can anyone become wealthy using Peter Spann

[dallee]

Financial market 'truisms'

There are a few truisms that I'm afraid I no longer believe after having been just an average client of a reputable financial advisor in October 2007, who recommended investing in a 100% negatively geared market portfolio - the first is that time in the market is more important than timing and the second is that it is better to ride the market out than pull out when the going gets tough. It will take many years to regain the $70k I have lost and for those companies that have gone into administration to be wound up allowing me to register the capital losses. So this is what can happen by fully following the advice of a financial planner. However, life is not as grim as it could be. Against the advice of said planner, I purchased a blue-chip property in a metropolitan city at the same time, and its valuation is now $68k higher. I'm afraid the experience has really put me off financial planners - no matter how successful they and their more wealthy clients are.

 

[Peter Spann]

Change of tune

THIS is why I changed my tune:

157 properties @ an average price of $350,000

$54,950,000 in property.

Total borrowing: $35,700,000

Equity: $19,250,000

Interest bill: $2,674,875 p.a.

Total income $50,240 per week

Total interest cost: $51,439 per week.

Other costs (approximately): $1,099,000 p.a.

Shortfall: $1,161,348

Estimated capital growth: $4,320,000 p.a. at 8%

Share portfolio required to generate sufficient income to cover shortfall (approximately): $6,000,000

Or:

Sell and use profit to combine with covered call portfolio (approximately $26,000,000) at 24% p.a. equals gross yield of $6,240,000

Capital growth estimate 3% p.a. $780,000

Net cash flow gain = $1,920,000 + franking credits of $720,000 p.a.

Total gain (capital + income) = $3,420,000 p.a.

Debt = ZERO!!!

Now, it didn't turn out exactly like that but I am sure you get the picture!

 

[ColonialBoy]

But I do not know many rich people who’s investments consist almost entirely of residential property (in fact I can on think of one, Harry Triguboff, perhaps Australia’s largest holder of residential property – but then again he has a serious sustainable competitive advantage against most property investors in that he acquires his properties at such a significant discount to the market the yields and growth is magnified exponentially).

That's a fantastic post Peter. Triguboff was famous for telling people that the market is "terrible" in order to scare off competitors.

I worked as a computer contractor in Canberra for some time. One friend also a contractor, turned a $70K stock investment into $700K using speculation, then turned that into $4million using real estate and stocks. That was 10 years ago and he was under 40, so now I would expect him to have well over $10M. This guy was smart, he had degrees in economics, law and computer science from ANU. And no wife/girlfriend.

If you read http://en.wikipedia.org/wiki/The_Millionaire_Next_Door , the guy running a cleaning business, living a modest lifestyle can easily be wealthy.

 

[chilliaa]

Peter one quick question,
For your listed investment vehicle, FOX investments (Code: FXI),
In your latest reported NTA dated 15 May 09, you compare the movement in FXI's NTA to the XJO. Why dont you compare it to the accumulation index (which includes dividends), given that your NTA includes the bennefit of dividends.

 

[Piston Broke]

I used to run a seminar on it!

It was'nt in the "Property magic" audio set.

If you want to discuss portfolio theory then I can happy to.
We live on different planets.

You can discuss that with the "expert" fund managers who also blame the market for their losses.
All Ken French's portfolios are losers, all the equity funds he "advises" most are losers >30% this year.
He likes to associate himself with Black & Scholes who sent LTCM bankrupt with their BS theories & models.
What is there to discuss about academic BS that only works when the market goes in one direction? Who loses the least? lol
My trading was up last year and is up this year. There is such thing as timing, it's not precise but still better then the one way only approach.

 

[chilliaa]

Peter one quick question,
For your listed investment vehicle, FOX investments (Code: FXI),
In your latest reported NTA dated 15 May 09, you compare the movement in FXI's NTA to the XJO. Why dont you compare it to the accumulation index (which includes dividends), given that your NTA includes the bennefit of dividends.

I just did a quick analysis.
Using the S&PASX 200 accumulation index
31 May2007 as the base: Index: 6314
30 April 2009 index: 3781
Which gives a fall of 40% over the time frame.

