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How the ultra rich get rich and avoid taxes legally.

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And if you don't know who I am, my name's Alex Mosey.

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I got my first $100 million by age 32.

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And I did that by taking $42 million

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to distributions from my first big company, Jim Launch.

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And I ended up selling that company for $46.2 million.

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I reinvested that 42-ish million in distributions

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into portfolio of companies that today at acquisition.com

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deserve for $200 million a year.

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And so that's my evidence to why

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I have something worth saying about this.

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Now, that being said, I'm going to split this video

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into two parts.

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One is the four strategies that the ultra rich use

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in order to get wealthy.

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And then the second half, I'm going to explain

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how you can use those same four strategies

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to reverse engineer a $10 million goal.

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And the reason I use $10 million as the net worth goal

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is because $10 million at 4% per year, which

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would be basically a risk-free investment strategy,

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you'd be able to live like the top 1% in today's market.

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So you could move these dollars up as dollars get inflated

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and all of that kind of stuff.

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But for now, these are the big four strategies.

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And so these developed over time as my understanding

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of money improved.

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And so for me, I now want to make $1 billion.

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Or at least be worth $1 billion.

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Ha-ha, lots of zeros.

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OK, so the first version of this that I

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thought in order for me to be worth $1 billion

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was to make $1.5 billion and a lot of zeros in income, all right?

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Because after taxes, which would be 67% taxes in the US,

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which is the highest federal tax rate that you have to pay,

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you'd be left with $1 billion overall post tax.

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OK, that's the zero leverage version of making money.

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So this is just income generation, all right?

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V2 of this is thinking, OK, well, if I make $1 billion,

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or I make income every year, I'm going

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to invest a certain percentage of that income into making money

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for me passively.

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And so this feels harder than making $100 million per year

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and reinvesting that money at 9%.

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So the clear point here is I'm just saying, this is just the S&P.

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This is just the market.

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This is doing anything fancy.

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You're just buying taxes of the S&P 500.

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Now, at $100 million a year, in 10 years, you would make $1 billion.

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Now, that's because this post taxes, you'd

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have $67 million post tax income that you then invest at that same 9%,

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which would get you your $1 billion after a decade.

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You're like, OK, well, making $100 million a year in income versus making $1.5 billion

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in income over however long period of time,

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this feels a little easier because now I'm

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giving two things.

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I'm generating income plus I'm using public equities, all right?

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So I'm using passive investment strategies

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for things that are ready available to the public for everyone.

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The V3 version of this, it gets spicier and spicier every time,

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is that you do, you make $100 million per year,

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and you own the asset, you own the business that makes this much money,

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and you sell it at, call it, 12x.

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When I say 12x means 12 times earnings, which a company of the size,

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it'd probably be fair that it would get that kind of multiple because it's so big,

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which means that you would make $1.2 billion,

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which would leave you post tax with around $1 billion.

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Now, what people don't talk about this as a total side note,

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and as somebody who sold multiple companies,

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is that everyone has this big dream to sell a company and get the check,

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but what they don't tell you is that you then have a check,

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and then you have to do something with the check.

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So now you have to translate that check back into equities,

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so you just sold equities, and you get money,

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and then you have to buy equities yet again.

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And so then you have to think to yourself,

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am I going to get a better return on this billion dollars

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than I do within the existing business or asset that I ended up selling?

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And I'm going to translate these zeros down to the $10 million dollar goal

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that we're talking about in a second,

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but I just like to show it, it looks like it's scale,

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so that this can just, so you can see how the big,

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ultra-rich stuff actually happens in the real world.

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Now, this is the V3 version.

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This is income, so that's the scale plus private equity.

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All right, so this was public equity.

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This is private equity.

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All right, so a little bit different.

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This business isn't available on the market.

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There's institutional buyers who raise funds,

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and then they will give you a check for the business.

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That's V3 of this.

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Now, V4 of this is very sexy,

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and has three different sub-strategies.

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All right, and so in this instance,

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you have your business that makes $100 million per year.

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And so you choose one of three paths.

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Path one, so we'll go A, we'll go B, we'll go C.

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So at the top level, you can do something called an ESOP.

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An ESOP is an employee stock ownership plan,

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where you sell between 33 and 49 percent.

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Mind you, this is a minority stake in your business,

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and a bank will finance your employees

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backstopping that debt with the equity that you sell them.

