Recently, a friend who runs clothing chain stores told me that the business has been difficult during the Coronavirus pandemic period. He is considering the voluntary liquidation of his company. He says sadlythat he has worked hard for more than 20 years, inputting all his time, energy and money, never expecting this ending.
My friend's misadventure reminds me of the story of Ron, which I have shared with many people in the past 15 years. My property investment philosophy, personal business and investments are deeply influenced by this story. Today I will share it with you and hope you can derive some inspiration from it.
It was on the Christmas Eve of 1995, two years after I came to Australia. I was introduced by a friend to be a short time worker, wrapping Christmas gift at a candy import company in Sydney. The owner of the company was a young, elegant Italian Jew who was about the same age as me. His name was Ron. The company's accountant was a Vietnam born Chinese who had worked as the accountant since the establishment of the company. He was very familiar with his boss and often told us Chinese workers about the story of Ron.
Ron’s father was part of the first generation of Italian immigrants. He was a very successful importer of Italian tiles and had made a lot of money from his business. There were five children in the family who lived a rich life in a large house by the sea. In 1984, although Ron's father was at retirement age, he didn’t want to retire. Alternatively, he intended to expand his tile kingdom with his financial resources. He changed the import and wholesale model and quickly opened dozens of retail stores. Not only had the business volume increased, but all profits from imports to retail had been made.
Unfortunately, the sudden cancellation of the negative gearing policy led to the real estate market slump in 1985. The retail network that Ron's father just expanded throughout Australia collapsed overnight. He was forced to declare personal bankruptcy.
The old man had worked hard all his life, and like my friend, put all his energy, time and earned money into the business. He never thought he would suddenly become a poor man at his age. The old man felt very hurt and thought the business had brought harm upon him. That night, he called up his five children and told them that there was no money left at home, everyone had to find their own means of live and suggested that they never engage in any business in the future. Ultimately, the five children chose accounting and law as the majors for their study.
Ron was the youngest child in the rich family, who was dreaming of becoming a musician. He majored in piano at the Sydney Conservatorium of Music at that time. But he had to drop out of school to study accounting due to his father’s insistence. He was 19 years old that year.
But Ron did not fully listen to his father. In 1986, at the age of 20, he secretly opened this candy import company with the help of his uncle. The company was an exclusive agent for an American brand and the product line was very simple. From the beginning, the company only engaged three people including an administrator, an accountant, and a warehouse manager. Even sales were engaged from external agencies. He didn’t attempt to expand the size of the company operation while trying to increase sales volume, particularly not increasing the company's fixed expenses.
Before Christmas in 1996, the company contacted me to do short-term work again. I found that the boss had changed since Ron sold the business to the external sales agency. Ron retired and went to a small country in South America. It was said that he lived by a secluded lake; enjoyed reading and playing piano. Ron started business at the age of 20 and retired at the age of 30. I admired him very much.
One night in 2001, as I worked as Teppanyaki chef in a restaurant, I happened to meet Ron as my guest. I had chat with him while I was cooking for him. I asked Ron why he didn’t continue to expand his business but sold it when the business was booming at the year of 30?
He said he learned the lesson from his father's failure. There was nothing bad about doing business. But the first reason his father failed was because he was greedy and continuously expanded his business, which would definitely bring problem someday. When Ron started his business at the age of 20, he planned to retire at the age of 30. He told himself not to be greedy and by the age of 30, no matter how good the business was, no matter how great of an opportunity for him, he must retire on time.
I asked him what was the second reason your father failed? He said the reason was that he invested all the money he earned back into the business. I asked why it wasn’t good to grow the business? He said business was risky and businessmen must know how to accumulate wealth.
He told me he used business to make money. He used the earned money to buy a couple humble terrace houses near his premises in Bondi and rented them out. He bought 10 terrace houses in 10 years. Over time, not only did the house price grow but so did the rent. Although he still owed loans to the banks, the rental income gradually exceeded the cost over the period, so he started to have positive income.
I asked him why he retired three years ago and went to the small country in South America. Did he like it there? He replied with “ not really”. The reason was that he set the goal to retire at the age of 30. But he found even with loans having been partially repaid by the money from the sold business, he still could not live comfortably with his limited positive rental income in Sydney. Alternatively, he could live well in the nice country in South America. Some people attempted to convince him to continue business for more years and not to retire until he accumulated more wealth from business. But he refused because he had a deep impression of the lesson he learned from his father.
I asked Ron if he was coming back to Sydney for a vacation? He said he came back to settle down. Sydney's house price and rent had increased greatly during 1996 to 2001. His wealth in property investment could lead him to live a comfortable but humble life in Sydney.
The story of Ron had a great influence on my outlook on wealth, investment and life. I translated my insight from his story into my PIA property investment philosophy.
Firstly, many of us, like Ron’s father aim to make money in business. But actually, we should, like Ron set the goal of having an ideal lifestyle from doing business and making money. People live for an ideal happy life, and not for money and business which are just the tools to achieve our life goal.
Secondly, many of us like Ron’s father tend to invest the money earned back into the business. But no one can guarantee the business will never fail. Ron treated business as the tool for making money and cared more about accumulating wealth while making money.
Thirdly, many people regarded business as an asset. In fact, the main function of business is for making money. Value of a business is often an illusion before you successfully sell it. Ron wisely invested in Sydney’s medium price residential properties as the asset to carry his wealth.
Fourthly, many people only know how to make money, but do not understand that investment is just as important as making money, and perhaps even more important for our life. Ron certainly made money in business but accumulated more wealth from property investments.
Fifthly, we should know no one can retire from doing business, but can from accumulated wealth.
Now, 20 years have been passed. Ron is already middle-aged. I did not have any contact with him later. But we can make some assumptions. The price of each terrace house was only around $300,000 at the year of his purchase, but the current value exceeds $2 million and the annual rent income is more than $60,000.
In the past 20 years, even if no additional investment had he made, nor business had been done, he still can leisurely live like an artist. Currently, the value of his asset definitely exceeds $20 million and the annual rent income is more than $600,000. Let us think about how many lucky businessmen in the past 20 years can accumulate such assets? Neither the financial crisis in 2008 nor the current coronavirus crisis would affect Ron because he is already financially free. What is the difference between him and other businessmen? What is the difference between his concept and most of ours? Does this story inspire you?