Hans Jakobi - Due Diligence Made Simple

INVESTMENT ANALYSIS
DUE DILIGENCE MADE SIMPLE

“Hans what I admire
most about your book
You’ll Learn
is the simplicity with • How to evaluate an
which it is written investment proposal
without it being before you part with
‘simple’. You have your money
taken a complex topic
and made it easy to • How Salespeople
understand. This book is a must-read for present business
every aspiring investor and entrepreneur.” opportunities
Steve Saemmler Klein • How Financial Advisers
President of The Offshore Association of Central operate
America and the Caribbean
• How to conduct
research interviews
How you can do your effectively
market research before • How to find a

good professional
you part with your hard adviser such as an
HANS JAKOBI
earned money and avoid Accountant, Lawyer,
Property Manager and
being taken by the sharks Stockbroker
• How to go Offshore
safely
• How to identify Frauds
and Scams
Visit us on the web at Australia’s Wealth Coach®
www.supersecrets.com HANS JAKOBI

What People Are Saying About
DUE DILIGENCE MADE SIMPLE. . .
“It gives me great pleasure to recommend Hans
Jakobi and his book “Due Diligence Made Simple”.
Here is a book that will assist in a practical way many
thousands of investors who otherwise could be easy
prey to the many shysters and sharks who hunt for
victims in the oceans of investment schemes and
related financial services. Government regulations
are a futile attempt at protecting individuals. They are
doomed to fail as tricksters quickly find glib answers. Genuine people
meanwhile are whipped into submission by an ever-increasing
compliance cost that achieves little practical help for investors. This
book by Hans Jakobi is a practical instruction for the uninitiated to
protect themselves. Well done Hans!”
Lord of the Manor of Stubbington MBA, B.Com., F. Inst. D
Business and Investment Consultant, Port Vila, Vanuatu
"Well done Hans.......The first definitive guide to the ‘Due Diligence’
process. Written in no nonsense, commonsense language that we can
all understand. We thankyou, and so do our subscribers".
The Editor at: www.newsentrepreneur.com
Your FREE on-line Newsletter, bringing ideas & money together !!!!!
"Finally somebody has produced a common sense guide to due
diligence! One of the most important steps in investing is the first one,
and due diligence is that first step. Hans has taken a difficult subject
and simplified it so anybody can perform their own due diligence
without the need for expensive advisers, accountants and solicitors.
This book is a must for all investors, novices and experienced
investors alike."
Lance Spicer, Best Selling Investment Author, Sydney, Australia
"Clear, concise, understandable, and essential for
everyone seeking to enter the investment world.
Everyone can easily understand and must read "Due
Diligence Made Simple" to be secure in the knowledge
of what the risks are and how to avoid them. Hans has
done an excellent job with this book."
Douglas Christie, Barrister and Solicitor
Victoria, B.C., Canada
Due Diligence Made Simple
“Hans Jakobi has the ability to explain complex

subjects in an easy-to-understand and entertaining
way. Who would have thought that doing due
diligence could be fun?! As a fund manager I
appreciate the importance of "doing your homework"
and spend 80% of my time doing my due diligence on
behalf of my clients. If you apply the methodology
prescribed by Hans, you can be as skilled at choosing sound
investments as a professional (dare I say, maybe even more
skilled!).”
April LaRusse, Fixed Interest Fund Manager - Newton Investment
Management, London U.K.
“With today’s growing number of investment

opportunities both domestically and internationally
it is becoming crucial for individuals to take it on
themselves to evaluate those investment
opportunities. As such, the words “due diligence”
have become synonymous with prudent investing,
however without the knowledge of how to conduct
due diligence they are merely words. Hans Jakobi’s book, Due
Diligence Made Simple fills this void of knowledge and empowers the
investor so that they can make their investment journey a successful
one.”
Mark John O’Nions, B.A., M.S.Sc., LL.B, Attorney and Business
Lawyer, Victoria, B.C. Canada
“Every person considering an investment must

read Hans Jakobi's reference Due Diligence
Made Simple. Easy to read yet thorough in
presentation, this book has gone a long way to
demystifying this topic. Remember there are
two elements to creating wealth 'make it and
save it'. This book definitely assists in doing
both.”
Robert Milroy & Carol Railton, Standard & Poor's Guide To
Offshore Investment Funds www.intl-offshore.com
Guernsey, Channel Islands
2
DUE DILIGENCE
MADE SIMPLE
How you can do your market research

before you part with your hard earned money
and avoid being taken by the sharks
HANS JAKOBI
Australia’s Wealth Coach TM
3
DUE DILIGENCE MADE SIMPLE
Copyright © Hans Jakobi 2001

This book is copyright. All rights reserved. Apart from any fair
dealings for the purpose of private study, research, criticism or
review as permitted under the Copyright Act, no part of this
publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means – electronic,
mechanical, photocopying, recording or otherwise without the
prior written permission of the publisher.
National Library of Australia

Cataloguing-in-Publication Entry:
Jakobi, Hans 1953-
Due diligence made simple: how you can do your market
research before you part with your hard-earned money
and avoid being taken by sharks
Includes index.
ISBN 1-876818-08-5
1. Investment Analysis. 2. Investments – Decision
Making. 3. Risk Assessment. 4. Disclosure of
information. 1. Title
332.632042
First Published–March 2001
First Reprint–May 2001
Published by Wealth Dynamics International Pty Ltd
PO Box 167, Portland NSW 2847 Australia
Telephone: (02) 63 555 800
Fax: (02) 63 555 855
Website: www.supersecrets.com
Email: wealth@supersecrets.com
4
Disclaimer
The material within this book is of the nature of general

comment only, and neither purports, nor intends to give any
accounting, legal, taxation or investment advice. Readers
should not act on the basis of any matter in this book without
first considering, and if appropriate taking, professional advice
with due regard to their own particular circumstances. The
author and publisher expressly disclaim all and any liability to
any person or organisation, whether a purchaser of this book or
not, in respect of anything, and of the consequences of anything
done or omitted to be done by any such person in reliance,
whether whole or partial, upon the whole or any part of the
contents of this book. In no way is the intention of the author or
the publisher to encourage readers to evade tax or any lawful
responsibility that they may have. The author and the publisher
will not accept any responsibility for any errors or omissions.
Always seek professional advice from a licensed investment

adviser, accountant or solicitor prior to acting upon any
information in this book.
Please note that I have often used the masculine form in this book
to facilitate reading; please know that I am addressing
both women and men and that no offence is meant.
5
Bulk Purchase Discounts
This book is available at special quantity discounts for bulk

purchases for educational purposes. Special books or book
excerpts can also be created to fit specific needs.
To discuss your needs, please contact the Distribution

Manager at
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PO Box 167, Portland, NSW 2847 Australia
Telephone: (02) 63 555 800
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Website: www.supersecrets.com
Share Your Experiences With Us

We would love to hear your feedback. If you have had some
successful results as a result of applying the information in
this book, please let us know. If you have any suggestions as
to how we can improve this publication for the benefit of
other readers we would also appreciate hearing from you.
Please refer to the contact details above.
6
Ignorance Is No Excuse!
I hear many stories of honest, hard working
people who have lost money to
unscrupulous, smooth talking promoters of
investment schemes, business opportunities
and unbelievable deals because they did
not know what questions to ask, where and
how to research and how to verify what
they are being told.
In law we are told that “ignorance is no excuse!”

When it comes to investing your money,
the same rule applies.
This book will give you a kit bag of valuable tools

which, if you apply them and do the necessary
research work, will help protect you from sharks who
only want to take your money, others who
naively promote investment
schemes not realising that
they are helping you lose
your money and just plain
incompetent business operators
looking for gullible investors.
Do your due diligence and save yourself

from becoming shark bait!
7
Acknowledgments
To the many people who have listened to me speak at numerous

conferences and seminars and who have then asked me: “well
how do you do this due diligence stuff and what exactly is it?”,
I say thank you. You have been the inspiration for me to write
this book. This book is for you. My wish for you is that it will
help you to understand the process of conducting research
before you invest your money and that it will help you to
identify and discard proposals which are of no benefit to you
and which will just cost you your money.
The more you learn and do your due diligence work, the more
astute you will become as an investor.
I have had the privilege of learning from some very unique and
special people, some of whom have been kind enough to
endorse this book. Thank you for your support and to all my
teachers I express my gratitude.
To SSK and Carol Railton I say a special thank you for your
coaching and guidance. I also thank you for the distinctions you
have shared with me from time to time.
To my good friend Lance Spicer for continually challenging me

and for sharing your insights and experiences with me.
To my Personal Assistant, Naomi Fountain for your typing and

computer talents in preparing this book and for keeping the
office going efficiently so that I could concentrate on writing
this book (mostly) during daylight hours.
8
CONTENTS
Foreword................................................................................................11
Introduction ...........................................................................................13
What is Due Diligence? ........................................................................15
What type of investment is it? ..............................................................16
The importance of independent verification........................................17
How to get started .................................................................................18
It’s a bit like peeling an onion ..............................................................19
Who’s keeping an eye on your money?...............................................21
What’s your gut feel?............................................................................21
I’m not against salespeople! .................................................................22
What about financial advisers?.............................................................23
Know yourself as an investor ...............................................................25
The ‘Opportunity Of A Lifetime’ ........................................................26
If It Sounds Too Good To Be True . . . it probably is! ...................29
The power of questions.........................................................................33
As a matter of courtesy . . .................................................................36
The power of silence .............................................................................36
Bridging words ......................................................................................37
Nodding your head shows that you are listening intently...................40
Encouraging your interviewee..............................................................40
Matching and mirroring ........................................................................41
How to create rapport through a handshake ........................................42
Smile and maintain eye contact............................................................42
Understanding personal space ..............................................................43
Dress like a professional investor ........................................................43
Body language - how to read the signs ................................................43
How do you sound?...............................................................................44
Have you heard the one about . . . ? ................................................45
How to find a good professional adviser .............................................46
When it’s time to move on ...................................................................50
Choosing a good Accountant................................................................50
Choosing a good Lawyer ......................................................................54
Practicality versus the legal route ........................................................55
Choosing a good Stockbroker ..............................................................60
Understanding financial terminology ..................................................63
Stocks and shares; stockmarket and sharemarket ...............................64
9
Funds, trusts and mutual funds.............................................................64

Choosing a good Property Manager.....................................................64
Starting a share investment club...........................................................68
Benefits of starting an investment club................................................69
Investment club rules to consider.........................................................70
Questions to ask your mortgage broker ...............................................71
Another word of warning! ....................................................................71
Come to our property investment seminar . . . ....................................72
Is your family home an asset? ..............................................................76
What about negative gearing? ..............................................................78
Interesting websites for property research ...........................................78
Seven risks for you to consider and evaluate ......................................79
The bright side of risk ...........................................................................85
Going Offshore – some due diligence issues to consider ...................87
Global citizen – Rupert Murdoch.........................................................88
The difference between tax avoidance and tax evasion......................89
The basic offshore issues ......................................................................90
How the tax department due diligence process on you begins...........93
Lessons from the case of the late Dr Peter Clyne ...............................94
Are you like a kid in a lolly shop? .......................................................97
Due diligence for start-ups ...................................................................97
Unclaimed millions: It's your money, but where are you? ...............104
These agencies may have your money ..............................................105
Who to contact for your unclaimed millions.....................................108
Starting points for your due diligence research.................................109
Quick pointers on other due diligence issues ....................................110
Scams, Frauds, Swindles, Rorts and Ripoffs.....................................114
Fear and Greed – Make them your friends ........................................119
About the Author.................................................................................125
A guide to common terms used in the financial world .....................126
Index.....................................................................................................134
10
Foreword
Foreword
Everyone wants to know the secret. Strangers

at conferences, entrepreneurs from around the
world, high net worth individuals, (ones whom
you would think would have all the answers),
the people next door. They all want to know
how to get rich, how to build wealth fast – and
how to make it last.
As one who deals with thousands of clients from around the

world, I know a little bit about the secret of checking things out.
About what ‘to do’ and what not to do. However, most of the
time my ‘gut feeling’ is what guides me to either continue
reading an investment proposal or throwing it into the big black
garbage bin to my right.
There are many proposals that are just ‘stupid’ or ‘not real.’ The
tricky and dangerous ones go into the shredder behind me so
that they can’t try and fool someone else. To reach the shredder,
I have to turn my chair around. Some days I get a lot of
exercise!
Hans Jakobi is a master at getting messages about serious topics

across in an easy to understand way. He is able to communicate
a complicated topic with simplicity without being simple.
That’s an art!
In this fast changing world of increasing opportunities you need

to reach decisions that will determine if you are to stay free or
become free. In reaching these decisions, it is important to
know who you are dealing with and what their motivation
might be.
11
Is he/she just ‘in it’ for the money?

Do they really enjoy what they are doing?
Do they know what they are talking about?
Have others reached their goals by following that person’s
recommendations or advice?
Is what they are proposing, something that has a track record
over several years at least, or is it an ‘idea born yesterday’?
If it’s a recent development, it’s not necessarily bad, – it just

increases your risk.
That’s what due diligence is all about – matching your personal

comfort level of risk with the offer you have received.
If you are comfortable with what you hear, if you have checked
it out and you like it – go for it! If you have serious doubts –
stay away!
“Experience is the amount of mistakes we have made”, a

mentor of mine told me when I was 16. I did not understand it
at that time. By now I do – I have gained a lot of experience!
We all have to make our own mistakes. May this book help you
to avoid some of them.
Truly Yours,
SSK
Lic. Steve Saemmler Klein
Chairman Grupo CAT
President of the Offshore Association of Central America and
the Caribbean
12
Introduction
Introduction
There is an old saying which says “A fool and his money is
easily parted”. It happens so easily and so quickly. You hear a
persuasive presentation and you think, “Wow, this is a great
idea and sounds terrific” and then, before you know it, you’ve
pulled out your credit card or cheque book and made a decision
to invest money or to lend someone some of your hard earned
cash without having done any research. Worse still, you may
have even borrowed money in the hope of getting a quick return
with this tremendous opportunity! The presentation is often
punctuated with a call to action and a need for urgent action.
Participants are generally told that if they do not become
involved immediately, the opportunity will pass them by.
While this may well be the case in some situations, it is
frequently a sales technique in order to force people into a
decision as quickly as possible.
One of my personal mottos is that: “The opportunity of a
lifetime comes past at least once a day.” With this as one of my
guiding principles, and my abundance mentality, I simply say to
myself: “If I am going to miss out on this opportunity, there
will be another bigger and better one, just around the corner.”
Accordingly whenever a salesperson tries to impose urgency on
my decision making process, I simply respond by saying:
“Look, I wouldn’t like to deprive anyone else of this wonderful
opportunity. So go right ahead and make it available to anyone
else. As far as I’m concerned I will be doing some research
before I make a decision.”
Its been my experience that in almost all cases the salesperson
has backed off and tried to re-track in order to keep me as a hot
prospect for whatever I was being offered. Essentially what I
do through this response is to put the ball back in my court so
that I am in control of the decision making process since it is my
money that I am being asked to part with.
13
I often speak at conferences and exhibitions, both locally and

internationally, and some of the most commonly asked
questions are: “How do I go about doing due diligence on an
investment proposal?” and “How do I find a good accountant,
solicitor, stockbroker and real estate agent?”, and so on.
The purpose of this book is to give you a kit bag of tools or a
series of questions and techniques that you can apply in
carrying out due diligence and researching something
thoroughly. It is my intention to arm you with the necessary
techniques so that you can properly understand and make an
informed decision before jumping in to any investment
proposition.
14
What is Due Diligence?
What is Due Diligence?

Due diligence is basically a fancy word for doing research. I
looked up a number of dictionaries and could not find a
dictionary definition for the term “due diligence”, however I
believe the following best summarises the concept of due
diligence:
Due diligence is the process of investigation performed by

investors into the details of a potential investment. It
requires a detailed and careful examination of the
operations and management of a potential investment and
verification of the material facts relating to that investment
or operation.
By verification, I mean that you need to confirm the reality, the

existence or the truth of statements or claims made by either a
promoter or the management of an operation. Due diligence
can and should take many different forms. Some of your due
diligence research will be conducted by telephone, over the
internet, via fax, by letter and perhaps by personal observation
and interviews. Some investments may be located very far
from where you live, therefore, you will need to rely on various
methods of communication and documentation. Hopefully you
will be able to conduct some telephone interviews so that you
can not only ascertain the important information, but also hear
the tone of the voice of the person giving you the explanations.
If the investment opportunity is located within a reasonable

distance of your home, so that you can access it personally and
physically, it is a good idea to check out the premises,
management and operations of the business that you are
planning to invest in. Once you understand the product or
service the business produces, you should look for evidence of
the company’s products in the marketplace, assess their pricing
15
relative to their competitors and their market presence. You

should also speak to resellers or marketers of the company’s
products to find out what their experience has been with the
company and it’s products, their reliability and the customer
acceptance of the company’s products. What problems have
they encountered so far? How has the company responded to
problems with its products? How has the company responded to
marketing issues with its sales force? Do customers like to deal
with the company? Who are the major competitors?
When you know the names of the competitors, find some
resellers of those products and ask them about the products of
the company you are planning to invest in. They will tell you all
sorts of interesting information which you may want to check
out.
What type of investment is it?

Basically you will be looking at either a passive or an active
investment. By passive investment I mean an investment
where you invest your funds and wait for the report of
operations and the payment of your returns. Some of these
investments may be for a predetermined term and offer a fixed
or variable rate of return depending upon the yields obtained by
the funds. An active investment is one where you would
purchase a business, a franchise, a right to operate a business, a
license or something where you are actively involved and where
your involvement has a direct influence on the financial returns
from that operation.
16
The importance of independent verification
The importance of independent verification

When you are doing your due diligence research you
need to think of yourself as a type of private
investigator. You need to investigate the
circumstances of your investment, the people
involved, the type of businesses that they are operating
or investing in and to make sure that the evidence that you are
seeing is factual.
Always bear in mind that with computer technology these days
it is possible to fabricate almost any type of documentation,
signature, falsify pictures, insert pictures that have nothing to
do with your investment and generally present things in a
most attractive way in order to lure investors into parting with
their money.
Just imagine for a moment that you are about to sell an old car
or some other object which you have had for a while. Wouldn’t
you want to present it in the best possible way? I suggest that
you would probably wash it, clean it throughout, do some touch
up paint work if necessary and do cosmetic modifications and
repairs where necessary, in order to present your item for sale in
the best possible light. You would be doing this in order to
achieve the highest possible price. Right?
If on the other hand, you were a careful purchaser, you would
be looking out for some of these cosmetic modifications and
would not hesitate to look under the car and under the carpet on
the floor. You would look under the
bonnet, open up the boot, and tap the
body work in various places to see if it
had been tampered with. You would
look at the mileage of the vehicle, start the engine and take it
for a test drive. You would test the lights, the indicators, the
brakes and listen for any unusual engine noises. You would
17
check that the windscreen wipers work, that the horn works and
you would check the condition of the tyres. While you are
driving the vehicle, you would listen for any rattles, road noise
and check its road handling capabilities. These are all checks
and investigations that an astute buyer of a motor vehicle would
carry out. This is in fact, due diligence work on the purchase of
a motor vehicle. The same principle applies when you are
doing due diligence on an investment proposition. Wouldn’t
you want to check out an investment proposal just as
thoroughly before you handed over your money?
How to get started
In the first place you will want to do as much investigation as
you can with the least amount of expense to you. In other
words, you will want to call for documentation about the
investment and perhaps search it out on the internet. A good
idea is to ask the promoter of the investment to give you the
names of some other investors who have successfully invested
in the proposed investment and who have received returns so
that you can speak to them directly.
It is most likely that you will be told that the identity
and confidentiality of other investors needs to be
protected. The promoter may ask those investors to
ring you or he will need to seek their
permission prior to you speaking to those
investors. This is an acceptable part of the
process and ensures your privacy and
confidentiality in the future as well.
Once you have received the documentation and the contact
details of other investors you will need to make up a check list
of questions to ask and things to look for. This is where your
prior preparation becomes absolutely essential and extremely
valuable. The best way I have found of doing this is to prepare
a list of questions you wish to have answered and allowing
18
It’s a bit like peeling an onion
enough space next to the question to write the answer. You

should also take a note of the names of the people you spoke to,
as well as the dates and times of your conversation. Whenever I
complete a conversation with someone like this, I obviously
thank them profusely for their help and then I finish the
conversation with this final question: “Thank you very much for
helping me with my questions. You have been extremely helpful
and I really appreciate your help. If there is anything I can help
you with in the future, please feel free to call me. If I think of
anything else, would you mind if I gave you another call?”
It’s a bit like peeling an onion
You might like to consider your due
diligence work as something which is to
be carried out through various levels of
detail or where the investment has to satisfy certain tests before
it goes to the next stage of investigation. In other words, you
will want to do some initial screening to see whether it is worth
your while performing any further due diligence work on this
investment or whether you can eliminate it in the early stages
because it has failed to pass your basic tests.
Certain questions that you might wish to consider for your
initial screening may include:
1. Where is your investment base (local, international, etc)?
2. How long has it been operational?
3. What is the physical address of your business?
4. What has been the past performance of this investment (say
for the last 5 years)?
5. Who comprises the management team of this investment?
6. What is their track record?
7. What other successful operations have they been involved
in?
19
8. Are there other external parties who can verify the

performance of the investment and/or who know the
directors involved?
9. What regulatory group do you work with or who monitors
your industry and company? (if they are offering an
investment, they should be registered with the securities
commission of that country. The securities commission will
have information regarding legal actions or convictions
against their members.)
10. What professional organisations are you registered with?
11. What kind of insurance do you carry in case of
misappropriation of funds?
12. What legal rights do investors have in the country of
jurisdiction in which your investment operates and how will
these protect me if something goes wrong?
13. What size contribution do I need to make?
Then ask yourself whether you have the funds available to
participate?
14. How are my funds secured (if at all)?
15. How frequently can I expect to receive a return?
16. What were the payment dates for other investors for the past
2 years?
17. What size return can I expect to receive?
18. Ask yourself: What risks do I need to accept in order to
receive these returns?
19. How are my funds going to be invested in order to generate
the returns being offered to me?
20. Ask yourself: Are you comfortable with the way your funds
will be invested?
These are some of the initial questions you should be asking

before you even go into any more details.
20
Who’s keeping an eye on your money?
Who’s keeping an eye on your money?

