of the Master Mind group for feedback and approval before implementing.
He also encourages one to create new plans if current plans fail. “If the first plan which you adopt does not work successfully, replace it with a new plan; if this new plan fails to work, replace it in turn with still another, and so on, until you find a plan which DOES WORK,” (p 133). He reminds readers that Thomas Edison failed 10,000 times before he perfected the light bulb. In fact, he indicates that Edison didn’t fail, but instead, he suffered from temporary defeat 10,000 times. Temporary defeat is a part of obtaining success and therefore should not be a reason to quit. Hill says that temporary defeat is simply a clue that there is something wrong with the plan. The goal is to tweak the plan until it works.
Hill also writes that the most successful people are leaders, not followers. While one starts out as a follower, Hill says that to generate wealth one must strive to become a leader in their chosen calling. The important factors of leadership, according to Hill are:
  1. Unwavering courage
  2. Self-Control
  3. A keen sense of justice
  4. Definiteness of decision
  5. Definiteness of plans
  6. The habit of doing more than paid for
  7. A pleasing personality
  8. Sympathy and understanding
  9. Mastery of detail
  10. Willingness to assume full responsibility
  11. Cooperation
(p. 136 -138)
He reports that the major cause of failure are do to:
  1. Inability to organize details
  2. Unwillingness to render humble service
  3. Expectation of pay for what they “know” instead of what they do with that which they know
  4. Fear of competition from followers
  5. Lack of imagination
  6. Selfishness
  7. Intemperance
  8. Disloyalty
  9. Emphasis of the “authority” of leader
  10. Emphasis of title
(p. 139-141)
Hill provides a series of tips for applying for work or promoting oneself including how to write a brief that outlines education, experience, references, and other details in impressing an employer. He further reports that to be successful, one needs to apply Q.Q.S. or Quality, Quantity and Spirit. This means providing quality service, rendering all the service to which one is capable of supplying (quantity), and do so with a positive attitude (spirit).
The planning chapter also includes a list of 30 reason most people fail including lack of purpose, ambition, education, self-discipline and health. Hill provides a self-assessment questionnaire with the idea that the better you know yourself, the easier it will be to plan and avoid failure.
The seventh step to riches involves making decisions and avoiding procrastination. Hill reports that one of the top reasons people fail is procrastination. Success requires making decisions and taking action. Occasionally decisions need to be made quickly and may involve risks. Examples of risky decisions include the Founding Fathers’ Declaration of Independence, Abraham Lincoln’s Emancipation Proclamation, and Robert E. Lee’s choice to side with the south.
In this chapter, Hill provides more details about the decisions made by these men and several others. His ultimate message is that, “Those who reach DECISIONS promptly and definitely know what they want, and generally get it. The leaders in every walk of life DECIDE quickly and firmly,” (p. 198).

The eight step toward riches is persistence. According to Hill, persistence is a necessary practice to developing faith and achieving one’s goals. For most of the successful men used in Think and Grow Rich, persistence played a key role. How long would the world have remained in darkness if Edison had given up on his incandescent light bulb after the first, tenth or even 999th try? Hill shares several other examples of persistence, such as Fannie Hurst who received thirty-six rejection slips from the Saturday Evening Post, before she was finally published.
Hill reports that persistence is a state of mind that can be developed with:
  • Definiteness of purpose
  • Desire
  • Self-reliance
  • Definiteness of plans
  • Accurate knowledge
  • Cooperation
  • Will-power
  • Habit
He says that people who don’t have persistence lack the skills and traits listed above. He also says they tend to blame others, seek short cuts, and fear rejection or criticism.
Fortunately, Hill provides simple ways to develop persistence.
  1. Create a definite purpose backed by burning desire.
  2. Develop a definite plan backed by action.
  3. Close the mind to negative and discouraging influences.
  4. Develop alliances with people who encourage and support the goal.
Hill says that these four steps, “lead also to the mastery of FEAR, DISCOURAGEMENT, INDIFFERENCE,” (p. 215).
