The self-made way to millions

Want to know how to become a self-made rich list member? Sell your business, start investing and be patient.

That’s the advice from billionaire US investor Ken Fisher, who penned a piece in Forbes magazine earlier this month providing some tips to help a middle-aged, SME owner go from having a small fortune to a very large one.

Fisher’s argument is that there are two ways the average SME businessperson can go.

Firstly, they can decide they want to turbo-charge the growth of their business and aggressively pursue a strategy to go from a medium-sized company to a large one. There are some caveats, of course – you’ll need a scalable business model, a strong competitive advantage, a market with enough size to make you rich and a reasonable risk tolerance – but throwing all your eggs in one business basket is a legitimate strategy.

It’s certainly worked for many of the members of Australia’s rich list, such as Frank Lowy, Harry Triguboff and Gina Rinehart. One business, one focus, one fortune.

But there is another, slower way. Fisher suggests that if your business isn’t able to be expanded dramatically, or you don’t want to take this risk, then you should sell. Immediately, and for cash (definitely not for shares or with some sort of earn-out clause, which makes you reliant on future events you cannot control).

Then you take the money and invest it sensibly. It’s not spectacular but it will work, Fisher argues.

“You won’t be Bill Gates. But you could turn your $10 million in proceeds into $450 million in 40 years – assuming an average annualised return of about 10%. Maybe you do a bit worse and end up with only $200 million, or a bit better and end up with much more,” Fisher writes.

“The point is – turning 10 million into several hundred million over your long time horizon is doable if you invest well and get a decent rate of return. That’s how you make yourself self-made.”

It’s a fair point, particularly for us “normal” investors – making money takes time, patience and discipline.

But there is one problem, of course – would-be rich list members aren’t known for the patience and are always looking for ways to turbo-charge the growth of their fortunes.

Perhaps the best idea is to combine Fisher’s two options – build a biggish business, sell it, and start investing.

There are actually quite a few Australian rich list members who have used this strategy to propel their fortunes to extremely high levels.

Ken Talbot

A great example is the late mining magnate Ken Talbot, who cashed out of Macarthur Coal in 2008 for about $600 million and then become one of Australia’s most successful resource industry investors, targeting fast-growing junior miners.

According to the latest Talbot Group annual report, released in June, the portfolio returned 113% in calendar 2009, taking Talbot’s fortune (now controlled by his wife Amanda) to around $1 billion. Talbot Group continues to hold stakes in a number of mining companies, including Karoon Gas and Robust Resources, and recently emerged as a large shareholder in training company Lazco Limited.

Peter Gunn

Another example if Peter Gunn, who built transport group PGA Group into a national player between 1970 and 1999 before merging the business with Mayne Nickless. While much of Gunn’s fortune is built on a portfolio of prime industrial property, he is also a noted sharemarket investor through his vehicle PGA Investments.

The main stocks in PGA Investments’ portfolio are transport companies Toll Holdings (PGA’s stake is worth about $60 million), logistics company Asciano (a stake of $16 million) and airline Virgin Blue (a stake of about $9 million).

Gunn’s company also owns a stake in a company called Global Mining Investments, which as the name suggests invests in mining ventures around the world, with a focus on Africa, Latin America and Australia.

Alex Waislitz

The third great example is Alex Waislitz, who is the head of the Pratt family’s investment arm, Thorney Investments. Waislitz joined Thorney in the late 1980s, and started investing with about $1 million provided by the late Richard Pratt.

But the growth of Thorney really accelerated when Waislitz followed Ken Fisher’s model and sold a business. Waislitz and colleague Ashok Jacob (best known as one of James Packer’s key advisers) found within Pratt’s empire a fine paper mill in Scotland, dressed it up for sale and reaped $20 million in the process. Pratt let them keep it, and it was then used to fuel the growth of Thorney.

The Thorney portfolio is extremely active, but currently contains a few stocks that have been top performers in the last 12 months. These include mining services company Monadelphous (shares in which are up more than 25% in the last 12 months, valuing Thorney’s stake at about $85 million) and materials group Gale Pacific (it’s shares are up 55% in the last 12 months).

Other investments include property group Folkestone, labour hire company Skilled Group, Newcastle Stock Exchange, online travel company Webjet and agribusiness company Select Harvests.