Funds generally make their investments in large amounts. It
may be that your money is held for a period of time before the
fund actually invests it. In the investment industry this function
is generally carried out by a custodian. The custodian must be
separate and distinct from the investment fund. Is someone
keeping an eye on your money?
What’s your gut feel?
It would be most advantageous if you could also speak
personally to the promoter of the investment and make an
intuitive assessment about the credibility and
congruence of the promoter. You should ask
the promoter how much of their own money
he or she has invested in the investment they
are recommending to you. If they do not have
their own money invested in the investment –
you should ask why. Are they going to make
their money from the commissions they receive in selling these
investments to others or do they firmly believe in the
investment themselves? If they themselves do not have the
necessary money to invest in the investment they are
promoting, you are possibly speaking to people with very little
financial acumen of their own. In that case, you may want to
ask yourself why you are even listening to people like that when
it comes to investing your money. They are probably just sales
people who are telling you the things that they have been told to
say.
I always try to find people who are investing in the proposition
they are proposing to me and who can demonstrate financial
wealth.
21
I have come across many people who promote schemes and

investments that they have absolutely no financial commitment
to. I have often found that a few months after our initial
discussion, these promoters are no longer involved with the
investment they once tried to get me involved in. Whenever I
have asked these people for the reasons why the are no longer
involved, I found out a lot more of the background to the
investments they were previously promoting. These subsequent
conversations often demonstrated to me that they themselves
had not done any due diligence investigation and were merely
promoting the investment because they stood to gain financially
from it. You as an astute investor need to be aware of this
situation and the possibility that the person promoting the
investment has done very little, if any, research into the
investment.
I’m not against salespeople!
It may sound as if I’m down on salespeople. That is definitely
not the case. There are many excellent and professional
salespeople with integrity and they have a very important role
to play. Their role is to promote and sell the product they
represent. Obviously they will present that product as best they
can and will only tell you what is good about it in order to make
the sale. They are working for their commission and the
company they represent.
They are not your financial adviser! They may not even
understand your financial affairs. In fact, they may not even
know about them. They are just there to sell you a product!
It is up to you to do your due diligence to check out what you
are being offered. The salesperson is not going to do it for you!
It’s your money and you are the best person to take
responsibility for it.
22
What about financial advisers?
What about financial advisers?

Most financial advisers have come into the industry from other
occupations such as insurance, funds management, banking etc,
or as a result of financial services training. Many have
previously worked for a particular financial services
organisation and therefore tend to offer mainly the products of
that organisation.
The point here is that they are not financial advisers because
they have created a large personal fortune; they are there
because they have been trained to give financial advice. Many
earn their income from the funds which they actively promote.
When you ask a financial adviser for advice therefore, you are
more likely to hear what he or she has been trained to tell you
rather than what they have learnt as a result of their practical
wealth building experience.
It has been my experience that many financial advisers focus
their activities on a range of funds that they have an established
relationship with and from whom they earn most of their
commissions. As such, I suggest that in the same way as when
you are dealing with salespeople, it is once again up to you to
do your due diligence work and to carefully check out what you
are being offered. It’s your money and you are the best person
to take responsibility for it.
Be aware that many financial advisers will not advocate direct
investments in shares or real estate because they generally
cannot offer you that service and earn a fee from your
investment activities in this area. In the few cases where they do
facilitate direct investment contacts, they will receive a referral
commission from the organisation selling you the shares or the
real estate or they will charge you a fee for their time. You
should therefore be aware that the person or organisation being
recommended to you in this way is not someone who has been
23
selected after considerable and careful research by your

financial adviser but rather someone who pays your adviser a
commission for referring you. I’m not saying that there is
anything wrong with this arrangement and in any case, the
financial adviser is obliged to disclose to you that he or she
receives a commission for referring you.
It is simply important to understand the rules of the game and
not to assume that you are receiving a recommendation that is
the result of careful and skilful research by your financial
adviser. Given that this is the case, you should seek out other
alternatives as well.
Rather than direct investments in shares or property, most
financial advisers will steer you in the direction of managed
share or property funds. For some people this may be a good
choice, but you need to be aware that you will usually receive
much better returns if you manage your own investments since
you don’t have the high overheads of a fund
manager.
The moral of this story is that you should think
about what you are being told, evaluate it
carefully and check out some alternatives before
you part with your money.
24
Know yourself as an investor
Know yourself as an investor

In the same way that you need to do due diligence on a potential
investment, you also need to do due diligence on yourself as a
potential investor. You need to understand your own
psychology, how you respond to risk and what your income
requirements are.
Here are some questions you might like to ask yourself:
1. Am I looking for a secure, guaranteed rate of return, or am I
comfortable with accepting a higher level of risk in order to
receive higher returns?
2. Is this my entire investment capital that I am risking or is it
just a small portion of the funds that I have available for
investment?
3. What difference would it make to my life if I lost all of the
funds I invested in this particular proposal?
4. How will it affect my financial position if the returns are not
received at the time and in the amount that I expect?
5. How will this investment affect me emotionally?
6. How will this investment affect my relationship with
others?
7. How will this investment affect my family?
8. How well do I understand this type of investment and the
industry concerned?
9. What further research could I do and what else could I learn
about investing and building wealth to help me understand
what I am doing?
10. Who else can I contact to find out more information?
You should consider these questions as part of your due

diligence work on yourself in order to make wise investment
decisions.
25
The ‘Opportunity Of A Lifetime’

How many times have you been told that you have before you
the opportunity of a lifetime?
I regularly receive approaches about such once in a lifetime
opportunities. Although the person promoting such outstanding
opportunities often genuinely believes this to be the case, I have
realised that this is just sales talk. My belief is that a) if it’s
such a good deal, it will still be there tomorrow and b) the
opportunity of a lifetime comes past at least once a day.
Let me illustrate this to you with an incident that happened to
me recently.
At the time of writing, one of my children is studying at
university in a regional country town. For the past two years she
has been living in a college on the university campus and she
told me that she wanted to move out into a place of her own. I
showed her how to research the rental market and I also
explained the formula I apply as a real estate investor whenever
I buy a rental property. I encouraged her to do some market
research and then report back to me. These are the same
formulas that I teach in my Super Secrets to Wealth® do-it-
yourself real estate home study course.
Her findings were that because of the strong rental demand in
the town, she would be better off buying a property rather than
renting, since the repayments would be about the same as the
rent payments. Once she had finished her degree, the property
could be rented out and therefore the investment made sense.
After some research, she found her ‘dream home’ in the agreed
price range and advised me that it would be going to auction on
a certain date. It so happened that the auction date also
coincided with the day that we were going to pick her up for her
end of year break.
26
The ‘Opportunity Of A Lifetime’
My wife and I arrived at the auction and found that apart from
ourselves, there was only one other serious bidder. Fortunately
for us, he was also an investor who had done his research and
his sums prior to attending the auction. As it turned out, he had
valued the property at exactly the same amount as I had. This
became obvious when he stopped bidding once we
had reached his pre-determined price and he
started to walk away. At the strong urging of my
daughter (fathers are always a soft touch, for
their daughters, aren’t they?) I bid an extra
$500 to become the highest bidder. The
bidding had not reached the reserve price and
the vendor rejected our bid. Despite urging from the real estate
agent on the one hand and my daughter on the other, I refused
to go higher to meet the vendor’s price. As far as I was
concerned, the property had a certain value to me as an investor
and I was not going to go any higher.
My daughter was dismayed and told me that according to her
research, this was the only property in that price range in town!
I calmly explained to her that I did not believe that to be the
case and promised to find her some alternatives within the next
hour. We simply drove around the area for a little while and
found two other properties within one and a half kilometres of
the house that she was interested in. Two months later, the
house we were interested in at auction was still on the market
looking for a buyer. We are still willing to buy, but at our price.
I’m sure that if we are willing to wait (which I am) then we will
have the opportunity to buy the house on our terms.
If we miss out, that’s OK too because I am sure we will have no
trouble finding another property on our terms.
27
There are a number of important lessons to be learnt from this

little story.
The first lesson is: don’t become emotional about your
investment decisions. Buying the home you want
to live in is partly an emotional decision and
partly an investment decision. On the other hand,
buying an investment property should be a totally
non-emotional decision. You should do your
figures and stick to them. When you are willing to walk away
from the deal at any time, the real estate salesperson has no
emotional hold over you. If you let them work on your
emotions, they will drive the price up on you. (That’s what they
are supposed to do. After all they are working for the vendor,
not for you as the purchaser.)
The second lesson is: be willing to wait. From
experience I can tell you that I have had numerous
situations where estate agents have come back to
me after several months and asked if I am still
willing to go ahead with the offer I made on a
property several months prior. At the time, they rejected my
offer, believing that they could find a buyer at a higher price.
Then they found that they could not sell the property at the
vendor’s asking price. They then came back to me as a ‘buyer
of last resort’. It puts you in a great negotiating position if you
have the nerve to wait.
Thirdly: don’t become attached to the outcome.
Take the attitude, if it comes off – that’s great. If
it doesn’t, that’s OK too. You should not be
attached to the actual investment. In other words
you should be willing to sell at any time at the
right price. You should also not become attached to the buying
or the selling process. Or, to put that another way, - don’t be an
anxious buyer or an anxious seller.
28
If It Sounds Too Good To Be True . . . it probably is!
The fourth lesson is to realise that sometimes you’ll

miss out on a deal. That’s part of the process and it
doesn’t matter. If you negotiate as hard as I do, you’ll
miss out on lots of deals because you drive a hard
bargain and you’ll only want to buy on your terms
and only the type of investment that meets your investment
criteria. It’s a part of the investment process that I willingly
accept because I know that the deals I do succeed with, are
excellent buys. They are the deals that make me money.
When you understand and adopt these lessons as a part of your
investment creed, you’ll believe as I do, that the opportunity of
a lifetime comes past at least once a day!
If It Sounds Too Good To Be True . . . it
probably is!
You’ve probably also seen some of those unbelievable
advertisements which say something like, “I made millions in
18 months – You can too; OR Earn 50% on your money in 12
months” etc, etc.
One part of us often wants to pick up the phone and say tell me
more, hoping that we will find our pot of gold at the end of the
rainbow while the doubting Thomas within us says: “it sounds
too good to be true.”
I recently heard of an investment proposition that was
promising to pay 5% a month which equates to at least 60% a
year. This opportunity was claimed to be supported by a bank
guarantee from a recognised bank. The person promoting the
scheme was claiming to be worth tens of millions of dollars and
said that he would achieve these returns through skilled
overseas currency futures trading activities and bank debenture
trading programmes.
29
His story attracted the attention of many people and I received

numerous requests asking my opinion about this proposition.
Since I had not seen the investment proposal personally, nor
spoken to the promoters of the scheme, I wanted to reserve my
judgement until I had received more information.
I simply suggested to the enquirers that they do some more
research to ascertain the validity of the investment and the
likelihood of them being paid these phenomenal returns. They
also needed to be sure that their initial capital would be safe.
The difficulty for most people is that they don’t know what
questions to ask and where to obtain the necessary information
to confirm someone’s bona fides. They often take the
promoter’s spiel at face value and rely on their gut feel as to the
value of the investment. Their greed and desire for the get rich
quick solution often prompts them to put money into such deals
only to find out later that they have lost their money.
Many of these types of schemes are promoted around the
country and indeed the world. The internet abounds with scams,
cons and frauds! It is worth recalling the old adage that: The
greater the return, the greater the risk. While not all high
yielding investments are in the high risk category, this age old
principle generally holds true.
The best way of ensuring that you don’t fall victim to unsound
investment proposals is to develop financial intelligence
through self education. My book, How To Be Rich & Happy
On Your Income shows you how to take control of your
finances and to manage your money yourself. It teaches you
reliable principles for building wealth that have stood the test of
time. It has been described as a life changing, easy-to-read, nuts
and bolts book packed with powerful, practical and easy to
understand tools to live a richer and happier life.
30
If It Sounds Too Good To Be True . . . it probably is!
In the example I gave earlier, I did some research which

provided some interesting results.
In the first place, I asked myself why would someone who is
apparently worth tens of millions of dollars, want to
deal with large numbers of inexperienced small
investors who are likely to be nervous about their
investments and make frequent enquiries as to
how their investment is going. The answer given
was that by pooling the funds of the many small
investors, he could make much larger trades
which would apparently result in much larger profits. Since
markets go up as well as down, I would think that any losses
incurred would be much larger too.
How is he managing that risk and is that risk acceptable to you
as a potential lender/investor?
It is also likely that the profit return in percentage terms, would
be the same, regardless of the amount invested. As such, this
argument does not hold water in my opinion.
What is intriguing is that on the capital base claimed by this
promoter, he would have the capacity to invest up to $60
million dollars without resorting to any small investors. I would
have thought that would give him the possibility of doing some
rather large trades in his own right without having to share the
profits.
Could it be that he does not actually have the money he claims
to be worth?
In order to overcome the ASIC regulations surrounding
investments, this promoter explained to his enthusiastic
audience that they would in fact be making a loan to him or one
of his entities rather than investing funds with him. He told
them that their funds would be safe because they would receive
a bank guarantee. Although he held up the letterhead of a major
31
bank, he would not let people read the

text of the letter or the signatory to
that letter.
Isn’t it possible to produce almost any
documentation complete with logos and
signatures on a basic home computer these days?
Investigation also revealed that this promoter had never
successfully completed the types of trades he was promoting to
his audience and that he in fact had no experience in how to set
these up. The documentation for the programme was being
created as it was being promoted and as questions were being
asked. While he was promoting the programme, he had no fixed
address because he was travelling around the countryside
promoting this wonderful wealth building opportunity and
therefore needed no particular place to live. He assured his
audience however that he would be setting up new offices soon
and would have a new address and contact details available for
them. In the meantime, they could contact him on his mobile
number.
This is from someone who claims to be worth tens of millions
of dollars!
While I am willing to give everyone a fair go, this story is far
too good to be true to my sceptical mind. It is not very difficult
for anyone these days to buy a mobile phone with prepaid calls
and then, once they have raised the desired amount of money, to
throw the phone in the bin and disappear to
enjoy the proceeds. Furthermore, it is most
unlikely that anyone who is worth tens of
millions of dollars would have so few
possessions that they could live out of a
suitcase for several months! I know I
would find it rather difficult to do.
32
The power of questions
I certainly smell a rat in this whole scenario. I suggest that you

take a very critical look at every investment proposal you are
encouraged to look at to ensure that the people you
are being asked to entrust your money to are
credible and have a successful track record with the
activities they are promoting. They should also be
willing to disclose how they are going to earn those terrific rates
of return and provide full documentation of their proposal. If
they are unwilling to do this for you, it’s probably too good to
be true. In that case you should take a moment to reflect on the
old saying: a fool and his money are easily parted.

Imagine a very powerful computer system which is a repository
for large amounts of data. In order for you to access this
information, you need to know where to find the information or
where to search for it. In the same way, if you want to access
information about an investment opportunity, you will need to
know what questions to ask and how to ask them effectively in
order to get the true answers to your questions. In fact, I would
go as far as to say that the real difference between people is the
difference in the questions they ask consistently.
Questions determine everything you do in life, from your

abilities, to your relationships, to your income. Look at the
questions you habitually ask yourself in the area of finances.
Invariably if a person isn’t doing well financially it’s because
they are creating a great deal of fear in their lives – fear that
keeps them from investing or from mastering their finances in
the first place. They ask questions like “What toys do I want
right now?” instead of “What plan do I need to achieve my
ultimate financial goals?”
33
The questions that you ask will determine where

you focus, how you think, how you feel and what
you do. If you want to change your finances,
you’ve got to hold yourself to higher standards,
change your beliefs about what’s possible and
develop better strategies.
Since the process of due diligence requires good questioning

skills, both in the formulation and the delivery stage, I will now
focus on this important skill.
It is important to recognise that whoever asks the questions,

controls the conversation. Therefore, since it is your purpose to
find out as much useful information as possible about the area
that you are doing the due diligence work on, you need to
develop your questioning skills as much as possible. By
preparing your questions in advance, you will be more likely to
stay on track and guide the conversation in a way which will
provide answers to all your areas of concern.
The basis of good questioning skills is to ask “open” questions.

These are questions which cannot be answered with a simple
“yes” or “no”. The following seven key words will help you to
easily build rapport, gather the information you require and to
guide the conversation in the direction of your choice.
What . . . ?
Which . . . ?
When . . . ?
Where . . . ?
Who . . . ?
Why . . . ?
How . . . ?
34
Learn these seven key words and practice asking questions with
them at every opportunity. By using these words to start your
questions, you will encourage your interviewees to talk. And
that’s exactly what you want them to do.
You see, in the due diligence process, the person with the
information, has the power. It’s your interviewee who has the
information that you want. Therefore they have the power. It’s
your job to get that information in a skilled and systematic way
so that you can decide whether or not to proceed with the
investment proposal offered to you. Getting the information
gives you the power to invest wisely.
The promoter would love you to make a
decision to go ahead with as little information
as possible, since that makes his job easier.
You, on the other hand, need to obtain
sufficient information to satisfy yourself that
your money is safe and that it will generate
good returns for you.
Now let’s look at some examples to show you
how you might use these key words to formulate open questions
as part of your due diligence research work:
 What has been the performance of this investment over the
last five years?
 Which of your funds has consistently produced the highest
returns during the last five years?
 When could I expect to receive my first dividend or interest
cheque from you?
 Where are your funds invested?
 Who will be my contact person with your organisation if I
decide to go ahead?
 Why can’t I invest my funds at call with you?
 How are my funds secured?
35
As you can see, these types of questions encourage the

interviewee to speak about their investment proposal. When you
master the skill of asking questions, your due diligence work
will help you to identify good investment proposals quickly and
easily.
As a matter of courtesy . . .
As a matter of courtesy I always ask permission before
launching into my questioning routine. It helps to build rapport
with my interviewee and eliminates the feeling that they are
being grilled or cross examined. It also shows that you are a
serious investor and that you are worth spending the time with.
I start off by saying something positive about their investment
proposal and then I ask permission as follows:
“I’ve thought about your investment proposal and it looks
quite interesting from what I’ve heard and seen so far. I’ve
written down a few questions which I’d love to discuss with you
and if it’s OK with you, I’d also like to make a few notes. Would
that be OK?”
The power of silence
After you ask a question you must remain
completely silent until you receive the answer.
Resist all temptation to respond and talk yourself
into what you are investigating. At the
appropriate point in the conversation, agree and
ask more questions which arise out of the
answers that you receive. Do not interrupt the
interviewee otherwise he has the opportunity of
telling you less. Remember that your purpose is
to get your interviewee to talk and to give you comprehensive
information about the investment proposition. Therefore, ask a
question, and then shut up and listen to the answer while you
make notes about what was said. If you didn’t quite understand
36
Bridging words
something or couldn’t jot it down quickly enough, just say:

