The Rich Are Getting Poorer
By Michael Yardney

Around this time every year I enjoy reading the BRW Rich 200 list to see how the wealthy are fairing. And if you are to believe the commentary in the magazine this year, the rich are getting poorer.

So I thought I would look more closely and see what lessons we can learn for Australia’s wealthiest business people, entrepreneurs and investors.

Firstly while the Global Financial Crisis has meant that many of the rich have become less rich (it’s really a bit of a stretch to say they are becoming poorer); those who have grown their wealth through property have done comparatively much better than most and in fact many have substantially increased their wealth over the last year.

Examining the Rich 200 List we can see that more of Australia’s wealthiest people have made their money through property than through any other means, and interestingly many of those who initially make their money in other businesses still invest their money in property.

O.K. Let’s cut to the chase – are there any shortcuts to get into the BRW Rich 200 list?

The answer is yes and here they are:

Number 1: Choose your parents very carefully. Many of the people in the rich list are there because of the wealth accumulated by their parents.

If you don’t have wealthy parents, let’s move on to…

Number 2: Marry somebody who is already wealthy… and then the trick is to stay married. Or…

Number 3: Understand the magic of compounding
One lesson to take from the millionaires and billionaire who have used property to accumulate their wealth is that most are long term investors. They buy well located assets and add value often through development and use the power of leverage and compounding to grow their asset base. They do not try to trade or speculate their way to wealth.

Number 4. Invest counter cyclically
Many of those who have become very wealthy in Australia, and around the world for that matter, are at times considered a bit crazy because they don’t invest when everyone else is investing, and more importantly, they invest counter cyclically when everyone else is saying it’s the wrong thing to do.
Interestingly many of them are out buying assets now. They are back buying undervalued shares and good properties.

We can learn a lot from Australia’s richest people, so let’s quickly look at some of the common traits of the people in the BRW Rich 200 list.

1. When they have made their millions they don’t go off and spend their money, but tend to reinvest it in their area of expertise.
2. While many of the Rich 200 took big risks early on in their investment careers, once their wealth was established, they stopped taking risks and preserved their wealth. Interestingly others who kept on speculating or taking risks lost a significant portion of their wealth.
3. In general the wealthy do not diversify. They have one good idea and repeat it, or specialise in one business or investment niche.
4. They tend to invest in growth assets (more than for cash flow).
5. They are good at picking trends or cycles. They know when not to invest, they hold back near the peak of booms. And they also understand the power of investing counter cyclically when properties of shares are “on sale.”
6. They recognize that there is no such thing as a self made millionaire, and have attracted a team of good people and trusted advisors around them.
7. They are confident and “just do it.”

One of the major lessons I believe you should heed is that of counter cyclical investing. Buying at or near the bottom. Buying when people are saying you're mad to buy.

But of course, you don't buy just anything. Far from it.

You need to buy extremely selectively, based on clear-sighted analysis. You will need the ability to see beyond fads and fashions. You’ll need to analyse and model long-term potential and probability.

You will require the insight to see the intrinsic value of assets and act accordingly.
I believe that now the window of opportunity is open. And, more importantly, it will not be open for a great deal longer.

Why do I say this?

Well… things are panning out in a fairly predictable way.

The economy is going to recover, interest rates will increase and inflation is expected to return, due to our government borrowing money and pumping it into the system.

The net effect of this is that investors who have parked their money in the safety of bank deposits will start looking for a new home for their funds. A safe haven that is a hedge against inflation. Many will turn to well located residential property and then property markets will really take off.

So, the opportunity is NOW!

The challenge is to get into the property markets when everyone else is still nervous.

I don't pretend it's easy: To do this, the keys are to have a long term focus and buy well located properties with an element of scarcity, in areas that have outperformed the long term averages. And properties to which you can add value.

This article was written by Michael Yardney, Director of Metropole – Property Strategists, a leading property commentator and publisher of Property Investment Update. Subscribe for free at www.PropertyUpdate.com.au
He is also author of How to Grow a Multi Million Dollar Property - in your spare time and co author of All you need to know About Buying and Selling your Home and his newly released book Thriving not just Surviving in Changing Times.