Money has its own language, and when you speak it, you can make more informed money decisions every day. Moroka Modiba explains how to go through your bank statements, how to cut costs and save for your children's future, how to spot a scammer, and more in this extract from his new book The Wise Investor.
Making informed financial decisions
When you understand the money language, you will be able to make informed financial decisions on a daily basis. This might seem like a mundane exercise, but it's a massive game-changer. If making smart financial decisions becomes your daily habit, then those decisions will snowball with time to a point where it becomes a force of its own, propelling you towards financial independence.
Let me give you a simple example. If you make an effort to regularly go through your monthly bank statements, chances are that you will end up fully understanding what's going on with your finances. This knowledge will enable you to reduce costs.
You could start by cutting unnecessary fees and penalties on your bank account. It helps that nowadays the banking industry is so competitive that every year banks introduce new accounts that are cheaper but offer more benefits. You'll still find people stuck on old, outdated bank accounts that are expensive but offer limited benefits, but to switch from these outdated ones to new ones is very cheap, or sometimes even free (if it's done within the same bank).
The money you'll save from switching to a new and improved bank account can be channelled towards an investment.
Empowering your family and people around you
Ask any parent what they want for their children, and 9 out of 10 will say a better life than the one they had. However, it's a known fact that the biggest challenges of parenthood are finance-related. When money becomes scarce, then we as parents are left with limited options to give our children the life we feel they deserve. We end up struggling with our children, and then watch them struggle with their own children, and so the cycle continues.
This is a painful experience, to say the least.
Now, imagine if you can crack the code and turn things around. And all it takes is an understanding of how money works. They say money talks, right? Imagine being one of the few people who understand its language.
I once attended a Christmas lunch at a friend's house in the northern suburbs of Joburg. After eating, we retreated outdoors to the lapa, where our host entertained us with music and drinks. I couldn't help but notice that he was using a wireless portable speaker with colourful lights. The sound quality was amazing. When I complimented him on it, he said the 'boombox' was a Christmas gift for his daughter, who'd done well at school. He didn't hesitate to reveal the price tag as well.
"Can you believe it cost me R6 000?" he said with a smile.
"Really?" said the eavesdropper next to me. "When we were growing up, you could buy a complete music centre with that kind of money. Today you can only buy one speaker?" We all laughed at this response.
At that point, my mind drifted to an imaginary place. I saw the daughter at school, standing in front of her class, telling them how she spent her Christmas and what type of gifts she received. But instead of bragging about a boombox, she tells the class that her dad had bought her two ETFs worth R3 000 each. One ETF is for the JSE Top 40, and the other is the S&P 500. Even though she's only 10 years old, she can explain to the class what an ETF is and how it's going to benefit her over time: "My dad said that instead of buying something that looks cool now but gets old and broken, he bought me something that will become more valuable in the future. And I think that's really cool." As she wraps up her presentation, my mind returns to the lapa to enjoy the crisp sound and drinks.
Identifying the right people to assist you
Another benefit of understanding the money language will be your ability to identify the right people to help you to grow your money. Nobody knows it all. At some point, whether at the beginning or later on in your investment journey, you are going to need some assistance. Your knowledge of the money language will help you identify like-minded people who speak the same language as you. And the opposite applies, too: if you don't understand the language, you run the risk of falling prey to fraudsters and scammers.
Just a few years ago, a wave of pyramid schemes swept the country. People were throwing their life savings into these scams and losing everything. This is the greed that Mr Goldstein was referring to. One of my potential clients, a professional doctor, was urging me to come up with an investment idea that could match the returns of a cryptocurrency (like Bitcoin) that he wanted to invest in. I wanted to impress him, so I went out and did thorough research, but I couldn't find anything that matched those returns with his risk profile. I gave him the disappointing news.
Then he invited me to a presentation by these fraudsters posing as investment professionals. They hadn't even finished the introduction of their presentation when I stood up and left. I picked up early that it was a scam based on the language they were using: 'double your money in days', 'can't lose', 'risk-free', 'guaranteed' and 'more investors, more money'.
Creating a network of like-minded people
Another important benefit of understanding and speaking the money language is that, in your personal life, you will end up surrounding yourself with people who speak the same language. It's as they say: your network is your net worth. One reason why the rich get richer is because they always hang out together. They visit each other's homes, attend the same functions, play golf at the same golf clubs. They do business together and their children go to the same or similar schools. It's a circle that's hard to penetrate if you can't speak their money language. If you want to increase your net worth, then you need to surround yourself with a network of people who speak the same language.
Let me illustrate this with a story from someone with whom you might be familiar. His name is Jannie Mouton, and he's the founder of PSG Group and Capitec Bank. In his autobiography, And Then They Fired Me, Jannie describes how he got his breakthrough. After being fired from the brokerage firm he helped establish – Senekal, Mouton & Kitshoff (SMK) – Jannie found himself jobless at the age of 50, his self-confidence in tatters. Then one day he was paid a visit at home by a man called Piet de Jongh.
Who is Piet de Jongh? Piet is the son of Theunis de Jongh, the former governor of the South African Reserve Bank (SARB). Those who are old enough will remember his signature on our paper money. Piet de Jongh was sent to Jannie by his brother-in-law Jannie Kitshoff. Who is Jannie Kitshoff? Jannie K, as he's known within his inner circle, was one of the three founding partners of the brokerage firm that fired Jannie Mouton. But Jannie K had left the firm years before that incident. Interestingly, both Jannie K and Jannie Mouton were best friends of G.T. Ferreira, Laurie Dippenaar and Paul Harries, the founders of Rand Merchant Bank (RMB) and First National Bank (FNB).
How did this network work in Jannie Mouton's favour? Piet went to see him to tell him about a once-in-a-lifetime deal: a small, listed company called the Professional Assignment Group (PAG) was trading at a huge discount and its 60% controlling stake was up for grabs. So, this group of friends raised the money from their other friends at RMB to finance the deal and let their friends at SMK broker the deal. I like the fact that even though SMK had fired him, Jannie roped them into the deal. Everyone spoke the same language and understood that it's nothing personal – it's business.
Eighteen months after they'd paid R7 million for PAG, another company approached them and offered them R107 million for it. An estimated R100 million in profit in the space of 18 months! This is what they mean when they say that your network is your net worth.
I can go on and on about the benefits of understanding the money language. How people who understand the language eventually move from being investors to philanthropists. A philanthropist is someone who is involved in charity and humanitarian work. Their generous contribution to society and the world at large is not only beneficial to their finances and their image, but has a spiritual component too, because their work touches and changes people's lives. The level of fulfilment here is very high. And it's the universal law that if you give you will receive. That's why their legacy lives on many years after they're gone. That is generational wealth. And it all starts with understanding the money language.
This book is specifically about understanding the money language in relation to the stock market. Investing is one of the most important pillars in wealth creation.
Moroka Modiba is the managing director of Fatima Capital (Pty) Ltd, an authorised financial services provider. He is a qualified stockbroker with almost twenty years' experience in the financial sector. He is the author of the bestselling Think Yourself Rich and is based in Gauteng. Views are his own.