“could you go over that again for me please?” and then be
quiet again.
Bridging words
Bridging is a technique which keeps a conversation moving and
avoids the situation where you might talk too much or your
interviewee talks too little. It’s a great way for you to extract
more information than your interviewee may have originally
intended to divulge to you.
Do not be afraid to sound uninformed or naive for the purposes
of your interview. In some cases it’s actually a great technique
to say “Look I’m not really familiar with this, could you explain
it to me further?”
Here’s how you might like to use some bridges with your
interviewee to keep them talking. Powerful bridges include
words and phrases such as: Meaning….?
So then…?
Therefore…?
For example…?
When you…?;
Which means…?
Each bridge must be followed by absolute silence on your part
in order to extract the information that you are after. Here are
some examples of the use of bridges in an interview situation –
You: Can you tell me what your fund invests in to

achieve the high rates of returns that you pay
your investors?
Interviewee: We find high growth companies with growth
potential and innovative products to invest in.
You: Meaning …?
37
Interviewee: Meaning that the companies we look to invest in

must have developed something new or display
the potential to create high demand worldwide.
You: Which means…?
Interviewee: Which means that those companies with
innovative products, that have good marketing
and support systems have the potential to earn
very, very high profits. As investors in those
companies, we can share in those high profits so
that we can then pay you a very good return.
You: For example…?
Interviewee: Let’s take the ABC Widget Company as an
example. They have developed a powerful, fast
and low cost communications switching device
which is used internationally. In just 3 years they
were able to capture 25% of the US market. This
company produces extraordinary profits and our
return on investments is in the order of 85%.
The important thing here is that you as the investigator are
doing all of the listening and very little of the talking. That way
you will glean the most useful and valuable
information. Also, don’t be afraid to ask your
interviewee for specifics. For example, if he talks
about extraordinary profits or very high profits,
ask “What percentage are we talking about?”, get
them to be very clear and specific.
When you use a bridge….
1. Lean forward with the palm of your hand outstretched
2. Stretch the last letter of the bridge or stretch the bridge
itself, eg. Meannningg…?
3. After you have asked the question, lean back and shut up!
38
Bridging words
Leaning forward when you are in a face-to-face situation with

the palm of your hand outstretched does two important things.
Firstly, it says non-verbally that you are non-threatening.
Secondly, it signals to your interviewee that it is his or her turn
to talk by handing over control of the conversation to them.
Stretching the last letter of the bridge almost converts it into a
question, but not stretching it can make it sound like a
statement. When you have used a bridge, shut up and listen
intently. Resist the urge to put your pearls of wisdom into the
seemingly endless silence that can sometimes follow the use of
a bridge. The open palm shows your interviewee that the
responsibility to speak next has been given to them, so let him
or her come up with the next statement.
Once you have asked your question of your
interviewee, and you have given over control to
them, you can lean back with your hand on your
chin, as if you are evaluating the information
you are being given. This encourages the
interviewee to continue talking for as long as
you are leaning back and listening attentively.
Bridges are in fact a type of open ended question. They are best
used in interviews with people who don’t speak very much or
give you short answers to questions.
When you first use bridges, it may feel a bit strange
(particularly if you are a habitual talker) because of the silence
that sometimes follows the use of a bridge. If your interviewee
is used to giving short answers he or she is also used to
experiencing periods of silence during conversation so it all
seems perfectly normal to them.
Bridges are fun to use. They make your interviews more
interesting and help you extract the information you really need
to hear. Bridges are a powerful technique that you can use over
the phone and in person.
39
Nodding your head shows that you are listening

intently
Nodding of the head is a gesture used in most countries to show
agreement. If you are interviewing someone in person, it’s a
good idea to nod your head frequently to show that you are
listening and understanding what you are being told. It does not
necessarily mean that you agree with what you are being told. It
simply shows that you are listening attentively and most
importantly, it keeps the conversation going.
As long as you are leaning back with your hand on your chin,
there is no pressure on you to speak. When you listen, put one
hand on your chin and give it light strokes as this gesture
encourages your interviewee to keep talking and giving you
more information.
Encouraging your interviewee
As your interviewee speaks, encourage them to keep going with
the use of short words of encouragement such as:
I see…;
Aha…;
Really…;
Is that right…?
Tell me more…
These minimal encouragers can more than double the amount of
information that your interviewee gives you. Minimal
encouragers combined with nodding your head and bridges are
the most effective tools you can learn to keep your interview
rolling along nicely and your interviewee giving you lots of
powerful information.
40
Matching and mirroring
Matching and mirroring

Matching and mirroring your interviewee’s
body gestures and behaviour patterns is a
good way to build report quickly. For
example, if your interviewee talks slowly and
you talk quickly, you are out of sync with each other.
You will achieve much quicker report with your interviewee if

your body gestures and your speech patterns are similar. This
includes behaviours such as blinking, raising your eye brows,
the way you sit or stand and the speed of your speech.
When you are interviewing someone, mirror their seating

position, their posture, the angle of their body, their gestures,
expressions and the tone of their voice. Before long they will
start to feel that there is something about you that they like.
They will probably describe you as ‘easy to be with’ because
they can see themselves reflected in you. This will make it
easier for you to extract the information from your interviewee
that you desire.
Never speak at a faster rate than your interviewee does. Studies

have shown that interviewees feel pressured when someone
speaks faster than they do. The speed at which a person speaks,
shows the rate at which their brain consciously analyses
information. Speak at the same rate or slightly slower than the
person you are interviewing and mirror the inflection and
intonation of their voice. Matching your speech to your
interviewee’s speech, is critical, particularly when you are
speaking over the phone, since the voice is your only medium
of communication.
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How to create rapport through a handshake

There are basically two rules for creating rapport with a
handshake. Firstly, hold your palm straight out. This indicates
that you consider the other person to be an equal. It is not
threatening and is comfortable. Secondly, apply the same
pressure that you receive with your handshake.
A wet fish style of handshake or one that
crushes the other person’s hand does not
help to create rapport. You also have to be
sensitive to how long the other person
wishes to hold your hand. Some people delight
in shaking someone’s hand so that it almost comes off at the
shoulder. Once again, this is not a great way of creating
rapport. What this can mean for you is that if you are
introduced to a group of people, you may need to vary the
pressure of the handshake several times and shake hands
differently with the people that you are meeting.
Through your handshake you want to communicate that it is
easy for your interviewee to feel open to you and feel
comfortable sharing ideas and information with you.
Smile and maintain eye contact

Another important technique of creating rapport
with your interviewee is to smile. This shows
your interviewee that you are not threatening
and that they can feel comfortable in your
presence. It is also important to maintain frequent eye contact
with your interviewee. This will give them the feeling that they
are communicating directly to you and it will put them more at
ease and allow them to trust you more easily. Smiling and
maintaining eye contact is great for your interview and personal
life as it shows others you are not a threat to them.
42
Understanding personal space
Understanding personal space

Each of us has a personal space around our body and this space
can vary depending upon our culture and how crowded the area
is, in which we live. Many English speaking people maintain
about a metre of space between them. In many parts of Europe,
the Mediterranean and South America personal space can be
less than half of what English speaking people are used to. If
you are standing close to someone and you notice that they
move back each time you move forward, keep your distance
and resist moving forward. They are telling you that this is the
amount of open space they need for their personal comfort.
Understand also that different cultures have varying reactions
towards being touched. Only touch your interviewee to the
extent that you are also being touched if at all.
Dress like a professional investor

To a large extent, the first impression you create on your
interviewee will be determined by how you dress. Your
clothing will create a perception of your trustworthiness, your
reliability, your expertise and professionalism, your authority,
your social and financial success and your ability to invest.
Since you want your interviewee to spend their valuable time
answering your questions, you at least need to look like
somebody who is worth spending the time with. In other
words, you need to at least look like a professional investor,
otherwise why would your interviewee be willing to spend their
time answering your questions?
Body language - how to read the signs

If you are interested in more body language techniques and how
to read them, I suggest the book “Body Language” by Allan
Pease as further reading.
43
How do you sound?

Some people I meet sound like absolute hillbillies as soon as
they open their mouths. This may be fine when they are on their
home turf but does nothing to win the respect of the person they
wish to interview.
Observe how you speak and watch the reaction you have on
other people. Study your subject matter (there’s a guide to
common terms used in the financial world at the back of this
book) and imagine yourself as an astute investor. Then practice
your speaking and interviewing techniques. You’ll be amazed
how quickly you’ll start sounding like a professional investor.
44
Have you heard the one about . . . ?
Have you heard the one about . . . ?

Trusting Your Closest Advisers and Friends
A very rich man was dying and he wanted to be buried

with some of his money. So he gathered his Lawyer, Doctor
and Clergyman at his bed side and handed each of them an
envelope containing $100,000 in cash.
He made them each promise that after his death and
during his repose, they would place the three envelopes in his
coffin. He told them that he wanted to have enough money to
enjoy the next life.
A week later the man died. At the Wake, the Lawyer,
the Doctor and the Clergyman, each concealed an envelope in
the coffin and bid their old client and friend farewell.
By chance, these three met several months later. Soon
the Clergyman, feeling guilty, blurted out a confession saying
that there was only $40,000 in the envelope that he placed in
the coffin. He felt, rather than waste all the money, he would
send it to a Mission in South America. He asked for their
forgiveness.
The Doctor, moved by the gentle Clergyman’s sincerity,
confessed that he too had kept some of the money for a worthy
medical charity. The envelope, he admitted, had only $30,000
in it. He said, he too could not bring himself to waste the money
so frivolously when it could be used to benefit others.
By this time the Lawyer was seething with self-righteous
outrage. He expressed his deep disappointment at the
felonious behaviour of two of his oldest and
most trusted friends. I am the only one who
kept my promise to our dying friend. I want
you both to know that the envelope I placed
in the coffin contained the full amount. In
fact, my envelope contained my personal
cheque for the entire $100,000.
45
How to find a good professional adviser

I am often asked for referrals to various professionals in many
locations. This has sometimes created a challenge, because
what I have found is that even though the professional is very
highly regarded and very competent in their area, the match
between the client and the professional may not always be a
good one. Consequently my objective here is to teach you the
skills of finding a professional adviser who is well suited to you
and your circumstances so that you can find your own
professional adviser no matter where you live or where they are
located.
Firstly you need to understand yourself as a
client and whether you as a client are suited to
your professional adviser. My suggestion is that
you describe your circumstances on a piece of
paper. You can start by listing out your assets
and liabilities and the type of activity that you earn your income
from. Include all investment income such as real estate, shares
and other investments. When you first speak with your
proposed financial adviser you need to be able to outline your
circumstances to them very clearly and succinctly so that they
can form a quick picture of you and your financial needs.
Then write down your financial objectives and where you want
to be in 5 years time and 10 years time.
The next step is to list down what your expectations are of your
accountant, lawyer, real estate agent, stockbroker or other
financial professional. It will be very difficult for them to
advise you as to whether they would be a suitable adviser if
they do not understand your expectations and needs. It may
also be beneficial for you to note down your previous
experience and knowledge in dealing with a professional
adviser of the type you wish to interview.
46
Once you have completed this preparatory work, you are in a

position to find yourself an adviser who may be suited to your
requirements. Two ways in which you may approach this task
are:
1. Ask friends, relatives and colleagues who may be in a similar
financial position to you as to which professional adviser they
use. Another source is to go to investment clubs or other
professional people who are likely to use the services of the
type of adviser you are looking for.
2. Consult the yellow pages in your area for a listing of the
types of professional that you are looking for. Finding your
ideal professional adviser may require a two stage process if
you choose this path. Firstly you may wish to conduct a brief
telephone interview, as a result of which you will produce a
short list of advisers to interview in person. Many professional
advisers also have a profile of themselves, their company and
their previous professional background which they would
willingly send you.
As a result of your telephone interview and a review of the

information they have sent you, you can create a short list of
advisers whom you will then want to interview in person.
The second stage is to make an appointment and to interview
those advisers that you wish to have further information about
personally.
“I’m in deep financial trouble and need some

advice”, said the client to his lawyer. “I’m down to
my last hundred dollars and want to know if you
can answer just two questions for that amount.
”Certainly Sir, said the lawyer, “what’s the second

question?”
47
Here is a series of questions that you may wish to ask in

conducting your telephone interviews to start with. When you
ring up initially, you need to state very quickly who you are,
what your financial position is and the purpose of your call.
The introduction may go something like this “Good morning
Mr/Mrs professional adviser, my name is Joe Bloggs I am a
wage and salary earner with a real estate portfolio of 3
properties and a share portfolio valued at $100,000. I am
looking for a dynamic ----------- to assist me in building my
portfolio further. I am looking for somebody who has other
clients in similar circumstances to myself and of course larger
clients with bigger portfolios. How could you and your firm
assist me?”
You then need to be quiet and listen to their answer. It is likely
that you will form a basic impression of the person you are
speaking to within a few minutes. If they sound like someone
you’d feel comfortable in doing business with, then you may
like to proceed with the following kinds of questions.
Otherwise, thank them and say you’ll get back to them if you’d
like some more information.
1. How would I be typical of a representative section of your
client base?
2. How many other clients would you have in similar
circumstances?
3. Can you give me some examples of how you have helped
some of these clients in the past?
4. If I’m interested in becoming a client of yours would you be
willing to let me speak to 3 other clients of yours who are in
similar circumstances to me to obtain a reference about their
dealings with you?
5. Do you have a profile about your firm and would you be
willing to send this to me?
6. What can I expect to pay for your services?
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7. If I am interested in an initial face-to-face interview, is your

initial interview free of charge?
8. Do you provide any professional newsletters, e-mail
newsletters or website access to assist your clients?
9. How do you keep me informed about changes in the law
and other aspects which may affect my investments.
Once you have reviewed the answers to these questions and the
information sent to you about this adviser, you may then like to
proceed with a personal interview. At the personal interview
you will need to become more specific as to your circumstances
and your objectives. It is quite likely that during the initial
telephone interview your prospective adviser may talk in
general terms only as they will not be very familiar with you or
your circumstances.
You will also be a rather unusual client for them in that they are
not generally interviewed by clients to determine their
suitability. Usually their client base grows by way of personal
referral and the prospective client does not do any due diligence
on their professional adviser.
The purpose of the personal interview is not only to get answers
to your questions but also to develop a gut feel about your
prospective professional adviser. You need to come away with
the feeling that this is someone you would be happy doing
business with otherwise it is better to choose someone else.
If the professional adviser does not take you seriously or bother
to answer your questions with respect, then you are better off
dealing with some one who you feel more comfortable with.
Your adviser should not delight in intimidating you with their
knowledge and experience, but rather be somebody who will
help you build and grow your financial portfolio.
49
When it’s time to move on

Understand that as your circumstances change, your
requirements for professional advisers will change also. It is
quite likely that when you have a portfolio of 3 properties and
$100,000 worth of shares then your needs will be different to
those of somebody who has a property portfolio of over 100
properties located in 3 different countries and a substantial
share portfolio which extends globally.
Your needs will also be very different if you are conducting a
business of your own. A professional adviser may be relevant
for you for a period of time and thereafter as you move into
different circles with your investment and business activities, it
may be necessary for you to find different professional advisers
who are more suited to the new environment that you are
playing in.
Remember that you are not married to any of your advisers and
that you need to get value for your money from them. When
the time comes, be willing to change and to move to new
professional advisers if necessary. It is quite likely that you
will find new advisers by talking with others who are involved
in the investment arena that you are playing in at the time.
Always ask other investors as to who they use, how they find
them and how much they charge.
Choosing a good Accountant
It is quite likely that during the early stages of
your wealth creation journey, you will be very
busy learning the necessary skills to build your
wealth. You’ll then want to put everything
you’ve learnt into practice, hoping that your accountant will
take care of the rest. You’ll probably expect that your
accountant will keep you informed of issues that may be
50
relevant to your wealth building programme. After all, isn’t that

what accountants do? Isn’t that what you are paying for?
That’s what most people expect when they engage an
accountant to look after their affairs.
Is that what you expect?
If so, you may be sadly disappointed. Oh, don’t get me wrong.
There are accountants who do take an active interest in your
affairs, but they are few and far between. Most accountants
traditionally prepare your tax returns based on the information
you provide for them and will only act according to your
specific instructions. The problem for you however, particularly
when you are just starting out, is that you don’t know what it is
that you don’t know. You probably don’t know that there are
various ways of structuring your financial affairs.
You probably don’t know that repairs to your investment
property are fully tax deductible, whereas a replacement needs
to be depreciated. When something is depreciated, it means that
your tax deduction is spread over a number of years. The
difference in the treatment of major outlays can have a
significant effect on your tax bill. You probably don’t know that
it sometimes makes sense to carry out repairs to your
investment properties during a financial year when you are
looking at a major tax bill. The timing of this work can have a
major effect on your tax bill and your cash flow. What about
capital gains tax? Do you know that you can minimise this by
planning when you dispose of assets? Do you know that you
should be talking to your accountant about this before you
actually dispose of assets? These are just some of the issues that
investors need to discuss with their accountants. The problem
for you arises when you don’t know what questions to ask.
Most people generally find out that there were other ways of
doing things when it’s already too late. This can cost you big
money.
51
This is why it is important for you to interview your accountant

(and other professional advisers) to determine if they are
suitable to handle your affairs. Just make sure that your initial
interview with them is free of charge. If they want to charge
you for an initial exploratory interview, they don’t deserve your
business!
To assist you with your wealth creation objectives, it is
important to find an accountant who has a good working
knowledge of loan structuring strategies (gearing), of the best
ways and times to sell your assets (whether they be shares or
real estate), the types of activities that you can undertake and
still obtain a tax deduction and the most advantageous
structures to use to own your assets.
As a general rule, accountants are often
conservative by nature and training. They are
not usually big risk takers and are therefore not
entrepreneurial by nature. By all means listen
to their advice and evaluate it for yourself, but
don’t choose an accountant who is too afraid to jump over his
own shadow otherwise you’ll pass up many good deals that
have the potential to grow your wealth. Find an accountant who
is building wealth in his own right and understands where you
want to go. Find someone who understands that there is always
a risk in investing, therefore you have to develop strategies to
manage those risks. Find someone who wants to help you
maximise your wealth.
 Your accountant should have a friendly and courteous
personality and be a person who wants to work with you to
help you achieve your goals.
 Your accountant should be able to explain complex issues to
you in a way that you can understand and apply to your
circumstances. Eg. Depreciation, capital gains tax,
imputation credits, foreign tax credits, withholding tax etc.
52
You need to have someone who will not talk down to you if
you don’t understand complex issues with ease.
 They need to be accessible and available to you when you
need them. They need to maintain regular contact with you
to ensure that you stay abreast of changes and that they are
aware of your activities in case they need to inform you
about something.
 They need to have a good general knowledge of investment
issues, tax and financial management. They also need to be
pro-active in keeping you up to date with changes and
inform you of things that you didn’t know you didn’t know.
 They should be able to guide you with plausible solutions
and strategies rather than just waffle on about theoretical
possibilities.
 A good accountant will provide you with an effective and
timely service. They will have a good work ethic and have a
tidy, ordered and professional work environment.
 Most importantly, a good accountant can demonstrate an
ability to use his or her initiative and be innovative in
solving complex issues while still remaining within the
bounds of applicable laws.
Please be aware that bookkeepers are not accountants.
Bookkeepers only have limited knowledge of the broad range of
accounting, legal and taxation issues. Their main focus is to
record transactions while good accountants should be interested
in helping you to formulate a clear vision and then find ways to
help you achieve your vision and goals. They should be willing
to act as a ‘sounding board’ for new ideas, strategies and
financial products.
If you take the time to interview as many accountants as you
need to, using the two step process outlined earlier (telephone
53
contact followed by personal interview) until you find the one

that is right for you, you will find the journey very interesting
and most enlightening. What you will learn along the way will
become a valuable asset of knowledge on your wealth creation
path.
Choosing a good Lawyer