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So employees are here, bank is here,

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so employees get the equity here,

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bank is here, and then there's you.

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And so the bank gives you money and lends it to the employees to pay you

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using the stock that you gave them as collateral.

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Now, what's interesting about this, at least in the United States,

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and I'm sure there's different functions like this internationally,

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is that this payment, at least in our tax laws, is tax-free.

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And so you get a smaller multiple,

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because banks will always pay less,

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because they have to think about risk and not upside,

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than potentially a private equity buyer would.

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But this is tax-free to the owner, which is pretty sweet.

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Now, one of the other nice things here is that you still maintain

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control of your business, because you still own majority.

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And so if you do it in this way,

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you can help your employees get wealthy,

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you get a tax-free check,

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they get to participate in the growth of a business,

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and oftentimes eSops can go well, because then now you have a huge team of people

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who are also incentivizing growing the business and, quote, act like owners.

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But they didn't need to come up with the money.

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It's like, here's your stock, and then they go straight to the bank,

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and then the bank gives them the loan to pay you for the stock you gave them.

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It's kind of how it works, okay?

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That's version A of this.

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Now, the way this works, though, is that you just traded the equity,

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and you get cash for what you gave the employees.

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But you still own the asset, and so the asset is still worth what it is in the private room.

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So if you add those two things together, you still have a billion dollars,

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but you get the liquidity and you keep the control.

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The version B of this is something called a dividend recap.

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So dividend recap is using the same bank structure that you'd have with an eSop,

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except you just cut the employees out of it.

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You just go directly to the bank and say, hey, how much will you loan me

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using my entire business as collateral?

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Now, if you think, huh, that's weird, think about it like buying a house.

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If you buy a house, you go to the bank, you put X percent down,

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and they give you debt for the rest of it, and then you pay that debt off.

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And so the business actually works the same way.

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So if you have no debt on the business, or even if you do have debt on the business,

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you go and say, hey, we can reliably produce this much income,

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and so we could pay off this level of debt.

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And so then a bank would say, okay, we'll give you four times or five times your total EBITDA,

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or your earnings for the year, roughly, and we'll give you that as debt.

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So if I make $100 million a year, they might give me a $500 million loan

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that they know that my business will be able to pay the interest off on,

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which for that makes sense, because they're just getting paid to give money that they

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that they loaned out, right?

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And then you have terms associated with that debt, right?

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Now, if your business is growing, then it makes a ton of sense to do that.

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You do risk a little bit as an owner.

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And the key point here is that the business carries the debt, not you personally.

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And so you as a person, the owner of the business,

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gets to take the $500 million, but the business pays the debt off.

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And so let's say five years later, maybe the business pays all of the debt off,

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you got the $500 million, and you still own the business,

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just like owning a house at the end of paying it off.

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Works the same way.

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Kind of cool.

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Now, the third version of this is one that people are a little bit more familiar with,

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which we kind of used earlier, which is public equities,

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meaning you go public with the company that you have.

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And so now, when you go public, you only have to sell a small percentage of shares in order

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to make them available to the public.

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And by doing that, the remainder of the stock that you have starts to have an actual marketplace value.

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And so the value of this, and one of this is one of the biggest benefits of going public,

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is that you don't have to sell 33 to 49% of your shares.

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You could sell 10% or 5% of your shares.

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And then the other 95% has a market value in real time.

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And so then you can still go to those same institutions, banks, etc.

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And say, hey, I want you to loan me, and the thing is, is here you can do a piecemeal.

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You don't have to go through a six month process or 12 month process to get one specific amount.

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You can say, hey, lend me 5 million a day.

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lend me 20 million tomorrow.

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lend me 100 million on this other day.

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And you can do that process in 24 hours because you have equities that are publicly available,

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which they can collateralize, meaning they can then take that, if for whatever reason, you don't sell.

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And so most of the times, banks will loan up to 50% of the value of the stock that you have.

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And so if I have a billion dollars in stock, I can get a loan up to 50, 500 million dollars.

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And so this is exactly what Elon did when he went to go to go buy, to buy X.

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He just took a loan out of his wallet and then just bought it and cash.

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Kind of cool, right?

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And so the idea here is that these are three different ways that you can use.

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And you're like, okay, well, then what's the meta strategy for V4?

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V4 is you have an income-producing thing, plus you understand debt.

