There’s a lot more work to do if you want your passive income to become massive income. And it’s lots of fun! Larry will tutor you as you enroll in the school of life and learn from the failure and success stories of a self-made taipan, a computer genius and Pinoys who are working at thinking rich. As you aim to “make the grade” in staying rich, you’ll learn more about: l How to determine your financial report card so you motivate yourself by measuring your way to financial freedom l How to amass wealth with Larry’s 5/7 program The myths Pinoys have about making money and how to debunk them with the right beliefs l The Four Types of Thinkers l The Six Levels of Pinoy Investors l How to TLD (Think It, Learn It, Do It) your way to massive passive income (the key to financial freedom) Combined with Think Rich, Pinoy!, Grow Rich, Pinoy! will challenge you to say to yourself and to the world, “YAYAMAN AKO.” And to act. grow rich barcode.pdf 11/13/06 www.shepherdsvoice.com.ph ISBN 978-971-93671-1-6 Larry Gamboa, PhD l 1:13:47 PM From the best-selling author of Think Rich, Pinoy! Grow PINOY! By Larry Gamboa, PhD t gh . tau rks oa wo mb ey z Ga on che rry m an La e how Bo S m – In the wake of the stunning success of his first bestseller, Think Rich, Pinoy!, author and real estate investor Larry Gamboa continues to impart his hard-earned wisdom on how to stay comfortably and confidently wealthy for years to come. GROW RICH, PINOY! Learning the secret of how to become rich is one thing but how to stay rich is another matter. GROW RICH, PINOY! By Larry Gamboa, PhD Edited by Coylee Gamboa and Rissa Singson GROW RICH, PINOY! ISBN - 978-971-93671-1-6 Larry Gamboa, PhD Copyright © 2006 by Shepherd’s Voice Publications, Inc. 1st Reprint September 2007 Layout and Cover by Kelly S. Jugo Illustrations by Jose Benedicto T. Gamboa Requests for information should be addressed to: SHEPHERD’S VOICE Publications, inc. #60 Chicago St., Cubao, Quezon City, Philippines 1109 P.O. Box 1331 Quezon City Central Post Office 1153 Quezon City Tel. No. (02) 411-7874 to 77 Fax No. 727-5615 e-mail: sale@shepherdsvoice.com.ph All rights reserved. No part of this publication may be reproduced, except for brief quotations, without the prior permission of the publisher. To Bel, my kid sister. You challenge me to be a better kuya. Contents Preface 6 Foreword 9 SECTION I What Keeps Pinoys from Thinking Rich 12 Chapter 1: It’s All in Your Head 35 Chapter 2: What’s Blocking You? 59 Chapter 3: 11 Myths Pinoys Have About Making Money Chapter 4: The Four Types of Thinkers 75 107 SECTION II Some Pinoys Who Are Thinking Rich 126 Chapter 5: 128 Stewardship in Action By Charlie Gamboa Chapter 6: Building Wealth Requires Hard Work 141 By Ronald Cagape Chapter 7: Lessons from an Apprentice By Roy Nabong 153 Chapter 8: Learning the Ropes 165 By Giovanni Olivares SECTION III Guidelines for Growing Rich 177 Chapter 9: Think It 179 Chapter 10: Learn It 197 Chapter 11: Do It 203 Chapter 12: The End Is Only the Beginning 212 Chapter 13: Conclusion: A New Beginning 217 Preface When I was four years old, I almost drowned. And for the longest time, I never learned how to swim. I was horrified of the water. I never went in. I just stayed in the perimeter, playing with the sand in the beach. Consequently, I built the most sophisticated sand castles for kids my age. (Every catastrophe has a bright side.) But at the age of 12, it happened. With my heart palpitating, I walked into a shallow pool, lay face down and, wonder of wonders, I floated. It was exhilarating. The water was carrying me. It was an overwhelming feeling I’ll never forget. All of a sudden, I knew how water worked. In the same way, there was also a time when I didn’t know how money worked. Grow Rich, Pinoy! Proof? I was drowning every day in financial lack. I didn’t know how to keep it, how to save it, how to invest it, or how to multiply it. I never read anything about money, and never thought about it, and never talked about it. So I kept asking God to bail me out. Consequently, I’ve experienced quite a number of money miracles in my life. These were my sophisticated sandcastles. And they didn’t last too. They would be washed away by the waves of my next financial problem. But one day, I learned how money worked. Strange sounding words became my friends: Cash flow. Savings. Interests. Bonds. Mutual Funds. Stocks. Business. And real estate… In the past five years, I’ve grown in financial literacy — which led to my financial freedom. In the process, I’ve become a financial mentor to others. Hundreds of thousands have already read my books and articles and listened to my seminars on money. But this book isn’t about me. This book is about Larry Gamboa, my mentor in finances and real estate. Grow Rich, Pinoy! He taught me how money works. He encouraged me, coached me and inspired me to keep on learning. And my life has never been the same. If you’ll allow Larry, he’ll teach you too. If you’re tired of drowning, and if you’re tired of fancy sandcastles that don’t last anyway, this book is for you. Open your eyes. A new world awaits you. — Bo Sanchez Manila, Philippines Foreword Unlike Larry Gamboa, who is an entrepreneur, I have been in corporate management practically all my life, having reached the highest levels of both public and private sector institutions. Many of my colleagues are unaware that I have tried my hand in entrepreneurial ventures by partnering with some friends and investing in a travel agency, an ethnic food restaurant, an investor relations firm and a hotel management company. But my experience in these entrepreneurial ventures have been disappointing and, to a large extent, dismal failures. This is the principal reason I have chosen to remain in corporate management. At the same time, I have been more successful as an investor in corporate bonds, listed equities, mutual funds, currency swaps and derivatives. I have personally managed our (my wife’s and mine) modest portfolio and have learned some valuable lessons. Some of the lessons I have shared with my daughters, which Larry has mentioned in his book, are: 10 Grow Rich, Pinoy! 1. You have to learn how to make money work for you instead of you working for money; 2. Identify a good role model who has been successful in making personal investments, and with his or her help, find out what makes the most money for you so that you can focus on that kind of investment; 3. It is all right to borrow money for an investment provided you could generate a higher yield on your investment than the cost of your loan. Investing in real estate properties, for example, can provide higher rental income than the loan amortizations you have to pay, thus enabling you to build up passive income. The more passive income you make, the greater good you can do for the less fortunate. At this point, I cannot say that my daughters have learned all the lessons I have taught them about money or its use. But my three eldest daughters, who have been working for a number of years now, have been building up their savings and investing in relatively safe fixed income mutual funds which provide them with significantly higher interests than bank deposits would. They have yet to learn from Larry the advantages of investing in real estate and building a portfolio that provides significant passive income. Grow Rich, Pinoy! 