Use NTA for Fox Investments + add back the single dividend paid of 12c per unit.
FXI NTA 31 May2007: $1.3064
FXI NTA 30 April 2009 $0.628+0.12c dividend= $0.748
Which gives a fall of 42% over the same time frame.

 

[Trogdor]

I just did a quick analysis.
Using the S&PASX 200 accumulation index
31 May2007 as the base: Index: 6314
30 April 2009 index: 3781
Which gives a fall of 40% over the time frame.

Use NTA for Fox Investments + add back the single dividend paid of 12c per unit.
FXI NTA 31 May2007: $1.3064
FXI NTA 30 April 2009 $0.628+0.12c dividend= $0.748
Which gives a fall of 42% over the same time frame.

I think you need to use the 12c div to buy more notional shares on the dividend pay date at the then market price.

Then multiple the new total no. of shares by the prevailing price on the 30 April 2009.

That would be a fair comparison.

 

[Rob Williams]

I saw Peter Spann speak at the Kiyosaki seminar this morning. Never seen him before. Seems like a nice, smart, charismatic guy.
Maybe I'll have a look at his books and make up my own mind as he seems to polarise people on the forum.

 

[Ms Jade]

I saw Peter Spann speak at the Kiyosaki seminar this morning. Never seen him before. Seems like a nice, smart, charismatic guy.
Maybe I'll have a look at his books and make up my own mind as he seems to polarise people on the forum.

Sounds like a good idea, Rob. I would think most of the negative opinions are held by people who haven't been to Peter's seminars and aren't his clients. Any seminar presenter is a sitting duck target (and understandably so).
IMO you have read Peter right. I haven't seen Peter for a few years but, like the vast majority of attendees, I trust the man absolutely. Anyone who thinks he is some sort of snake oil salesman has a dysfunctional BS meter. He also knows his stuff and I take his opinions seriously, which I don't do with many commentators I must admit. Doesn't mean he doesn't make mistakes, though - he's a guy, not a god. Although that does remind me of a crack he once made about starting his own religion: Spannism. LOL

 

[evand]

Peter is firstly a marketer and secondly whatever he's doing at the time that can be marketed. And theres nothing at all wrong with that.

 

[RumpledElf]

I suck at marketing and so does my partner, which is actually a problem. We'd rather both hide under a rock and hope someone notices us than get out there and blow our own trumpets. There's a place for marketing people but the buggers don't stay in their place, they ... sell seminars

 

[Peter Spann]

The "other" PS story

OK, this is going to seem odd to anybody following this thread because it is actually a reply to a post in another thread but I think it is more appropriate here so forgive the cut and paste:

Quote:
Originally Posted by Piston Broke
See I reckon your strategy would've needed a bit of cashflow and jumping through some financial hoops at the time.

Absolutely!!! (See below)

Quote:
Originally Posted by Piston Broke
Those early days did'nt have 100% finance (or did they?) for a home buyer or normal IP buyer as far as I recall.

Nope, in fact I didn’t know you could get it now?
I was lucky to get 70%. Now that's 70% all up. The bank would still allow me to draw down on equity to buy additional properties – so effectively 100% finance on the second property but not 100% finance. I would still have to maintain 70% debt to equity overall once the reno had been completed, hence so many sales.

Quote:
Originally Posted by Piston Broke
Am I missing something? Was financing only difficult for others?

No it was tough for me too - I went cap in hand to my bank like everybody else. But then I got a REALLY good commercial banker at St George and things picked up dramatically from there. Two of the saddest days of my life are when he left St George and my recent bank buddy left NAB.

But I have never been one to let a few hurdles slow me down - there's a way around everything!

Quote:
Originally Posted by Piston Broke
But I read none of this, nor hear anything in Property Magic cds. Am I missing something?

OK, obviously I am not going to go and listen to my own CD's - I'm not sure I still even have a copy but this really surprises me that you've said this. The book, especially the first chapters is all about this period.

This story is pretty well known amongst my “followers”, particularly those who went to the early seminars (there’s even a thread in here about it) but I am happy to retell...

My original strategy was to buy, renovate and sell property to generate income - it was my side business if you like.

