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How do people get very rich?

Discussion in 'Investing Strategies' started by ilori, 29th Jun, 2008.

  1. ilori

    ilori Well-Known Member

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    I can understand how people can accumulate a $million or two or three through sensible investing over time. While this is impressive and to be commended - for most it takes many years and is difficult to break through that range.

    By "very rich" I mean wealth of say $10 million to $30 million. That seems to be a level of wealth where things change.

    There are some people who get to this range while they are still young and they just seem to 'pop up' one day, but how do they get there?

    Do they combine business+investment? Example, builder+development+IP, or, mortgage broking+IP; or stock broker+shares...

    Do they take risks at some point and make it work?

    Do they all have an element of luck at some point?

    Do they simply push everything to the max? Work hard, max borrowing, max use of every dollar - and that makes all the difference?

    Do they have better skills - attitude, charm, people skills, time management?

    Thanks,
    Ilori
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Ilori,

    Investing over time is the slow and steady way of building wealth.

    These young people who suddenly pop up over night generally have businesses which they have worked on for many years but you don't generally hear of small businesses unless you go to your local chamber of commerce. I imagine not too many people are going to say "I make x millions of dollars a year"

    Do they take risks? Massive risks! More risk usually equals more return.

    They do have a bit of luck behind them, usually alot of hard work and gumption to drive them to succeed.

    I'm not sure about their skillset but obviously the more skills you can use, the easier things will probably be.

    No worries,

    Dan
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    If you look at the Rich List published each year - most of them are business owners (or people who have inherited their wealth).
     
  4. ilori

    ilori Well-Known Member

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    Thanks guys,

    Yep, deliberately avoided picking Rich List because difficult to aspire to that level. You're right though Sim, vast majority of them are business owners… I imagine it’s the only way to get the velocity of money required. (I personally think the ones who inherit should be removed from main list – unless they grow the inherited amount substantially through their own abilities.)

    Thanks for your thoughts Dan – agree with you, they must take some risks, gumption and some luck (at least the absence of debilitating bad luck).

    So, perhaps a general answer to my question is that ‘investing’ activity will take us to a particular level, but to get above that, we need ‘business’ activity. The average passive investor might simply not have enough time.

    (This is a little off-track, but I spoke to a wealthy chap recently (>$50m) and his opinion was that normal residential property was good for a few million dollars of wealth, but it would run into two challenges – funding and management. At that point, if not before, one needed to branch out.)

    Thanks again, Ilori
     
  5. crc_error

    crc_error The Rule of 72

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    The only way to become super rich from investing is by saving like mad all your life, and then when your old, you will be rich..

    Or if you inherit some cash and invest it wisely.
     
  6. ilori

    ilori Well-Known Member

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    Thanks CRC,

    Yep, you hit the nail on the head! :)

    That thought a basic reason for my original question... the passive investing strategey will make someone a millionaire (or thereabouts) over a few decades, at which time, the investor will most likely be elderly. It's better than a pension, but a long way from living the life of a wealthy person.

    I think that is the sobering fact of it, but not comforting to consider it. Can look at many strategies whether it's property, shares, funds etc. - they all have merit and will do the job long-term. But, we start looking at the timeframe required, and it takes a big chunk of one's life to achieve.

    Regards,
    Ilori
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    One of the things that always struck me about Jan Somers books was that she always made it clear that her strategies were "retirement plans", not "get rich quick" strategies. Long term, slow and steady, easy and predictable.

    Some of us just tend to be a bit more impatient :rolleyes:
     
  8. ilori

    ilori Well-Known Member

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    Thanks Sim, indeed, Jan Somers does make it clear that her strategies are long term - good solid approach.

    Yep, I suppose I am sometimes a little impatient - part of working out what to do. One can spend a lot of time learning and thinking of oneself as an investor, but if it’s not converting into a desired level of wealth, then have to sit back and have a good hard look at things :)

    Certainly business activity would be a way to get things moving - even if it just provided new level of income to invest with.

    There are people who invest their way to significant wealth and do it quite quickly. I know several people who have 10 to 12 properties as well as chunk of money in shares/funds and they've done it basically with good paying jobs and motivated investing.

    Was just trying to get a discussion around that to find people's thoughts.

    Thanks for your feedback.

    Much appreciated.

    Regards, Ilori
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I know a couple of people who have invested their way to $5 - $10m of net wealth. At that point several of them started buying businesses to increase cashflow so they could buy more investments. (Note that I said "buy", not "run").
     
  10. Smartypants

    Smartypants Well-Known Member

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    Hi Sim.

    What type of business could one buy without (realistically) having to expend a fair bit of time on/in it?

    I often read about people buying business/es and not running it, but I think I'd personally struggle leaving someone else to run a business that I had bought. Maybe just my mindset.
     
  11. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I think a more accurate description is that he missed the nail completely and broke a few of his fingers with the hammer. His assertion that the only way to get super rich by investing is saving like mad is ridiculous beyond all comprehension. Sounds a little harsh, doesn't it? But mate I'll tell you, sometimes I sit here scratching my head at some of the things this guy says.