11 While I have known Larry since our grade school days in La Salle, it was only recently, after reading his first book, Think Rich, Pinoy!, that I realized how passionate he is about entrepreneurship and sharing his lessons learned to our kababayans. I would strongly urge everyone to read his second book Grow Rich, Pinoy! and learn many practical tips from a hard-nosed and successful real estate investor. — Jose L. Cuisia, Jr. President & CEO, Philamlife Manila, Philippines 12 SECTION 1 What Keeps Pinoys from Thinking Rich I wrote Think Rich, Pinoy! with one purpose in mind: to show how the principles of Robert Kiyosaki’s Rich Dad, Poor Dad can be applied to the Pinoy of today. The response was overwhelming. Daily I receive e-mails from Pinoys here and abroad saying how much they have been inspired and encouraged by reading the book. “Pwede palang yumaman.” “Okey palang yumaman.” And invariably the question comes up: “How do I start?” At first, I was puzzled. Didn’t I already answer that in Think Rich? Just look up Larry’s Seven Steps and go! Grow Rich, Pinoy! 13 Some readers jump right in. They see the goal and, straight as an arrow, they go for it. Action agad. But some get stuck. They read. They get inspired. But they do not act. They are blocked. They have more questions. And the questions stop them from acting. This is the purpose of Grow Rich, Pinoy! — to push you beyond your questions and into action. Before we start, let’s see how you fare in your financial report card. Determining Your Financial Report Card David McCleland of Harvard University calls it N-Ach. John Burley describes it as the Seven Levels of Investors. Robert Kiyosaki borrows from Burley and describes his understanding of the levels of investors. Whatever way you look at it, whether N-Ach or as levels of investors, all three address the challenge of moving forward financially. I borrow from McClelland, Burley and Kiyosaki and present to you the Pinoy Scale of Investing. I will also provide you with vignettes of each type of investor. The goal is to help you visualize what level of Pinoy investor you are and decide where you want to be. Let’s begin by visualizing. 14 Grow Rich, Pinoy! Think of investing as a scale with zero in the middle. Left of zero is negative and right of zero is positive. 0 negative 0 positive 2 3 4 1 5 6 On the negative side are the Level 0, Level 1 and Level 2 investors. These are the poor Pinoy investors. At zero is the Level 3 investor. On the positive side are the Level 4, Level 5 and Level 6 investors. These are the successful Pinoy investors. Obviously, we all want to fall under the right side of the scale. But before we can move up from one level to the next, we first have to know where we are. To help you discover where you are on the scale, I’ve devised a questionnaire for you to answer. The Pinoy Investor Level Test Simply mark each statement as true or false: What Keeps Pinoys from Thinking Rich __1. After all the bills are paid, I have no money left to invest. __2. I spend more money than I earn each month. __3. I borrow money to invest. __4. I borrow money to pay the interest on older debts. __5. My debts are greater than my assets. __6. I shop with my credit card and spend more than I can pay off in one month. __7. I regularly pay only the minimum balance on my credit card. __8. I set aside money every month and put it in a savings account in the bank. __9. I save money to buy big-ticket items like jewelry, a stereo or a piano. __10. I dabble in stocks and buy whatever my broker recommends. __11. I take risks in the stock and financial markets because I believe the returns always outweigh the risks. __12. I believe I can make a quick killing in the stock market. __13. I am actively involved in my investment decisions. __14. I avoid bad debt. 15 16 Grow Rich, Pinoy! __15. My passive income far exceeds my expenses. __16. My principles for investments seldom vary. __17. My money works hard for me. __18. I am a good steward of the material goods given me. __19. I am creating a substantial legacy for my loved ones. __20. My companies provide jobs for thousands of people. Now, let’s take a look at your answers. If you answered true to any of these numbers, check your level of investor and your corresponding grade range provided below: If you checked these numbers Nos. 1-2 Nos. 3-7 Nos. 8-9 Nos. 10-12 Nos. 13-14 Nos. 15-17 Nos. 18-20 Grade 50-60 61-70 71-74 75 Barely passing (pasang awa) 76-85 86-95 95-100 Why a grading system? Well, you know how grade What Keeps Pinoys from Thinking Rich 17 conscious we Pinoys are. Compare these with your academic grades and see how you fare. It may jolt you perhaps into seeing how low the correlation between academic grades and financial literacy grades are. The Level 0 Pinoy Investor (50%-60%) Procopio has zero money to invest. By the end of each month, he has spent everything he made, or worse, he has spent more than he has earned. Sure, Procopio is a minimum wage earner who is struggling to make ends meet while providing for a growing family. But Ponce, a young graduate who just entered the work force and joined a call center is in the same boat. He makes good money but finds none left at the end of each month. But would you believe that Percival, who earns P100,000 a month is also in the same boat as Procopio and Ponce? Why? Because like Procopio and Ponce, Percival also spends more that he earns each month. Financially, their grade is 50-60%. Sad to say, most adult Pinoys — over 60% of them — actually fall into the same category as Procopio, Ponce and Percival. They have money (sometimes lots of it), but have 18 Grow Rich, Pinoy! nothing to invest at the end of each month. Their financial score? 50%. Bagsak. The Level 1 Pinoy Investor (61%-70%) These Pinoys are the borrowers. Take Margie. Margie looks rich. She has nice clothes and a classy BMW. She lives in a Makati Condo. But in truth, Margie lives on borrowed money. She is buried in debt. She does not use debt to buy assets that will give her income. Rather she uses debt to fund a lifestyle that generates negative rather than positive cash flow. Her house of cards can collapse at any time. Sure, Margie has a nice paying job at Makati that gives her the credit to fund her lifestyle. Margie does not stop at borrowing money via credit card. She also loans cash from her relatives. Her idea of financial sophistication is to borrow from one pocket to pay a debt in another. She is forever juggling funds around. She lives her financial life in daily stress, hoping and praying everything will turn out OK. Margie says “You have to have faith.” But Margie has done nothing to build a solid financial foundation. It’s all What Keeps Pinoys from Thinking Rich 19 faith and no action. And what does the Good Book