As you rightly point out I started all of this in 1989 and did much of the early work in "the recession we had to have". I wasn’t really relying on capital growth, just value adding.

I bought my first property when I was still at Wollies and I think I had done one or two more whilst I was still there, but then got a job at Results Corporation as a copywriter. My pay leapt ahead and that allowed me to tackle a couple of renos at a time. Then I was promoted very rapidly and got really good commissions which allowed me to rapidly pay off my (bad) debts and progress to more properties.

I stalled a little for a couple of years because the job was very demanding (as you would expect for what they were paying me).

Then I left Results and set up SMAARTco (the Strategic Marketing, Advertising and Results Producing Company - lame I know) in my boat shed as a marketing consultancy. We got lots of business but I wanted a break so didn’t do much, even still we were paid very well and the company was making about $300k a year net profit.

My best friend Leisl left her modelling and came to work with me in the renovation business. Her mother contributed some additional capital (as a JV partner) so we moved ahead more rapidly at this point. My friend Ian M (the original "Wealthy Friend" - the one with the Rolls Royce in the book) also came on board as a JV partner on the insistence that at some point we cash out and donate the growth and income from his capital contribution to charity. I didn’t have much capital so both those inputs were great although I couldn’t have imagined the impact of the latter commitment many years later.

Now we didn’t have a systematic business buying and selling property – it was more of a hobby so the numbers and results were far more random that it may seem. That’s why I used to say to my students that if I can do it with such a motley approach people who were focused on it should be able to do much better. Leisl and her mum are both lovely but Leisl is a designer and let’s just say her mum is a visionary so as you can imagine our project ran well over time and budget and sometimes their, err brilliance wasn’t always appreciated by our target market (heck even our bank!) – but gee the properties always looked fabulous (and were often featured on Vogue and Belle)!!!

Then I started to do business seminars. We mailed 213 people about a seminar we called SMAARTank (you know like think tank!) – I still remember that number to this day. I was so scared that I would get no response to our first mailing I couldn’t even go to the post office for a week after we sent it and I refused to put our phone contact details on the mailing in fear of somebody ringing in and then I’d have to sell myself. Leisl was so scared she refused to answer the phone and diverted all calls to our pager.

When I finally made it to the post office there were 23 bookings with cheques ($2,980 each) and the rest is history. I can assure you making about $50k clear for 4 days work was a BIG deal back then and I had a great time presenting. And I think I changed quite a few lives. There were people at that seminar who are still friends today (a few are acknowledged in the book and the Pharmacy assistant you referred to that later featured in my property book was there too). I have the group photo taken at Netanya Noosa still framed and on my sideboard at home.

Our next seminar mailing was in the post the next week using all the testimonials from the first. There also happened to be two of the most successful pharmacists in Australia at the original seminar (including the President of the Pharmacy Guild) and their endorsement saw heaps of pharmacists attend the second seminar. We had 311 at that about 190 or so “primary delegates $2,980 and the remainder “secondary delegates” at $980 each) – you can do the maths. So if $50k net profit for a first seminar was a big deal you could imagine how BIG a BIG deal THIS was!!! In all the years we did those business seminars (and we did them 2 or 3 times a year with usually 200 to 300 people attending) I only had one refund.

After that I dabbled in development but that went askew too often (and almost sent me broke twice) so I concentrated on the renos.

After a while in the business we focused exclusively on pharmacies because we had so much success with them. That’s when we started “Fullife Pharmacy”.

I started doing Wealth Creation talks to the people who came to our business seminars over the lunch breaks and so on.

Then, and off the top of my head I can't remember when, somebody asked (probably one of the damn Jan Somers fans!

) why I sold everything and pointed out that if I had held some of those properties I would probably have been better off with the capital growth.

The fact is I did hold some of my property because I couldn’t always sell it at the prices I needed, but that wasn’t a deliberate buy & hold strategy. My real intention was always to sell at a profit.

So I adjusted my strategy and started holding property.

That’s how I “invented” leapfrogging.