The field of law is wide, varied and growing
with increasing litigation. Consequently, there
are many specialisations covered by the general
term lawyers. You need to find a lawyer who
operates in the area of specialisation that is most
relevant to your circumstances. For example, a criminal lawyer
or family law specialist will be an inappropriate choice if you
want to have a property conveyancing matter handled. This is
why it is so important to clearly state what you are looking for
in your opening introduction (refer to page 48).
There will be quite a few issues that you will need legal advice
on as an investor. In fact, there will be a few occasions where
your lawyer and accountant may need to work together to deal
with certain issues for you. Then there will be other situations
where your accountant will inform you that: “this is a legal
question which you will need to discuss with you lawyer.” For
example, when it comes to succession planning, the preparation
of a will, the preparation of trust or other legal documents and
so on.
As a starting point, once you have selected your accountant,
you may ask him or her for a referral to a good solicitor who is
well versed in commercial and business law issues. This may be
a sensible strategy, particularly if they already know each other.
You may start your due diligence process of choosing a lawyer
by asking the person referring you why they think this person
would be a good choice for you. Ask them what they like most
54
Practicality versus the legal route
about this lawyer. Also ask them what challenges they have had
with this lawyer.
Hopefully you will be using the services of your accountant
more frequently than those of your lawyer, however, it is a good
idea to at least establish a relationship with a lawyer before you
actually need their services.
When it comes to property conveyancing you may choose to
use a lawyer or the services of a property conveyancing service.
The process you will go through and the criteria for choosing
your lawyer are similar to those of choosing your accountant,
therefore I will not spell these out again in detail here.
Once again however, I do suggest that you do your market
research and interview a number of potential candidates before
you settle on your final choice.
One of the things I particularly like about my lawyer is that
often when I ask him a tricky question he will answer with the
following question: “do you want the legal answer or the
commercial answer.”
You see lawyers can cost you an awful lot of money (as if you
didn’t know already) and at the end of the process you may still
not have a successful outcome. It is important that you find a
lawyer who understands the practicality of the situation as well
as the legal issues. Your lawyer should act in your best interests
rather than always choosing to go down the legal path in the
first instance. Sometimes he should act like a “bush lawyer” for
you “off the record.”
Let me give you two different experiences I have had with
lawyers which illustrate the difference.
55
Years ago I was working in a business as an accountant and

administration manager. The business engaged several contract
delivery drivers to deliver parcels to its customers on a regular
basis.
One day, the owner of the business was approached by a man
who wanted to take over a delivery contract for a certain area.
His sister had been working for the business for more than eight
years and was a very conscientious staff member. In fact,
whenever there were tight deadlines to meet, she was always
willing to put in the extra hours and effort required to complete
the job on time.
The man was happy with the contract conditions as they were
explained to him and he wanted to take on the contract. There
was only one problem. He had no vehicle with which to deliver
the parcels.
My attitude was that unless he had a vehicle or was able to get
hold of a vehicle from somewhere, he couldn’t take on the
contract. His sister was not in a financial position to lend him
the money to buy the vehicle and he didn’t have the money
either. He had only recently moved to Sydney and was still
getting established.
He pleaded with the owner of the business to help
get him started. Despite legal advice to the
contrary and my strongest objections, the owner
decided he would help this man. The owner
decided to go guarantor for the loan that this man
needed to take out to buy a second hand delivery vehicle.
Faced with this situation, I insisted that the vehicle be insured
and registered in the company’s name until the loan had been
repaid in full.
As you can probably guess by now, it wasn’t long before the
deal went sour. Several months down the track the delivery
56
contractor failed to deliver the parcels as required and he was

falling behind in his loan repayments. We needed to part
company and unfortunately the parting was not as amicable as it
could have been. When the contract was cancelled, I asked the
man to leave the vehicle in the company’s yard since we were
guarantors for his loan and he had defaulted on the loan. He
replied: “you know where the vehicle is, you can come and get
it if you want,” and promptly drove off.
We were now in a serious conflict situation which could cost
the company money. Not only did the company guarantee the
loan, but it could also be up for substantial legal fees to recover
the vehicle.
I rang the company’s solicitor and asked for advice.
Firstly he asked me if I knew where the vehicle was, which I
did. Secondly he said there is an old rule which says:
“possession is nine tenths of the law. At the moment he has
possession.”
He then told me there were two possible courses of action. One
was the legal route which was to write to him demanding the
return of the vehicle and all the processes which follow on from
that. The reality of this route was that we would probably never
see the vehicle again and that we would be up for the legal fees
as well. The process would also take a long time.
The other route was the practical route. As a first step he
suggested that we report the vehicle as stolen to the police. This
I did and was asked whether I knew where the vehicle was. I
said I did and was told that I should go and get it. I then
checked back with the lawyer and he agreed that I should do
that.
I then simply rang up a tow truck, explained
the circumstances and went to where the
person lived. The vehicle was parked on the
57
street. Since we had no keys, we smashed the side window and

towed the vehicle back to the business premises. We then called
a locksmith to get a set of keys for the vehicle and we sold it to
recover our costs of repaying the loan since the man was
obviously not going to make further repayments.
This was a practical solution to our challenge which brought
about the best possible result with the least amount of
aggravation for all concerned, including the man who took out
the loan.
Now I’m not sure whether most legal practitioners would agree
with the advice and the strategy, and quite frankly I don’t care.
The reality is that I received what I consider to be practical and
sensible advice which led to the resolution of that situation in
the most efficient and cost effective way. That’s the type of
lawyer I like to deal with. Mind you, there are risks at times, but
then again, almost everything you do in life involves a risk of
some sort. My lawyer makes me aware of the risks and
consequences and then it is up to me to decide which path I
want to choose. I also know that when I choose the “non legal”
path, the risk and responsibility is ALL mine and that I can
never come back and say, “my lawyer told me to do this.”
Contrast this with another experience I had some years ago with
a pedantic, young, narrow-minded lawyer who was not street
smart in the very least.
About nine years ago my sister passed away unexpectedly.
When she prepared her will, she appointed me as her trustee,
together with an accountant and a lawyer whom she knew and
who were around the same age as her. My children were the
only beneficiaries of the estate.
The consequences of this situation were that every decision
required a discussion between three people and sometimes a
face to face meeting. The solicitor insisted that all the
58
discussions be documented and that he had to agree that every

move was in the best interests of my children. This was from a
fellow who had never been married and had no children of his
own.
My sister died overseas and had to be cremated there so her
remains could be returned to Australia. My parents were
overseas at that time and paid for all the expenses that were
necessary. These costs are normally all paid out of the deceased
person’s estate.
A discussion was required to approve the reimbursement of the
expenses my parents had paid for out of their own pocket and
which should be met out of the estate. Well, what ensued was
almost unbelievable! The lawyer wanted to see all the receipts
and make sure that my father was not claiming too much and
depriving the estate of funds.
It soon became obvious that this pedantic little !@#%?&&&!!!
was going to make the administration of the estate an
administrative nightmare. As their father, I felt that I would
want to do the best for my children anyway and could capably
administer the estate for their benefit without the help of the
other two trustees. My parents and I resolved that we would ask
the other two trustees to resign which they kindly did.
The difference between the two situations was that one lawyer
was street smart and practical whereas the other one was narrow
minded, pedantic and focused only on the legal path. In my
opinion, the second lawyer will cost his clients a lot of money
with his advice unless he develops a more practical view of the
world.
When you choose a lawyer (or any professional adviser for that
matter), you need to decide on what type of lawyer you want to
work with and if it doesn’t work out for you, be willing to move
on.
59
Choosing a good Stockbroker

The first rule in choosing a stockbroker is not to take
everything you are told by him or her as gospel. They
are, as the name suggests, brokers. That is, they are
salespeople. They make their money by buying and
selling shares and financial instruments. If you doubt what
I say, ask your stockbroker to let you know about the new
floats that are coming up and you will soon realise that they
certainly are salespeople. Their job is to get as many investors
involved as possible because their firm is probably one of the
underwriters to the issue. An underwriter in the stockmarket
sense is someone who guarantees to take up (that is, buy) all of
the shares that are not sold in the market by the time the public
share issue closes. When there is a shortfall in the number of
shares sold to the public, it is said that the company’s shares
have been ‘under subscribed’. The underwriter wants to avoid
an under subscription and that is why the stockbrokers have to
sell as many shares to the public as possible before the company
is floated on the stock exchange. If they are very successful at
doing so, the company’s shares may be ‘over subscribed’ and
the investors applying for shares may not get the total amount
they had applied for.
A good stockbroker is an important person to have in your
network of professional advisers and suppliers. It’s not because
they know everything about the market or companies listed on
the market, but rather because they are an important source of
information for you. A good stockbroker has access to a
research department that can provide you with facts, trends and
information about companies, industries and trends. Often they
will send you newsletters, contact you about new listings and
can provide you with price and volume of sales charts for
companies you may want to research. A good stockbroker will
also provide you with market “feel” information. This means
60
Choosing a good Stockbroker
that he can give you an idea of what is being said around the
traps, how institutional investors are behaving and the results of
presentations by companies about their operations.
You need to appreciate however, that all of this is just
information. Some of it may be factual, some may be opinion
and some may be plain old rumours. It’s up to you to hunt down
the facts. Be careful with “hot tips”. Often these turn out to be
nothing but hearsay and they can cost you a lot of money.
Use your stockbroker to obtain financial data,
company news and to take your buy and sell
orders. Don’t think of him or her as your trusty
sharemarket adviser. It’s your job to make the
investment decisions – don’t hand over that
responsibility to your broker.
Once again, you may think I’m being hard on stockbrokers.
That’s not my intention at all. I just want you to realise that they
have a service to perform as part of your wealth building
strategy and they are not all-knowing gurus whose every
recommendation you should follow blindly. If they were such
financial wizards, why are they still on the end of a phone
taking your orders. Why aren’t they making millions from their
knowledge and living on their country retreat or lounging
around on their yacht? I have found that the best advice I have
received has been from rich people and people who are
practicing what they preach. Having said that, I still think you
need a good stockbroker. So how do you find one?
Once again, it’s a good idea to follow the two step process of
speaking to them via the telephone and then interviewing them
in person if they make your short list. You can either look up
your local yellow pages telephone directory and start ringing, or
you can contact the stock exchange nearest to you and ask them
to send you a list of stockbrokers. That’s the easy part.
61
Now you’ll need to ring them up and decide who you want to
meet in person.
Once again you’ll need to give them an overview of what
involvement you have with the sharemarket at the moment and
what your objectives are.
Next, you may want to ask them specific questions such as:
1. What brokerage rate would I expect to pay with your
company given the size of my portfolio and the extent of my
planned trading activities? (compare rates with several
brokers) Understand that internet brokers charge
substantially less than full service brokers but they also do
not provide you with the research information that may be
extremely valuable for you to make your investment
decisions. Remember that you get what you pay for.
2. How can we negotiate this?
3. What company, industry and stockmarket information do
you provide and how often can I expect to receive this? Can
you send me some samples please?
4. What access to information can I have on an ad hoc basis?
5. How timely is the information you provide?
6. Do you provide internet and email updates as well?
7. As a client, will you include me on your distribution list for
new floats?
8. Can I get a computer printout of my portfolio from time to
time on request?
9. Is there a charge for this service? (there shouldn’t be)
10. Will I be allocated a back up broker whenever you are sick,
on holidays or on the phone to someone else?
11. What is the best time of day to contact you to get access to
you?
12. Will you include me on the invitation list for any seminars
your company stages from time to time?
62
Understanding financial terminology
When you are making your telephone enquiries, be aware that

some of the larger firms will have quite a few stockbrokers on
their staff. If you are ringing a large firm and don’t feel
comfortable with the first person you get to speak to, then you
may need to ring several times and speak to other brokers in the
firm.
Once you have found the person you want to do business with,
try and contain your enthusiasm a little because this person will
probably not be your broker forever. Brokers move from time to
time and therefore you may need to go through this process
several times. When they move, your account will be allocated
to someone else in the firm whom you may or may not feel
comfortable with.
Understanding financial terminology
You will often hear terms used interchangeably from time to
time as you do your due diligence work and as you become
more involved in the investment world. Although there is a
more comprehensive glossary of financial terms at the end of
this book, we’ll briefly discuss some terms which I’ve used in
this book.
On a lighter note:
Two professionally dressed young men were
walking down the street the other day. One man
turned to the other and said: “I called my
stockbroker yesterday and he put me on
hold. By the time he got back on the
phone, I had nothing left to talk to him
about!”
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Stocks and shares; stockmarket and sharemarket

Shares are the financial instruments issued by a company to
show the entitlement of an owner to a portion of the capital base
of that company. They signify that as a shareholder, you are a
part owner of that company. When that company becomes a
public company, its shares can be traded publicly on the
sharemarket. Shares and sharemarket are terms commonly used
in Australia whereas stocks and stockmarket are terms
commonly used in the USA.
Funds, trusts and mutual funds
Funds, trusts and mutual funds are terms which describe
vehicles which pool the funds of a large number of investors
and invest them on their behalf. Mutual Funds is a term more
commonly used in the USA and internationally, whereas in
Australia we know these vehicles as managed funds and
investment trusts.
A good book to learn more about investing in the Australian
sharemarket is Lance Spicer’s, The Australian Sharemarket
Guide. You’ll find details of that book in the resources section
at the end of this book.
Choosing a good Property Manager
If you are serious about accumulating investment real estate
then you should consider having your properties professionally
managed so you can concentrate on building your wealth and
doing the other things you choose to do. Having said that
however, you need to realise that for many real estate agents,
their property management division is little more than a rental
collection agency which provides a regular cash flow to keep
the doors open between sales. Many real estate agents focus
more on the sales side of their business than on their property
management function.
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For you as an investor, the property management function is an

important one on an ongoing basis and one that you would like
to have handled promptly, efficiently and effectively. It should
not be handled by a junior staff person who is training to move
into another area of the firm and who does not have the
authority and experience to manage your properties in your best
interests.
Before you hand your property portfolio over to someone to
manage for you, it’s important to consider the size of the
management company or at least the management division. It
should be large enough to have stability and clout with it’s
tradespeople and suppliers and small enough to give you
personal service. It should preferably have backup staff who are
qualified and licensed, so that the property management
function can still be carried out effectively when your regular
property manager is absent.
I have several property managers that look after my real estate
portfolio. The reason for this is that it keeps them on their toes,
knowing that they don’t have all my business and I find out
information and strategies from each of the property managers
which I can then get the others to apply if I think their
management of my properties could be improved.
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Here are some questions you might like to ask to find a good
property manager:
1. How many properties do you manage through this office?
(they will usually want to tell you a large number because they think
that will impress you.)
2. How long have you been doing this for?
3. How many properties does each property manager handle?
(one person can only manage around 150 properties effectively.)
4. How often do your property managers inspect the rental
properties that you manage? (A top service professional will
inspect every 12 weeks, that way you identify problems before they
become serious.)
5. How often do your property managers attend court? (If they
have good vetting and management procedures, this should not be very
often.)
6. What ongoing training do your property managers receive
to keep up to date with legislative changes?
7. How long have your property managers been employed by
your company?
8. What is the turnover rate of your property management
staff?
9. How many property managers do you employ? (check whether
the answer given for the number of properties managed by each
manager in response to question 3 is correct by dividing the number of
properties managed as given in response to question 1 by the answer to
this question)
10. Other than the management fee, what other charges do you
impose? (eg letting fee, lease preparation fee, property
inspection fees etc)
11. Is your management fee negotiable when you manage
multiple properties for me?
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12. Do your property managers show prospective tenants

through vacant properties or do they give out keys? (if they
simply give out keys, don’t waste your time with these cowboys!)
13. In what suburbs or localities are the majority of the
properties which you manage located?
14. Can you pay the utility bills and repairs on my behalf so I
am not bothered with unnecessary paperwork? (this should be
part of a good property manager’s service.)
15. At the end of each financial year, can you provide me with
an income and expenses report for each property, and a
summary of all properties combined, to facilitate my end of
year accounting? (this should be part of a good property manager’s
service.)
16. Can you give me the contact details of three typical property
owners whose investment properties you manage so that I
can get their feedback on your services as well please?
Your property manager needs to have a friendly and courteous
personality and be able to establish good rapport with property
owners and tenants. Working with good property managers and
being a good landlord enhances your prospects of successful
long-term returns and low vacancy rates.
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Starting a share investment club

Joining or setting up a share investment club can be a lot of fun.
It's a great opportunity to get to know more about the
sharemarket, learn about the process of conducting market
research and, with a bit of luck, make some money in the
process.
What often happens in investment clubs is that each member is
given the task of investigating certain companies, industries or
markets and then reporting their findings to the rest of the group
before a decision to invest is made. In this way, you are
learning how to conduct research in a fun and group
environment.
As you are challenged to answer questions about your research
from other members of the group, your confidence, knowledge
and research techniques will improve the more work you do.
Another benefit of this process is that you will be challenged to
think about the information that you are researching and
understand what it means, so you can present it to the others in
your group. For many people it will open up a whole new world
which previously they were afraid to enter or which they
deliberately steered away from because they thought they could
not understand it.
Generally the purpose of a share
investment club is to meet with a
group of like-minded people on a
regular basis, hold talks, invite
guest speakers, discuss strategies
and collectively make investment decisions.
It is not too difficult to set up a share investment club, although
there are certain guidelines you should follow if you don't want
to end up the best of enemies. The key things are to have
common goals and the same degree of commitment. Once
you've got past that stage you can get down to the nitty-gritty of
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Benefits of starting an investment club
the club's structure, registering the club, the amount you wish to
contribute, the level of research each member will undertake
and how often you want to meet. The choice of broker and
bank, accounting methods and a standard method by which
people can join and leave the club are also important
considerations.
An Australian website with advice on how to set up a club is the
LIPS Club in Queensland (Ladies Investment Portfolio
Syndicate) at:
(http://www.geocities.com/wallstreet/floor/4613/index.htm).
This site also has links to other interesting sites around the
world worth investigating.
There are also a number of good books available on this topic
such as: The Money Club by Dianne Hill, Di Robinson, Frances
Beck and Emily Chantiri which is published by Random House
Benefits of starting an investment club

Here are five benefits of starting an investment club and
exploring the financial world while improving your social life
1. When you invest as a group, you won’t need as much

money to get started as if you want to do it on your own. As
a general guideline, I suggest that you need at least $5,000
to get started in the stockmarket.
2. You don’t need to be a financial whiz to get together with a
few friends, kick in some money and start investing.
3. You'll expand your usual social and career circles and
broaden your horizons. In fact, you’ll be amazed at how
your world will change.
69
4. Most people never get started and that’s why they stay poor.
An investment club may be a great way of getting into
action and starting your wealth creation
process.
5. Your involvement with a successful money
club investment will encourage you to research
and plan all aspects of your financial future.
Investment club rules to consider

Here are five proven investment club rules of thumb which you
may like to consider when you want to start or join a group.
1. Be willing to sell and take a profit on part of your portfolio
once your investments have reached a predetermined limit.
2. Every member has the right to veto a decision they disagree
with on ethical grounds
3. Aim for balance in your portfolio across different industry
sectors between high and low risk shares.
4. Reinvest your profits and dividends.
5. Don't take criticism from the rest of the group personally - it
will be their turn next month.
By the way, the same principles apply in putting together a

property investors group. In fact, I am aware of some share
clubs which later branched out into property investment as
well.
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Questions to ask your mortgage broker
Questions to ask your mortgage broker

1. Can you give me a list of lenders that you as a broker
represent?
2. What are your qualifications and experience?
3. Can you give me the names and contact details of three
clients that you have provided mortgage finance for?
4. Can you show me evidence of your professional indemnity
insurance please?
5. What other alternative products might suit my needs?
6. What are the fees and charges that I will have to pay on the
loan offered?
7. Can you give me the comparative lending rate of two
alternative loans as well as that for the product you are
offering so that I can compare the long term cost of the loan
please?
Another word of warning!

Don't rely totally on the broker - make
sure you fully understand the product you
choose and the costs of establishing the loan
as well as the ongoing fees and charges.
Remember that the broker is a salesperson
and it is up to you to do your due diligence work to ensure that
you are getting a good deal.
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Come to our property investment seminar . . .

Most people I speak to have received a phone call at one time or
another inviting them to a property investment seminar which
promises to dramatically increase their wealth and let them
retire comfortably in the future. Often these
seminars have focused heavily on the tax
benefits of property investment through
negative gearing. More recently some of
them have talked about the positive cash
flows they can generate through the tax
refunds.
Many of these investment seminars promote properties in South
East Queensland, off-the-plan sales and properties in areas far
away from where the seminar is being held.
These seminars are usually well polished shows and run almost
every night of the week. Many of these seminars are held by
property marketeers rather than accredited real estate agents.
Following the seminar, a salesman will ring for an appointment
and come to your house to provide you with an investment
consultation. Their sole objective during the presentation is to
get you on to a plane to go and inspect the properties.
This is all part of a carefully orchestrated process. Prior to your
flight, a preliminary check will have been done on your
financial position to ensure that you have the capacity to borrow
the money to buy one or more investment properties.
Once you arrive at the airport you will be met by what is known
as a ‘runner’ in the industry. This person will meet you on
arrival and will be by your side until you get back on the plane
for the return flight. His first port of call with you will be a
formal visit to a finance provider who will once again check
over your financial position and review any documents you
have brought with you such as prior year tax returns. In reality,
72
this is just a formality because all your financial details will

have been faxed through to the finance provider previously and
the salesman that came out to see you will be well aware of
your financial capacity to purchase one or more investment
properties. If you are stretched to the limit financially, they
won’t even let you fly since it will cost them money if you
don’t buy.
After some number crunching, your finance provider will
convey to you the good news that you qualify to buy at least
one investment property should you find something suitable
today. (surprise! surprise!)
The runner will then take you out to the area where the
investment properties are located. You need to be aware
however, that you will be driven along a specific route which
avoids billboards advertising other properties or past real estate
agents offices. The whole purpose of this process is so that you
as an unsuspecting client will have no idea of what comparable
property values are in the area. The runner will be well
presented, very friendly and above all, very smooth. He will
show you through the property, talk to you about rental
guarantees, the property management programme and how the
whole process is hassle free when you deal through this
company. He will probably point out that the property you are
looking at is one of the last ones available in the complex and
he doesn’t know when another one this good will become
available.
By now you should be rather impressed with the whole process
and have the feeling that if you go ahead and purchase your
investment property through this company, you will be well
looked after, enjoy great tax benefits and can look forward to a
secure and comfortable retirement with plenty of money to
support your lifestyle.
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The runner is also very skilled at closing deals. As the day

progresses, he will be asking many subtle questions to test your
buying temperature in preparation for you to sign the purchase
agreement. In fact, his
whole objective is to
get you to sign the
purchase agreement
before you hop back
onto the plane for the
return flight.
Hundreds and possibly thousands of unsuspecting people are
being put through this process daily only to discover several
years later when they want to sell their investment property, that
not only has their property not increased in value, but they can’t
even recover what they paid for it!
Suddenly their property investment adventure has turned sour
with the result that they often come away with the belief that
property is not a good investment proposition.
In fact, that is an incorrect conclusion on their part.
In virtually every case, the potential investor has done
absolutely no research prior to making their investment
decision. Sadly, this is how they end up being taken by the
sharks. If they would have taken the time to ring a few real
estate agents in the area, they would have found that they could
buy comparable properties in the area for a lesser investment.
If they would have checked out my Super Secrets to Wealth®
do-it-yourself real estate home study course they would have
learnt that they could buy positive cash flow investment
properties below market value using an easy to apply search
and locate strategy.
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Here are some important tips to consider before you buy an

investment property:
1. NEVER SIGN THE CONTRACT ON THE DAY OF
INSPECTION!!!!!!!!!!!NEVER!!NEVER!!NEVER!!
2. There are plenty of properties around. You won’t miss out.
Sleep on it and go home and do some research.
3. Check out newspapers which cover the area you are
planning to invest in and see what else is for sale.
4. Check out the local property listing directories for the area
and see what else is available.
5. Ring some real estate agents in the area and ask about the
property you are looking at, ask them what they have
available that is comparable and ask about the rental returns
in the area. Ask them about their property management
services and refer back to the section on finding a good
property manager.
6. Look at alternative financing sources and compare loan
costs and interest rates.
7. Compare prices in the area in which you want to invest in;
not between that area and where you currently live. If you
live in Sydney and Melbourne and you are looking at
Queensland or Western Australian properties, they will
appear to be good value relative to prices in your city. That
is not a valid comparison. Do your market research where
you are going to invest.
8. By all means invest interstate. There is nothing wrong with
that. Just make sure you are getting value for money.
9. Be wary of one-stop-shop offers that provide the finance,
handle the sale and look after the property management for
you. Also be very careful with rental guarantees since these
are usually built into the purchase price somehow.
10. Distinguish between genuine educational seminars and
those which are merely the front end of the sales process.
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Is your family home an asset?