say? Faith without action is dead. While she has some assets, in truth, her level of debt is too high. For the most part, she does not control her cash flow. She simply lets it flow, mostly out rather than in. Life in Rich Dad’s terms is full of doodads (expenses that do not bring in money). Doodads are accumulated through Margie’s favorite past time — shopping or “malling” — paid for by the ever-present credit card. When the credit card bill comes, which figure does Margie pay? She pays what the bill points her to (nicely highlighted by the bank, of course) — the minimum balance. See how helpful banks can be? As a result, Margie ends up carrying a huge interest load (something like 36% per annum) on the unpaid balance. Margie scores 61%-70% in her financial report card. The Level 2 Pinoy Investor (71%-74%) These Pinoys are the savers. Pia puts aside money regularly. Pia puts the money in the bank and it earns interest through the money market or through some special promo of the bank. 20 Grow Rich, Pinoy! Pia’s biggest joy is the security she feels from having money in the bank. But she has a sneaking suspicion that her savings give a negative return. The bank offers a 3% interest on time deposits and 1% interest on savings. But inflation is higher than 7%, plus she is taxed on the interest earnings. Still, she refuses to leave the comfort zone of bank-promoted returns. Basta bangko, nakasandal ako sa pader (So long as it is a bank, I am secure), she thinks. Some savers like Pia, don’t even bring their money to the bank. They hide it under the bed, in the mattress, in a coconut shell, in a bamboo piggy bank, the arinola, wherever. Their savings are used to buy things in the future. A piano, a tricycle, a car, some jewelry, or they simply save for an emergency. In effect, they save to consume or for an emergency, but not to invest. Still, Pia the Saver is better than Margie the Borrower. Pia has something rather than nothing. The problem is that something is not growing and in effect, is growing negatively. Meaning her savings are actually growing less and less. In time, unless she acts, her savings get gradually depleted, and she will be left with nothing. Pia’s financial report card score is 71%-74%. Bagsak pa rin. What Keeps Pinoys from Thinking Rich 21 The Level 3 Pinoy Investor (75%) These Pinoys are the Big Dogs. Ramon is an example. Ramon likes to talk big but in truth he takes a passive approach to investing. In the board game Cashflow 101, Ramon is the Big Dog. Ramon looks and sounds smart because he barks out financial terms such as warrants, margins, puts, calls and options. But Ramon really doesn’t have adequate knowledge about these techniques. A key giveaway is he does not have any principles or rules of investing. Ramon buys high on impulse and sell low in a panic. Ramon is a sitting duck for aggressive brokers or real estate agents. Generally speaking, big dogs like Ramon come across as intelligent people. But in truth, they are financially illiterate. Salita ng salita pero wala namang mapakita (They talk and talk but have nothing to show for it). They have “big hats” but “no cattle,” as they say in Texas or Batangas. Ramon scores 75%. Pasang awa. There are three categories of “Big Dogs.” Those who say: 1. “I have delegated it to others.” 2. “It can’t be done.” 3. “Searching for the Holy Grail.” 22 Grow Rich, Pinoy! “I Have Delegated It to Others” Noel is an intelligent person who has convinced himself that he does not understand money and never will. Noel makes the following type of comments to show how smart he is. “My stock broker picks all my investments and she is a pro.” “I have a great financial planner.” “I have the best financial advisor in town. I don’t need to understand everything that is going on. He’s a great guy.” “The government (through my SSS) will take care of me in my old age.” “My friend Pedro is a great insurance agent. He handles everything for me.” “The HRD department at work handles our pension fund. It will be just fine.” Due to his beliefs, Noel has very little idea where his money is invested in or why. Noel is the type of investor who likes talking big. Yet he blindly follows the market like sheep and then squeals (a lot like a pig) before running to get slaughtered. What Keeps Pinoys from Thinking Rich 23 “It Can’t be Done” Aida delights in proving to others that getting better returns than bank rates isn’t possible. She whines and complains about missing out on an investment opportunity as if some barrier other than her own mind is to blame. There is also Virginia the Cynic who says, “Ay, magkaka-problema ‘yan. Di ka babayaran ng tenants” (You’re going to have a problem there. The tenants won’t pay you). “How can you make money out of that? Siguradong matatalo ka!” (You’ll surely lose!) “If the returns on bank foreclosed properties are so good, why didn’t the banks do that themselves?” Once in a while they are right in their dire prediction of disaster. This gives credence to their belief and so they say, “You see, I told you it would be bad. So you should never venture out. It’s too risky.” Even when the opportunity is already there staring you in the eye, they kill your dreams. Virginia and Aida are the Dreamslayers. Listening to them, you will become as poor as they are. You’ll wallow in the same misery and scarcity they’re in. In truth, Virginia and Aida are cowards. Often vocal, they are quick to try to bring others down to their level. Because they are afraid and unwilling to gain the 24 Grow Rich, Pinoy! knowledge they need to invest successfully. They choose instead to shoot down and criticize others in an attempt to make themselves, and their beliefs about investing, right. Everybody else is wrong. My friend, spend as little time as possible discussing money or investments with these people. When they see you moving forward, their natural tendency is to put you down and try to convince you of all of the reasons why “it can’t be done.” These are the people who, we Filipinos say, have a “crab mentality.” Rather than pushing you up to succeed, they delight in pulling you down. If your spouse or significant other happens to be one of these people, please don’t argue with him or her. Don’t fight them. Just leave them to think they’re right in their own mind for the time being. Save your energy. As for you, go on out there and become a successful investor. When you are in a position to “show them the money,” maybe then they will begin to see things your way. Again though, if your positive results fuel negativity on their part, don’t waste your time arguing. Focus your energy on becoming even more successful. Napoleon Hill, author of Think and Grow Rich, calls this transmutation. What Keeps Pinoys from Thinking Rich 25 Bottom line, avoid these it-can’t-be-done dreamslayers at all costs. Focus instead on the opportunities that abound that can propel you forward to becoming successful. Be open, however, to constructive criticism. People who fight you this way are your best allies. How can you distinguish “dreamslayers” from “constructive critics”? “Searching for the Holy Grail” Enrique is this kind of investor. He is always trying to “make it big.” As a result he “strikes out” in a big way. When asked how he is doing, he will always state that he is “about even” or “a little bit up.” The truth is, he’s lost money — many times and often in huge amounts. Always searching for the “Holy Grail” in entirely the wrong place, these big dogs run around so fast that their inner abilities and powers of independent thought cannot catch up. They would do well to learn from Dr. Van K. Tharp who teaches that “people make money by finding themselves, achieving their potential, and getting in tune with themselves so that they can follow the flow of the market.” Good investors are not gamblers. In fact, they are riskadverse people. 