Lessons learnt by former FNB CEO, Michael Jordaan
10 March 2016
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On mobile, on digital, on demand, this is Old Mutual Live, Money Coach. Hello and welcome, my name is Chris Gibbons. It’s always instructive to listen to and hear from the experts. In this case, how our guest approaches wealth and investment and the steps he took along his path to success. He is Michael Jordaan.
Former CEO of FNB who now heads up his own private investment company, Montegray Capital. Michael, welcome to Old Mutual Live Money Coach, thank you for joining us. First off, a word or two about your background. Did you come from well to-do parents or was life tough growing up in the Jordaan family?
Michael Jordaan: No, I come from quite an average, middle-class, suburban background. I went to a public school. But I suppose in the South African context, you can call that ‘privileged’. It’s something that I’m quite aware of. But no, I did not come from a moneyed environment. That is quite an important thing when you grow up, is to realise that money doesn’t grow on trees. I certainly grew up like that.
Always had an eye for entrepreneurship
CG: How did that inform your attitude towards making money and developing your own personal wealth?
MJ: I always, as a child, was never quite happy with the pocket money allocation that I got. If I think back at it now, I was always a bit of an entrepreneur. I recall on one holiday making sandwiches at home and selling it to the people lying on the beach. I do remember at school, I also had a pet rabbit collection. I would get food, the old vegetables from the café on the corner, feed it to these rabbits and sell them to the pet store.
Later on in life I used some of that savings to buy a horse. When I got tired of riding horses I sold it for a Kruger Rand. The Kruger Rand went up and up and I bought some shares. I was very lucky along the road, most of these investments paid off.
Looking back at it now, it was more luck than hard work, but it definitely shaped my attitude that I wanted to get more money than my pocket money. The only way that I saw in doing that was these little entrepreneurial activities that taught me so much about life.
CG: When you were starting out, you’re young, you’re ambitious. What were your key learnings when it came to growing wealth, what were the basics for Michael Jordaan when it came to investing?
MJ: The first was obviously what I just sketched, was being entrepreneurial. I didn’t know the word at the time, I didn’t even really know what business meant. I just knew that you could do things and money kind of followed certain rules. It would come to you if you did those things well and it involved a bit of work, it involved taking risk. With the benefit of hindsight, it also involved being lucky sometimes. But then again, you do make your own luck.
What changed as you moved up the ladder?
CG: Did that change Michael as you progressed up the ranks at FNB?
MJ: You know, quite an interesting thing happened to me while I was working in the bank. I was a young credit analyst and as a credit analyst it allowed me to see the incomes and expenditures of a whole lot of people. Some of whom I knew, some names that you read about in the paper.
I had a very important realisation, in fact quite a couple. The one is that you shouldn’t worry about what the people around you earn. Because the moment you get caught in a game of relative deprivation, you’ll always be unhappy. You’ll say ‘but why is this person earning more than I am’ and ‘why is it that they inherit that’.
So an important thing that changed for me, when I started looking at other people’s income and expenditure was, I just said, I’m never going to be bothered anymore by other people. I’m only going to worry about myself. That was the one big change.
The other one, of course, when you run a big bank and you start working, not only in the millions and the hundreds of millions, but easily in the billions every month. Is that money become a very abstract concept. You can work with it, without being emotionally involved.
How society sets us up for failure
CG: We have strong societal pressures on us to save, to save, then save some more. But plenty of successful entrepreneurs will tell you that they blew all their savings and then borrowed themselves to the max to get to where they are now. What’s your take on that one?
MJ: I will differ a little bit from you on the strong pressure to save. I think society is set up for us to spend money and to consume. Just think about the amount of advertisements that you see on your TV or on your radio show. They are all about buying something, spending something. It’s not about saving. In fact, you have very few adverts on saving.
So it’s about society, we judge people by the way they live, have the Jones’s acquired a new car, have they upgraded their life. So we don’t intuitively or inherently look at saving. I would say my advice to entrepreneurs is try and save up as much as possible before you start a new venture. Because that capital buffer gives you a cushion in case things go wrong and for start-ups, things do go wrong.
I think one of the worst things you can do, if you start a new business, is to make it even more risky by borrowing money. So that capital buffer is very important. Later on, of course, it helps to increase borrowing, if you can. If there are people willing to lend it to you. But you have to understand by then the business should be established and you should have the confidence that you are going to pay them back. The first thing is save, I don’t think we do enough of that.