Now even though we were doing well in the business I still suffered from the same affliction as most business people – we’d get to the end of a year and have made a “big” profit which I had to pay tax on and had no cash to pay the tax and couldn’t understand what happened to all the profit. I noticed the negative gearing benefits of that property I held was having a considerable benefit to my tax position and so that cemented the issue for me and I became a convert to buy and hold.

(See, new information, new experience, new strategy – is it so hard to believe that with new information, and new experience many years later I would change my strategy to focus almost entirely on shares?)

So I am guessing that the "back story" wasn't included in the CD's because by the time of the seminar I had changed strategy and it wasn't relevant. People want, more than anything, clarity so if you chop and change they get confused. The amount of times I've had to answer "why did you change to shares" should be proof positive enough of that to suggest why it was worthwhile not to dwell on what I had done previously.

I DID add my “buy four get one free” strategy in the seminars later to demonstrate how I funded the acquisition of so many properties from an equity point of view.


Speaking of shares it was around this time I “discovered” covered calls. I still needed more cash flow to fund my burgeoning property portfolio. It had become a beast devouring all my cash despite my “buy four get one free” strategy I was still holding more property than I could afford so I needed cash flow and covered calls provided it.

So a circle was set up. The business generated cash which I would put to shares and write calls against which would produce the cash to fund my property portfolio which threw off tax deductions to help with the tax in the business. It didn’t always work perfectly but it worked well enough. The more that built up in the share portfolio the more property I was able to buy. And I kept doing that until I accumulated 157 residential properties and about $6 million in shares.

Now before you get all “Oh, now I see, it was the business that generated his wealth – yes, I made no secret in my seminars that I had done well in business but you also have to remember after paying for my lifestyle there was far less left over in profit to put to investing that I would ever like to admit. In fact sometimes I was spending more than the business generated and often paid for things out of my trading account.

Remember I bought my first Ferrari when I was 27 (16 years ago), and have owned 11 since. I travelled extensively in the 90’s - first class everywhere, went to every seminar invented, etc, etc, etc.

Really it was the covered calls that ended up being the secret to my success with this wealth creation strategy. There is no doubt that the business gave the “cash flow credibility” to the banks to continue extending my debt but in reality the money came from the covered calls.

As much as I whinge about the Peter Sun people selling decade old material, that seminar was a turning point because one of the speakers didn’t turn up and he asked me to talk about my investing. We got a fantastic response to my off the cuff presentation and it was the first time I had taken the wealth material “out for a spin” in a real seminar with people who didn’t know me. In fact I got 3 standing ovations and to a speaker that’s like freebasing crack!!! I was hooked and already had decided to do something with this when a man called Justin walked up to me and said “loved that wealth creation stuff, do you do seminars in it?” If there was one thing I learnt from all those Tony Robbins seminars it was “act as if” so I said “Sure!” Justin replied, “Well I have a friend who’d love to meet you.”

During the “hot seat” part of the seminar we became instant friends – we cracked each other up. I have no idea if the advice we dished out was good but we had a great time. So he DID introduce me to Gary who owned Hudson and they promoted my first wealth seminar “The Seven Ultimate Wealth Strategies” – it was awful, so after a quick rewrite we did “Welcome to Wealth” which was very well received and was first presented in the Brisbane Convention Centre to 1,100 people, then to bigger numbers in Sydney and Melbourne afterwards. On the back of that success we built “Wealth Magic” and again the rest is history. We had over 70,000 people attend “Welcome to Wealth” in the ensuing 5 years and 17,000 people attend “Wealth Magic” – glorious times!

Of course my story had lots of appeal – nobody was doing wealth seminars back then, or if they were they were financial planners and so on doing small boring stuff. Really I am not sure what inspired people more, the story or the content. To this day I wish I could go back to that style of over the top seminars we used to do.

The graduates inevitably took more action afterwards and certainly took more responsibility for their outcomes. I still have thousands of testimonials from people who attended and get at least one or two “you changed my life” emails a week – fantastic stuff.

To this day I still believe I am one of the few people (possibly the only person) who had a lifestyle people desired and real sustainable wealth BEFORE I started doing wealth seminars.

And then along came Henry Kaye (and other shonks) and ruined it for everybody. We had a license by then and our compliance office was paranoid about “death by association” so, despite the fact they were still profitable and that they were getting great results we stopped doing them.