26 Grow Rich, Pinoy! They know how to minimize risk and increase the possibility of return. This doesn’t mean they don’t make mistakes; but should they lose, they have already minimized the loss. The Level 4 Investor (76%-85%) Helen is the Automatic Investor who has learned a simple system on how to be rich. Her financial report card score is 76% to 85%. According to Bo Sanchez, these Pinoy Automatic Investors may well be those who have reached the Promised Land. “They’re no longer getting manna in the desert but are reaping the bounty of the Promised Land,” says Bo. They have sown and therefore they’re now able to reap. They pray and they willingly put in the work needed to succeed. Grace does build on nature. Faith coupled with action equals success. John Burley, author of The Secrets of the Rich, says, “When people reach this level, their investment success is assured.” Why? Because they are actively involved in their investment decisions. To hell with what the broker says. What Keeps Pinoys from Thinking Rich 27 Helen follows her own judgment and not the brokers. More often than not, Helen’s calls are better than theirs. Helen has written a long-term plan that will enable her to reach her financial objectives. The plan contains the following elements: she pays herself first and she re-invests her investment returns. Helen receives Level 4 investment returns of 15% a year or more; she is disciplined in executing her plan. She is financially literate and responsible; and she avoids bad debt and is not averse to taking advantage of good debt. Helen’s investment plan is steady and reliable, like a Swiss watch. In fact, it’s boring because it’s simple, repetitive and steady. Her sound investment plans avoid the fireworks and the dramatics which are good for the movies but not so good for the income statement or the balance sheet. Among investors like Helen are the Pinoys who, month after month, collect royalties (from their songs, for example), dividend payments (from stocks) or rental income from properties. These are the Pinoy investors who have gone past the pull of gravity (i.e. poverty). While they’re not yet in the fast track, they’ve already broken through the poverty barrier and are on the way to financial freedom. 28 Grow Rich, Pinoy! The Level 5 Pinoy Investor (86%-95%) These Pinoys are the Sophisticated Investors. They’re no longer affected by the pull of the poverty gravity and have reached the fast track. Their financial report card shows a score of 86% to 95%. Susan is an example of a Level 5 investor. Susan continues to build her wealth by making money work for her. Her main focus is on increasing her assets and thus her cash flow. She is very clear on her principles and rules for investing. She may invest in real estate, businesses or stocks, or any combination thereof. Susan’s default investment vehicle may vary, but her principles or rules seldom do. Susan has mastered her inner life. She has character, discipline, work ethics and play ethics. She has grappled with her fears and can stare them down. She has a rhythm and balance in her life. She is no longer driven by the external so she doesn’t burn out. How often have we heard the story of the man who wins the Lotto jackpot. Biglang yaman! Overnight, he becomes a multimillionaire. He becomes a different person, he spends wildly. Pretty soon, he spends all of it and he’s poor again. What Keeps Pinoys from Thinking Rich 29 Will Manny Pacquiao fall into this category after he has passed his prime as a boxer? The answer lies in his ability to grow in character as he grows in wealth. Jim Rohn says it well, “The greatest value in life is not what we get. The greatest value in life is what we become.” Challenging Pacquiao to a Fight While Pacquiao is currently able to knock out the best of the boxers in his division, he needs to be just as strong to steward (exercise fiduciary responsibility) the wealth he’s amassing with his wins. Why? Because his internal character muscles have to be properly developed as well. As he builds up his boxing skills, he needs to grow in his inner character to keep pace with his wealth. Otherwise, as Bo Sanchez says, his psychological wallet stays small. And he will behave in line with it. Rich now. Poor later (sometimes sooner). But when you’ve mastered yourself and you have the internal under control, you don’t get knocked out. No matter what punches are thrown at you internally, character-wise. You come out better, wiser, stronger. Steve Jobs was kicked out of the company he founded: Apple. Instead of letting it take him down, he used the experience to come back up — stronger, humbler and 30 Grow Rich, Pinoy! wiser. He developed Pixar and Next and regained control of Apple. More recently, he launched the iPod, which is revolutionizing the music industry. Talk about making a comeback and growing bigger as a human being! For the Sophisticated Investors, the smooth flow of their inner life and outer life is evident in their investment results. Their investments create more money for their businesses. They experience the velocity of money, although not yet at the pace of the Level 6 Investor. As John Burley says, “Rich people work hard to have their money work hard, while poor and middle-class people work hard for money.” Very few Pinoys reach this level of being truly rich. But, for those who have, their stories are worth telling and listening to. Who do you know that are Level 5 Investors? Often they are the “next-door millionaires” who look so ordinary and drab but who are quietly and steadily building their assets. Who are these Pinoys? It could be the hardware vendor at the street corner in Banawe. Or your suki at the wet market. Or that childhood friend you thought would never amount to anything like the story of Jing Olivares in chapter 8. What Keeps Pinoys from Thinking Rich 31 Bellum and Doreen Tan from Singapore, who represent Rich Dad Asia, claim to be Level 5 Investors since they have more than enough passive income from real estate holdings in Singapore, Australia and Thailand. They (and Robert Kiyosaki) belong to the initial investor group in a gold mine in China, which has since made a successful IPO. Therefore, their capital has already multiplied many times over. Now, Bellum and