Latest / Money Grows on Trees / #275 - Australian Property VS Shares

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#275 - Australian Property VS Shares · Money Grows on Trees

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Had a doubt. If you have held property, you have built some
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form of wealth, even if we factor in inflation. Will property
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make you richer or will shares make you richer? It really comes down to how
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you're measuring richness. The leverage is where people love the property. However,
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with leverage, it only works when the asset goes up. So why didn't
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I buy property? What was it that about it that I didn't agree with
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in terms of getting rich, so to speak? is the fact that I had...
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I'm Lloyd James Ross, seven-figure investor and entrepreneur, and I've helped
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thousands of business owners and professionals turn financial stress into
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success. If you're stuck in old money habits, overwhelmed by investing,
0:35
or unsure where to start, this is for you. I'll give you the mindset
0:39
and strategies to take control, grow your wealth, and achieve
0:43
financial freedom. It's time to make your money work for you. Will
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Australian property or shares make you rich? Very
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controversial topic here. I dare say we're going to have some
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fights in the comments, maybe some love too, but usually
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fights. So if you've got an opinion on this, I'd love you to share it in the
1:00
comments below. And if you're enjoying this video and any of our other videos, hit the sub button,
1:04
share this with a friend, because we're going to talk about all the things you're thinking
1:07
about. Well, that's what my intention is with this episode. So will Australian
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property or shares make you rich? So let's define
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what we mean by rich. In my opinion or my
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experience, rich is someone who's got money and time.
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That's why it's got my little hat there, time rich. I've always
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tried to become time rich rather than just rich. And because if
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you have all the money and no time, are you truly wealthy? So
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we have to understand that's the definition we're talking about when we talk about
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becoming rich. Now, without question, if
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you have been living under a rock, you would not
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know this, but if you haven't been, which most of you wouldn't have been, which
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is great, you would know that Australian property has
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just been on an absolute tear. It's been growing very,
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very strongly, arguably for probably 50 years. And
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for all the reasons, I've got other videos on this that I've done, go check them out as to
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why that's happened and why I believe it will not
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continue to happen as it has. Without question, especially in
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the last few years since COVID, we've seen property values skyrocket by
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65%. So, without a doubt, if you have held property, you
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have built some form of wealth, even
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if we factor in inflation, right? Now, I understand that the
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Australian dollar has lost value through inflation over that time as well. So,
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the real returns of property aren't, you know, the 7.5% to 8% that people
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think that they are. However, By all accounts, it's been
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a hedge against inflation, and it's also been, there's
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been nominal returns that have made people wealthy. Here's why.
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Leverage. That's really why. It's where you
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use the bank's money, you put in a cash equity deposit into
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the property, and you're making, say, five
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to 10 times you know, five
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to 10 X returns on your cash deposit. So of course
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it's made people on paper richer,
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monetarily richer. So your net worth would have gone
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up, but has that made you richer in time? Or
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have you been someone who's just been working for the last 20, 30, 40 years
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just to pay the mortgage, just to build your portfolio, and
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are you still slogging it away, commuting every single
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day in two to three hour traffic just to build this portfolio? Because
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to me, that ain't rich. But
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without a doubt, It's difficult to say that people haven't
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built nominal net worth returns in property in the last 10, 15, 20, 30 years
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in Australia. And by all accounts in most places in the world, but particularly
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in Australia, because we have currently policies in
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place from government and the tax legislation and
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seemingly the cultural adoption of the fact
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that property is the only way to build wealth. But the reality is there's other
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ways to build wealth. And it's how I've built wealth because it turns out I've
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never owned property. certainly not directly, perhaps
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for a little bit of time, but not really at all. Even though I'm
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a property lawyer, I've cut my teeth
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in property development, I worked for the largest developer in the world for many years, and
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then I also ran a property investment and planning and marketing business for
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seven years with my dad. And
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so my whole background, I'm also a fully licensed agent, I've got a full real estate
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license, still effective, I had it for, since I was 20. So it's
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like 22 years I've been a fully licensed. I've been in
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and around the property industry a long time. So why didn't
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I buy property? What was it that about it that I
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didn't agree with in terms of building wealth or getting rich, so
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to speak, is the fact that I had to get debt and
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a lot of it. But also, the
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thing that you don't have with properties is not liquid. And so
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for me to be rich or wealthy is someone who can have what's called
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optionality, someone who can have agility, someone where
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you have the ability to grab cash, create opportunity and
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not bolt yourself to a death pledge for
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30 years. So for me, wealth and being rich is
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someone who has choice and options. So for me, I didn't
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realize, I didn't think that owning a property was gonna give me any wealth, sorry,
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give me any options or give me any choice. And in that sense, I
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thought this is really not the game I want to play. So what
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alternatives were there? I mean, I didn't really want to put my money into term deposits.
