THE ART OF PERSONAL LEVERAGE

(BUILDING WEALTH WITH OTHER PEOPLE’S MONEY)

OLU SHOWUNMI-BANCROFTS

TABLE OF CONTENT

Preface

Foreward

CHAPTER 1 : THE POWER OF PERSONAL LEVERAGE

The Leverage Game

The Cashflow Projection

Leveraged Profit Power

Who is truly rich?

Leverage makes the difference

Those Added Risks

Doubling your Money

Perfect Leverage

Liquidity Paradox

Leverage Logic

Foreign Trading

1

THE POWER OF PERSONAL LEVERAGE

"Neccesity is the mother of Invention even if not : it is the father of Chance" - Olu Showunmi-Bancrofts

In today's globalized world, the opportunities to make money is very enormous; and never in the history of mankind has their been such a huge opportunities to build wealth with other people's money -- it will be disgracing to go through life towing the line of our forebears -- in poverty, without building wealth; utilizing the numerous profit-laden media available to all -- no matter your creed, race, sex or even your political ideology -- the opportunities exist for all to benefits. These profit-laden media have been used by notable men of finance and capital over ages to amass wealth.

A wise-man once said, you don't need to send your child to school, just start teaching him about finance & politics, because finance is the "GUN", while Politics is "KNOWING WHEN TO PULL THE TRIGGER". In our world today, with financial power, you can crash a nation's economy -- you can change unfriendly regime and no country is immuned from this kind of manipulation. I always says "financial power is even more powerful than political power if you know how to use it".

Example of the possibility can be gleaned from George Soros and Bank of England saga -- In which Soros massively short against the British Pounds Sterling and in two days , Great Britain lost 20% of its reserves, this was huge for Britain and since then - George soros have been referred to as "The man who broke the Bank of England".

This is the kind of power, men of finance wields in our world today and i'm here to offer you the opportunity to become a financial powerhouse too. This book was written specifically to teach you how to invest your resources wisely and also teach you how to "Pull the Trigger" in case you are thinking of becoming the next Soros, Who knows?

In 1952, a great financial mind by the name Billy Rose, staked his whole asset & all borrowable money to acquire New York (Central) Corporation Stocks. At that time Billy Rose needed to borrow money as much as you will need to buy a Gulfstream V Jet today, yet he unhesitatingly hocked his asset to buy on credit -- 500,000 shares of New york Central, which was also repeated afterwards with margined purchase of 400,000 units of shares of another utility Company, Why?

It must be noted that Billy Rose like so many modern-day money managers understood the awesome power of personal leverage, to build extra profits for themselves -- not only in stocks, but in all other instruments available to them. Yes, Billy Rose really knows how to build his future with (Other People's Money) and to build wealth for himself and others. By now, you must be eagerly looking forward to learn more about The Art of Personal Leverage!

And you may be wondering, how you too can use this power intelligently and sensibly to make extra profits for yourself ?

THE LEVERAGE GAME

As most Business people already knows, leverage is the application of credit -- which is to gain more monetary power from little investment outlay -- in some circles, this is called "Trading on Equity".

A leverage-minded business manager must seek sources of short, medium & long term funding to create what is callled "financial mix" , projecting the maturities of each credit advance to fit-in comfortable to the company cashhflow that will meet each outstanding commitment as the need arises.

You should then ask why will a business with good cash position borrows? Simply put, because they have abilities to make more money on the funds they borrowed. How?

Well, examples of this principle lies on the increasing number of companies around the world running to different capital markets to raise money through equity and debt instruments such as Bonds and Preference stocks - First Bank of Nigeria comes to mind in this regard, the bank raised $250 million @ 8% in 2010 through Bonds, and 2 years after -- the interest rates zoomed to 12.24%, you can call that "THE BIG ELEPHANT WISDOM".Even if first Bank did nothing with the borrowed funds, but just investing it back into the Money Market and deals in treasury bills & notes - which are quoted in the range of 12.70% and above. The Bank will have gross about $ 30.85 million, while paying $20 million as interests payment on the issued bond and netting about $10.35 million as Net profit . This is just called "Playing the Market" and Bank does it often.

How often in academe is a corporation likened to humans -- with the "BLOOD" of Corporation of course, being it's cash-flow and oddly enough, the tax structure all-over the world favors corporation over individuals. If a corporation can "pulled this off", it's time you too start thinking like one, you are advised to inculcate an aura of professionalism in your personal risks transactions by emulating certain principles of Corporate Financial operations & management. But in the interim, you are advised to incorporate your holdings under investment trusts or for-profit limited liability company.