Doreen can use their time to spread the gospel of financial literacy by promoting the game Cashflow 101 all over Asia (in Malaysia, Singapore, Philippines, Indonesia, India, China and Australia.) The Level 6 Pinoy Investor (96%-100%) These are the Pinoy capitalists — the movers and shakers of the business world locally and internationally. Their scores in the financial report card of life? 96 to 100%. For example, Forbes magazine (March 2006) listed Lucio Tan, Henry Sy, Jaime Zobel de Ayala and John Gokongwei among the top billionaires of the world. These Pinoy magnates are motivated by the desire to be capitalists and to create a legacy even while they’re alive. John Burley wrote, “Bottom line, the capitalist not only creates large amounts of wealth, they invariably also 32 Grow Rich, Pinoy! create vast legacies of innovation, efficiency, economic prosperity, employment opportunity and philanthropy and thereby greatly increase the standard of living for hundreds of millions of people throughout the world every year.” Aside from those that Forbes mentioned, other Pinoys who fall in this category include Jollibee’s Tony Tan Caktiong, Metrobank’s George Ty, plastic king William Gatchalian, and Coring Ramos of National Bookstore. Steadily, through their businesses and foundations (like the Ayala Foundation, Metrobank Foundation, Lucio Tan Foundation, and Gokongwei Brothers Foundations), lives are being touched. Abroad, the Rockefellers, the Carnegies, Bill Gates, Michael Dell, Ted Turner, Rupert Murdoch and Warren Buffett are in a class of their own. Having made so much money that they could never spend a fraction of it in their lifetimes, many of them are giving away fortunes to charity. They believe that by accelerating giving and doling out large sums, they have a better chance of effecting change. Last year, Bill and Melinda Gates gave their $3 billion dividends from Microsoft Corp. to their foundation to be spent on health, education and information access. Philanthropist Andrew Carnegie made so much money What Keeps Pinoys from Thinking Rich 33 in the first half of his life that he couldn’t spend it fast enough in the second half for his foundation to spend, building the libraries and educational initiatives he supports all over the US. The velocity of money he generated on the earning side was so fast that he could barely keep up with the spending side. “I have so much money coming in, I can’t spend it fast enough.” What a nice problem to have! The Question Finally, let me ask you, “Do you want to become the next great Pinoy capitalist?” Are you willing to fight poverty big time? What price are you willing to pay in terms of time, energy, and sacrifice? That is what a capitalist does. That’s their legacy. If you want to rise to the challenge, your question would be: How do I start? Begin by becoming a Level 4 investor. When you get there, you can set your target at becoming a Level 5 investor. From that vantage point, with preparation, hard work and luck, you become a Level 6 investor — the next Pinoy capitalist. 34 Grow Rich, Pinoy! So how do I become a Level 4 investor, you ask. The first step is to honestly discern what level you’re presently in. Next, determine what you need to become a Level 4 investor. What do you need to change? What do you need to develop? What do you need to set aside? Commit to whatever it takes to get there. Then act. In real estate. In building businesses. Or in stocks. Find your default vehicle of choice and move forward from there. Most of us are in Levels 0, 1, 2 or 3. Time to take stock and change. Some are in Level 4 or even Level 5. Kudos to you sirs, whoever and wherever you are. Being aware is the first step. Now plan and work at your plan. As you move, write to me at thinkrichpinoy@gmail. com. Together, we can work to raise the financial literacy of the Filipino so she can get a better grade in her financial report card. Now let’s work on those things in your head that keep you from actually thinking rich, Pinoy. 35 CHAPTER 1 It’s All in Your Head Until he was 13, taipan John Gokongwei enjoyed a privileged lifestyle as the son of a rich man. He “went to Cebu’s best school, lived in a big house and got free entrance to the Vision,”1 the largest movie house in Cebu which his father owned. But then his father died and the family became poor and had to split up. His mother returned to China, taking his five siblings because it was cheaper to live there. John 1 Quotes from John Gokongwei in this chapter come from http://www.webphil.com/philippineentrepreneur-mrjohngokongwei.htm (accessed November 15, 2006) or see Biz News Asia, vol 4 no 30, Aug 14-21, 2006. 36 Grow Rich, Pinoy! Gokongwei was placed in the care of his grand uncle, Manuel Gotianuy, who put him through school. Two years later, World War II came to the Philippines and the young Gokongwei found himself out in the streets. His grand uncle could no longer see him through because they lost everything. But so did everybody. Mr. Gokongwei, giving the Commencement Address at Ateneo de Manila University in March 2004, recalled, “War was the great equalizer. In that setting, anyone who was willing to size up the situation, use his wits and work hard could make it!” The young Gokongwei had to find a way to support himself and his family. You would hardly think today that John Gokongwei of the Robinson group found himself in the same fix that many Pinoys are in today. But he did and look where he is now. The 5/7 Program Whether consciously or not, Gokongwei followed a simple framework of action to amass his wealth. I stumbled into this framework after immersing myself in Kiyosaki’s books starting with Rich Dad, Poor Dad, studying stories of Pinoys who made it big like John Gokongwei, and It’s All in Your Head 37 reflecting on my own experience of success and failure. I call the framework Larry’s 5/7 program. Larry’s 5/7 program for making massive income through real estate foreclosures in the Philippines and providing housing for our kababayan: P T L F A (that’s the 5) Larry’s Seven Steps (that’s the 7) Both are linked by the letter A. The letters P T L F A stand for: Plan Team Locate Finance Act (Carry out Larry’s 7 steps) So there’s the framework. You’ve got to have a plan, you’ve got to have a team, you must figure out the location where you want to work, you have to work out your finances. 