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I didn't really want to speculate on gold or precious metals. And
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I certainly, if you follow me for long enough, you know that I don't
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really want to touch cryptocurrencies. It's funny, actually, someone asked
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me to come on the show, and they said, Lloyd, I can see you're all about cryptocurrencies. I want to
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come and talk about it. I'm like, well, you obviously haven't watched the show. So
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I didn't want to speculate. So I needed to understand
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what other assets do I want to invest in. And then I came across, actually,
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what happened was I was in an airport one day, and I heard about a guy called
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Warren Buffett. This is many years ago. I was probably only 20. at
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the time and it's just 22 years ago. And don't
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forget, I live in like the mecca of property. I
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live on the Gold Coast in Australia, which is like everyone,
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you either, there's this funny joke here. If
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you're successful in the Gold Coast, you're either in drugs or
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real estate. Anyway, so obviously a
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lot of people have created a career in real
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estate in the city. So you've got to understand that's where I live. So I have
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all these external forces. family forces, peer
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forces, peer pressure, news, career progression,
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et cetera. All the little things I was doing. I was in the lion's den when it comes to
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property. But I heard that there was a guy called Warren Buffett who did things differently. And
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I needed to understand shares. So I'm like, well, what am I going to do? So I grabbed a book called
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The Snowball. It was the very first book on shares that I ever read. And it's still one
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of my favorite, if not my favorite biography on business or
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biography on someone ever. And it's a biography of
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Warren Buffett. And what I understood from that book was there was a penny
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drop moment. It just struck me when I read the book. I was like, ah, I understand. So
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when I'm buying shares, I'm buying shares in a business, but we can
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actually find businesses that are high quality selling for a lot less than they're
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worth. So by all accounts, I could find dollar bills
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and buy them for 50 cents. And that was a more fun
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game for me to build wealth or get rich because
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I had a science I could follow. I could see, I
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could understand that, see improperty. it's not necessarily always
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an auction driven market, right? So you don't have full price disclosure,
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you don't have, it's
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very highly negotiated deal making, okay? So
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what that means is, is you don't get, and because the market's not liquid,
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you don't get a lot of really mispriced real
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estate. Generally speaking, it's very, it oscillates very
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close to its fair value. Whereas in the stock market, because
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it's liquid, because it's an auction driven market purely, and because
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a lot of people are uneducated in the space, you get
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some really ridiculously good deals. And so you
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can buy pieces of business assets that are truly like
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marked way down. And so when I discovered that,
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I thought this is a better game for me to play. And I could start playing
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with small money. I didn't have to get any debt. And
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by all accounts, the richest people in the world held stock in
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public companies. And to this day, like Larry Ellison
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just became the richest man in the world, like last week. He
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is the major owner of Oracle, and he surpassed
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Elon Musk to become the wealthiest. So I'm like, who else is the wealthiest? And I looked at
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the list, there's like 12 or 13 top wealthiest in the world. And if you go down the list,
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you can see that there's Larry Ellison, you can see there's Elon Musk, you
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can see Jeff Bezos, you can see Larry Page, Sergey Brin, they
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created Google. And you can see Bernard
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Arnault, he is the owner of LVMH, right, Louis Vuitton. You
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see Warren Buffett in there, you can see Steve
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Ballmer. Steve Ballmer wasn't even the owner of Microsoft, he was the CEO
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for a while. But And Mark Zuckerberg is there who owns Meta, right?
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Started Meta. So if you look at this list, all of them own a
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large percentage of their public company, meaning they are the largest shareholders
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of those businesses. And they all pretty much own single stock portfolios.
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So isn't that interesting to see that the wealthiest people in the world, the richest in
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the world, actually didn't get there through real estate. They got there through
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owning shares in a public company. Yes, by all accounts, I know. I
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know. And you're going to put in the comments, yeah, Lloyd, but they have steerage and
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ownership and they can, I get it. irrespective. Steve Ballmer
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didn't. He didn't create Microsoft. He just held a single stock portfolio, I
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imagine, for a long period of time. He is now actually
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wealthier than Bill Gates, who started Microsoft for
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various reasons, because Bill's given away a lot of his wealth to charity. So
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if you look at that, then why would I play a game
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where the richest people in the world play and then I was going to go
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and play this real estate game? It didn't fit with me.