I KNOW for a fact HK had very little before he started doing seminars. Why? Because he was a graduate of my seminars and I have the original questionnaire he filled in and P&L / Balance Sheet that was in there. These questionnaires were a throw back to when Hudson promoted the seminars – they used them to do consultations with the graduates to sell them finical planning and were very successful in doing so. Plus Hudson looks after their clients so I am sure they have many happy people who “came on board” after those original seminars.

HK came to me with his “enhanced leapfrogging idea” as he called it. My GM, Ian Low was at the meeting. For the first 45 minutes of his pitch he had me convinced he was a genius who had invented a completely new way of creating wealth through property. It was amazing, so I fully understand why so many people got sucked in – if he had an “experienced player” like me hooked I despair for how easily other could have been taken.

He wanted me to promote it and at that moment I was certain I would and EVERYBODY would make a fortune – me, him and all our clients.

However after another 15 minutes of me asking questions that ONLY an “experience player" could or would ask, I was truly scared. As we walked out of the meeting I said to Ian, this is going to end in tears. It was, as history has shown, a house of cards.

We passed on the “opportunity” thinking he’d never get off the ground without our help. How wrong I was – literally then next weekend he had ads in the paper (bigger than ours but the same basic promise), venues booked (same ones we used) and seminars ready to go (we used to charge $2,980 – seen that before?), he was charging $15,000! And then he had another back up seminar that was $25,000! I was blown away, especially when he got similar numbers to his seminars that we did. I still want to know what happened to all that money. I know how well we did out of our seminars and he was charging a minimum of 5 times what we charged.


I took about a year off and then started to build Freeman Fox as a financial services firm.

The property legacy was still there in my mind and it’s hard to shake off that, hence PF1 and PF2. They were based on the leapfrogging strategy which I had done so well with myself and with JV partners, but in hindsight we needed to raise a LOT more money for them to have had a chance in a public, listed company.

Foolishly, and this may seem counter intuitive to my critics, we actually knocked back millions of dollars for PF1 wanting to “trial it” with $5M before raising more. The biggest issue with PF1 was we got stuck with a group of properties we couldn’t sell, we didn’t have sufficient cash to keep going and the costs (yes, yes, including fees) of running the company ate away at its capital. Then when we finally got more cash we had to keep it in cash because of our covenants with the bank and couldn’t redeploy it. I’m not saying if we had twice the funds it would necessarily have been a better outcome but I am pretty certain it would have been. I am not even remotely happy with the results from PF1 and despite the logic of what I have just said find it hard to justify the outcome. PF2 has fared a lot better and the underlying investments it has have great upside potential despite the lack of short term profits. I don’t feel it necessary to comment further in this forum (and indeed legally I cannot), about that and we are working hard now to get those back on their feet and working to the best of our ability.

I AM, despite the criticism in here, happy with the performance of FXI. You can judge it however you like but there is only one arbiter as far as I am concerned and that is our shareholders. A LIC was probably the wrong structure for that – it would be better as a Managed Fund, but we were influenced by the lawyers and the “trendiness” of businesses like ours raising LIC’s at the time. It has consistently outperformed its benchmark. I was asked why I don’t apply a different index to it, err, that’s because its benchmark IS its benchmark.

And I am proud of the portfolio of managed funds we recommended to our clients. People forget we achieved an average of 24.3% annual compounded return for 7 years prior to the GFC.

If I had my time over and I could go back to year 2000 (heck if I could go back to 1995 before our seminars took off), I would have started one fund and one fund only, probably based on Covered Call strategy and just focused on that. I think we would have done very well and although we’d be down from our peak now (Covered Calls being essentially a long only strategy) I think with the type of premiums we’d be getting now we’d almost be back to even and maybe in front. And we’d be WAY up on any original investment.

A couple of years ago I would have added my Emerging Markets fund – something I am VERY passionate about. Although it too is down it has substantially out-performed its benchmark and I am proud of that. It’s that type of clarity from hindsight that I wish I had in 2000 when we started winding down our seminar program and I was looking around for “what next”.


