Wednesday, February 19, 2014

What's wrong with getting financial advice from a billionaire like Li Ka-shing ?

Lately, a translated article from Li Ka-Shing was being circulated  on the Internet. Compared to the usual advice that some of the gurus were to provide, it's actually not bad. Li Ka-Shing comes across as a pretty progressive and modern person who has some down-to-earth advice for everyone.

You may judge for yourself by reading the article here :

I'm not going to be like the rest of the Internet and talk about what a great article this is.

If you are a florist struggling after the World War in HK, following this advice will likely make you a billionaire. Otherwise, advice is advice. It should be judged by how many millionaires you can make with it. And as a previous shareholder who owned HPH Trust, I will not take anything that a seasoned businessman say without applying my own critical thinking skills to his ideas.

Here's my take  :

a) 25% as start-up capital 

Li Ka-Shing advocates putting aside 25% of one's income as start-up capital. Strangely, he does not advocate savings. The aim of this fund is to ultimately do a business. This belongs to the class of advice which worked for Li Ka-Shing but may not work for most average Joes. As a savings component, 25% is too low  ( At least start at a ridiculous 50% so that every month of work earns a month of rest ).  

Most people suck at business which explains why the high failure rate. In our current economic situation, businessmen need to contend with high labor costs and rents as well.

I think I would rather critically examine how LKS and Son actually make their money, which is to invest in toll-like investments and get tenants or broadband subscribers to  pay to use their infrastructure. When these assets reach critical value, spin it off in SGX and sell it to Singapore investors, let them deal with port strikes and slower Chinese growth that come soon after divestment.

Start investing early to get the compounding engine in your 20s. If you come across a business idea which trumps your portfolio of real estate, manufacturing firms or toll businesses, then think about running a business.

You are more likely to succeed as a long-term investor, similarly you are more likely to fail in a small business.

b) 20% to pay for lunch with friends

20% is a crazy amount for net-working. Do make sure if this is done in Singapore, the person you are giving a treat to is not a government servant. I spent some time re-examining this advice and I wonder if there is a hidden meaning embedded in those words that can only be appreciated within the context of a Chinese regime. In a Chinese SAR like HK, you can definitely knock yourself out giving treats to supposedly 'useful' people. But in Singapore, it may be better to stick to a hawker centre or food-court and exchange knowledge and practical advice instead.

I would take this budget out completely and merge this into the savings budget. Instead, I will invite friends out to discuss the economy, business ideas, good investments and the latest books over $1 kopi-o.

c) 10% for travel and the broadening of horizons.

This is not such a bad idea, but can we  travel as part of work ? During my younger days, I used leave to extend my travel so that I can see other parts of the world on company budget. Yes, I've not been to Disneyland, but I built outsourcing teams in KL and Bangalore. Anyway 10% of my savings when I was 25 would not get me beyond South-East Asia.

I would also bunch this budget into the investment budget. And when you are in your 20s, if  you wanna recharge go to KL over the weekend.

d) When you are poor, spend money so that people can see it.

It is this advice that really rubbed me the wrong way. Some old folks may have this idea that you gotta fake it until you make it. In the good old days, people might take your word for it, just be a slick salesman. But these days, we live in a high-surveillance society. People will use social media to find out what you're really made of and verify your claims. It's also much harder to sell to a sophisticated web-savvy customer.

Showing off by using bright and expensive clothes may work in a Toastmasters competition, but when it comes to work, every bit of substance counts.

Don't believe me ? Google Richard Li and you will find that he regrets claiming that he had a Stanford degree but he dropped out.

I would say respect decorum when the need arises and dress to meet standards. You should also be consistent as to the kind of person you are regardless of whether you are rich or poor, otherwise, your friends who helped you in the past will say that you have changed.

In summary, I think LKS has shared good advice to many readers, but it's more fun to examine the context by which this advice holds true.

In a similar vein in Singapore, many multi-millionaire trainers exist to give advice to ordinary people. The advice should be assessed by looking at how useful it is to the ordinary folks and not judged solely by the wealth of the trainer.

1 comment:

  1. Thanks for this evaluation of his pointers!