To benefits from owing a corporation, try further look-up on the subject, on your personal volition. Investors are strongly advised to appraise their present & future earnings -- together they should make provisions for contigencies reserves, in the same manner that corporate's managers assesses a company's future. Moreover the investor should employ sound financial management principles in his investment operations.

This must be a mean forward-looking inquiry based on sound view of the past and present. He should also do a sound money management & risks analysis, to determines his risks apetite and to know what he wants out of every investments.

In doing so, he can possibly approximate his cashflow projections.

The Cash-flow Projection

Cash-flow Projection looks at the future with retrospect of the present. For example, take an Executive in one of the oil majors here in Nigeria, netting after taxes & expenses -- N2million a year and his future for the next ten years seems secure. Thus it's reasonable to project a cashflow for the next ten years of such sum assuming no increment in his salaries nor decrease in his expenditures. He will wound up with N20 Million in excess cash, for the ten-year period.

Therefore, it makes much sense for this Executive to borrow to the brim to the tune of N20 million for that period -- if he can effect a proper long-term arrangements. Assuredly, borrowing N2 million or N5million isn't too risky with this kind of cash flow.

In any event, Investor should draw up a personal balance sheets of his affairs for his edification and self-appraisal, indicating what he owns on the left-hand side and what he owes on the right-hand side. Such a balance sheet for 35 years old mid-level executive named Mr. Ben Cash, who is on the way up the corporate ladder at one of the Oil multinational company.

BALANCE SHEERS : MR. BEN CASH - YEAR 2010

Assets N

Cash at Bank 4,000,000

Investments in stocks 4,000,000

Real Estate (Residence) 60,000,000

Furnitures & Fittings 5,000,000

Toyota Camry 2010 5,000,000

Arts & Wine Collections/Jewelries 2,000,000

Total Assets 80,000,000

LIABILITIES

Mortgage 35,000,000

Car Loan 3,000,000

Current Bill Payable 8,000,000

Total Liabilities 46,000,000

Net worth ( Assets less liabilities 34,000,000

How does Mr. Ben Cash stands in year 2020? Assuming he nets N2 million a year after taxes & expenses, and he is conservative, he keeps all in cash, his projected balance sheet could look something like :

BALANCE SHEETS : MR. BEN CASH - YEAR 2020

ASSETS N

Cash at Bank 24,000,000

Investments 8,000,000

Real Estate 120,000,000

Furniture's & Fittings 5,000,000

Benz G-500 10,000,000

Arts &Wines & Jewelries 8,000,000

Total Assets 175,000,000

LIABILITIES

Mortgage 15,000,000

Car loan 6,000,000

Current Bills payable 12,000,000

Total Liabilities 33,000,000

Net-worth 142,000,000

Notes: Assuming investments doubled in value, while collections quadrupled.

THE LEVERAGED PROFIT POWER

In year 2020, probably Mr. Ben Cash can sit back satisfied that now he has to do some estate planning, since his net-worth exceeds N140 million. But assuming Mr. Ben Cash had read this book and have become more knowledgeable ( a nasty word) in the art of personal leverage and had applied these lessons in leveraging his way out by generating extra cash to invest more with his assets, he could have find himself in the following situation.

LEVERAGED BALANCE SHEETS : MR. BEN CASH - YEAR 2010

ASSETS N

Cash at Bank 2,000,000

Investments 10,000,000

Real Estate 110,000,000

Furnitures & Fittings 5,000,000

Toyota Camry 2010 5,000,000

Arts &Wines & Jewelries 2,000,000

Total Assets 134,000,000

LIABILITIES

Mortgage vs. Home + interests 90,000,000

Car loan 2,000,000

Current Bills payable 8,000,000

Total Liabilities 100,000,000

Net-worth 34,000,000

*** Notes: Mr. Ben Cash did reduced his cash at bank substantially to a sensible value of N2million to meet contingencies & emergencies. he took the N2 million Naira excess cash to buy more stock, putting his invetment at N6million in stocks.

A leverage-minded Mr. Ben Cash would not sit on a residence worth N60 million with N35 miilion in mortgage. So, he generates another N15 million by re-financing his home - Armed with fresh N15 million, he bought another property worth N50 million with N10 million down payment and N1 million expended on fees and other title transfer expenses.

So, he is left with N 4 million, which he used to acquire more stocks. so his real estate holidngs stands at N110,000,000 with N90 million mortgage on the properties and his stock holding put at N10 million.

Let's see how Mr. Ben Cash will stand by year 2020, assuming market acted percentage wise as un-levered position.