Power of the Master Mind
“Power is essential for success in the accumulation of money,” (p. 223) and is the ninth step toward riches. Hill reports that plans are useless without power to turn them into action. He defines power as, “organized and intelligently directed KNOWLEDGE,” (p. 223). He says that power is not only crucial to gaining wealth, but in keeping it as well. He reports that the methods of gaining power or knowledge is:
  1. Infinite Intelligence with the help of Creative Intelligence.
  2. Experience
  3. Experiment and research
This knowledge is converted into power when it is organized into plans and executed through action.
The “Master Mind” component is the “Coordination of knowledge and effort, in a spirit of harmony, between two or more people, for the attainment of a definite purpose,” (p. 225). No one ever achieves success in a vacuum. Instead, all great successes received support, knowledge and even assistance from others.
Hill says there are two characteristics of Master Mind; economic and spiritual. The economic aspect is that wealth can be created when one surrounds himself with advice, counsel and cooperation of others who are willing to help. The spiritual part is more abstract. According to Hill, the universe is made up of matter and energy. When humans work together in a “spirit of harmony”, their spiritual energy combine making up the psychic aspect of Master Mind. Hill likens it to batteries in which several batteries provide more energy than a single battery. In another example, he suggests that Henry Ford was able to overcome poverty, illiteracy and ignorance to start a business on his own, but his success grew exponentially from his affiliation and friendship with Thomas Edison.
The Mystery of Sex Transmutation
The tenth step toward riches is sex transmutation, which involves converting sexual energy into creative energy. Hill says that sexual desire is the most powerful of human desires and can lead men to risk their lives and reputations. But when harnessed and redirected, it can be used as a creative force. He says, “Among the greatest and most powerful of these stimuli is the urge of sex. When harnessed and transmuted, this driving forces is capable of lifting men into that higher sphere of thought which enables them to master the source of worry and petty annoyance which beset their pathway on the lower plan,” (p. 243).
Some people interpret this section to mean that successful people indulge in titillating activities that increase energy, but don’t experience orgasm, which is a release and lowers energy. However, others believe Hill suggests the use of sex transmutation in the same way some religious sects practice celibacy. The idea is that by not having physical release, the sexual urges can be redirected to a higher plane bringing one closer to God. that’s not to say that Hill is promoting life long celibacy. Hill reports that sexual desire and sex is natural and good. It can bring intimacy between a man and woman. However, he seemed to think men engaged in sex too often by pointing out that animals only have sex when in season. Hill believed that by sometimes choosing not to act on sexual urges, and instead transmutting them, one can become more creative. Hill reports, without giving a name, that one of the America’s most capable businessmen admitted that his attractive secretary inspired many of the plans he created.
Interestingly, Hill believes that men’s pursuit of power and money is to please women. And without women, wealth would be useless to men. He reports that women are a requirement for men’s success. “...NO MAN IS HAPPY OR COMPLETE WITHOUT THE MODIFYING INFLUENCE OF THE RIGHT WOMAN,” (p. 259).
Short of hiring a sexy secretary or marrying an attractive woman, Hill doesn’t provide any tips on how men can best harness sexual power through sex transmutation.
The Subconscious Mind
Learning to plant achievement oriented thoughts into the subconscious mind is the eleventh step toward riches. Hill says that you can’t completely control the subconscious mind, but that one can “VOLUNTARILY plant in your subconscious mind any plan, thought or purpose which desire to translate into its physical or monetary equivalent,” (p. 261). This is important to success because the subconscious mind works automatically 24/7 to act on dominant desires or thoughts. Because it works on its own, it has the power to influence outcomes based on the dominating beliefs housed in it. It’s why “If you think you are beaten, you are,” and “...the man who wins is the man WHO THINKS HE CAN,” (p. 65).
Hill reports that the thirteen steps toward riches outlined in Think and Grow Rich are designed to reach and influence the subconscious to develop the belief and creativity needed to be successful. Further, he says that regardless of what one does, thoughts and feelings exist in the subconscious mind and will influence outcomes, so one might was well plant positive thoughts. The challenge is to shut out the negative impulses and replace them with positive ones.