Many people consider their family home to be their greatest
asset. Often when I speak to people about retirement and/or
building wealth, they tell me that by the time they want to
retire, their family home will be paid off and they will be debt
free. They usually also tell me that they will probably retire to a
holiday location on the coast or in the country somewhere and
that their living expenses will be considerably less than they are
at present. “The kids will have left home, the house and car will
be paid off and then we’ll be free to travel” they tell me. Let’s
just take a look at how realistic this point of view really is.
What is an asset?
If you define an asset as something of value, then clearly your
house, car, boat and other household items would be considered
to be assets. While this is certainly a valid perspective, when it
comes to wealth creation, we need to improve our definition of
an asset. In the first place, assets such as cars, boats and other
toys usually depreciate significantly over time such that if they
needed to be sold to raise cash they would realise only a
fraction of their original cost. In the second place, these assets
usually do not generate an income.
An asset defined for wealth creation purposes
For the purposes of wealth creation, I define an asset as
something of value which produces an ongoing income stream
and which has the possibility of increasing in value over time.
Robert Kiyosaki simplifies it even further by saying: “an asset
is something that feeds you” and conversely a liability is:
“something that eats you!” A liability is therefore something
that costs you money - either right now or in the future.
Now lets examine some of the things we own and see how they
rate according to this wealth creation definition.
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Is your family home an asset?
What about our family home?

Lets start with your family home. Is it something
that creates an income for you? Generally, unless
you are renting out a portion of it or unless you
have a boarder staying with you, the family home
will not produce an income. In fact, the family
home will usually cost you money! Every year you
need to pay the council and water rates, your
insurance bill, electricity, telephone and maybe you’ll need to
make some repairs. You might improve the garden, carry out
some additions and/or renovations and of course you’ve got the
ongoing maintenance costs of cleaning, mowing and so on. Oh,
I almost forgot, if you’ve got a mortgage, then you need to feed
that every month too! For most people this represents a very
major outgoing. To me that adds up to a considerable amount of
cash going out the door with none coming back in. Therefore,
according to our wealth creation definition, your family home is
definitely not an asset.
You see, even when you’ve paid off the mortgage you’ve still
got all those other outgoings to take care of. If you are relying
on your family home to provide funds for you in your
retirement then you’ll need to consider the cost of buying
alternative accommodation and how you’ll take care of the
ongoing running costs of that property. Although you may free
up some resources by downgrading your family home, the
amount left over is usually not sufficient to support you for any
length of time.
Similarly, other items such as cars, boats, holiday homes and
other toys are not income generating and therefore don’t satisfy
the definition of an asset for wealth creation purposes.
For wealth creation purposes an asset needs to create a positive
net cash flow. So what about negative gearing you may ask.
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What about negative gearing?

Negative gearing is a tax driven investment strategy that
requires a high level of inflation to work best. This strategy
worked quite well in the 1980’s when we experienced strong
inflation so that you could sell your investment properties after
a number of years and reap considerable capital gains. I doubt
that this will be the case in future years as we are in a low
inflation environment and are likely to face a prolonged period
of deflation. If that turns out to be true, then any strategy based
largely on achieving capital gains is fundamentally flawed. In
such an environment it will be far more important to achieve
strong positive cash flows.
Interesting websites for property research
Here are some Australian websites that you might find helpful
in doing your due diligence work in the property investment
area. Some of these will allow you to compare prices in
particular areas. These are not all inclusive and you should
certainly look at and search for other sites as well, particularly
since new sites are being added all the time.
Australian Property Monitors
http://www.apm.com.au/
Australian Property Web
http://propertyweb.com.au
Australian Real Estate Listing Service
http://property.com.au
Australian Commercial Real Estate
http://commercialrealestate.com.au
Real Estate Institute of Australia
http://www.reia.net.au/
RealNet Australia
http://www.realnet.com.au/
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Seven risks for you to consider and evaluate
From time to time it may also be worthwhile checking out the

ASIC website and the Consumer affairs websites in your state
to see if the people approaching you about property investment
rate a mention as someone to be wary of. (Refer page 109)
Also remember there are many reputable and ethical
organisations around promoting property investment. Just
because there may be a few bad apples in the basket, doesn’t
mean you should throw out the whole basket! Learn to
distinguish them. That’s part of doing your due diligence work.
Risk is a part of all our lives. Everything you do in life involves
a risk of some sort. The more familiar you are with the risks
involved in an investment proposition, the more precautions
you can take to minimise your exposure to loss. The more you
know and understand about risks to your personal property and
assets, the more realistic you can be in your judgements, in
setting goals for investment returns and the greater your
chances of success in achieving them.
There is no such thing as a risk free investment. The real
dangers are from unknown risks. Once you know the risks, you
can turn them into opportunities. At the very least, you can
develop strategies for minimising them, and in the worst case, if
you are hit, you can limit the damage and thereby avoid a total
investment disaster.
That’s why you need to understand risk and to do your due
diligence work before you part with your money.
There are various types of risk associated with investing in
financial instruments and it is worth your while learning about
them. If you formulate your investment strategy with your focus
entirely on the potential returns, then you are likely to ignore
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the fact that certain risks are inextricably tied to an asset's

performance.
Here are some of the risks to which
financial assets are exposed.
1. Price Risk
Since asset prices reflect all the different risk factors affecting
supply and demand for an asset, the most generalised risk you
face as an investor is price risk. This risk is also related to the
volatility of an asset's price, or in other words, how widely it
swings up and down. Since you would generally welcome an
upward movement, your major concern with price risk is for a
decline in the price of an asset or in the entire portfolio's market
value. This is known as the downside risk.
For ordinary shares, the primary source of price risk is in the

general fluctuations of the stock market itself.
For bonds, the risk is of a rise in interest rates which leads to a

fall in bond prices. The longer the maturity of the bond, the
more its price will change in response to a change in interest
rates.
Price risk is the major threat for you in the short-term as an

investor. If you are not forced to sell, the market may recover
over time and you will not suffer a loss. If you follow a buy-
and-hold strategy, you can moderate the impact of volatile
prices by holding your investments for longer periods.
2. Default Risk
This is the risk that an issuer of a security may be unable to
meet the terms of the issue. Also referred to as credit risk, this
may mean that the issuer cannot pay interest in a timely manner
80
or cannot pay the principal at the end of the agreed period.

Default risk may also arise as a result of business risk. A
deterioration in a company's business prospects will adversely
affect the value of its outstanding share and bond issues and
therefore its ability to pay dividends and interest.
You can reduce your default risk by diversifying your
investments within an asset class. As an example, you could
distribute your share holdings among different industries.
3. Liquidity Risk
A liquidity risk exists when there is a chance that
you will have to sell an investment below its
"true value" or can find no ready buyer at that
value. This is also called marketability risk. If
you have to take a loss in order to sell immediately as opposed
to waiting until an appropriate bid comes along, then the
investment is illiquid. Similarly, an investment is illiquid if
significant time and expense are required to find a suitable
buyer.
On the other hand, liquid assets are those assets which can be
sold quickly and at a low cost.
The shares of small companies and emerging-market stocks

carry a high degree of liquidity risk because of the low volume
of shares traded in these markets.
Real estate is sometimes considered to be an illiquid asset

because it often takes a while to sell. However, you can
generate liquidity through your real estate assets by borrowing
against them.
You can reduce the impact of liquidity risk by investing in

assets with varying time frames. In that way, your cash flow
will not be significantly affected by assets which are hard to
81
dispose of. Alternatively, you might choose to invest in liquid

vehicles for these assets such as buying a fund which invests in
real estate rather than buying a piece of real estate directly.
4. Market Risk
Any shares or managed funds you own will
invariably suffer losses if the stock market takes
a plunge. In the same way, any bonds you own
will decrease in value if the bond market collapses. The risk
that the fortunes of the overall market for an asset will
adversely affect that particular asset is known as the market
risk. Business cycles and market trends, including market
psychology, are the primary factors affecting the risk of
investing in a market. For example, at the start of an economic
boom when inflation and interest rates are low, bond markets
are unlikely to do as well as shares. Similarly, when U.S. stocks
are in a cyclical decline, the shares in other countries around the
world may be heading upward in line with improvements in the
business cycles in those respective countries. Political
conditions can also affect the market's behaviour. The run up to
elections or times of political crisis result in increased
uncertainty and therefore risk.
Because the Australian sharemarket is so small compared to

other world markets, we are often affected by events on other
markets, particularly the U.S. stockmarket.
Diversifying into different asset categories and different

countries is the key to reducing market risk. Additionally, a
more active approach relies on assessing the right place to be at
the right time and allocating a larger proportion of your assets
(over- weighting) to those markets.
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5. Reinvestment Risk
This is the risk that comes from the possibility that an
investment will have to be reinvested at a lower interest rate or
at a higher price. While an increase in interest rates results in a
fall in bond prices, a decline in rates presents a reinvestment
risk for investors. Many bonds contain a provision which allows
issuers to redeem or call in all or part of the issue before the
maturity date.
Lower interest rates usually give issuers an incentive to call in

debt in order to be able to refinance at the lower rates. This also
forces investors to reinvest the cash proceeds at lower rates. For
a portfolio of shares, a future increase in share prices poses the
risk of having to reinvest profits or dividends at a higher price.
A regular review of your portfolio will serve to moderate
reinvestment risk. What has changed from the time you made
the investment? Take the opportunity to adjust your investment
strategy and rebalance your portfolio.
6. Inflation Risk
A risk inherent in all assets is inflation risk.
Take an investor holding a one-year bond with
a maturity value of $5,000 and an interest rate
of 6%. At the end of the year, the cash proceeds
will amount to $5,300. If inflation over that year is 4% then
your real return (adjusted for inflation) is substantially less than
6%. In this case it is $5,300 divided by 1.04 or $5,096. Inflation
reduces your returns because the cash flow from your
investments will buy fewer goods than before. Inflation risk or
purchasing power risk is the risk that inflation will result in a
negative real return.
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Over periods of twenty years or more, studies have shown that

shares outpace inflation far more than bonds or Treasury bills.
On the other hand, during times of high inflation, gold and other
hard assets are the best hedge. Furthermore, since inflation
affects a currency's strength compared to other currencies,
investing in low-inflation countries is one way to reduce
purchasing power risk.
7. Exchange Rate Risk

The value of an asset
denominated in a foreign currency will fluctuate in its
conversion to a base currency. In particular, the value of an
asset denominated in an appreciating currency rises and that in
a depreciating currency falls. If the Swiss franc appreciates, a
U.S. investor who holds a Swiss security will have a gain. If an
investor receives income from a Japanese yen bond and the yen
appreciates, the investor will receive more dollars. The risk for
an investor who hold assets in U.S. dollars amounts to the
possibility that the U.S. dollar will have risen in relation to a
foreign currency by the time payments are to be received,
resulting in dollar losses.
A number of factors give rise to exchange rate or currency risk.

These are related to supply and demand conditions for foreign
currencies relative to a base currency. An Australian dollar-
based investor, for example, should consider such factors as
inflation rates, interest rates, savings rates, fiscal balances, the
current account balance (the balance of imports and exports of
goods, services and other transfers), and economic growth in
the other economies, particularly the U.S.A. relative to
Australia.
Currency markets have also increasingly been influenced by the

hedging practices of large institutional investors and investment
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The bright side of risk
fund managers. In trying to anticipate exchange rate

movements, large amounts of currencies are bought and sold,
with significant short-term consequences for exchange rates.
Central bank intervention to support a currency, particularly
when coordinated among the central banks of the world's major
economies, is also an important determinant of short-run
exchange rate fluctuations. In the long-run, however, economic
fundamentals such as inflation rates and deficits or surpluses in
the country's financial accounts are the most important
determinants of a currency's strength.
Managed funds and large companies with substantial foreign

currency exposure often take measures to hedge the impact of
currency movements. So when you invest in these funds or
companies you are already hedged to some degree. In the long-
run, the best strategy to reduce currency risk is to diversify
among different countries, choosing in particular those
countries with a record of low inflation, high savings rates and
healthy balances in fiscal and trade accounts.
The bright side of risk

These seven risks inherent in investing
affect financial assets in different ways. The
so-called low-risk assets (such as Treasury
bills and money-market managed funds)
prevent capital losses but have little potential for appreciation
and in the long run are most vulnerable to purchasing power
risk. On the other hand, so called high-risk aggressive growth
stocks are not good vehicles for ensuring the safety of your
principal in the short-term but are a good way to hedge against
inflation in the long run.
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Depending on your time horizon you should allocate more or

less money in instruments that have long-term profit potential
(shares or stocks) or assets that can secure your capital and
income today (cash and fixed-income assets).
But whatever you do, don't be daunted by the risks. An investor
should treat risk as an entrepreneur treats a new business
venture - as an opportunity to exploit. The flip-side of taking
greater risks, as modern portfolio theory points out, is greater
financial reward. With time on your side and a carefully
thought-out global investment strategy, the risks themselves can
be tamed to maximise your long-term profits.
If financial assets were completely riskless,
there would be no need for modern portfolio
theory. In addition, if gathering information,
both historical and current, on the universe of
riskless investments were quick and easy,
investors could choose the one investment with
the highest return, the highest income, whatever criteria they
may have. The reality, however, is none of these things.
Modern portfolio theory is thus an essential tool for investors. It
recognises that assets have risks. With the help of today's
computer technology, it helps to organise information about
assets and calculate risks. Finally, it offers investors a way to
reduce this risk and so increase potential returns.
The way shown by theory is through portfolio diversification.
Diversifying among different countries, for example, has been
proven to enable investors to earn higher returns. Numerous
studies using the general framework of modern portfolio theory
also point to longer holding periods for investments as a way to
profit from high-return but highly volatile equities. A properly
structured portfolio will take all these elements into account.
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Going Offshore – some due diligence issues to consider
Going Offshore – some due diligence issues to

consider
As I’ve just explained, one of the ways of managing several
investment risks is by diversifying your investments into
various asset categories in different countries. Many people do
this by ‘going offshore.’ The term ‘offshore’ refers to a
jurisdiction other than where you live. When going offshore, the
countries that are most favoured for investment purposes, have
laws which give distinct advantages to the investor and business
person.
Other reasons for going offshore include asset protection,
privacy, higher investment returns, and the possibility of taking
advantage of lower tax rates in various jurisdictions.
Low tax jurisdictions or no tax jurisdictions are often referred to
as tax havens. Lance Spicer’s books, The Invisible World and
Invisible Banking will give you a wonderful insight into the
offshore world.
It is possible to diversify your investments internationally
without necessarily “going offshore” in your own right. For
example, you may place some of your money into diversified
global managed funds which are purchased and held in your
home country. These managed funds may be located onshore
but are wrapped in an offshore vehicle. The investments maybe
managed offshore by a professional fund manager.
For centuries the wealthy have moved money offshore to
protect their assets and to avoid paying taxes on gains. There
are many jurisdictions around the world that offer
these and other special incentives to foreign
investors. They vary from sun-drenched Caribbean
islands with palm-lined beaches to mountainous
European principalities filled with castles and picturesque
villages.
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But what exactly is a tax haven? A tax haven is a foreign

country or dependency that has several characteristics, the
primary one being a relatively lower tax rate in comparison
with other countries. In fact, many tax havens impose no taxes
at all on income earned by foreign individuals. Other
characteristics of tax havens include strict privacy laws and
bank secrecy. In fact, in some tax havens there are prison
sentences for anyone revealing private financial information.
While this all sounds every exciting, there are some important
issues which you need to understand about going offshore as
part of your due diligence activities. First of all, let’s take a look
at how you can operate a global business and take
advantage of tax havens.
Global citizen – Rupert Murdoch
An excellent example of a well-known
public figure who is publicly known to
utilise tax havens to his advantage is Rupert Murdoch. In 1985,
media magnate Rupert Murdoch renounced his Australian
citizenship and became a U.S. citizen and so was able to
comply with the U.S. law that prohibits foreign ownership of
television stations. This very wise business move helped Mr.
Murdoch build a global entertainment empire that includes
among its many subsidiaries the 20th Century Fox studios. Mr.
Murdoch's company, News Corp., earns most of its revenue
from U.S. subsidiaries, but through the use of international tax
havens, Mr. Murdoch has paid corporate income taxes of one-
fifth the rate of his U.S. competitors during the 1990s.
U.S. authorities in no way suggest that there is any impropriety
in his business strategies. News Corp. has remained
incorporated in Australia in spite of Mr. Murdoch's taking on
U.S. citizenship. News Corp. has mastered the use of the
offshore tax haven in its many international transactions. The
company reduces its annual tax bill by moving profits through
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The difference between tax avoidance and tax evasion
multiple subsidiaries in offshore tax havens like the Cayman

Islands. For example, the overseas profits from movies made by
20th Century Fox go into a News Corp. subsidiary in the
Caymans, where they are not taxed, according to one insider
familiar with the company’s flow of transactions. Mr. Murdoch
has taken advantage of the differing tax regimes around the
globe and so has been able to make sure his companies keep
more of what they earn.
Rupert Murdoch provides an excellent example of the proper
use of tax havens as part of a global business strategy. You too
can apply these same principles to your business and investment
activities if you do your due diligence work thoroughly.
The difference between tax avoidance and
tax evasion
While one of the reasons for going offshore may
be to minimise taxation, you need to be clear
about the distinction between tax avoidance and tax evasion. It
is quite legitimate to plan your business activities to minimise
taxation, however tax evasion is a criminal offence and could
land you in jail. There is no need to break the law in going
offshore. It is far smarter to work within the laws of your
country of residence than against them.
As you do your due diligence work into the offshore world, you
need to be aware of this very important distinction since you
may come across promoters who treat this aspect very lightly
and it could turn out to be to your detriment. As always, be
aware, question what you are told and think about it. Another
good strategy is to seek a second opinion so you’ll gain another
perspective.
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The basic offshore issues

