Let’s be honest, we all love the idea of overnight success or getting rich quickly. It is this idea that drives the classic emails I receive all too often. The “have you heard of XYZ? I know it looks too good to be true but I have done some research and it looks like it could be a home run!!”
Just the other day I received another email stating, “looking for the next Amazon or Apple…” Here we could add PSG, Capitec or Naspers as local heroes who were also able to grow their earnings astronomically over extensive periods of time. Does this mean that the question at hand might have some merit?
Let me just start by saying that I have no idea what XYZ will be. Today it might be BITCOIN, tomorrow it will be something else. Over time there often seems to be something, the next big thing, something that seems to defy gravity.
Besides the fact that growth rates of 100% per year or even 50% per year for that matter soon becomes a mathematical impossibility, these “assets” tend to prove to be unable to withstand the test of time.
But let me go back to answering the question about how much attention you should be giving all of this. Firstly, the reason why anyone would give something like this any attention is overwhelmingly obvious. Who would not want to invest R100 000 today and wake up in 5 years with R 139 million? Which is exactly what happened with people who invested in BITCOIN early on.
The problem in my opinion is that BITCOIN is merely a mirage. It has no intrinsic value, is not backed by any balance sheet and in my view will at some point become completely worthless.
In the more legitimate space we can have a look at heroes among listed local shares such as Naspers, Capitec and PSG who have been able to grow at 40% – 60% per annum for periods of 5 years or more. If you could identify the next Naspers, Capitec or PSG, how would you capitalize on it?
Most people lose sight of the fact that you would have to commit a considerable portion of your TOTAL wealth if you want the pay-out to have a big effect on your overall wealth. When you thus identify the next winner (which is very hard to do), keep 2 things in mind: 1) you need to invest enough so that the pay-out makes a big enough difference if you do turn out to be correct, and 2) not invest too heavily so that it ruins you financially if you end up being wrong.
You also cannot afford to diversify in situations like this. By taking R500 000 and splitting it between what you believe to be the next 5 winners your chances of getting anywhere close to the returns you are looking for becomes negligible. You will have to pick one horse and invest heavily.
On the other hand, investing in your own business is a whole different story as you play a more active role and you have more control over the outcome. Elon Musk is an example of someone who invested in his own businesses and even for him it could have gone either way at times. We all know the names of the handful of billionaires it worked for but seem to forget that countless more are broke today even though they employed a similar strategy.
Thus your chances of becoming rich overnight by way of passive investment WITHOUT the risk of going flat broke are INCREDIBLY LOW.
In conclusion, it is possible to cover 100km in 40min. In fact, you would probably be able to do it a couple of times back to back but eventually it will kill you.
The same is true when it comes to investments. You might stumble across an investment or project that very well does deliver 50% capital growth per annum for a 5 year period only to be sucked in, trying again and again to achieve the same result only to lose it all and go all the way back to square one.
See the table below showing possible outcomes for someone with a total net worth of R10 million who is willing to lose 5% (R500 000) to take a chance on what he believes to be “the next big thing.” This also shows that you can take on more risk to place on “lotto tickets” if you are better funded, resulting in the saying “money breeds money.”
Some things to take note of:
1) The figures above may drastically change should you decide to invest 50% of your total net worth instead of 5%. This obviously increases the risk you take tremendously and unless you have control over the investment the line between bravery and stupidity becomes increasingly blurred.
2) If you think an investment opportunity where your capital would grow at 50% per annum is going to find you through someone earning a commission to sell it to you, think again.
3) The founders of the companies mentioned in the article may be incredibly wealthy today but even that did not come overnight. For most of them it was because of hard work compounded over an extensive period.
We tend to concentrate only on the 0.01% of people managed to acquire astronomical wealth in short periods of time (which can happen) but unless you are related to JZ, for the rest of us there is unfortunately no recipe for getting rich overnight without risking losing it all.
*Andró Griessel is a certified financial planner and the managing director of ProVérte Wealth & Risk Management. Follow him on Twitter @Andro720911. He writes twice a month for Netwerk24.
Although all possible care was taken in the drafting of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone planning on taking any financial action based on this document, is strongly advised to first consult with their personal financial advisor. ProVérte Wealth & Risk Management is an authorised financial service provider with FSP no. 5966.
True to company culture, Samuel strives to build solid long term relationships with clients and has a meticulous way of identifying needs, defining goals and compiling an executable plan to reach one's goals. He firmly believes that one has to be a specialist in one's field to be able to add value, and continuous training & education is therefore paramount. To be objective and to have an independent approach to a client's planning is critical to make a difference.
Born & bred on a farm in the Montague region, Samuel matriculated in 2001 from Montague High School. He completed his BComm Honours degree in Business Management as well as his Postgraduate & Advanced Diploma in Financial Planning. Samuel is a CFP charter holder. Apart from a short stint at an agricultural company Samuel has spent his whole working career with ProVérte. Samuel is a shareholder and valuable member of the board of directors of ProVérte.