38 Grow Rich, Pinoy! When you have these figured out — you act. The time frame can be: daily, weekly, monthly or yearly. Make a Plan The plan is not a complicated big business plan. It’s as simple as starting by buying four small houses (could be townhouses, apartments or duplexes) and converting them to one big hotel (or bigger apartment units or multiple condo units) just like in the game, Monopoly. Or, in the case of John Gokongwei, he became a market vendor. Gokongwei describes that time: “It was every man for himself, and I had to find a way to support myself and my family. I decided to be a market vendor. Why? Because it was something that a 15-year-old boy in short pants could do.” The young Gokongwei had a bicycle which he loaded up with thread, soap and candles. At 5 a.m., he pedaled 30 minutes to the market outside the city, rented a stall, laid out his goods on a small table and started selling P20 of goods every day. He recalled, “Sixty-three years ago, it was enough to support my family. And it left me enough to plow back It’s All in Your Head 39 into my small but growing business.” Today, we know that Gokongwei’s business spans nine core businesses: retailing, real estate, publishing, petrochemicals, textiles, banking, food manufacturing, airlines and telecoms. But he started it all with a simple plan — by becoming a market vendor. It’s the same thing for the rest of us, whether it’s real-life bank foreclosed property or the games Cashflow 101 or Monopoly. How do you win in Monopoly? You have to get those houses. And when you have four houses, you can replace them and buy a big hotel. In our context (bank foreclosed properties), we start with small deals, like a duplex, two-three-or-four condominiums, five adjacent townhouses or four-or-five door apartments. You get a number of those and generate passive income of P5,000 a month, P10,000 a month, P20,000 a month per property. Your plan can be: I will acquire two properties a year for the next 10 years so that I can generate P100,000 in passive income monthly for the next 10 years. Suppose you get your first property and make a mistake and earn maybe only P100 a month or you have 40 Grow Rich, Pinoy! negative income. If you don’t have a plan, you’ll quit. You’ll say it’s too much trouble for too little money. But if you have a plan, you won’t quit. You’ll say, “Wait a minute. That’s just the first property. My plan is two per year for the next 10 years. So let’s go on to my second property.” Losers quit. Winners never do. They just move on, learning from each You must build experience. And if they have a team of trusted a daily journal to record their specialists. Choose experience, learning becomes professionals who tangible. are not only experts You learn a lot in your in their areas but are first purchase. By the time themselves investors in you hit your third, fourth, fifth their own right. property, you’re flying. You’re slowly becoming an expert. I didn’t have a plan. All I knew was that I wanted passive income, which I learned about from the network marketing business, Skybiz. I started buying property after three months of failure. I didn’t even know how many properties I wanted to get. By the end of the first two years, I had more than a dozen properties. Yet, I wouldn’t be able It’s All in Your Head 41 to tell you if I was doing well then because I didn’t have a plan. You’ve got to have a plan and it has to be simple. It will be your yardstick. Plan! And hopefully you check it out with someone who’s a more successful investor than you. Build a Team Next, you must have a team. You need a real estate broker who provides you with properties. You need a handyman who repairs the properties. You need an accountant who prepares the financial statements which you need and which you present to the banks. You need a lawyer to handle potential defaults, and an insurance person to protect you and your properties. You need a banker from whom you can borrow money and who can give you an idea of how money works. And you need a property manager to manage your growing portfolio of real estate assets. You must build a team of trusted specialists — people who understand what you want and can move at your speed. It doesn’t happen overnight. Choose professionals who are not only experts in their areas but are themselves investors in their own right. 42 Grow Rich, Pinoy! As you build your team, you might have to get rid of your old friends, especially if they pull you down and discourage you. “You can’t do that, Larry,” or “You will never be able to succeed.” You can still socialize with them but they won’t be crucial to your team. In effect, consciously build a team of investor professionals who will support you with a can-do mind set. The young Gokongwei set up his own team of people he could trust and work with. In his own words: “After the war, I had saved up P50,000. That was when you could buy a chicken for 20 centavos and a car for P2,000. I was 19 years old. Now, I had enough money to bring my family home from China. Once they were all here, they helped me expand our trading business to include imports.” Gokongwei and his siblings imported whatever wartorn Philippines needed, including used clothing and textile remnants. After gaining more experience and building his reputation, he borrowed money from the bank and went into manufacturing. Blend 45 was their first branded hit. With their profits, they launched Jack and Jill food products. Now their many businesses include Cebu Pacific Air and Sun Cellular. It’s All in Your Head 43 Define Your Location Third, define your location. Ask yourself, “Where am I going to locate?” Even before he brought his family back from China, the young Gokongwei made his first big decision about location. As the youngest vendor in the market in Cebu, he could move faster, stay under the sun more and keep selling longer than everyone else. So he soon had some savings. He shared, “When I had enough money and more confidence, I decided to travel to Manila from Cebu to sell all kinds of goods like rubber tires. Instead of my bike, I now traveled on a batel — a boat so small that on windless days, we would just float there. On bad days, the trip could take two weeks!” Gokongwei recalled, “During one trip, our batel sank! We would have all perished in the sea, had it not been for my inventory of tires. The viajeros were happy because my tires saved their lives, and I was happy because the viajeros, by hanging on to them, saved my tires. On those long and lonely trips, I had to entertain myself with books, like Gone with the Wind.” The young Gokongwei recognized that Manila was 44 Grow Rich, Pinoy! the marketplace then and moved his base to Manila. Doubtless, over the years, he made other crucial decisions like where to locate his malls, for instance. When I first started with bank foreclosed properties, I was “strike anywhere.” San Pedro, Marilao, Cubao. Of course, I could justify that they were all in Metro Manila. But, ideally, if you The best place to could have your properties do a deal is close to within a certain radius from home. If you can’t do your home, it would be so deals where you live, convenient. You could be moving won’t help. If jogging around in that radius you can do deals where — look for properties that are you live, no reason you sitting there, both foreclosed can’t do it anywhere. and for sale. That would be your diamond in the rough. When I started out I violated this rule and paid the price. For example, my property in Marilao required me to visit every week for four months just to make sure I could meet prospective buyers and close deals. Aside from travel time because of the distance, there was the Manila traffic to contend with. Sometimes I deliberately