Hill says that the subconscious mind is most influenced by thoughts that are accompanied with feelings. He says, “In fact, there is much evidence to support the theory that ONLY emotionalized thoughts have any ACTION influence upon the subconscious mind,” (p. 265). Hill suggests applying one of the seven major positive emotions to thoughts:
  1. Desire
  2. Faith
  3. Love
  4. Sex
  5. Enthusiasm
  6. Romance
  7. Hope
He warns against attaching the negative feelings of:
  1. Fear
  2. Jealousy
  3. Hatred
  4. Revenge
  5. Greed
  6. Superstition
  7. Anger
Hill says that positive and negative feeling and thoughts cannot exist at the same time. “FAITH and FEAR make poor bedfellows. Where one is found, the other cannot exist,” (p. 270).
The Brain
The Brain is the twelfth step toward riches. Hill discusses brain knowledge of the time including the existence of 10 to 14 million nerve cells, and research on telepathy. The chapter essentially explains how Master Mind groups, sexual transmutation and the subconscious steps work. Hill reports that the brain is both a broadcasting and receiving station, and the greater vibration achieved for receiving, the more open the brain is to other signals. He reports that the subconscious mind is the broadcasting station and the Creative Imagination is the receiving station. These vibrations can be increased with more people as in a Master Mind group and can increase access to the higher self such as through transmutation.
The Sixth Sense
Hill refers to the thirteenth step toward riches as the sixth sense which involves the ability to access the Infinite Intelligence without effort. To achieve it, one must master the previous twelve steps. The Infinite intelligence is the Creative Imagination or receiving station of the subconscious mind.
Hill reports that the sixth sense cannot be explained, but only experienced and understood by those who meditate and develop the mind from within. Because the sixth sense connects man to the Infinite Intelligence, it’s a mixture of both mental and spiritual, and is the point at which man can also connect with the Universal Mind. Hill suggest that at this level, the sixth sense will warn about dangers and notify of opportunities.
While Hill speaks of spiritual aspects, he reports he doesn’t believe in miracles and that the sixth sense works within nature’s laws. He explains this higher level of consciousness in scientific terms. “...there is a power, or First Cause, or an Intelligence, which permeates every atom or matter, and embraces every unit of energy perceptible to man -- that this Infinite Intelligence converts acorns into oak trees, causes water to flow downhill in response to the law of gravity, follows night with day, and winter with summer, each maintaining its proper place and relationship to the other.” Hill reports that anyone can achieve this sixth sense and tap into the Infinite Intelligence by following the thirteen steps.
How to Outwit the Six Ghosts of Fear
While Think and Grow Rich is about positive energy, thoughts and feelings, Hill understood that negative influences, particularly fear could sabotage efforts to gain wealth and power. He lists the six basic fears that limit people as:
  1. Poverty
  2. Criticism
  3. Ill Health
  4. Love of Love
  5. Old Age
  6. Death
He provides information about each fear including their symptoms. For example, the symptoms of the fear of poverty are:
  1. Indifference
  2. Indecision
  3. Doubt
  4. Worry
  5. Over-caution
  6. Procrastination
Within the symptoms comes the answer for overcoming the fear. For example, to overcome the fear of poverty, one must develop interest, become decisive, build faith and self-confidence, step into the unknown, and take action.
Along with the six fears, Hill lists another “evil” that can sabotage achievement and that is “SUSCEPTIBILITY TO NEGATIVE INFLUENCES,” (p. 323). To overcome negative influences, Hill suggests:
  • Recognize that humans, by nature are lazy, indifferent and susceptible to suggestions and reinforce the negative.
  • Recognize that humans, by nature are susceptible to basic fears and need to set up habits that counteract those fears.
  • Recognize that negative influences can impact the subconscious mind, and steps need to be taken to close the mind against people who don’t support the dream.
  • Throw out pill bottles and stop using illness as an excuse.
  • Seek out people who are a positive influence.
  • Don’t expect trouble.
Hill provides a self-analysis test designed to help readers better understand themselves, their strengths, weakness and vulnerable areas. He then reminds people that the only thing they have total control over is their thoughts. And as stated at the beginning of the book, thoughts are things that influence great success or failure.
He ends the book with 57 famous alibis, which are common excuses people use to explain their poor achievement. They include lack of money, health, support, connections, luck and more. Hill emphasizes that by following the 13 steps toward riches and dealing with fear, “...every one of these alibis is obsolete,” (p. 333.)

Think and Grow Rich (audiobook)