In going offshore, there are a number of basic due diligence
issues you should consider.
There are two different types of international business
transactions. There are the ones that are 100% transparent and
benefit you on- and offshore while others are primarily for
privacy reasons and should not have any connection with your
on shore activities or assets. It is important however that you do
not break the law in going offshore. Tax minimisation for
corporations and high net worth individuals is based on
avoidance and not evasion.
The story about Rupert Murdoch illustrates that if you plan your
business and investment activities legally and officially, you
don’t have to try and hide anything. In fact, if you look up the
annual report of News Corp., you will see a list of the many
countries they operate in, including the tax havens. When
everything is done legally and officially you don’t have to hide
anything. It’s the same with the way Kerry Packer operates his
international business through a range of tax havens around the
world. Although he pays very little tax, because he feels he can
spend his money more wisely than the Government, he gives
many millions away each year to charities and people in need.
If your purpose in going offshore is to achieve greater privacy
and literally ‘hide’ some or all of your assets from third parties
such as spouses, children or potential litigants, then
you’ll need to make sure you don’t leave a trail of
any kind. If you are involved in situations where
even though you are not breaking the law, your
strategy may be one which could give rise to
questions, then it is best to ensure that you don’t leave a trail of
what you are doing. Use a public phone card to ring up, use an
internet café rather than your home computer to send emails,
use a public fax service and have the mail sent to you from a
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The basic offshore issues
non tax haven jurisdiction. Do not leave a paper trail of any

kind. If you make just one transfer or draw one cheque from
you regular onshore bank account, to an offshore jurisdiction,
you have left a trail. This applies if you operate in what may be
considered a ‘grey’ area. In other words, if your activities could
lead to an investigation and if during that investigation you may
make mistakes or statements that could lead the investigator to
wrongfully assume that everything is not ‘above
board’, then you should avoid a paper trail.
You also would not want to pay for anything
related to an offshore structure from your onshore credit card or
bank account if you did not want to leave a trail.
Make sure you fully discuss your intentions and objectives with
your offshore service provider and that they clearly explain
what they think is best for you. Tell them exactly what you
would like to achieve and why, and then listen carefully.
It is unlikely that a ‘one size fits all’ packaged solution will be
your best option even though at first it may seem more
economical.
If your objective in going offshore is to ‘hide’ assets, say from
your drug addicted children, that are in the process of filing
claims against you in court, you would want to conduct your
overseas travels in a way that would make it hard for others to
become aware of what you are doing. For example, when you
are travelling to an offshore tax haven jurisdiction, you would
enter from a series of different countries and your travelling
sequence would vary from trip to trip such that a visit to the tax
haven was incidental to your trip rather than being the major
purpose for your trip. You may even arrange to meet your
offshore provider in a different location to where the assets are
controlled.
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Did you know that all flight tickets that you buy are logged into
a central computer system in the USA? Yes, every single flight
ticket on earth is recorded! If you buy a ticket in your name,
with your passport, that information is kept on record. You
should be aware of these surveillance activities since they are
likely to catch you out if you do something illegal or if you lie
about your activities. If you want to learn more about how your
movements are being monitored, the books Underground
Knowledge and Things You Didn’t Know – Underground
Knowledge 2 by Lance Spicer make interesting reading.
It would be most unwise to keep copies of any correspondence
from you to your trustees and advisers abroad, either in your
home, your car, your office, your bank security deposit box or
with any relative, friend or employee of yours. In fact, there
should be nothing around that could arouse suspicion or form a
trail to reveal your private affairs. If you are subject to an
investigation, such correspondence could lead to the wrongful
assumption on the part of the investigator, that you use overseas
based nominees to conduct your business and investment
activities. The use of nominees in Australia is not a crime but
has serious tax consequences that would result in the taxation of
all your offshore assets.
Buy a shredder and use it frequently to
destroy your unwanted information and
correspondence! Investigators and other
snoops delight in sifting through your
garbage to find out more about you and your
activities.
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How the tax department due diligence process on you begins
It would be most unwise to discuss your offshore activities with

others and certainly not to boast about them to friends and
neighbours. Remember the old saying: “loose lips, sink ships.”
Your family members can unknowingly and unwittingly cause
you to come unstuck because of a careless comment. It is best
to keep a low profile if you do not want to attract attention to
yourself by prying eyes.
How the tax department due diligence process on
you begins
If you speak to investigators from the tax department about
where they get their leads, you will discover that their “tipoffs”
often come from everyday situations where people have sunk
themselves. It may be one of the children bragging at school
that his parents don’t pay tax because they have shifted their
money overseas. This conversation may be overheard by a
jealous and subservient teacher who may pass the information
on to the tax department. Or it may be your next door neighbour
who feels that your new lifestyle and possessions now no longer
make you ‘one of the boys.’ They may think you are doing
something illegal or immoral by going offshore.
The fact is that setting yourself up offshore is neither illegal nor
immoral.
In most cases neither they nor the tax department have any
concrete evidence of your activities. When someone “dobs you
in” it simply alerts the tax department to the possibility for an
investigation. They then take a closer interest in your affairs and
look for evidence of tax minimisation activities. Once they find
something, they then go on a fishing trip to see what else they
can uncover and to see if you will dob yourself in. Their
approach is to apply intimidation and coercion until they find
some hard evidence.
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Lessons from the case of the late Dr Peter Clyne

Probably one of the highest profile tax lawyers and financial
consultants in recent Australian history was the late Dr Peter
Clyne. He used to refer to the Tax Commissioner as the ‘Fiscal
Fiend’ and delighted in playing games with the bureaucrats.
When in Australia, he stayed in a luxury suite at the Sebel
Town House in Sydney and when in Europe he stayed at the
Sacher Hotel in Vienna.
Peter Clyne set up his affairs in such a way that the ATO could
not tax his income. He did this by being a perpetual traveller
and spending less than six months a year in
Australia. He would always brag that his
assets were held in a safety deposit box in
Liechtenstein. Whenever he was in Australia
he would also promote the idea that he could
help you do the same.
This infuriated the ATO and they vowed to shut him down.
They tried to prove that his sole motivation for arranging his
affairs the way he did, was to evade tax, not to minimise it.
If the Tax Office determines that your activities constitute tax
evasion or are an avoidance scheme, they can impose the tax
that you would have ordinarily paid anyway. It is then up to you
to fight the assessment. If you don’t pay the tax as assessed, you
are up for interest and penalties as well. If you decide to fight
the assessment through the courts, you are up for the legal fees
as well. It is therefore essential, as part of your due diligence
work, to always have a clear, plausible and unambiguous
explanation as to why you chose to arrange your affairs a
certain way. This explanation should be discussed with your
business adviser or accountant to check for any flaws and
inconsistencies. Your documentation should reflect the
commercial validity of the way you have arranged your affairs.
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Lessons from the case of the late Dr Peter Clyne
Please understand this: If a tax investigator has to use his

imagination to believe your story then you are very much out on
a limb. If your arrangements have commercial reality, then they
are more likely to stand up to scrutiny. Kerry Packer won his
case against the Australian Tax Office because he truly runs a
global business and there are commercial reasons for the way
he has structured his affairs. A by-product of these
arrangements of course is that he pays almost no tax. You need
to approach your tax planning and due diligence work in the
same manner.
There is another very important strategy that investigators
applied in both Peter Clyne’s case and when they were looking
for Alan Bond’s missing millions. After they had exhausted all
avenues against Clyne and Bond themselves to no avail, they
then had a go at their trustees.
In Peter Clyne’s case they discovered that his Liechtenstein
lawyer had substantial land holdings in Australia. They knew
that the lawyer was the “controller” of Clyne’s assets although
they could not be sure that the land holdings were part of
Clyne’s asset base. The Australian Attorney General sent a
registered letter to Clyne’s lawyer stating that, due to his lack of
co-operation in regard to Peter Clyne’s case, the government
had placed a lien over the property in his name. This ensured
that the lawyer could never sell the properties without first
paying Peter Clyne’s tax bill. They did this on the basis that
they knew he was holding assets on behalf of Clyne; - assets
they believed they were entitled to.
It is likely that the properties belonged neither to Peter Clyne
nor his lawyer. It is probable that they belonged to some other
high powered clients of the lawyer who would be rather upset
by this development. I suspect that these clients were far more
important to the lawyer than Peter Clyne.
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The result was that the lawyer dropped Peter Clyne and co-
operated with the government in order to save himself and his
other clients.
In Alan Bond’s case I believe the trustee in Bankruptcy was not
successful in his action against Bond’s nominee, although he
tried the same sort of ploy.
What are the lessons to be learnt from this example?
Firstly, it is unwise and risky to you to use a trustee or agent
that has links to your home country. You need to research this
thoroughly to make sure.
Secondly, the same situation applies to the offshore banks you
use. Offshore banks that have local branches can be a problem.
Even worse is to use a bank from your home country. This is
certainly asking for trouble.
Thirdly it is best not to be involved in areas where the
governments must co-operate with your home country for any
one of a number of reasons.
Finally it is important not to let your ego take control. Keep a
low profile and don’t brag about the tax you are saving. The
more visible you make yourself, the more likely you are to
attract attention from the very quarters that you don’t
particularly want attention from.
Lance discusses Peter Clyne’s story in more detail in his book,
The Invisible World. He also goes into considerable detail on
how to go about setting yourself up offshore. My purpose in
this brief section is to give you just a taste of some of the due
diligence issues you should consider along the way. If this is an
area you want to explore in more detail, I suggest you read
widely on the topic and discuss it with your professional
advisers.
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Are you like a kid in a lolly shop?
Are you like a kid in a lolly shop?

I’ve been to numerous international conferences
with speakers from all over the world who speak
about the opportunities available in their country.
It sounds so wonderful and exciting that you
may be tempted to think of packing up and
shifting house.
Delegates I have spoken to have told me things like, “it’s
exciting, it’s amazing, it’s wonderful, it’s confusing, there are
so may possibilities, it’s like being a kid in a lolly shop!”
While I understand that, I just want you to take off your rose
coloured glasses for a moment and remember that there are
many aspects to this whole new investment world that you are
discovering. When you first come into contact with such new
possibilities, it can be tempting to be all starry eyed and believe
everything you hear. You may even elevate the people talking
about it to ‘guru’ status in your mind. In the excitement of it all,
it’s often easy to forget the importance of doing your due
diligence work before you dive in.
My request to you is to be open minded to new opportunities
and to check them out carefully to see if they are right for you.
Due diligence for start-ups
When you are starting a business from scratch
your due diligence work is slightly more
difficult than when you are researching an
existing business. The reason for this is that you
cannot refer to any historical data and you need
to make intelligent estimates and predictions
about what you think will happen and what you
can achieve. Needless to say, if you are raising funding for this
start-up venture, you will be held accountable for your
predictions and will need to report back to your lenders on a
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regular basis. Since you will be spending your time and energy
in this new business, it is also very important for you personally
to make sure that you maximise your chances of success.
Therefore the time you spend carrying out your due diligence
work will be time very well spent. It is in fact, an investment in
your future success.
When you are starting a new venture, it is imperative that you
have a plan – a business plan. This business plan should address
the major areas which need to be covered by your due diligence
work. In other words, the due diligence work you do, will form
the basis of the information which you will use in preparing
your business plan. A useful website to check out regarding
business plans is at:
http://www.inc.com/advice/writing_a_business_plan/
I just want to briefly share with you an experience I had years
ago when I started up my first business selling medical
equipment. At that stage I had spent three years working in the
accounting profession and eight years working in a printing,
publishing and distribution company. I had decided it was time
to venture out on my own. As you can probably gather from my
previous experience, I had no knowledge of medical equipment.
Although I knew it would be a challenge, I was determined to
learn and succeed in this new endeavour. Following that
experience, I can tell you that regardless of how many
businesses you have worked for and how much you have
studied, it’s never quite the same as when it’s your own money
on the line! It’s a case of learn fast or sink!
Whenever you are working for someone else, although you may
have a lot of responsibility, at the end of the day, you can still
walk away and the ultimate responsibility rests with someone
else. When it’s your own money (especially if it’s borrowed
money), the buck definitely stops with you.
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Before I started this new business, I spent

several months doing my due diligence
work and then preparing a business plan.
At the time, I needed $75,000 to start
the business. I prepared a detailed
business plan and sent it through to my
bank manager. The enclosed covering
letter said that I wanted to start a new
business and I would ring up in a week to arrange an
appointment to come and see him so we could discuss funding
for this new business.
Well, the week had passed and I rang him to arrange the
appointment. He asked me: “When do you need the money?”
To which I replied that I was ready to go ahead as soon as the
funds were available. He said: “The funds are available to you
as soon as you come in and sign the paperwork. I’ll have
everything ready for you to sign in two days.” I couldn’t
contain my amazement at the time and said to him, “But, I
haven’t even come in to see you to discuss it.” To which he
calmly replied: “There’s no need to come in. It looks like you
know what you are doing so I’m comfortable with that.”
This was an important lesson for me and one which I’ve applied
many times since then. Back then, $75,000 was a reasonable
amount of money to raise for a small business, especially one in
start-up mode, which you couldn’t just raise off the cuff. I had
no external shareholders with this venture, so I was totally
responsible.
I learnt that if you do your research well, think and plan what
you are doing and then prepare a good business plan so you can
communicate your thoughts to others, you are already at first
base. Although it involves a lot of painstaking work, this first
step is the foundation for your future success. So let’s take a
look at what due diligence actually means and what you need to
do in terms of due diligence for a start-up situation.
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Just before I do that, I should just point out that there are other
aspects of putting together your business plan such as clearly
describing your vision for the business, your goals and much
more. In fact, there are many good books about preparing
business plans so I am just concentrating on the due diligence
issues here.
A good book if you are going into business for yourself is
Lance Spicer’s, Going Out On Your Own?
There are a number of key risk areas you need to focus your due
diligence activities on when you are in start-up mode. The
following questions are an indication of the sorts of things you
would be asking when carrying out due diligence under each of
these risk areas. In some cases you will be asking these
questions of yourself if you are the entrepreneur behind the
start-up venture.
1. Development Risks
Does this new venture involve the development of new products
and services?
How long will it take to develop these new products?
How much will it cost?
How will the development be funded?
How many people will be required (short term and long term)?
How will they be recruited?
How long before the venture can expect some cash to flow back
into the business?
What performance indicators will be applied to test whether the
development work is on track, within budget, marketable and
competitive?
Who are the key potential clients who will beta test the product
before it is released?
What reserves are available if the development costs exceed the
budget forecast?
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Who are the key people responsible for managing the

development work?
What is their commitment to the success of the project? Do they
have a vested interest?
What intellectual property is involved and how will it be
protected?
What security measures will be implemented?
2. Production Risks
Will the product manufacturing be outsourced or is an in-house
manufacturing facility required?
If in-house, how much will it cost and how long will it take to
establish?
What key staff are required to manage the production process
and how will they be recruited?
Will they have a vested interest in the success of the business
(i.e. shareholders, option holders etc)?
What equipment is required to handle the production, where
will it be sourced from, at what cost, what training is required,
what backup is available and what is the lead time for delivery
and installation of the equipment?
Are special purpose premises required?
What quality control measures will be implemented?
Where will the raw materials/ingredients be sourced from?
What alternative suppliers are available?
What economies of scale can be achieved?
What security measures will be implemented?
What plans are in place to meet the forecasted sales growth?
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3. Market Risks
What is the market for these products and services?
How will it be serviced?
What is the competition?
What is the pricing of the product and how profitable is it?
How easy is it for a competitor to enter the market?
How can customer loyalty be created?
What follow on products are possible/likely?
4. Management Risks
Who comprises the management, what are their qualifications
and their previous experience with these types of ventures?
What is their commitment to the success of the venture?
Does the management team cover the key areas of research and
development, manufacturing, marketing and sales, finance and
administration?
What are the key performance indicators to be applied to
determine whether they are succeeding?
5. Financing Risks
What is the likely return on investment on the company’s
product range?
How are borrowings secured?
What reserves are available to deal with budget overruns and
sales not meeting budget forecasts?
What is the cost of finance for this venture?
What are the key performance indicators which need to be
satisfied before further funds are released?
How can the management’s valuations be verified?
How long before the venture is likely to be profitable?
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Unclaimed millions: It's your money, but where are you?
6. Exit Strategy
Is the business being prepared for a public float (IPO)?
What is the likely private sale/takeover value of the venture?
What is the possibility of a management buyout and at what
potential price?
What is the liquidation value?
Regardless of whether you are seeking to invest in a start-up
venture, the entrepreneur behind the start-up venture, a potential
stake holder (employee, contractor, supplier etc) or an
entrepreneur looking to raise capital for a start-up venture, you
will need to address these types of questions and more.
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Unclaimed millions: It's your money, but where are

you?
Have you checked to see if you are entitled to monies held in
government coffers awaiting your claim?
Are you wealthy but don't know it? This is the case for
hundreds, if not thousands of Australians who are the
beneficiaries of deceased estates, lottery wins, life insurance
payouts, share dividends and so on.
In every state and territory of Australia, the government is just
waiting to get its hands on millions that might rightfully be
yours and so it depends on the detective work of State and
Territory Trustees to match missing money with the fortunate
recipients.
Many of their investigations take months, if
not years, and can involve checking
cemeteries, church records, family
photographs and now the Internet to locate
a fortunate beneficiary who may have moved far away or
changed their name.
If the beneficiaries are unable to be located, the money sits in
the state or territory coffers earning no interest and after a
period of years is claimed by the government.
Accountants often trace the recipients of lottery windfalls and
corporate profit and then take a percentage of the funds for their
efforts.
You could do the necessary research work yourself to find out if
you have money owing to you. Here are some clues to help you
do so.
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These agencies may have your money

Unfortunately there is no central registrar in Australia at this
time for unclaimed money. Some money is the responsibility of
the Commonwealth, and some is taken care of by State
Governments.
As an example, the Unclaimed Money Office in Melbourne
holds unclaimed money from share dividend payouts,
unclaimed rent and bonds, unclaimed wages and unclaimed
Tattersalls prizes. Under state legislation, such monies are to be
transferred there after 12 months. The Unclaimed Money Office
does not search for the people who won the money - that is
assumed to have been done by the companies before they send
the money there.
As another example, the Victorian Unclaimed Money Office
received about $25 million in 1999, including about $1 million
a month from Tattersalls.
On request, the Office will search its records free of charge if
you contact them. Some unclaimed money is listed under
surnames but most of it is listed under the name of the company
that held the money. If this is unknown, it may be difficult for
you to check whether there is money owing to you.
It is also worth checking the various Government gazettes.
These gazettes list the name and last known
address of the owner of the money.
Tattersalls (Victoria)
Since the start of Tattslotto in June 1972,
Tattersalls has paid about $45 million to the
Victorian State Government in unclaimed
prize money. After 12 weeks, if the money is unclaimed, it goes
to the Unclaimed Money Office. There is a system called Tatts
card where you register your name so that you can be traced if
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you win. You can take your old tickets to be checked at

Tattersalls head office. A similar system operates in each of the
State and Territory lottery offices.
Commonwealth Government Treasury
This Department is responsible for unclaimed money in bank
accounts. The banks hold an unclaimed account for seven years
and then pass it to this department where the money is held in
trust until claimed.
The money is deposited in non-interest bearing accounts; the
owner receives only the amount transferred from the bank.
Each year the Treasury prints a book called, Do We Have Any
of Your Money? (printed in the second half of the year) which
sells for $19.95. This book publishes all accounts that were
passed on from the banks in the previous year. The book is
available from Australian Government Bookshops and some
libraries. The information is also available on the Treasury
website: http://www.treasury.gov.au/
In the Financial Year 1996/97, $20.7 million was transferred
from the banks to Treasury.
State Trustees
These Departments handle the estates of people who die
intestate, that is, without wills. State Trustees have a team of
genealogists searching for relatives of deceased people. State
Trustees hold the money for 7 years. If the money is unclaimed,
it goes into the consolidated revenue of that State although a
claim can still be made at any time.
Around Australia, $30 million is held in unclaimed estates. The
Victorian Office holds about $15 million.
Once a year, State Trustees publish a list of major estates in
daily papers and you can ring or write to State Trustees to check
for unclaimed estates in your name.
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The genealogy departments search within

Australia and overseas if necessary, using
the Internet as a major tool along with
electoral rolls, registries of births, deaths
and marriages and even church records.
Australian Securities and Investments Commission (ASIC)–
The ASIC holds money under the Corporations Law and the
Life Insurance Act. The money held is from unclaimed matured
life insurance policies, unclaimed shares and some unclaimed
share dividends. The Commission is looking for about 50,000
people under the Corporations Law who are owed about $20
million. This money is held at the ASIC for 6 years then it
becomes statutory revenue. It can still be claimed at anytime.
Life insurance policy money is held for 7 years by the Insurance
Companies and then it becomes statutory revenue. This can be
claimed at anytime. There are approximately 69,000 policies
held with a value of about $22 million.
Every year a book called, Life Insurance Unclaimed Money is
published and sold through Government bookshops.
Government gazettes publish names and amounts owed to
shareholders. The ASIC also has databases of surnames and
these can be checked by calling 1300 300 630.
Private Agents
A private agent tries to locate the people who have unclaimed
money, and they charge the owner of the money a percentage
for putting them in touch with their money.
Most of the cases they investigate are for large amounts of
money. Their fee depends on the amount of work involved,
ranging from 3 percent to 33 percent, and a fixed fee can be
arranged.
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Who to contact for your unclaimed millions

State Trustees/Public Trustees hold the estates of people who
die without wills. These are the contact telephone numbers of
such offices in each state:
Victoria: (03) 9667 6444, or 1 800 133 095
Sydney: (02) 9252 0523
Adelaide: (08) 8226 9200
Perth: (08) 9222 6777
Brisbane: (07) 3213 9357, (07) 3213 9429
Hobart: 0362 337 598
The Commonwealth Government Treasury holds unclaimed
bank accounts:
(02) 62 63 3060.
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Starting points for your due diligence research
Starting points for your due diligence research

One of the most useful websites for due diligence research from
an Australian perspective, that I have found, is that of the
Australian Securities and Investments Commission. This site
has great links to other sites around the world and lots of very
useful information for investors.
You can find the ASIC website at:
http://www.asc.gov.au
There is a special section there for investors called Investors:
advice and alerts.
You can also contact the ASIC on 1300 300 630 for the cost of
a local call or in Sydney on 9911 2200
Other sites include the consumer affairs and/or fair trading

offices in each state.
NSW Tel (02) 9895 0111 www.fairtrading.nsw.gov.au

VIC Tel (03) 9627 6000 www.justice.vic.gov.au/oftba
QLD Tel (07) 3246 1569 www.consumer.qld.gov.au
ACT Tel (02) 6207 0400 www.consumer.act.gov.au
SA Tel 1800 804 072 www.ocba.sa.gov.au
NT Tel (08) 8999 6124 www.nt.gov.au/caft
TAS Tel 1800 005 220 www.justice.tas.gov.au/ca
WA Tel 1300 304 054 www.fairtrading.wa.gov.au
Australian Treasury Department
Tel (02) 6263 2800 www.treasury.gov.au
Australian Competition and Consumer Commission
Tel (02) 6243 1111 www.accc.gov.au
Australian Stock Exchange
Tel (02) 9227 0000 or 1300 300 279 www.asx.com.au/
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Quick pointers on other due diligence issues

 Beware of real estate agents talking up the value of your
property and the likely rental return.
It is a common tactic for real estate agents to talk
up the value of your property in order to get a
listing and then gradually to bring your price
expectations back down again when they can’t
find buyers at that price. They will tell you that
the market has changed since they first looked
at your property and a truckload of other excuses (lies!). The
best way to deal with this, is to interview several agents before
you decide who you will list with (either to sell your property or
to rent it out) and to ask each of them this question: “What will
you do to get the best price (or rental return) for my property?”
Agents with good selling skills will then answer your question
with another question like: “How much do you want?” or
“What figure do you expect?” Do NOT answer these questions!
At least not yet. You want to stay in control of the conversation
and if you remember back to the section on asking questions, I
explained that the person who asks the questions controls the
conversation.
To remain in control, simply respond by saying something like,
“Before we talk about a specific price, can you please tell me
what your agency will do for me to get the best price for my
property.” Even though it may feel unusual for you, you may
need to repeat this question several times since well-trained
salespeople will often try and gain control of the conversation
by asking you another question. Don’t be intimidated or allow
yourself to be pressured into doing anything that doesn’t feel
right for you. It’s your property and you call the shots. Find an
agent that you feel comfortable in dealing with. For agents you
don’t like, just say. “I have another agent coming soon, so
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thank you for coming and I’ll give you a call if I want you to list
my property.” Then stand up and move towards the front door.
They will get the message and leave.
Your best protection is to do your own research and to
familiarise yourself with both rental returns and selling prices in
your area. All agents will have a list of properties they currently
have available for rent and their asking prices. Real estate
agents’ shop windows will show you what selling prices are
being asked for properties in the area.
 What is the real cost of your home loan?