violate my rule of distance. It’s All in Your Head 45 For example, I purchased a property in Tagaytay because I did not mind traveling there every week. I loved the drive and drinking coffee from the veranda at Breakfast at Antonio’s which overlooks Taal Lake. It was my weekly Artist’s Date with myself. It was relaxing, a way to love myself and move the business forward in one motion. That’s my kind of life balance. Work and play in one smooth uninterrupted motion. So, you have to figure out your location. You start in your area, then work around your city, then the Philippines, then you can go abroad also. The best place to do a deal is close to home. If you can’t do deals where you live, moving won’t help. If you can do deals where you live, no reason you can’t do it anywhere — like Australia, for example? My dream is to take what I learn in Manila and do it in another country and succeed. Think big, Pinoy. Figure Out Your Finances Fourth, you have to figure out your finances. You don’t need money of your own to make money but you’ve got to know where to get the money. And you need to know the source of money before you need the financing. When I talk to people now, I describe the property and say that the ROI is 40%. They respond, “I want a piece of that 46 Grow Rich, Pinoy! action.” So I ask, “How much do you want to invest?” They answer, “Can I put in P500,000?” Another said, “Can I put in P2 million?” The best time to look for If you expect to investors is when you don’t know all the answers need the money. Because people before you begin, you feel it — the desperation of will end up stuck. someone trying to make a deal. Perfectionism leads It’s human nature to doubt you to paralysis. Action and say, “Naku, he needs the always beats inaction. money! Delikado! He might run away with my money.” That’s just the way people are. So I suggest that you locate the funds before you actually need the money. Your sources can be friends, relatives, banks, people who are willing to lend to you. Gokongwei shared, “When we had shown success in the smaller businesses, we were able to raise money in the capital markets — through IPOs (Initial Public Offerings) and bond offerings — and then get into more complex, capital-intensive enterprises. We did it slow, but sure.” With all his millions, Gokongwei today does not need to use his own money to build his businesses. He goes to the 47 It’s All in Your Head capital markets and, in effect, uses other people’s money (OPMs). Does the P T L F A framework apply to other people, like Steven Jobs of Apple or Tony Tan Caktiong of Jollibee? Does it apply to going after bank foreclosed properties? Take a look at the following matrix and fill in the blanks for your own business. John Gokongwei Steven Jobs Larry Gamboa Tony Tan Caktiong PLAN Manufacturing Apple Computer Business Bank Foreclosed Property Food Retail Franchising TEAM His Family Woziack Family, Trace Trajano & Bo Sanchez Family LOCATE Cebu to Manila Silicon Valley Metro Manila Nationwide FINANCE Saved P50,000.00 IPO Apple 10% down Franchise Fee ACT Built 8 More Core Businesses Pixar, Next, iPod ESTI (Larry’s Seven Steps to Success) Franchise Jollibee, Chow King, etc. You (Fill in the blanks) 48 Grow Rich, Pinoy! Now Get Going! So you’ve got a plan, a team, the location you want and financing. Now it’s time for action! Here are five points to remember: learn the basics, decide what you want out of your deals, develop your expertise gradually, work from home, and learn your lessons well. Learn the Basics You have to learn the basics which I’ve already covered in Chapter 7 of Think Rich, Pinoy! Let me summarize them here for you: Larry’s Seven Steps to Success 1. Own your dream. 2. List down the properties you want to get. 3. Call to inquire. 4. Visit the property. 5. Learn financial (and computer) literacy. 6. Prepare and submit that offer to buy. 7. Sharpen the saw and have fun. It’s All in Your Head 49 Decide What You Want from Your Deals Once you have the basics in place, you need to find what works best for you. What do you want from your deals? Is it cash flow? This means you are not after capital appreciation which involves buying low and selling high. What you want is steady monthly income — money flowing into your pocket every month for 10 to 15 years. For example, if you generate P2,000 per month in passive income from a rent-to-own property, that would give you P24,000 a year for the next decade or so. That’s money flowing into your pocket even as you sleep. Is it buy and hold? This is the Philippine model. My mom, Isabel, provided for our family using this. She got a piece of land, for example, Ayala Alabang, built a house on it (with swimming pool, of course). Then she rented it out (the swimming pool fetched a premium). Then she moved on to another property. She demolished the structure on a prime piece of property we owned and built a six-story building on it. Then she rented it out, collecting rental income from each property. Again, you have created an asset that gives you passive income. You are no longer working for money; money is 50 Grow Rich, Pinoy! working for you. You now have the freedom to do what you wish. Is it quick cash? You buy low and sell high, a practice also known as flipping. Some folks never put out cash. They simply take out an option on a piece of property, advertise and sell before the option period is up. They simply pocket the difference between the buying price and the selling price and move on to the next deal. For example, Dinna The cost of Revilla found a foreclosed education is always property that had a cell site cheaper than the price which generated rental income. of ignorance. Or to put She bid for the property and it bluntly, “If you think won. Then she sold the rights education is expensive, to an interested buyer and she try ignorance.” earned P300,000 from the deal. The title to the property never passed through her name but went straight to the buyer. Dinna simply flipped the property. Develop Your Expertise Gradually Don’t expect to be an expert before you begin. Do the figures for potential target properties until you find a property It’s All in Your Head 51 that makes financial sense. Make an offer then move on to the next property until you have a pipeline of offers brewing. Odds are one will click. And before you know it, you’re making a down payment (usually 10%) and taking control of a property. You then turn around and fix it up then lease it out on a rent or rent-to-own basis. You have become an investor. If you expect to know all the answers before you begin, you will end up stuck. Perfectionism leads to paralysis. Action always beats inaction. I receive e-mails asking such detailed questions that I get the impression the person is caught in analysis paralysis. They have so many questions floating around in their mind (like the spaghetti thinker in chapter 4) that they never get to act and move towards achieving their goal. They think themselves into paralysis. Work from Home Unless you already have an existing office that’s