16
2008
A couple of years ago I read the book The Art of the Deal by Donald Trump. I wrote down a few quotes that I liked. I am going to share some of those quotes with you. Sometimes with, other times without, any comment. I hope it ads some value.
“But he made a critical misjudgment from the start: he assumed that in a project as big as the West Side yards, he could afford to absorb nearly any costs and still end up with a huge profit. The truth is that unless you design a project to be self-supporting as you build it, you risk getting eaten alive before you’ve turned the corner into profit. … You can budget building costs, but you can’t truly project revenues, because you’re always at the mercy of the market. The variables include how much you get per unit, how long it takes to sell out, and what your carrying costs are along the way. The less you commit to spend upfront, the less you’re at risk later.” Page 328
Trump knows his business, no doubt about that. But he also knows the variables and the drivers of his business.
When doing business and investing, we are not dealing with an exact science. Physics and chemistry are exact sciences. I add a specific amount of substance x to a specific amount of substance y and I will have exactly so much of substance z. That is an exact science.
Investing is something else. What is the price of a property? The price a property is the amount of money that somebody takes out to pay for it. The grand expression is: the amount that an able and willing buyer is prepared to pay on an arms-length transaction. Yes, we can compare properties of the same size and type in the same area to see what people have paid for property. But in the end, the final price, it is what somebody is prepared to pay. Nothing more, nothing less. So don’t fall for agents who state a price as if it was calculated with scientific accuracy to the nth decimal!
Clever investors have their ways and means to determine what they can afford to pay for an investment. Use those methods and don’t be taken in by clever sales tricks.
What is true for property prices, also goes for returns and income. The rental you could expect, is not an exact science. Once again there are certain things we do to get a ballpark figure, but that is not necessarily the exact amount that somebody will actually be prepared to take out of his pocket to pay.
Here a little bit of economic understanding will help. Prices are determined by supply and demand. The more of anything there is, the less people will pay. The less there is, the more will people pay. And this keeps everything in a sort of stable equilibrium.
But then interest rates change. People cannot afford to buy as much. So price might come down on the supply side. But at the same time, the supply becomes less. So we find a happy middle between supply and demand again.
Then interest rates come down. People can pay more. But now something has happened on the supply side. The developers have stopped building! And it takes a couple of years to complete a new development. In the mean time, more people have finished school, started working, got married, and had kids. So the demand increased. So what should happen to property prices when then economic crisis has had its run?
But we are not working with an exact science. Always remember and always remember Donald Trump and the way he operates.
So, let me conclude these 21 quotes with a question to you: Just HOW serious are you about becoming wealthy? Just HOW serious are you about investing? Just HOW serious are you about being successful? If you are really serious, go buy the book and read it. You will learn a lot and get a lot more street smart.
And the best part of the book I have not even mentioned – that is the part where Trump completed the ice rink and Ed Koch, Mayor of New York said: “Trump put in a cushion and then he was able to reduce it by working as hard as he could with an elite crew, who new if they screwed up the job, they would never work for Donald Trump again.” And the question remains: Why did the City not do the same? But go read it for yourself. I purposely do not give a reference page!
Try to learn to always think like a person living on profits, instead of a salary.
15
2008
A couple of years ago I read the book The Art of the Deal by Donald Trump. I wrote down a few quotes that I liked. I am going to share some of those quotes with you. Sometimes with, other times without, any comment. I hope it ads some value.
“Nor was I eager to load myself down with huge carrying costs while my personal resources were still limited.
By devoting myself to other deals instead, I generated a cash flow large enough to support the carrying costs on virtually any project. I also built a record of success that made banks happy to lend me money for nearly any deal.” Page 327
This is the second last Trump quote. The first time I read the book I did not take more note of this quote than the others. But now, 8 years later with some more experience, I know I should have – if I did, my time to get where I am would have been much shorter!
Trump is ever the professional investor and dealer. And there are so many lessons in this quote.
Firstly, once again, patience. He knows where he is going, but he would rather take a couple of years longer than to have to start again. That is why he keeps his investments in line with his resources. I see it very regularly. People who want to go from zero to hero in one BIG step. Just to land up in a much worse situation than the one from which they started. Somewhere I wrote about it – you know, that one investment that you cannot really afford but simply has to have. The investment that is going to tie you down for 10 years, but you cannot live without it. That is exactly the opposite of what Trump did.
Trump focuses on what really matters when building wealth: Building a strong cash flow. If you have a strong cash flow, there is almost nothing in this world, financially, that you cannot afford. Building real wealth begins with building cash flows. Build them wide and build them deep. It is something that I learnt from network marketing. A strong network has many legs (i.e. it is wide), but for the legs have to be strong, it must have a lot of members (i.e. deep). If you build like this, the risk of losing all your income in one go is very slim. Robert Allen speaks of multiple sources of income. It is the same principle. Purportedly J Paul Getty said: “I’d rather earn $1 off 100 people than $100 off one person.” The same principle. Build strong cash flow and think of each income stream as a brick in your financial fortress.
Lastly, start small. It is a very much over looked fact, but ALL successful people started small somewhere. Warren Buffett started by delivering news papers. Richard Branson started with a student newspaper. Donald Trump started with smaller properties. There were many properties before the Twin Towers. Never forget that. The amazing thing is this: I have mentioned three of the wealthiest people today, and all have one thing in common. Warren Buffett invests in shares – to create a cash flow. In fact, in one of the biographies that I read, he says his one regret is that he used the cash flow of his first company, Hathaway, to buy shares to the extent that the business floundered. It’s never stated openly about Branson in any of the books that I read about him, but he could afford to do all the things he has achieved, because he has a nightclub somewhere that generates a good cash flow. And on page 327 of his book, Trump gives us the secret of wealth. Build cash flows.
Starting small has various benefits. A loss will hardly wipe you out forever. Smaller deals are easier to control with fewer intricacies, so your chances of success are better. And nothing breeds success like success.
Do you want to be wealthy? Do you want to know how to become wealthy? Take bite size investments that you can afford. And just keep on doing it, repeating it over and over. And just in case you don’t see it, with each successful venture, you will be able to take a bigger bite! And the best of all? It is not only money that we talk about, it is also knowledge and experience!