Rule #1 Finance Blog

With Investor Phil Town

Being in the Right Family is the Key to Success

A few years ago I shot a pilot TV show at CNBC where the focus of the show was ‘how to get rich starting with nothing’.

I thought it was a great idea for a show and so did the producer. She brought in a live audience for the shoot and in that first show, I took on this problem: Why do some people come to America and get rich, while others never get out of poverty? What do some people have or know that makes it possible for them to start with nothing, work hard and become a huge success while others start with nothing, work hard and end up broke?

One of the great American myths is that anyone who is willing to work hard can become a success. That is manifestly untrue as evidenced by the millions of people we have on some sort of subsidy from the government, many of whom have worked hard their whole lives. Working hard is not enough. I dug ditches for a living and I can tell you that the guys I worked with worked really hard and none of them were getting rich. And I’ve worked with a bunch of rich guys who hardly work at all.

Warren Buffett and Charlie Munger, two of the richest guys in the world describe our method of making money as ‘laziness bordering on sloth.’

Mohnish Pabrai, one of my favorite hedge fund managers, was standing with his wife at a hedge fund conference when he was asked how many people it takes to manage a $1 billion hedge fund. His wife stepped in and said, “About 1/10th of a person.” If hard work is all that is necessary for financial success, a lot more people would be rich and a lot fewer people would be voting for Bernie Sanders. Clearly there is something else going on.

In his fine book on our style of investing, The Dhando Investor, Mohnish writes about the Patel family and provides us an answer to this difficult question. The Patel family is from India originally but in the late 1800’s many Patels immigrated to Africa and settled in Uganda. They brought with them an investing culture that ran back centuries and in Uganda the Patels used that knowledge to start with nothing much and become successful in the hotel and banking businesses. In 1960, however, a vicious dictator, Idi Amin, took over Uganda, forcibly ejected the Patels and stole their property and money. All of it. And so, the first Patels reached America in the early 1960s dead broke, glad to be alive and armed with knowledge and confidence in the strategy born of 200 years of familial success.

That first family immediately implemented the basic plan; they went to work for other people, saved money like crazy and in a couple of years were able to put a few thousand dollars down on a run-down motel in a bad location, a place that was losing money and falling apart, a property that nobody else wanted.

You may have never been to a motel like that but Melissa and I stay in those sorts of places pretty regularly. We travel on a Harley and, having had one stolen from us while we slept, we look for either a Four Seasons where theft is unimaginable or, if that isn’t available (and it’s usually not), we go for a motel that is so run down they don’t care if we drive the bike right into our motel room and sleep with it.

We like the folks that run these old beater motels; you go to the office and the place smells like curry and a 12-year old kid is taking care of business at the front desk. Peek around into the office and you’ll see Mom in the back doing the books while cooking dinner on a Sterno Stove. And Papa Patel is up on the roof fixing a leak while the two daughters are cleaning rooms.

The first American Patel family made a go of that first run-down motel and then they found another one that was on sale that they could buy with the cash flow from the first one. And they just kept doing that. And more Patel’s came over and did the same. Today, 45 years later, the Patel extended family owns 40% of the motels and hotels in America. If you’re staying in a Courtyard Marriott it’s likely you’re staying in a Patel property. And today the Patel extended family in America is worth billions, up from absolutely nothing 45 years ago.

Well, not nothing. They might have been broke but they had knowledge and they had the confidence that generations of success breeds.

The difference between the Patel family and most Americans isn’t hard work. Americans are famous worldwide for working hard. We can stipulate we all are willing to work hard if we know that what we’re working hard at will succeed. What the Patels have is a kind of almost genetic ‘knowing’; they know that sacrificing to save money and working hard on the family strategy will make them rich eventually. And they know that with total certainty.

The difference between the Patel family and other families is that the Patels KNOW if they apply the family knowledge, they will win.

This is not a minor point. I’ve climbed a few rock walls that go up vertically for 1000 feet which have been climbed many times by many climbers who are at my level. And I’ve tried to climb pitches no one’s ever climbed before. If you’ve never had the experience of trying something you know has never been done that there is a very big difference in how you go about it compared to a well-climbed route. The first obvious difference is that you don’t know if it can be done; it could well be impossible. Worse, it probably is impossible or somebody you know would have done it by now. Thus there is a high potential for failure and, as a result, you climb accordingly, defensively, always ready to retreat rather than extend. But if you’re following a well-defined route up a wall, a route where you can see the chalk marks from other climbers that show where they put their fingers, a clear trail up the wall that is marked by scratches in the rock where previously successful climbers placed protection, a route that is mapped and in great detail describes exactly what you should do, step by step and which you know has been climbed thousands of times before by climbers just like you, then you know you can probably do it, too. A climb like that is just fun. It’s not scary because you KNOW before you start that you can do it.

Back to the Patels. If you’re not privy to the Patel knowledge, how do you bridge the knowledge/fear gap and become the first of your family to climb this financial wall?

Phil TownMy answer is to join a family that will share the knowledge with you. That’s what I did 35 years ago. I was a river guide in the Grand Canyon and a guy on my boat invited me to join an extended family of investors. And not just any investors – the best investors in the world, arguably even better investors than the Patel family.

I learned the secrets of great investing from this guy who I met on the river trip; let’s call him my “Uncle”, the Wolfe. He taught me what he knew that he’d learned from his Uncle” Warren (Buffett) who learned from his “Uncle” Ben (Graham) who figured out this style of investing during the Depression about 85 years ago. That was 35 years ago and was pure luck on my part.

Today this family of like-minded investors is a lot larger and includes many great investors, people like “Uncle” Mohnish (Pabrai), “Uncle” Guy (Spier), “Uncle” David (Einhorn) and dozens more “uncles and aunts” who’ve made millions and billions following the family ‘wealth plan’, far more than all the Patels put together.

Our family includes several of the richest people on the planet (including the two richest) and our ranks are packed full of plain old multi-millionaires.

Fortunately for you, this big extended family of super-investors is handing down this precious knowledge from one generation to another. This knowledge is being passed to the next generation through books like The Intelligent Investor by Ben Graham, The Dhando Investor by Mohnish Pabrai, The Education of a Value Investor by Guy Spier, Fooling Some of the People All of the Time by David Einhorn, The Essays of Warren Buffett by Warren Buffett and by my two NY Times #1 best sellers, Rule #1 and Payback Time.

These books are all similar; they are the distilled wisdom of hundreds of years of investing experience about what I call “Rule #1 Investing” strategy, an investing strategy based on Warren Buffett’s statement that there are only two rules of investing: Rule #1: Don’t lose money and Rule #1: Don’t forget Rule #1.

If your family didn’t come from money and success and you’re stuck figuring out how to get up this vertical wall on your own, then I suggest you seriously consider joining our extended Rule #1 family where you can learn from the best investors in the world.

It’s not rocket science; it’s actually really easy and what better proof of that claim than the richest guy in the world, Warren Buffett, putting it like this:

“There seems to be some perverse human characteristic that likes to make easy things difficult. ….Those who read their Graham will continue to prosper.”

Join the family, study the best and the richest, and then do what they do. That’s at the heart of the Patel success for 200 years. It’s time to make it yours, too. Learn more about my 3-day transformational investing workshop from the button below.

Workshop Bottom Blog

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Phil Town is an investment advisor, hedge fund manager, 3x NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.
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