Getting Rich

MYOB 2008-08-18
Show #87
Release date: 18 Aug 2008

Notes

How to get rich? What are the main features of a winning idea to make your millions?

In response to a listener’s request for a show that will inspire him with a cracking idea to make him rich, Guy Kingston and John Richards pick through what he means to be rich, how to prepare and how to pick a business that will get you there.

Should money be the sole objective? Will turning something you love into a business inevitably lead to riches?

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Rich Lists

The word “rich” is essentially meaningless.

One man may feel prosperous simply because he has enough to pay all his bills and to finance a lifestyle he considers comfortable. Another may have the same amount of cash but still be dissatisfied and pathetically obsessive about seeking more and more.

It is not about spending power. Few of the truly wealthy spend up to the level of their fortune. Many are in fact positively frugal, having become rich in the first place by saving and investing when others splurge.

Certainly it is true to say that, beyond a certain point, money is just a way of keeping score – and not a very good one at that.

One suspects that very few of those actually on the Forbes 400 or the Times Rich List take them seriously.

Such lists are based largely on market valuations of known landholdings and shareholdings. They cannot, of course, take into account unknown assets.

Nor do they account for unknown liabilities. Personal loans are secret, so while an individual’s shares in a public company are a matter of record, the money he borrowed to buy those shares is not.

Then there is the matter of nominees. This cuts both ways. A discreet millionaire might disguise his wealth by putting shares and land in the names of others. Equally, one who is on the books as a very rich man may be sitting on someone else’s money.

Above all, market valuations are usually over-valuations, especially given the inflated property and stock markets of recent years. It would be very difficult, in fact practically impossible, to turn the nominal assets of the wealthy into anything like an equivalent sum in cold, hard cash.

This is particularly true at the very highest levels. A gratifying number of those at the top of the Forbes list are self-made entrepreneurs, whose nominal wealth consists in large part of substantial or controlling interests in major enterprises they founded or run.

They could never turn their nominal shareholdings into anything like as much in cash. Any sale of shares has the effect of reducing the share price. This effect would be particularly noticeable if a significant block of shares suddenly came on the market.

The psychological impact would be multiplied when it was discovered that the one doing the dumping was the company’s founder or another major player in its affairs.

So while Bill Gates and Warren Buffett, nominally the two richest men in the world, may be worth over $100,000 million between them on paper, they would not be able to turn their assets into cash for anything like that amount.

If Gates sold all his Microsoft stock and Buffett his third of Berkshire Hathaway, the effect on the share prices of both companies would ensure they would clear only a fraction of their current nominal value.

Indeed, it should be noted that these two gentlemen’s huge donations to Mr Gates’s charitable foundation have been structured in a way that avoids such dumping on the market: just because they are being generous does not mean that they have suddenly become stupid.

Even Forbes magazine cannot take the whole Rich List thing too seriously. It publishes an occasional Forbes Fictional 15, comparing the estimated wealth of characters in fiction.

It appears that Scrooge McDuck is wealthier than Ming the Merciless. That puts it all in perspective.