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What a teenage love of luxury cars taught me about financial leverage.
Given my early interest in imported European cars working at a service station in Melbourne’s suburb of Eltham, it was probably predesigned that expensive cars would play a significant role in my life. Soon, the penny dropped that I could ‘leverage’ an opportunity to create serious wealth as a teenager.
I was about 16 and I recall that where I was growing up there were vandals using screwdrivers to take the badges off the bonnets of expensive luxury cars such as Ferraris, BMWs, Mercedes and Porsches to either sell or keep. It was maddening for the owners of those cars because to replace the brand badges cost hundreds of dollars and was a major hassle.
About that time, I was on a holiday in Hong Kong with my grandfather and I noticed a shop selling those same car badges — I assumed they were replica badges—for $7 each. They came boxed up and professionally presented and I was impressed with the quality.
As a result, I bought some in Hong Kong and when I came back to Australia, I approached a few luxury car clubs to promote the replacement badges to their members. I did some rudimentary advertising and branding and sold them for close to $100 each—about a quarter of the price car owners paid the dealers.
The business took off! By the time I was 19 I was earning close to $18 000 a month in this car badge trading business, while starting a law degree at university. I was even able to put a deposit down on my first home with the money I was making. I couldn’t believe my luck: I would put in an order from the supplier in Hong Kong and sell them locally in Melbourne.
One day, just before my 20th birthday, I received a letter from the head office distributor of Ferrari. I’ve got to say I opened the letter with trepidation. It was a ‘cease and desist’ legal letter, threatening me with legal action if I didn’t stop selling my Ferrari badges. They invited me to a meeting to discuss the matter in person.
I went along to the meeting, and they wanted to know where I had bought the badges. I explained about the shop in Hong Kong, and they asked me to sign a legally binding document, a release deed, that effectively prohibited me from selling them in Australia ever again. I was then asked if I had any more badges. I replied, ‘Yes, of course’. I had put them in my car boot because I thought they might want to confiscate them.
On inspection, the Ferrari executives were surprised to see there were hundreds of badges. I explained that I had spent thousands of dollars buying them and did not want to just give them away. The Ferrari team then offered me an undisclosed sum for the badges. I agreed to their offer on the spot. Those funds allowed me to almost pay off my first home mortgage and got me into property investing in the mid 1980s.
Eventually, I would also run a property development company as part of my investment corporate structure which today globally helps manage $21 billion in funds.
I learnt a great deal from that teenage experience. I learnt the fundamentals of finding a scarce resource and selling it at a sizeable margin. I discovered the power of networking and marketing as well as the importance of distribution chains, from the supplier to the end consumer. I also learnt that you have to leverage an idea and plan a business strategy.
In short, I learned the beginnings of what I collectively call ‘intelligent leverage’.
Today leverage comes in many forms:
Financial Leverage: when an individual or small business uses borrowed funds to invest or grow its business. Financial leverage also includes getting the right tax settings, looking for investment opportunities, getting out of the mindset that superannuation will always look after your retirement and getting active when it comes to setting financial goals.
Human Leverage: getting the most out of your own skillset by asking yourself, Am I focused enough? Do I know what I want? Do I get enough sleep? Add to that using other people’s time, skills and resources to enhance your investments or to grow your business. Getting the right advice is critical, whether it’s from a financial expert, research analyst or a mentor who’s already been successful in what you’re trying to achieve. Networking is also critical to great outcomes.
Physical Leverage: being match fit. We all know running a small business or managing your own investments requires putting the time and effort aside for research — and that requires considerable physical and mental commitment. To be successful, you need to be up for the fight, which means keeping fit and alert, managing your time better and setting goals for your own personal life that enhance your financial goals.
Informational Leverage: information is king and that means keeping up to date with the trends and issues that can affect your investment goals or the external actions that can affect either your business or the business in which you’d like to invest. This in turn means doing lots of reading and exchanging information with people on the same journey as you. In the future, it will also inevitably mean embracing AI technology. But you must never give up control of the direction in which you want to head, so think of AI just as another helpful tool.
Intelligent Leverage involves leveraging all your competitive advantages in the most intelligent way and controlling the structure and platform of your asset base and building the right networks and ecosystem to catapult you into the next stratosphere towards financial independence.