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You can definitely build wealth and
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get rich with stocks. Certainly
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with real estate, the key to that is the leverage, right? So if we
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look at how to get rich in real estate, it's a steady asset, income
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to service alone, banks are prepared to lend on it, you can use other people's
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money, highly leveraged, but you want to be buying near a city, near infrastructure,
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in a mature market, and you want to hold it for long periods
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of time. Yeah, you don't make as much money if you're chopping and
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changing and transacting real estate all the time because of stamp duty, transaction costs, etc,
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etc. So By
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all accounts, that's how you build wealth and property. But will that continue in
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the future? I don't think so. And if you want to understand my
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positioning on that, go and check out my previous video on is
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Australian property overpriced, because you'll see why I
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explain four metrics as to why I think it is. So go check out
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that video. The reason why I prefer
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stocks to get rich is because I can buy dollar bills for 50 cents.
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Let me give you some examples. Just quickly, if you're ready to take control of your finances
11:02
but feel stuck on where to start, I have a solution. My
11:06
book, Money Buys Happiness, simplifies investing and
11:09
wealth building with practical steps to help you achieve financial peace.
11:13
Get your copy via the link in the show notes and let's get your money working for
11:16
you. Now back to the episode. The smaller banks
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in America Started to go broke They
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they held their bond
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portfolios were positioned such that when rates started to go up
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in America, it started to make them insolvent. And
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so a couple of them went insolvent. In fact, there was some of the biggest insolvencies
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three years ago in American banking. And it was
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in the news. However, what happened was all the bigger banks that are
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too big to fail, the ones that were bailed out during the 2008 GFC, they
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did it, they weren't insolvent. But what happened is the entire banking industry
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got hammered. So because these smaller banks were
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being insolvent, it dropped the share price of all the bigger banks. And
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so one of the banks that I held, I bought during the GFC Bank
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of America, it fell from about $47 to about $24. And
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so I loaded in half a million dollars into that position, because the
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understanding is that One, it wasn't insolvent. Two,
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America was not going to let the Bank of America go broke because
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they didn't before and they won't again. Warren Buffett was a major shareholder. Other
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super investors were buying shares at the same time. Lee Liu, who
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was Charlie Munger's protege, who Charlie Munger, who's Warren
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Buffett's business partner, said, Lee Liu is the only one I've ever given Munger money to
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to manage. He gave him $80 million and he turned it into $800 million. So
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Lee Liu bought like, in fact, it was about, I
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think it was about 20, 30% of
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his portfolio. It might have been 20% of his portfolio put into Bank of America. So
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understanding these signals, I shifted in half a million. And
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of course, over the course of about 12 months, it went back up
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to around about $45 a share. And so it was an easy $250, $300,000. It
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was the fastest $300,000 I think I've made for a while. It was just
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quick. in
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terms of an undervalued security. So you can see that
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there's those opportunities out there. I mean, more recently as well, like even
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last night, I was looking at our Baba portfolio and we've been DCA
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into that at over seven figures in that one stock. And
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I think by all accounts, that should You never really
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know what's going to happen with the world, but it seems like it's taking China's
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share from NVIDIA now. And I believe personally, I mean, it's
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not financial advice, please don't go and buy it. I'm just trying to explain some examples here.
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There's really no reason why we shouldn't see that potentially 5X.
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So I should be able to make about 4 to 5 million out of
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that one position. And again, you may disagree
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in the comments. In fact, you're going to disagree in the comments. Go do it.
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You notice on all my videos, I reply to every single comment. You notice that?
13:56
And that's actually me. It's not a VA. I actually go
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and read all the comments. My friends are like, you're a psycho. You go read
14:03
all these comments. Some of them are brutal. I don't care. It doesn't hurt
14:06
my feelings. You're allowed to have your opinion. I'll come and fight
14:10
you in the comments. I don't care. Or I'll love you in the comments. Whatever. But
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let's engage in the comments. If you don't agree with me, put it. If you agree with me, great. And
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those who agree, thank you. It's nice to get some love. But I
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was in bed like last night. I was replying to all the comments. So
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this is some examples of how to build wealth in shares. I
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have mentioned before too that if you're not into finding individual securities and
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most people aren't equipped to do that. You have to educate yourself
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and I'm interested in it, right? I love to read balance sheets and income statements
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and cash flow statements to relax. So
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if you're not that way inclined, yeah. Buying individual stocks
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is going to be not the best option. But you can certainly dollar
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cost average, for example, into some sort of index fund. And if
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you look at, and I've shared this example before, I'm sure, there was a guy,
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Gary Bruce, I think his name was, he bought the LA Lakers. This
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is going to prove the power of investing in an exchange traded
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fund like the S&P 500 over a long period of
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time to get rich compared to property. This is why I'm explaining this concept to
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you. So Gary Boos bought the LA Lakers in 1975, I believe it
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was, for $67 million. A lot of money. He
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recently sold it, what's that, 50 years later, he
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sold it for $10 billion.