    That might work for some people, but it certainly isn't 'the only way'. There are literally thousands of different ways to become wealthy through investing - saving like crazy is up there as one of the most difficult ways of doing so. He is right on one point though - if you take this path, you probably will be an old man before you achieve 'super rich' status.

    Mark
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The examples I'm aware of are all established businesses which are simple in operation and don't require specialist expertise - ie. you can train anyone to do the job. It's then all about the process - having good efficient processes in place such that the workers know exactly what to do.

    Obviously, it must generate enough cashflow to pay the staff (including any management you put in place), with enough left over to cover your holding costs and give you a net positive cashflow at the end.

    You'd also need quite a bit of capital behind you - business finance is expensive (compared to equity in real estate), and capital intensive (low LVRs).

    These are not completely passive investments - you would need to spend time managing your managers (which counts as working ON your business) ... but the idea is not to work IN your business.

    Think about ideas such as laundromats, delivery runs, house cleaning, lawn mowing, etc etc.

    The concepts suggested by Michael Gerber in "The E-Myth" are a good starting point I'd think.

    There's also much higher risks involved - businesses are typically capital intensive and profitability can be volatile (whether seasonal or subject to competition).
     
  13. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Something with management in place. Basically you have someone in there with a proven track record that runs the business for you.

    Mark
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    In addition to what Mark said, I'd also suggest that you would need to have a good understanding about running a business yourself. At the end of the day, even if you are just managing the managers - it's your business and you will be making the big decisions.

    Not suggesting you necessarily need an MBA or something (although that might help some people), just some good business experience I'd think.
     
  15. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I agree completely with what Sim said. In my opinion, you really do need some sort of experience with running a business in order to actually have success in this area. I've run a (very very very) small business myself and it's not a walk in the park, lol.

    You may have read about Warren Buffett buying businesses and not having anything to do with the daily running of the businesses. It's a little tricky with these sorts of things, because people read that and think 'Hey great! I can buy a business and have nothing to do with running it and just sit back and watch the money roll in.' when in reality it doesn't work like that.

    I reckon buying businesses for cashflow and capital growth is a great idea and it's one that I will be looking at, at some point in the future, but it's certainly not a set and forget option.

    Mark
     
  16. sparker

    sparker New Member

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    Does networking play a part in getting rich? Is there a "boys club" where the rich help the rich or the ones they favour? Are there people who are able to "get in" on information oe development opportunities not freely available to everyone? ........I love conspiracy theories.
     
  17. crc_error

    crc_error The Rule of 72

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    What is ridicules about the comment I made? Through normal investing, it will take a very long time before you become rich. You would need a large income, which supports a vigorous savings habit.

    Even then, are you going to become super rich? maybe, maybe not.. a few names like Rivkin and Buffet all did it and it took many years to achieve.. only really getting there later in life. But these pioneers are not examples of the average investor..

    And before you point to 0 to 100 properties in 3 years, this isn't investing, its running a business.. usually involving developments, subdivisions, renovations.

    buying properties and leveraging yourself to the hilt also requires a generous income to support them, which leads to you needing to sacrifice lifestyle.

    So I will stand by my comment that using conventional investing alone, it can take 20 years of investing before you make any serious money.. this will also require a significant sacrifice of income during the first part of those years. Most people would be 50 before they achieve their goal...

    Just log onto any compounding calculator and input a monthly contribution figure starting from nothing, and see how long it will actually take to achieve say $10 million.. and don't forget to count inflation.

    The only way to become super wealthy is by developing a successful business which generates large cash flow, and then in turn you funnel it into quality investments... or you could try your luck at picking a FMG.
     
  18. eddyl

    eddyl Well-Known Member

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    A huge ammount. I reckon the ammount of insider trading that occurs would be staggering.
    High profile people have been convicted of insider trading e.g Rene Rivkin. You cannot say that the only time he ever possessed insider knowledge and acted upon it was the one time he was caught.
     
  19. mumeco

    mumeco Active Member

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    Perspective

    But does one seriously need to be that rich? I guess speaking as an average income earner I aim to live comfortably without having financial stress, and to be able to enjoy myself and not have to work eventually. I see people come in to hospital every day who have lost their health or their loved ones, and really, it clearly tells me that things are OK even if you aren't fantastically wealthy, but if one can still do things physically and enjoy doing them - you have the luxury of life.

    Having delved into more philosophy than is usually welcome, one could always win the lotto...
     
  20. crc_error

    crc_error The Rule of 72

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    I agree mumeco, I believe if you can use investing to give you some sort of security and support your income, then thats great..

    Do you really want to stop working? Rich people work more, stressed more, and have the same problems if not more than average joes.

    If you hate your job and want to quit forever, prehaps you should find a better more enjoyable job and you wont work a day in your life!

    Is there a point to driving $200k cars and having 15 mil houses? I don't think those people are any happier than someone with a nice suburban home and a holden.