being successfully funded by another of your businesses, choose to work from home. You don’t need a large investment and you don’t need to pay a huge franchise fee. And every day is a joy. You can literally tiptoe (or dance, if you prefer) your way to work. 52 Grow Rich, Pinoy! I’ve tried being an employee and enjoyed it. This was when I worked for Proctor & Gamble in Cincinnati while studying at the University of Michigan. They volunteered to pay for my shipping expense if I would work for them at Proctor & Gamble Philippines, so I continued to be an employee, earning a steady income. I enjoyed the prestige of working for a multinational giant. The experience trained and disciplined me to think, write and talk business the P&G way. Next, I was hired as a Professor for the Asian Institute of Management. How prestigious! I could sense the envy of my family and friends. Galing talaga ni Larry — AIM professor. Unfortunately, I was miserable. I could not put a finger on why. I thought it might be the dog-eat-dog atmosphere of the business school. I preferred cooperation to competition. I tried to learn the case method but it wouldn’t click. Looking back, I now believe I felt miserable as an AIM professor because — while I had the academic credentials (I had a PhD from the University of Michigan Business School), I did not have the hands-on experience of actually starting a business, running it or of being an investor. I had no successes and no failures to share. And It’s All in Your Head 53 here I was a professor of business kuno. I felt I was being a hypocrite. I became conscious of my incompetence. Starting out on my own, I rented an office in Mabini. I got stuck paying rent during a downturn in the economy. I had to fire everybody and cut my costs. I started to work from home. You cannot imagine how much I saved in overhead. And I even got to charge myself rent! In the United States, if you work from home, there are IRS rules. You’ve got to have a corner specifically for the thing. You’ve got to have a job description. And expenses, like the portion for the rent for that space, are deductible. Later, as a self-employed joint venture partner of SyCip Gorres Velayo & Co. (SGV) and Development Dimensions Asean International (DDAI), I lived the corporate life, going to the tall skyscraper at Makati to my office at SGV. For 10 years, I managed the DDAI joint venture, on an eight-to-five schedule every workday of the week. I was a co-owner of the company (together with Washington Sycip and Bill Byham). I looked good, but the bottomline was that I was in Kiyosaki’s S quadrant — I was self-employed. At times, when meeting with Bill Byham, I felt very much like an employee. 54 Grow Rich, Pinoy! This was proven when I decided to quit as managing director of DDAI. Bill Byham required that I sell my 30% equity share in the company. And he told me this in no uncertain terms. Rather than fight him and make a big issue, I decided to get out. This, in effect, closed a possible opportunity from moving to the B quadrant and becoming a business owner. Through all of these transitions from employee to selfemployed to budding business owner and now investor, nothing beats the experience of working from home. I love getting up early and starting work at 4:00 a.m. or 6:00 a.m. or whatever time I want to begin. Then I put on my trunks and go for a swim at the clubhouse whenever it suits me. Or jump into the car and go boxing at Ringside. Or, I just drink a glass of iced tea and read one of the books I am currently immersed in (I enjoy reading two or more books at the same time). Or I can go back to sleep. Or take the other half of the day off after I feel I have put in few solid hours of work. Under these conditions, I wake up raring to go. I can’t wait to engage in my passion. Investing, writing and sharing. Sure, it’s work. But to me it’s also play. And I keep learning and seeing new angles to the same thing. I journal. It’s All in Your Head 55 I do my daily checklist. I am on fire even as the day is just about to start. It’s a joy to wake up each day in this — my ideal lifestyle. Learn Your Lessons Well In this business, you can choose to enroll in the University of Prior Learning or the School of Hard Knocks. Choose your wild. In the School of Hard Knocks, you make your mistakes and hopefully learn from them. There’s no need to reinvent the wheel. Or, you attend the University of Prior Learning. There, the only people who are qualified to teach are those who have gone before you and paved the way for you. It’s not at all academic; it’s based on experience. You learn from other people’s experiences and mistakes. That’s cheaper than making the mistakes yourself instead of reinventing the wheel. The cost of education is always cheaper than the price of ignorance. Or, to put it bluntly, “If you think education is expensive, try ignorance.” So I am more than happy to pay for a seminar like the two-day business seminar of Rich Dad which I 56 Grow Rich, Pinoy! attended in Singapore. Learning from someone like Robert Kiyosaki — who has been there and done it and failed and succeeded — helps me move forward in my own business while minimizing mistakes (due to ignorance). Me with Rich Dad author Robert Kiyosaki. In choosing which seminar to attend, here’s a tip. Ask yourself, “Who am I listening to?” Never take financial advice from someone who isn’t making several times your income. For example, I get concerned when I see professors in our so-called top schools like U.P., La Salle or Ateneo teach investing when they themselves are not investors. Or teaching business when they have not run It’s All in Your Head 57 a business. They have not been through the School of Hard Knocks and graduated. And they call themselves professors? Of course, it would be wonderful if the person is a successful investor and, at the same time, has the gift of teaching others to be successful investors too. In short, they are both school-smart and street-smart. Once you find a suitable role model, then, with his or her help, find out what makes the most money for you and give it your laser-beam focus. Right now, for me, it’s cash flow from bank foreclosed real estate. I see opportunities to take courses on investing in the stock market (under David Novac) or on sales (under Tom Hopkins), and have decided on taking one course yearly that would sharpen my skill as an investor. Meanwhile, I continue learning by reading, listening to tapes (or CD-ROMs) like the set The Art of Exceptional Living by Jim Rohn. These keep me on my toes, giving me an awareness of what I have yet to learn about investing. Recently, I had the privilege of becoming the local mentor of someone enrolled in the Rich Dad coaching program. I learn as the person learns. It is super synergistic. 58 Grow Rich, Pinoy! So there you have it: How to get started. But one day it hit me. The problem facing Pinoys is not so much getting started. It is overcoming blocks that stop us from getting started. Just what are those blocks that hinder Pinoys from becoming rich?