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And I often ask people, would you love to have those returns on
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your money? They're like, yeah, that'd be amazing. I mean, he put $67 million,
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he got $10 billion. Oh, I would love to do that. I'm like, well, that's fantastic that
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you'd love to because you can. They say, how? I say, well, If
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Gary had to put $67 million into the S&P 500 index
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fund in 1975 and held it, he would have close
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to $12 billion, so without any effort. So
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that's the power of compounding in shares. That's the American
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economic machine in play. So it's
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very difficult to suggest that always historical returns, either
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in property or in shares, are going to repeat in the future, right?
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history is a good, it's the only indicator we have of
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what may happen in the future. So if I had to bet on
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what would make me the richest, I mean, I feel like I'm
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playing the games that will make me the richest, not just in money,
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but in money and time. Because I don't have to
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manage tenants, I don't have to, I mean, I just, I
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know you get a property manager, please don't put that in the comments. But I
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just feel it's simpler to scale with
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ownership of shares in companies and even an ETF
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when you're making business profits. And also as an entrepreneur, it's a
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lot more It's a lot,
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it feels better to be able to access funds quickly,
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particularly if you're in opportunities. Like if I want to start a business and I need to find 10, 20, 30, 50, 100,000, like
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we bought a laundromat like, I don't know, a
17:03
year ago or something. And I had to secure that with about 200, maybe
17:07
it was 140,000 cash to secure that for part of the lending to borrow. So
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if I didn't have access to that, which I could have hit a button, sell
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some shares, boom, right? Whereas if you got a property, certainly
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you can use it as security with equity, which is super popular in Australia. However,
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if it's not for something like a business acquisition and you need it for something else like a
17:28
health emergency or whatever, it's just harder
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to get it quickly. You can get it with an equity loan, but you're
17:36
at the mercy of the banks then. And I don't want to be at the mercy of anyone, particularly a
17:40
bank. And so I just prefer to have liquidity. So
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if I think about what opportunities there are in the share market for
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owning great companies at great prices, holding for long periods of
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times and compounding at a very high rate. In fact, if you look at the compound rate
17:54
of shares versus property, prima facie absolutely
17:57
can't be disputed. Shares outperform property,
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period. They just do. But
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the leverage is where people love in property. However, with leverage,
18:12
It only works when the asset goes up. So if
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we went through, say, for example, some sort of correction in
18:19
the property market, all of a sudden you wouldn't like leverage, let me tell you.
18:23
You would dislike it very much because your
18:26
losses are amplified with leverage too. Now, can you find
18:29
leverage in the share market? Yes, you can. You can find ETFs that are slightly
18:33
leveraged or automated for you. But again,
18:36
you don't have to do that to get the returns. So to summarize this,
18:40
to really nail this, will property make you richer or
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will shares make you richer? It really comes down to how you're
18:47
measuring richness. Because for me, I mean, I'm sitting here,
18:50
what is it? I don't know what day of the week it is. This is a Thursday today. I'm cruising here,
18:53
came in the car, hang out with the guys here. And I
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woke up when I finished sleeping today. What a novel concept, huh? Wake
19:00
up when you finish sleeping. And I'm time rich. I'm
19:03
doing what I want to do when I want to do it with the people I want to do it with. So
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I'm not the richest person by money and there's so many people that
19:10
own property that are richer than me, like tons. Like some
19:14
grandmas that just sat on their house in Vaucluse, they're like 20 times
19:17
richer than me, right? But they still like aren't rich in
19:20
their mind because they're stuck to a job that I don't like. They
19:23
don't travel. Like we just went heli-skiing last week in Queenstown. Go check out
19:27
my Instagram profile. You might find a reel in there. And it was just because my
19:30
friend asked me, he actually did a pitch. He
19:33
did a PowerPoint presentation and pitched us. So we
19:37
said, yes. Right. So that to me is like someone who's
19:40
rich can do both make money, have
19:43
time. And I just feel like shares are
19:47
just so, give me so much more optionality. than
19:51
property. And that's why I feel personally that
19:55
shares are a way to make you richer
19:58
too. So that's my position on it. What do
20:01
you think? I'd love to know. How did you get rich? Put in the comments. Was
20:05
it property or was it shares? And what are your feelings about this?
20:09
Pop in the chat, pop in the comments and you'll know that I'm coming. I'm going to reply then personally. So
20:13
Thanks for engaging. Hope you've enjoyed the episode. If you've enjoyed this and I've imparted any
20:17
wisdom to you in this, then share this with a friend, hit the sub button,
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and I'll see you in the next episode. Thanks for listening to Money Grows
20:24
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20:34
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