LEVERAGED BALANCE SHEETS : MR. BEN CASH - YEAR 2020

ASSETS N

Cash at Bank 22,000,000

Investments 20,000,000

Real Estate 220,000,000

Furnitures & Fittings 5,000,000

Range Rover Sport 20,000,000

Arts &Wines & Jewelries 8,000,000

Total Assets 295,000,000

LIABILITIES

Mortgage Outstanding 30,000,000

Car loan 14,000,000

Current Bills payable 12,000,000

Total Liabilities 56,000,000

Net-worth 239,000,000

***Notes: As in un-leveraged cash position of Mr. Ben cash's balance sheet, investment doubled while Arts & Jewelries collection quadrupled.

A leverage-minded Mr. Ben cash would have since liquidated the mortgages on his properties using techniques described in "Nothing Down " by Robert Allen.

He can also take more investments by further leveraging his assets to generates more cash for the purpose - this can be done in five-year period and that by far the most interesting thing about projecting the future from where you are now, and this ability will differentiates you from the park. Thus the most sensible thing to know is "WHO IS TRULY RICH".

Who is truly rich?

Of course, what i have presented in the last sub-chapter was actually a financial fable, that more often than not turns out to be true. The question, i want to toss to you today is "WHO IS TRULY RICH?". The answer is a man's wealth cannot be measured properly by "What he owns, but rather what he owes".

A financial impresario named Feinstein once said "A man is rich only when he owes half-a-million bucks", that should be half-a-billion dollars in today's standard. This traits can easily be gleaned from Billionaire's list, with 90% of them making the debtor's list -- Bringing to light what Dangote owes, you will be surprised how truly rich he is?

We all know money is often hard to come beyond you may think, you may never get a chance to play the Billionaire's game, because you don't possess all the boy''s scouts characteristics that will melt an average Banker's icy reserves.

In the interim, you are advised to learn more about leverage operations and apply to your investment decisions because without it, you will lack latent power that makes the difference between small profits and vast riches.

Leverage makes the difference

Taking a cue back to the fictional example of Mr. Ben Cash's Operations, it's fitting to point out that credit-minded Mr. Ben cash will sensibly deposited N2 million -- cash excess from his salary income annually as a safeguard to cushion his annual repayments schedules in mortgage.

Also, income generated from his investment's property will be added to repay his mortgages. of course he could have also leveraged himself to the billion Naira or more during the period under review by applying the purchasing power of his assets to buy more real estates or stocks.

Mr. Ben Cash -- realizing the risk of operating on credit - built up a cash reserves by year 2020, if he so desires, he can pay off all his debt in mortgage debt obligations and be satisfied with his N239 million. Apparently, a more satisfactory situation than had he operated on cash and after 10 years with only N142 million or he could plunge again and leverages his new position to reach the Billion Naira mark in the next ten year period(2030) -- provided all factors remained favorable.

Those Added Risks

The biggest trouble of course is that often both markets and investment prices & value do not remain favorable, giving the anchor point of all markets (Volatility). it should be clearly understood that risk takers, who buy on credit will make much more cash than all-cash buyers if prices are favorable, but stand to loose more if they are not. we must keep in mind both the added risk of leverage operations and their costs (Anywhere between 5-24% of the subject investment per year). Neophytes seeker of credit in his investment must clearly fix in his mind the superiority of leveraged investment over cash ones.

Naturally, there is little point in deriding the cautious cash approach of conservative investors who invests in fully-paid-worry less -stock and realty positions: but also it must be noted that people in our past and present that have amassed great fortunes have always done so through borrowed money.

Ask any investors, what he wants out of any of the major financial streets around the world - invariably the answer will be "I want to make money" . The trouble is that unsophisticated investors/speculators who feels the market "owes them a living", hardly ever set a sensible target for themselves and will always be the one to run when the market is down - never investing when the market is down, but buy high & sell low, what a paradox!

Doubling your Money

Let's take a real estate speculator; who happen to learn about a wonder stock at N10/share from his banker's neighbor. As a sensible investor he sets goals of doubling his risk money for himself -- and after examinations of his financial situation, he decides he can spare N1million for this "wonder stock" listed on the Nigeria Stock Exchange. As a student of Personal leverage, he now prepares a table of alternatives that range from payment-in-full to purchase 100,000units of shares in question or with varying degree of leverage. The table below reflects clearly at which point our dear investor will have double his money (without considering commissions & interests charges, which varies from Country-to-Country and Broker-to-Broker), reveals:

DOUBLE-THE-MONEY : N1 MILLION INVESTMENT

Payment method Amount of loan Investor's Equity Value Equity Stock price

All-Cash 0 1,000,000 2,000,000 20

70 % margin 300,000 700,000 1,700,000 17

60 % margin 400,000 600,000 1,600,000 16

50 % margin 500,000 500,000 1,500,000 15

25 % margin 750,000 250,000 1,250,000 12.5

20 % margin 800,000 200,000 1,200,000 12

10 % margin 900,000 100,000 1,100,000 11

Theoretically now, our hero is living between his Fianancial Mecca and Kabul by buying 100,000 units of shares of the tipped stock for all-cash and hoping the stock will run up to N20 per share or buying N1 million worth of shares on 10% margin (Borrowing 900,00) and hoping the stock will move one point in order to double his money before taxes, commisions and interests. but hold it there!