Lending institutions have become very clever at
marketing their products such that they do not always disclose
the true cost of their loan up front. There are introductory or
honeymoon rates, variable rates, fixed rates and then of course
there are all the fees and charges that affect the true cost of your
loan. Some industry insiders claim that fees can add as much as
4 per cent to the cost of a loan. As an example, a $12 a month
account keeping fee over a 30-year, $100,000 loan starts out at
a minuscule amount but, by the end of the period, becomes 4.32
per cent of the loan.
To determine the true rate of interest when fees are taken into
account, you need to find out the annualised average percentage
rate (AAPR). Do your research to find out the true cost of your
loan.
An independent research organisation with international links
which publishes the AAPR for many loans can be found at the
CANNEX Web site at: http://www.cannex.com.au
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 Frequent share trading can cost you dearly

With the growth of online discount share brokers, we have also
seen a focus on special offers for frequent traders. As more
firms enter the marketplace, the cost of trading online continues
to drop. While a breakdown of the price barriers is a plus for
small investors, it doesn’t mean that just because you can trade
cheaply, you necessarily should.
Frequent trading is often cited by experienced investors as a
great wealth destroyer, especially for small investors. A
University of California study by Terrance Odean and Brad
Barber called: Online Investors: Do The Slow Die First? claims
that overconfidence, inexperience and lack of trading skills all
contribute to losses and that young male professionals are the
people most likely to fall into this trap.
They argue that it is at this point that investing and gambling
are indistinguishable and are likely to have the same effect on
your wealth.
Once again, the lesson is: do your homework; do your research;
do your due diligence and understand what works best for you.
 What does your credit card really cost you?

Credit cards represent a bigger threat to your wealth
than a plague of locusts on a field of wheat, if you don’t know
how to use them wisely and if you don’t know how much they
cost you.
You can obtain one type of card free, however, interest is
payable on your purchases from the date of your purchase.
There is another type of card for which you pay an annual fee
but receive an interest free period in which to pay for your
purchases. If you pay for your card balance in full by the due
date, this is by far the better option.
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With either type of card, you will be charged interest on cash

advances from the date of the advance.
Your credit card statement will give you the choice of paying
the whole balance owing or paying at least 5% of the
outstanding balance and leaving the remainder of the debt for
later. If you choose to pay less than the total balance, you have
just organised a very high interest loan for yourself.
One of the greatest enemies of wealth creation is impulse
buying and credit cards facilitate that temptation. If you do your
homework and put together a shopping list before you go
shopping, you will reduce the tendency to buy things you don’t
really want or need.
It also pays to read the fine print to understand what your credit
card really costs you. You will find that if you do not pay your
credit card statement by the due date, interest charges apply
from the date of the transaction or the date of the statement and
NOT from the due date. Paying your credit card just one day
late can cost you a whole month’s interest! It pays to do your
due diligence work by reading the fine print.
 The same principle applies to your mobile phone

contract and your insurance policy.
Are you paying for a usage contract that is
inappropriate to your mobile phone needs?
Are you paying for insurance coverage that you are
never likely to need? It’s these optional extras that are the most
profitable for the insurance companies. Do you know what you
are paying for?
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Scams, Frauds, Swindles, Rorts and Ripoffs

When you become involved in due diligence work, particularly
in the investment world, there's a feeling that you don't know
where to start — it all seems quite immense and frightening and
it's something that's very daunting, particularly when you don’t
have the knowledge.
Not only do you need to understand what you are looking for
and then once you have found it, you need to work out what it
all means.
Sadly many people get caught out because they work on the
premise that they are dealing with honest and ethical promoters.
This may not always be the case and therefore as an investment
sleuth, you need to be on the look out for Scams, Frauds and
Cons. Here is an example of one that I receive in various forms
almost weekly by email:
31/01/01 5.37PM
ATTN:PRESIDENT/C.E.O
VERY URGENT CALL FOR HELP
First, I must solicit your strictest confidence in this

transaction, this is
by it's nature of being utterly confidential & top secret. You were
introduced to me from the Sierra-leonean chamber of commmerce (Foreign
Trade Division).I am a Sierra-Leonean businessman. I was formally into the
importation and sale of medical equipment in my native country, Sierra-
Leone. My operational base was in Freetown, the capital city.
January 1999,when the second civil war broke out in my country, my office
and warehouse were burnt by the Revelutionary United Front Rebels, who
invaded Freetown. They alleged that my company was an ally of the ruling
government of President Teejan Kabbah. In that attack, I lost all my
properties and assets. I was left with virtually nothing, except some money I
had in the bank.
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When the United Nations sent in troops to quell the rebel's onslaught
and there was a relative peace in Freetown, I returned to business, but this
time, I invested my resouces in the Mining of Diamond which abounds in
my country and I exported the Diamond through the help of a third party-
some Lebanese who were very much versed in the industry. to Antwepp in
Belgium. The returns I got from this business was quite good and my life
was gradually picking up again untill early this year when the Sierra-
Leonean government banned private exploitation of the Diamond deposit
and also called on the United Nations to ban the sale of Sierra - Leonean
Diamond the international market. The U.N obliged the government and is
now illegal to sell/buy Diamonds emanating from Sierra-Leone. Following
this action, the government of my country clamped down on all businessmen
who had made fortunes selling Diamond.
Consequently, my newly acquired properties were seized again and I had

no option than to leave the country immediately to avoid arrest by the
police force of my country which was imminent. But I did that only after I
was able to first move my money out of the country.
I had $12.4000,000 (twelve Million, four hundred thousand United States
Dollars) in my domiciliary account in Freetown. I had to move the money
out of the Country through a very secret arranged channel. This was done in
very unconventional methods, by defacing the currencies on the advice and
authority of officials at "Security Minting & Printing" Company of my
country.
Now, the money is in Holland. under the preservation, protection and

safe-keeping of a financial trust body. The help I am now seeking are
in two folds.
Firstly, I want to claim the $12.4000,000 from the trust company, but I
cannot leave West Africa for Europe, at this moment, because I am on self-
exile in a neighbouring West African country from where I am trying to
work out my travelling documents to enable me travel abroad. So I need
someone who has the capabilities of receiving the $12.4000,000 in his
account, from the trust company.
All you need to have is a power of attorney from me, empowering you as a
recipient. Secondly, after the release of this money must have been
secured, I would also want you to help me get a permanent resident permit in
any of the Western European countries (or any good Central European
country)or better still, United States or Canada.
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For your efforts and the expenses you may incure in the course of
consummating this transaction, you will be entitled to 20% of the total sum.
But we shall have an agreement to the effect that you WILL NOT take or
spend out of the entire money until such a time when I am able to be with
you. I will let you have the telephone and fax numbers of my financial trust
agent and the name of the contact person in Holland on demand. Please, you
can only reach me for now through my e.mail address.
I must apologise for inconveniencing you and wait to hear from you. I
pray you understand my plight.
Best of regards.
Desmond Sanko
_______________________________________________________
Did you have your handkerchief out wiping away

the tears of sympathy for this unfortunate rogue?
Hopefully not! This is an example of what has
become known as the Nigerian Letter Scheme.
(only in this case it was a Sierra – Leone version) It
has been around for many years and unfortunately, people
continue to fall for it. Over the years I have
received many hard copy letters of this sort posted
from Nigeria. In recent times I have found that
these shysters are searching the internet and
finding my websites and sending me emails like
the one reproduced above (complete with
mistakes).
You need to be ever vigilant as part of your due diligence work
to identify frauds such as this one. My good friend, Lance
Spicer has just written a new book on Frauds and Scams which
will give you more examples of the types of things these con
men get up to, in order to relieve you of your money. Please see
our order form following with details of how to order this book.
116
Here’s another example of one I received just a few days prior.
28/01/01 8.19PM
SMITH UGO CHAMBERS

Legal Practitioners/Notary Public
Blk 804-Law House Building, Lagos-Nigeria
Tel: 234 -90-404398
Fax: 234 -1-7591694
E-mail: smithugo2001@eudoramail.com
Sir,
It is my humble pleasure to write you this letter, irrespective of the fact that
you do not know me.
However, I got your name/company through your country business attachee

here and in my search for a reliable and trustworthy person that can handle
such a confidential transaction of this nature.
I am Smith Ugo, a family lawyer to our former late Military ruler, General
Sani Abacha who died suddenly in power two years ago. Since his untimely
demise the family has suffered a lot of harassment from the regime that
succeeded him. The regime and even this civilian government that came up
now are made up of Abacha's enemies.
Recently, the wife was banned from travelling outside Kano state their home
state as a kind of house arrest. Although a lot of money has been recovered
from Mrs. Abacha since the death of her husband by the present
Government. There are still huge sum of money in foreign currencies saved
with some outside security company and Mrs. Abacha has showed me
document of where the husband deposited US$78 million in a security vault
for safe keeping.
Since Monday, we have been deliberating on how to invest this fund

abroad in a confidential manner until we came to conclusion to use it to buy
houses and part of it will be used for safe and non-speculative investments in
your country or Lebanon hence, I choose your country.
Therefore, you are to fax me immediately the prices of houses in cities of
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(highbrow area) in your country for us to know how to put our budget. This
money US$78 million can only be processed and received in Europe,
America, or Nigeria. If your conditions are good we will prepare you as the
beneficiary of the total fund because we have the documents with us. The
security company has called me and Mrs. Abacha to do something about
claiming this fund and we told them we would use it to pay our debt abroad.
NOTE: I am involved as Abacha's confidant. Therefore, contact me

on my private e-mail smithugo2001@eudoramail.com, and I will fax
to you all the documents concerning this transaction. Please you should keep
this transaction with you as top secret and we will be prepared to do
business with you. Expedite action. Best regards, SMITH UGO LL.B.
As you can imagine, when you receive several of these

solicitations a week, it is not only annoying but it makes me
angry that these villains are continuing with their unscrupulous
schemes and conning people out of their money. I decided to
use this anger in a positive way and write this book so that you
are aware of what is going on and what steps you can take to
protect yourself. I thoroughly recommend Lance’s book Scams
& Frauds – Financial Crimes Exposed! as further reference
material for your due diligence work.
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Fear and Greed – Make them your friends

"No passion so effectually robs the mind of all its powers of
acting and reasoning as fear" Edmond Burke, 1729-1797
Investing successfully is very often a fine balancing act between
the emotions of fear and greed. Not only do you need to be
aware of your own emotions of fear and greed but you also
need to be aware that the investment markets as a whole are
driven largely by these same collective human emotions.
Have you ever noticed that when the stockmarket crashes, it
does so quickly and sharply? This is fear at work. It’s the fear
of loss that drives peoples’ decisions to sell. Everyone wants to
get out before the market falls any further. Panicky investors
want to cut their losses before they lose it all. An atmosphere of
doom and gloom generally accompanies this fall in the market.
When this occurs, it is often said that the ‘bears’ are in control.
When the market is strong and bullish, market sentiment is
positive and those busily buying are convinced that whatever
price they buy at, they will easily be able to find a buyer who
will pay them more than they have just paid. Greed drives this
type of market as well as the fear of missing out on massive
profits.
If you take a moment to reflect on your own behaviour, you will
observe that at times you have been strongly optimistic towards
investment and other opportunities, while at other times you
have been far more cautious and absolutely afraid to make a
move. Fear is such a strong emotion that it can literally paralyse
you and immobilise you such that you take no action at all.
If you cast your mind back over time and think about market
crashes in either the property sector or the sharemarket, you will
probably agree with me that when the market experiences a
downturn, it is much quicker and much more severe than when
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the market is moving up. This demonstrates that fear is a

stronger emotion than greed.
Now take a moment to think about what makes you feel either
optimistic or pessimistic. I’m sure you will agree that the major
factor influencing your emotions is what other people say and
what you hear and read in the media. Generally it is other
people’s opinions of what might or might not happen. The more
knowledgeable and/or credible these people appear to be, the
more likely you are to take their opinions seriously.
Can you imagine what your investment decisions would be like
if you were totally shut off from outside influences and you
made your decisions just on the factual information about a
company or property rather than other peoples’ opinions? Can
you imagine if you would lock yourself away in a room with
your calculator and computer, all of the necessary statistics, the
profit and loss statements and balance sheets and any other data
you require? Can you imagine how much easier your
investment decisions would be if you systematically analysed
the facts without all the noise of opinions and interpretations
around you?
Provided you have an effective system of analysis, it would be a
whole lot more accurate and reliable than listening to other
peoples’ opinions.
An example of someone who invests according to facts, is the
legendary investor Warren Buffet. He takes plenty of time to
analyse companies before he invests in them. Before he takes a
position in Coca-Cola, Gannett or Gillette for example, Buffet
may spend months getting answers to every question he can
think of. But once he invests, he does so with full confidence.
And he sticks with the investment.
When I was studying at university I was a keen scuba diver.
Many of my university holidays were spent living and diving on
120
uninhabited islands on Australia’s Great Barrier Reef.

Generally our diving expeditions were for periods of two weeks
at a time. Now, when I say these islands were uninhabited, I
literally mean there were absolutely no facilities on these
islands and everything we needed for our survival and comfort
had to brought with us, including water, shelter and food. There
were no radios, newspapers and televisions. Our nights were
spent around the campfire, usually with a bottle of port because
we had no way of keeping the beer cold on a tropical island.
When we came back home I was often asked things like: “did
you hear about such and such an incident? Or, “did you hear
that XYZ Company had collapsed?” Of course I hadn’t, and it
really didn’t make any difference at all to my world. It actually
made me realise that some of the short-term events that occur,
that we often think are so terribly important have very little
influence in the long-term and in the greater scheme of things.
There are often short-term hiccups, but they generally don’t
dramatically influence the long-term trend. It’s a bit like the
captain of the ship who keeps his sight on the horizon rather
than looking at the waves in front of his vessel.
When you are investing, you need to focus your sights on the
long-term goal. You need to observe the trend and not be blown
off course by a few short-term aberrations in the market. You
need to draw your own conclusions without relying on the good
opinions of others.
The reason we so often listen to the opinions of others, is that it
gives us comfort to know that we are not alone in our beliefs.
None of us like to go out on a limb because that represents
danger to us. We like to think that someone else thinks the way
we do. After a while however, we stop thinking for ourselves
and turn instead for guidance to the opinion leaders. If those
people are optimistic, we are more confident and optimistic
ourselves. If they express pessimistic sentiments about the
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markets, those emotions quickly cause us to doubt the wisdom

of investing and we hold off. Interestingly, the most successful
investors are the contrarians. They do the opposite of what the
crowd does. They invest when everyone else thinks the sky is
falling in and they take profits when the markets are booming.
They do their due diligence or market research based on the
facts and they ignore the opinions of others. They work
according to a tried and proven investment formula and they
follow their own strategies regardless of what others think.
The best strategy of dealing with your emotions of fear and
greed is awareness. When you are aware of what is going on in
the media, you can choose to ignore it if it is contrary to what
you know you should be doing. When you are aware that you
are being influenced by the opinions of others, you can take
time out to analyse the facts and proceed according to your
proven strategy.
Doing your due diligence thoroughly and focusing on the facts,
will help you build confidence in the validity of your decisions.
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Keeping it all in perspective and in balance