The unemployment plight in South Africa
CG: It is, of course, very difficult to do much of anything when you’re unemployed. What advice, what hope are you able to offer people who really find themselves on the margins of our society?
MJ: This is the saddest thing about South African society, that we currently have an unemployment rate of 26%. It leaves not only a financial, but also an emotional scar on people who are unemployed for long periods of time. I think the first message must just be, don’t lose hope. Because once you lose hope, it’s going to become a self-fulfilling prophecy.
The other bit of advice is education. As much as we do have this incredible unemployment, I do know that businesses are always looking for good people. Go and speak to captains of industry and ask them about their problems. In the top five you will find this need of getting more skills.
I would say education and it’s as basic as reading, go to a local library or go to a place where you get free Wi-Fi. It’s amazing how you can still educate yourself for free, it doesn’t have to cost a lot of money. Don’t give up hope and continually educate yourself.
CG: If you were a politician or if you had the ear of a politician and you could change one thing to improve people’s lives, what would it be?
MJ: I’m going to struggle with one, can I give you two?
CG: Please do.
Societal changes that could help
MJ: I have a bit of a hang-up about property that should be handed back to citizens. I’m particularly thinking of people who live in tribal areas of the country where they don’t own the land they live on. It belongs to the Chief. Unfortunately, I think this is a very paternalistic society. It’s also a society in which feminine rights aren’t fully respected.
You have no real incentive to develop the property because it doesn’t belong to you. If you leave, it just goes back to the Chief. My one would be make three million families in South Africa property owners by giving them the land and tribal areas. That’s the one. I think it would make a massive difference if they have this capital at their disposal. The capital that is inherent in property.
The second thing has got to be education in South Africa. There is just so much more that we can do. We’ve done very well in terms of people that are now able to read and write, that was not the case one generation ago. But the skills that we are giving kids are still not the skills that the modern economy needs.
We need people who complete matric. Not just 20% of the people who enter the schooling system 12 years ago. So more money needs to be spent on education and it’s got to come from somewhere. I think we can take it from an area like defence. Where the risk of being attacked in South Africa is so much smaller than the risk of not educating our youth properly.
Do the basics change with wealth?
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. Michael Jordaan, your investment philosophy now, with a successful career as a banker behind you. A certain amount of wealth to cushion your decision making. What do you focus on now and have the basics changed or are they still exactly the same?
MJ: I think the basic are still exactly the same. What I do now and I do it because I’m passionate about entrepreneurs. Is I invest in start-ups and small businesses that I do think in time can achieve great things. The basics is really about finding the right type of individual with the right idea and then backing them.
I saw a Tweet the other day that said you shouldn’t back waves, you should back surfers. I think it’s a bit of both, you find the right waves and you find the right people to ride them. I do fundamentally believe that the world is going to change quite dramatically over the next 10-20 years, primarily because of technology.
It’s going to be anything from solar to artificial intelligence. Those are the type of industries that I’m backing because I see big waves coming. But the basics of all of these are still, it’s got to be the individual. It’s got to be the team that can best exploit it.
CG: A final question, one final piece of advice for someone just starting out. One of those young entrepreneurs you back, what would it be?
Best piece of advice for young entrepreneurs
MJ: You know, a lot of people are tempted to say ‘follow your passion.’ I think that could be misguided because you could be very passionate about something, let’s say photography. But it doesn’t really solve a big problem for somebody else.
My line, my advice would be, try and find a big problem, something that possibly irritates you very much and see if you can solve that big problem. The way to solve that big problem, typically, is to do your homework very carefully.
Speak to people about it, read up as much as you can about it. Most of change that gets affected, is not in knowing the first 90% about a topic, it’s in really getting that last 1-2% of any given topic. Then developing a true insight about how a problem can be solved.
Then the final thing and I think entrepreneurs know this intuitively, but listen to your customers. The moment you start the business, chances are that you’re not going to get it perfectly right in the first try. But listen to customers, they give you feedback for free. If you know enough about your topic, plus you’re agile enough to listen to your customers, I can nearly guarantee that you will be a success.
CG: And there we’ll leave it. This has been another edition of Old Mutual Live Money Coach. I’ve been talking to Michael Jordaan of Montegray Capital. Michael, thank you for joining me. Remember, you can get in touch anytime. If you have any questions for me, or topics you’d like covered on Old Mutual Live Money Coach, please feel free to send them direct to me at firstname.lastname@example.org. I’d be delighted to hear from you. Until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.