As a native of Nigeria and citizen of the world (because with finance,you are a citizen of the world -- moving your money anywhere you felt safe & consider favourable to your leveraged operations.

According to Nigeria SEC margin requirement, you are allowed to trade up to 70 % margin, whilein the U.S, U.K, or Canada, you can go as low as 50 %. Why even waste much time thinking local, when you can buy most stock at 5 -10 % or without any money down. ' This is amazing, but true -- it's a fact that informed speculators can accomplish without violating existing rules and regulations of our burgeoning bureaucracies.

This may never be possible in Nigeria, but that's why i suggest you have a global outlook in your investment operations. You must live like a global citizen, please take note that this book is not a manual for get-rich-quick scheme, but certainly intend to cover the opportunities, men have created to build fortunes. You will find out how you can carry stocks at 50% on a dollar to the level of nothing at all.

To learn the great secrets of finance, you must read on . The same is true for real estate which can often be handled with very little or no cash at all.

Liquidity Paradox

No security in the world are as liquid & readily disposable as stocks listedon various stock exchanges particularly New York Stcok Exchange (NYSE) due to volumes involved. In Financial language, the most liquid investment should attract liberal credit terms -- but this is not so for stocks and may never be so -- anywhere else, the most illiquid investment are favoured by extravagant credit.

Taking a cursory look at Real Estate, an investor can buy homes, income property, sky scrappers by depositing anywhere from 10 -- 30% of the value, thus getting up to 90% loan-to-value mortgage to finance the acquisition. it will be a great reward for an investor who bought a $100,000 worth of property in Queens, New York and carries it with $80,000 mortgage -- after two weeks of the closing and the title has passed, he decided to get rid of his investment in Real Estate -- so he can invest in equities and others., instead of holding on to Real Estate investment; He resented this archaic favouritism by regulators and decided to seek accomodation where logic prevails. And where is that?

Leverage Logic

Leverage can easily be achieved by proper planning like a art of war -- kind of planning. You need to be well informed about margin requirements in different countries, seeking Brokerage and Bank accounts in these countries to further your parochial interests.

You must learn about the concept of Velocity of Money, where investors moves their money at will to favourable investments or countries. A clue to the power of leverage was demostrated as far back as 1968, by a company called "University Computing" , an ambitious American Corporation vainly seeking to acquire the almighty "Western Union" then. Becauseof the U.S SEC Regulations which states that stocks at that time can only be purchased at 80% margin ( 80% must be deposited). In order for University Computing to complete the transaction, they headed to Switzerland and obtained margin loan from a accomodating Swiss Broker -- the Swiss Broker offered a 20% margin, this enabled the ambitious University Computing to side-stepped the Exchange-rule with Euro-Dollars to swing the purchase.

Now, if such operations is available that time and if it can be done by an ambitious company like University Computing, logically it is available to us now and in a more globalized world, you can easily benefits from a thorough research and compare credit terms at foreign banks & brokers. Below is the table of margin in various country and can change without prior warning.

INITIAL MARGIN ALLOWED IN SELECTED COUNTRIES AND INVESTMENTS (2012)

INVESTMENT CANADA NIGERIA U.S.A SWITZ U.K

Bonds (corporate) 20% 100% 25% 10% 30%

Debentures 30% 100% 50% 20% 60%

Preferred Stock 50% -- 60% 20% 60%

Common Stock 50% 70% 60% 20% 70%

Warrants ( over $5) 50% -- 60% 20% 50%

Spots/Forex/CFD 1% 100% 1% 0.5% 0.2%

As a true Nigerian, i feel no twinge of betrayal in suggesting that you become a global citizen, and as you can see Nigeria is not favourable to investments and it will be wise of you to cart your money off-shore -- where you have favourable risks & reegulations.

The advantage of dealing with foreign brokers is apparent to dealing with a Nigeria Banks and Brokers.