About 2002 my friend Ian M, (as distinct from my friend and GM, Ian Low), who I hadn’t seen for years (even though he was still a JV partner) popped up again and reminded me of my promise to cash out his part of our portfolio and donate it to charity. It was that meeting that promoted my own rethink over the next few years about my own strategy. From 2002 to 2007 I sold off almost all of my properties (I still have 14), collected thousands of now probably worthless trees to fend off some of the bongo tax on those sales, donated Ian’s share and 10% of my share to charity and put the rest of my share into my business, our funds, and the share market.

And that’s about where we are today.

Most of this should be pretty transparent from the books (hence my surpise by you saying "I read none of this"), especially in "From Broke to Multimillionaire" but there is less detail in there because the original book was supposed to be about a fictional character (ala “The Instant Millionaire” by Mark Fisher which I loved) but after the publisher read it they wanted it to be about me, and that’s why it ended up being a “version of my own life” – if you go to the epilogue it clearly points this out – that I changed the sequence of some of the events and added some anecdotes, and why “my wealthy friend” went from being a fictional character who had a name to just “my wealthy friend”. Again I point out in the epilogue it was an amalgam of many people, learning’s and experiences. I didn’t want people to think they needed just one mentor. Originally I named Skroo and Frank in the book but the lawyers wanted me to fictionalise their role in my story. There were also three other real people who were named in the original book but who were deleted.

Hopefully that fills in the blanks for you. And please don’t ask me about the precise time line – it would take me hours to reconstruct that (it’s already taken me 3 1/2 hours to write this).

 

[Peter Spann]

Continuation of above

Quote:
Originally Posted by Piston Broke
Most of us agree that RE is cashflow starved, but you can't grow much without it.

Agree 110%.

Residential Property's two greatest down falls are its lack of liquidity and low yield. But on the upside you are compensated by stability of pricing and good long term growth.

Remember I have said it is the volatility of the share market that keeps out most players but makes it so attractive to me – the arbitrage in pricing unavailable in RP.

Hence my religious like conversion originally to covered calls (cash flow)and then subsequently to equities in general.

 

[evand]

Great post Peter. Kudos.

 

[Peter Spann]

Quote:
Originally Posted by Savanna100
Peter, the timeline thread was awesome, thanks so much for putting in all that weffort to write it out, I found it inspirational, particularly the bit about how you got into giving seminars and how you were very nervous at first.

I'd love to do small seminars on the "insider secrets" of getting development approval (I think there might be a market amongst beginning developers) but I'm actually quite shy so its nice to know that someone like you was nervous too.

thanks heaps

Look if you've got something to contribute get out there and sell it!!!

I'll run interferrence on the mob that'll jump on you in here for daring to sell knowledge!!!

My skin is as thick as an old bull elephant these days but I sure nearly wet myself the first time I went on stage. Actually, that was fine - I almost wet myself when somebody asked me a question!

Thanks all, back to work for me!!!

 

[HiEquity]

Great post Peter. Kudos.

x2 - Thanks for taking time out to type that! More kudos...

 

[eggnog]

glad to see your still around peter. sorry to hijack thread.

I understand your a busy man so not sure when you'll next read the forums, so while your still here hows that land bank riverfront syndicate out towards moggill going. I believe (off memory) you had an initial proposed council DA lodgement timeline starting circa 2010. Would be interesting to know hows it going.

 

[kissfan]

Thanks for the effort to write that post Peter.

The thing I admire about you is that you are someone with runs on the board, let's say you have status, and you still find the time to reply on forums like this. A very rare thing these days.

FWIW, I attended one of your 3 day courses (at Randwick) many years ago.

Regards
Marty

 

[geoffw]

FWIW, I attended one of your 3 day courses (at Randwick) many years ago.

I may have seen you there. But I don't remember anyone with the Kiss makeup

 

[kissfan]

I may have seen you there. But I don't remember anyone with the Kiss makeup

Lol Geoff. I can recall getting divided up into groups where I was made our 'leader'.

We did a version of " Spanny, how I love you, how I love you, my dear Spanny etc etc" to the tune of Al Jolsons' Mammy.

Yes, in hindsight I should have put a twist on a KISS song.

Regards
Marty