Up until now, I’ve told you to turn over every stone and look
behind every bush to discover the truth. I’ve implied that you
need to be sceptical and critical in your due diligence process.
I’ve given you examples of scams and frauds and throughout
this book, I’ve warned you to understand the rules of the game.
I’m about to tell you something that may at first appear to be
the exact opposite of what I’ve said so far.
That is, in order to succeed as an investor, you
also need to maintain an open mind to new
possibilities and opportunities. Just because
you haven’t heard of it before, doesn’t mean it
doesn’t exist.
Now that may seem like a contradiction to
you, but it isn’t really. You see, it’s all a fine
balancing act between healthy scepticism and
keeping an open mind.
Be careful not to become a cynic, since it will stop you from
looking at deals that appear a bit unusual at first. Cynics,
doubters and critics are absorbed with their negative, self-
defeating beliefs. They are always afraid of being taken for a
ride and therefore they do nothing in case they lose their
money. They are the armchair experts who never really jump
into the arena and play the game.
Keep an open mind in all situations and analyse the proposition
thoroughly before you dismiss it. It’s a case of having a kit bag
of analysis tools with which to test a proposal to see if it stacks
up (which you’ve got in this book) and then, if it appears to be
OK, having the courage to go ahead and invest so that you can
build your wealth. It’s that fine balancing act that sets the
successful investor apart from the novice, the critic and the
sceptic.
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The other thing that sets the professional investor apart from the
novice is the desire to continually learn and improve. By
reading, listening, learning and thinking, you will transform
knowledge into wisdom and carry out your due diligence as a
matter of course. It will become second nature to you and one
day you will say to yourself, “I can’t imagine that I once found
this so hard to do .”
Remember, as I say on my Twelve Secrets To Wealth audio
tape album, it takes courage and perseverance to be rich. It
takes courage to meet challenges, overcome obstacles and grasp
opportunities as we encounter them. As well as maintaining an
inquiring and critical mind, we also need great optimism to
imagine and achieve a future that is rich with possibilities.
May you constantly learn and grow to become the best that you
can be.
I wish you the best of wealth
Your Wealth Coach
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About the Author
About the Author
Hans Jakobi is an educator, author and public speaker. He is a

chartered accountant by training with a degree in economics
and accounting. He is a successful investor and business
entrepreneur. Apart from being the author of the best selling
book, How To Be Rich & Happy On Your Income, he has
also developed the Quindalup Permaculture Farm and
Education Centre with the help and support of his family. The
purpose of this centre is to teach a new mind set for our
changing times and demonstrate a better and more responsible
way of living while still enjoying the benefits of our
technological advances. Hans believes the vision for the new
millennium supports the concept of creating wealth and success
through knowledge and wisdom which will be valued above
and beyond material possessions.
To find out more about Hans’s wealth creation books and tapes
please refer to www.supersecrets.com
Further information on the Quindalup Permaculture Farm and
Education Centre is available at www.quindalup.com
Hans has dedicated his life to making a profound and positive
difference in people’s lives. His personal mission is ‘to live and
teach the principles of true wealth’.
For more information on Hans’s seminars, book and tapes, or to
schedule him for a presentation to your company or
organisation, please contact:
Wealth Dynamics International Pty Ltd
PO Box 167, Portland NSW 2847 Australia
Telephone: (02) 63 555 800
Fax: (02) 63 555 855
E-mail: hans@supersecrets.com
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A guide to common terms used in the financial

world
All Ordinaries Index. Also referred to as the ‘All Ords’, the All Ordinaries
Share Price Index is the predominate measure of the overall performance
of the Australian sharemarket at any point in time. It is made up of share
prices of over 300 of the largest Australian companies on ASX, weighted
according to each company’s size in terms of market capitalisation (total
value of a company’s shares). Stock exchanges in other countries have
similar indices as Dow Jones Index (New York), FTSE (London) and
Nikkei Dow (Tokyo).
Annuities. An investment that you buy that returns you a guaranteed income
for a set number of years or for life. There are tax advantages to
purchasing annuities.
Arbitrage. Buying securities in one country, currency or market and selling
in another to take advantage of price differentials.
Articles of Association. Documents required by Corporations Law detailing
the rules for the internal management of the company.
Assessable Income. Your gross income before allowable deductions.
Assets. What you own. I like Robert Kiyosaki’s definition of an asset as
something that feeds me.
Asset Backing. A useful check for investors. Net assets of a company (in $)
are divided by the number of issued shares.
Balance Sheet. A company’s bill of health showing the nature and amount
of assets and liabilities.
Bank Bills. Short term investments for terms up to six months. Usually
purchased with amounts of $100,000 plus. Considered to be very secure
as they are guaranteed by a bank. Usually purchased at a discount.
Bankruptcy. A situation where liabilities exceed realisable assets.
Bankruptcy usually results from legal proceedings to recover a debt.
Bear Market. A term used to describe a falling share market.
Bearer Share Certificate. A negotiable share certificate made out in the
name of the bearer and not in the name of a particular person or
organisation.
Bearer Stocks/Shares. Securities for which no register of ownership is kept
by the company. Dividends are not received automatically from the
company and must be claimed.
Beneficial Owner. The actual or economic owner of an offshore company
as distinct to the registered or nominal owner.
126
A guide to common terms used in the financial world
Blue Chip Shares. Quality shares in companies known for their ability to
make a profit in good times or bad. The yield from blue chip shares is
often proportionately low.
Board of Directors. An elected body of persons formed to control the
planning and implementation of corporate objectives.
Bond. Document recording a loan made to a government or semi-
government body for a fixed period of time at a fixed rate of interest.
Bonus Issue. The issue of bonus or free shares to existing shareholders,
usually in a predetermined ratio to the number of shares already held.
Broker. A financial intermediary who acts as an agent in the buying and
selling of securities or commodities for which he receives a buying or
selling commission. Stockbrokers, wool brokers, insurance brokers all
act in a similar capacity.
Brokerage. Fee paid to a broker for their services in buying and selling.
Budget. Estimates of revenues and expenditures (incomings and outgoings).
Bull Market. A term used to describe a rising sharemarket.
Capital Gains Tax. Tax that is paid on the growth component of an asset.
The profit is calculated after allowing for inflation (indexed) and relevant
expenses.
Capital Growth. The increase in the value of your investment.
Commission. The fee that a broker charges clients for dealing on their
behalf.
Compound Interest. Interest paid on capital plus accumulated interest, ie.
interest on interest.
Consideration. The money value of a transaction (eg. number of shares
multiplied by the price), before adding commission, stamp duty, etc.
Consumer Price Index Commonly known as CPI, this is the measure of
inflation. A basket of goods and services is used as a measure.
Contract Note. Document sent to a buyer or seller confirming the
transaction and showing details as to price, brokerage and any other
charges involved.
Convertible Note. A loan made to a company at a fixed rate of interest with
the right to be either redeemed for cash or converted into ordinary shares
at a predetermined date or within a certain period.
Cover. The total net profit a company has available for distribution as a
dividend, divided by the amount paid, gives the number of times that the
dividend is covered.
Credit Risk. The risk that a counter party to a transaction will fail to
perform according to the terms and conditions of the contract, thus
causing the holder of the claim to suffer a loss.
127
Currency Swap. A transaction involving the exchange of cash flows and

principal in one currency for those in another with an agreement to
reverse the principal swap at a future date.
Debenture. A certificate of indebtedness, an instrument in which a
corporation or a company acknowledges indebtedness for a specified
sum on which interest is due until the principal is paid back.
Depreciation. The decrease in the value of an asset.
Discount. When purchasing investments at a discount you actually take your
interest in advance. For example if you purchased an investment for
$100,000 and the interest was going to be $5,000 you would pay $95,000
and on maturity you would receive back $100,000. If you invest the
interest that you receive in advance, this increases your yield.
Discretionary Trust. The form of trust usually established offshore. The
discretions are vested in the trustee who can usually decide which of the
beneficiaries is to benefit, when and to what extent. Discretions are
exercised under advice of, or suggestions from the settlor or protector.
Dividend. Distribution of part of a company’s net profit to share holders as a
reward for investing in the company. Usually expressed as a percentage
of par value or as cents per share.
Dividend Yield. The dividend per share shown as a percentage of the last
sale price for the shares. In analysing shares as investments, dividend
yield is calculated to show annual dividend income from shares as a
return on investment based on the current market price of the shares.
Domicile. The place of a person’s permanent home and the means by which
the person is connected with a certain system of law related to issues
such as marriage, divorce, succession of estate and taxation.
Draft. A signed, written order by which one party (the drawer) instructs
another party (the drawee) to pay a specified sum to a third party (the
payee), at sight or at a specific date.
Earnings Per Share. Company’s net profit divided by the total number of
shares in the company. Expressed as cents per share.
Equity. The amount of the asset that you own.
Equity Options. A class of options giving the purchaser the right but not the
obligation to buy or sell an individual share, a basket of shares or an
equity index at a predetermined price, on or before a fixed date.
Equity Swaps. A transaction that allows an investor to exchange the rate of
return (or component thereof) on an equity investment (an individual
share, a basket or index) for the rate of return on another non-equity or
equity investment.
128
Exercise Price. The fixed price at which an option holder has the right to
buy, in the case of a call option, or to sell, in the case of a put option, the
financial instrument covered by the option.
FED (Federal Reserve). The US Central Banking system, established in
1913 and responsible for managing the US dollar, both within and
outside the US.
Fiduciary Account. An amount typically deposited with a Swiss Bank
which will redeposit the sum with a third party bank outside Switzerland
in its own name (to eliminate Swiss withholding tax on interest).
Final Dividend. The dividend paid by a company at the end of its financial
year.
Fixed Interest. A security where the return when held to maturity is fixed.
Fixed interest securities normally receive periodic interest payments and
repayment of principle at maturity. The term also embraces discount
securities which may not attract interest payments.
Floor. A contract whereby the seller agrees to pay to the purchaser in return
for the payment of a premium, the difference between current interest
rates and an agreed (strike) rate times the notional amount, should
interest rates fall below the agreed rate. A floor contract is effectively a
string of interest rate guarantees.
Float. The initial raising of capital by public subscription to securities.
Franked Dividend. A dividend paid by a company out of profits on which
the company has already paid tax. The investor is entitled to an
imputation credit, or reduction in the amount of income tax that must be
paid, up to the amount of tax already paid by the company.
Freehold. Usually refers to properties that have no debt or obligations
attached to them.
Fully Paid. Applied to new issues when the total amount payable in relation
to the new shares has been paid to the company.
Futures. Securities or goods bought or sold for future delivery. There may
be no intention to take them up but to rely upon price changes in order to
sell at a profit before delivery.
Gearing. When you borrow to invest.
Gross Income. The amount of income before tax or deductions.
Growth Stock. Stock with good prospects for future expansion, so
promising capital gain. Immediate income prospects may be modest.
Hard Currency. The term “hard currency” is a carry-over from the days
when sound currency was freely convertible into “hard” metal, ie. Gold.
It is used today to describe a currency which sufficiently sound so that it
is generally accepted internationally at face value.
129
Hedge Funds. Speculative funds managing investments for private

investors(in the US, such funds are unregulated if the number of
investors does not exceed one hundred).
Imputation. The system embodied within a series of provisions of the
Income Tax Assessment Act whereby the tax paid by a dividend paying
company is imputed to the shareholders receiving distributions by way of
dividend.
Income Insurance. Insures your income in the event of you being unable to
work due to sickness or accident. It does not cover you if you are
unemployed.
Inflation. A measure of the rising cost of goods and services.
Insider Trading. A criminal offence involving the purchase or sale of
shares by someone who possesses inside information about a company’s
performance and prospects which in not yet available to the market as a
whole, and which, if available might affect the share price.
Interest Rate Swap. A transaction in which two counter parties exchange
interest payment streams of differing character based on an underlying
notional principal amount. The three main types are coupon swaps (fixed
rate to floating rate in the same currency), basis swaps (one floating rate
index to another floating rate index in the same currency) and cross-
currency interest rate swaps (fixed rate in one currency to floating rate in
another).
Interim Dividend. A dividend paid during the year and not at the end. Most
profitable companies pay dividends every half year.
IBC (International Business Corporation). A term used to define a variety
of offshore corporate structures. Common to all IBC’s are the dedication
to business use outside the incorporating jurisdiction, rapid formation,
secrecy, broad powers, low cost, low to zero taxation and minimal filing
and reporting requirements. An increasing number of offshore
jurisdictions are permitting the use of nominee shareholders, directors
and officers.
Investment Trust. A company whose sole business consists of buying,
selling and holding shares.
Joint Tenants. Usually refers to investments that are owned by one or more
people. Any investment owned by joint tenants automatically reverts to
the surviving tenant/s upon death.
Laundering. Laundering is the process of cleaning illicitly gained money so
that it appears to others to have come from, or to be going to, a legitimate
source.
Letter of Intent. A document by which the investor states that he intends to
enter into a High-Yield transaction.
130
Leasehold. A land interest which is acquired under a lease. For example, if

you are the owner of a leasehold hotel, you have the right to occupy and
operate the hotel for a period of time, but you don’t own the premises.
Leverage. An investment is leveraged when you use a small amount of
money and borrow the remainder to hold a much larger investment.
Liabilities. What you owe.
Liquidity. Assets that can easily be converted to cash. A liquid market is a
market with enough activity and participants to make buying and selling
easy.
Listed Company. A company which is listed on a public stock exchange
and whose shares are traded through the stock exchange.
Market Value. The current price that the market will pay for an asset.
Mortgage. A charge over land given by the owner (borrower/mortgage) to a
lender (mortgagee) to secure repayment of a loan or to ensure satisfaction
of a debt.
Mutual Fund. A mutual fund is an investment vehicle which is used to pool
investors funds and invest them on their behalf. Most common in the
USA, in Australia they are often called Managed Funds, Investment
Funds or Trusts.
Negative Gearing. When the tax deductible cost of servicing a loan exceeds
the income earned from an asset, it is considered negatively geared.
Net Asset Value. The value of a company after all debts have been paid,
expressed as an amount per share.
Net Income. The amount of income you receive after tax has been deducted.
Net Worth. The amount that your assets are worth after subtracting all
liabilities.
Nominee Company. A company formed for the express purpose of holding
securities and other assets in its name or to provide nominee directors
and/or officers on behalf of clients of its parent bank or trust company.
Nominee Director. A director whose function is passive in nature, The
director receives a fee for lending his or her name to the organisation.
Nominee directors are subject to director responsibilities.
Nominee Name. The name in which a security is registered and held in trust
on behalf of the beneficial owner.
Offshore Banking. By popular usage, the establishment and operation of
US or foreign banks in any offshore tax haven such as the Bahamas and
the Cayman Islands.
Offshore Financial Centres. An offshore financial center which is used by
international banks as a location for “shell branches” to book certain
deposits and loans. Such offshore bookings are often utilised to avoid
131
regulatory restrictions and taxes. Offshore financial centres are also used
to locate investment schemes, managed funds and insurance operations.
Offshore Trust. The quality that differentiates an offshore trust from an
onshore trust is portability. The offshore trust can be transferred to
additional jurisdictions to maintain confidentiality and to advantage
desirable facets of the new jurisdictions laws.
Option. A contract giving the taker (buyer) the right, but not the obligation,
to buy or sell certain shares at a specified price on or before a specified
date. To acquire this right the taker pays a premium to the writer (seller)
of the contract. Options are frequently transferable and are themselves
bought and sold.
Ordinary Shares. The most common form of shares. Holders receive
dividends which vary in accordance with the profitability of the company
and the recommendations of the directors. The holders of the ordinary
shares are the owners of the company.
Par. The nominal - or face value of a security. A bond selling at par is worth
the same dollar amount as when issued or when redeemed at maturity.
Portfolio. An investor’s holding of securities of various types. The wise
investment policy is to build up a balanced portfolio according to
personal requirements.
Preference Shares. These rank above ordinary shares for claims on assets,
earnings and dividends but rank below creditors and debenture holders.
These shares usually have a fixed dividend rate.
Principal. (1) The party that controls the funds and seeks a secure high-yield
investment. (2) The capital sum as distinguished from interest or profits.
Private Placement. An issue that is offered to a single or a few investors as
opposed to being publicly offered.
Privatisation. Conversion of a state run company into a public company,
often accompanied by a sale of its shares to the general public.
Prospectus. A document issued by a company setting out the terms of its
public equity issue or debt raising. Subject to the rules of the Stock
Exchange and the Corporations Law.
Retail Buyer. The buyer of a security when it arrives on the secondary
(retail) market.
Rights Issue. An invitation to existing shareholders to acquire additional
shares in the company in proportion to the number of shares they already
own – usually at a preferential price.
Securities. General name for shares and bonds of all types. Shares produce a
variable dividend and bonds a fixed interest.
Settlement. Exchanging money or securities for securities.
132
Shares. Shares are the financial instruments issued by a company to show

the entitlement of an owner to a portion of the capital base of that
company. They signify that as a shareholder, you are a part owner of that
company. When that company becomes a public company, its shares can
be traded publicly on the sharemarket.
Stag. A person who applies for a new issue of securities with the intention of
selling immediately for a profit, as opposed to one who invests for long
term holding.
Stocks. A term commonly used in the USA to describe what are known in
Australia as shares. Refer to Shares above.
Taxable Income. The income that you pay tax on after all deductions have
been allowed for.
Tax Rebate. An amount which is subtracted from tax payable.
Tenants-In-Common. Where two or more people own an investment. In the
event of death, the share of their investment passes to the beneficiaries
nominated in the owner’s will.
Title. The document by which ownership is recorded.
Trusts. Investments which involve pooling investors’ money with experts
managing the investment for the individuals. Trusts usually concentrate
on one area of investment. The three most common are Equity, Property
and Cash Management.
Underwriter. One who arranges a new issue of securities and agrees to
purchase any unsold securities thereby guaranteeing full subscription.
Unsecured Notes. A loan made to a company for a fixed period of time at a
fixed rate of interest. It is not secured by a charge over the company’s
assets.
Warrant. Long-dated Options contracts issued by a third party and traded
on the Stock exchange in the same manner as ordinary shares are traded.
White Knight. A company which rescues another which is in financial
difficulty, especially one which saves a company from an unwelcome
takeover.
Yield. The effective rate of return obtained from an investment, expressed as
a percentage of the current market price.
133
Index
Intimidation ...............................93
A
Introduction ........................ 13, 48
Accountant.................................50 Investment Club ..... 47, 68, 69, 70
Assets...................... 46, 51, 80, 95
L
B
Lawyer ................................ 54, 58
Bond...........................................83 Liabilities ...................................46
Bond, Alan...........................95, 96 Liquidity ........................... 81, 103
Broker ........................... 60, 62, 71
M
Budget......................................100
Market Value ...................... 74, 80
C
Mortgage....................................71
Clyne, Dr Peter..........................94 Murdoch, Rupert .......................88
Commission.........................22, 23 Mutual Funds.............................64
Conveyancing......................54, 55
N
D
Negative Gearing ......................72
Debentures.................................29 Nominee.....................................92
Due Diligence..15, 25, 78, 79, 87,
O
93, 97, 109
Offshore Investment..................87
E
P
Email..................................62, 114
Packer, Kerry.............................90
F
Portfolio ............49, 62, 65, 69, 70
Financial Advisers ....................23 Practical .....................................55
Float .....................................60, 62 Principal .............................. 81, 85
Fraud ......................... 30, 114, 116 Promoter .. 15, 18, 30, 35, 89, 114
Property 26, 28, 51, 54, 72, 75, 78
G
Property Manager............... 64, 65
Gearing ................................52, 72
Q
I
Questions .. 19, 25, 33, 43, 48, 62,
Independent Verification ..........17 66, 71, 100
Inflation .....................................82
R
Interest .......................... 75, 80, 82
Internet..............15, 18, 30, 62, 90 Rapport.......................... 34, 36, 42
Interview................. 37, 46, 47, 53 Real Estate ........26, 64, 72, 78, 81
134
Index
Research ....15, 17, 26, 60, 68, 74, Stockbroker................................60

78, 96, 109
T
Returns.................... 18, 20, 25, 87
Risk25, 79, 80, 81, 82, 83, 84, 85, Tax Avoidance ..........................89
100, 102 Tax Evasion ...............................89
Trusts..........................................64
S
U
Salespeople................................22
Scams........................ 30, 114, 116 Unclaimed Money .......... 104, 108
Shares.........................................64 Underwriter................................60
Start-up Companies...................97
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Scam Alert Warning

As you do your due diligence work, it is quite
likely that you will come across some scams,
frauds, swindles, rorts and cons. We would love
to hear about them so that we can investigate
these, warn other people about them through our
newsletter and website and then report them to the relevant
authorities for further investigation. Lance Spicer, the author of
the book, Scams & Frauds – Financial Crimes Exposed! and
I will be working together to help protect you from the sharks.
If you’ve lost your money, or think you may have, you can at
least do something positive and help warn someone else.
Here’s the information we need to fight these crooks:
1. Name of the Scheme
2. Description of the scheme and how it operates. Please be as
specific and detailed as you can because this will help in our
investigations. Typed information would be most helpful, if
possible.
3. Name of the head promoter (if known) together with their
address, telephone number, fax number, email address and
website address, if they have one.
4. Name of the person who introduced you to it, their address
and telephone number, mobile phone number, their fax
number, their email address and website, if they have one.
We will keep your details confidential and will not disclose
your identity to anyone without your express permission.
Please send us any documentation you have available about the
scheme to Scam Alert c/- Wealth Dynamics International Pty
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NSW 2847 Australia
136
Index
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Hans Jakobi - Due Diligence Made Simple

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INVESTMENT ANALYSIS

DUE DILIGENCE MADE SIMPLE

market research before • How to find a

Visit us on the web at Australia’s Wealth Coach®

www.supersecrets.com HANS JAKOBI

“Hans Jakobi has the ability to explain complex

“With today’s growing number of investment

“Every person considering an investment must

How you can do your market research

DUE DILIGENCE MADE SIMPLE

Copyright © Hans Jakobi 2001

National Library of Australia

The material within this book is of the nature of general

Always seek professional advice from a licensed investment

Bulk Purchase Discounts

This book is available at special quantity discounts for bulk

To discuss your needs, please contact the Distribution

Wealth Dynamics International Pty Ltd,

Share Your Experiences With Us

In law we are told that “ignorance is no excuse!”

This book will give you a kit bag of valuable tools

Do your due diligence and save yourself

To the many people who have listened to me speak at numerous

To my good friend Lance Spicer for continually challenging me

To my Personal Assistant, Naomi Fountain for your typing and

Funds, trusts and mutual funds.............................................................64

Everyone wants to know the secret. Strangers

As one who deals with thousands of clients from around the

Hans Jakobi is a master at getting messages about serious topics

In this fast changing world of increasing opportunities you need

Is he/she just ‘in it’ for the money?

If it’s a recent development, it’s not necessarily bad, – it just

That’s what due diligence is all about – matching your personal

“Experience is the amount of mistakes we have made”, a

I often speak at conferences and exhibitions, both locally and

What is Due Diligence?

Due diligence is the process of investigation performed by

By verification, I mean that you need to confirm the reality, the

If the investment opportunity is located within a reasonable

relative to their competitors and their market presence. You

What type of investment is it?

The importance of independent verification

enough space next to the question to write the answer. You

8. Are there other external parties who can verify the

These are some of the initial questions you should be asking

Who’s keeping an eye on your money?

I have come across many people who promote schemes and

What about financial advisers?

selected after considerable and careful research by your

Know yourself as an investor

You should consider these questions as part of your due

The ‘Opportunity Of A Lifetime’

There are a number of important lessons to be learnt from this

The fourth lesson is to realise that sometimes you’ll

His story attracted the attention of many people and I received

In the example I gave earlier, I did some research which

bank, he would not let people read the

I certainly smell a rat in this whole scenario. I suggest that you

The power of questions

Questions determine everything you do in life, from your