Foreign Trading

Foreign trade is the best a Nigerian can pray for, why? He can easily liquadate his holdings without paying a dime in tax in Nigeria, because he doesn't have to declare it on his tax fillings. And in our globalized world, we have a lot of tax havens and one of them is Switzerland, others includes Isles of man, Cayman Island, Guarnsey, Bermuda, Jersey. e.t.c.

To learn more, you must always glued your eyes to your Computer, as it holds the visa to your Financial freedom. As a global Citizen -- you have right to seek the best possible terms in order to try and earn the greatest profits from our risks ventures. It's advisable that youi carefully examined investment media with built-in leverage -- and whose peculiar make-up can accelerate profits, even if you are staying 10,000 miles away!

Nice one. You made justice to the concept of leaverage. Its quite rare in this part of the world, especially when it comes to financial transactions. Yet remains a very powerful and inevitable financial tool.
What is d best approach to trading foreign stocks without hitting beaurecratic bottlenecks?

Thanks for the compliments: subscribes to my lectures series with the same title as i goes inside leverage to build strong financial titans...
Are you the same person that wants more information on Building a house

olushowunm: Thanks for the compliments: subscribes to my lectures series with the same title as i goes inside leverage to build strong financial titans...
Are you the same person that wants more information on Building a house

YEA, seen ur reply and will give u a call. thanks

Thanks for your great write up.makes a lot of sence.how do this info become useful to a young man just starting out in life with salaru less than 70k monthly?how can he achieve financial freedom through your method?

@JOHNNY KUKU... YOU HAVE TO BE DISCIPLINED, FIRST CAN YOU SAVE UPTO 20K PER MONTH
IF NOT, YOU SHOULD BE ABLE TO SAVE 15K IN A MONTH, WHICH WILL BE 180K PER ANNUM...

THAT 180K SHOULD BE USED FOR INVESTMENT, BECAUSE OF YOUR SITUATION, CONSIDERS INVESTING IN TBILLS AND MAKE ABOUT 10-12% PER ANNUM..
ADDING THE 180K INTO THE INVESTMENT FUND ANNUALLY WILL GIVE YOU N2.46M IN 5 YEARS.
AT FIVE YEARS, YOU CAN NOW DIVERSIFY INTO VARIOUS ASSETS SUCH AS EQUITIES AND COMMODITIES.
DURING THE FIVE YEAR PERIOD, YOU WILL LEARNING ABOUT THESE ASSETS-CLASS AS ITS MORE COMPLICATED THAN BUYING GARRI IN THE MARKET... ALSO, YOU INCOME SHOULD HAVE INCREASED AND YOU SHOULD BE ADDING THE INCREMENTS TO THE FUNDS AS YOU DISCIPLINE YOURSELF TO CONSUME AT THE SAME PACE YOU ARE WHEN YOU STARTED...
THIS IS JUST SUMMARY OF THE PLAN.

olushowunm: @JOHNNY KUKU... YOU HAVE TO BE DISCIPLINED, FIRST CAN YOU SAVE UPTO 20K PER MONTH
IF NOT, YOU SHOULD BE ABLE TO SAVE 15K IN A MONTH, WHICH WILL BE 180K PER ANNUM...

THAT 180K SHOULD BE USED FOR INVESTMENT, BECAUSE OF YOUR SITUATION, CONSIDERS INVESTING IN TBILLS AND MAKE ABOUT 10-12% PER ANNUM..
ADDING THE 180K INTO THE INVESTMENT FUND ANNUALLY WILL GIVE YOU N2.46M IN 5 YEARS.
AT FIVE YEARS, YOU CAN NOW DIVERSIFY INTO VARIOUS ASSETS SUCH AS EQUITIES AND COMMODITIES.
DURING THE FIVE YEAR PERIOD, YOU WILL LEARNING ABOUT THESE ASSETS-CLASS AS ITS MORE COMPLICATED THAN BUYING GARRI IN THE MARKET... ALSO, YOU INCOME SHOULD HAVE INCREASED AND YOU SHOULD BE ADDING THE INCREMENTS TO THE FUNDS AS YOU DISCIPLINE YOURSELF TO CONSUME AT THE SAME PACE YOU ARE WHEN YOU STARTED...
THIS IS JUST SUMMARY OF THE PLAN.

Thanks for your reply,I am very knowledgable on stocks and its analysis bt I can see frm your angle and apply dat together wt stocks investment

Is this book available for sale?
Where can one get it from?

The book will soon be available at okadabooks an android book apps. Thanks.

Any further inquiry is welcomed. Thanks.

Watch out for chapter 2 here!

please review so i can post chapter 2. Thanks.

please review my book again...

Please review my book and comment...

This book is still here