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Because all three of these strategies use a bank or an institution to front the capital.

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And the main thing with all three of these is that you actually retain ownership and control.

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And so as my understanding of money and markets improved,

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I started to understand different ways that I could achieve my billion dollar goal.

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Now, if you're like, okay, Alex, that sounds great.

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But you said there was something about the ultra-rich and avoiding taxes.

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Well, let's talk about the taxes and let's translate it to the $10 million goal.

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Okay, so here, this is tax-free.

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Pretty nice, with the e-stop thing.

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The dividend recap.

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Also, this isn't tax-free because you have to take it as a payment, right?

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So that one, you still have to pay taxes on.

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Here, it's tax-free because it's a loan against your public equities.

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Part of me feels like dividend recap might be tax-free, not sure on this.

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But the public equities, absolutely, the loans that you take against them are tax-free.

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Because they're loans and you pay interest on them and then you have to pay loans back.

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And that's the big thing and there's a big, you know,

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I would say a little bit of a misconception around this.

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It's like, oh, these rich people, they should be paying taxes on unrealized gains.

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Well, until someone gets money for something, I think that it's like

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having someone pay income tax on a paycheck they haven't gotten yet.

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I feel like that's a little bit ridiculous.

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On the other hand, with the public equities piece,

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you still have covenants that you have to be responsible for to whoever gives you the money.

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And so it's not like you get the money and you can do it every one with it.

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You have to pay it back. That's how loans work.

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Now, the only way that this works long-term is that your business continues to grow.

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If the business goes down, then you're in deep shit.

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So you can lose it all.

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And so there's risk that's not being appropriately valued when people say,

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oh, these rich people just take loans off their stuff.

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But this is fundamentally how you can do it and get liquidity or cash from

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something that you own that's valuable.

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Okay. Now, if you're like, all right, Alex, that sounds fantastic.

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But I'm not trying to make a billion dollars right now.

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I'm trying to get to 10 million dollars over the span of my life,

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ideally as fast as possible in net worth.

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And the reason I use 10 million dollars is that because at 5%,

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you can make about 500,000 a year, at least in the US,

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which should be about the top 1% in terms of earnings.

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Pretty sweet.

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Now, as a side note, this, you also pay less taxes on.

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So this is usually going to be something called qualified dividends.

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Meaning, you only pay 20% on this rather than paying income tax.

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So you actually get more for your money when it's off of passive distributions.

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Okay, cool.

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So if we're using these four strategies here,

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V1 of this is just the pure income method,

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which means that over the span of your life,

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you're going to need to make 15 million dollars in income,

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and then after you're 67% tax rate,

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you'll be left with 10 million bucks.

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Okay, that's V1, not a lot of leverage, but you can do it that way.

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The V2 version of this is that you make your 1 million dollars per year,

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per year, oops, there we go, 1 million dollars per year,

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and you make, and you still pay your taxes on that,

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but you invest that post tax at 9%, and then after 10 years, you have 10 million dollars.

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So a total interesting side note on this is that with 10 years then at 9%,

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and given the tax rate that exists in the US,

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is that on a 10-year time horizon,

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you can measure how good someone is at investing their money,

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based on what their value of their portfolio is 10 years later,

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relative to what their income would have been untouched.

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And so if I made a million dollars a year in 10 years,

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I should have 10 million dollars if I paid zero taxes.

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But since I pay 37% taxes, or anybody who would make this would pay 37% taxes,

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then every year they're actually making $670,000.

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And so if you invested that $670 at 9%,

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then you'd make at the end of that period $10 million.

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So you'd actually be back where you started,

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because you had to invest to make up the difference in taxes.

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And obviously the first year of that 10 is significantly more valuable

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because of compounding than the last year of that 10.

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I'm keeping the simple and not getting into living expenses and things like that,

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which obviously would complicate this.

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Okay, so that is income plus passive investing,

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income plus active investing.

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So V3 of this is that you make $1.2 million per year from an asset.

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Meaning you own a business that let's say it does $10 million in revenue,

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and it does $1.2 million in distributions or owner earnings.

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All right, and let's say that you can sell this thing at 10X.

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All right, so less than the company over here.

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But the only way you'd be able to sell a company at this value,

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which you can at this size,

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recently, if it's a business that truly is an asset.

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So right now there's HVAC companies that are selling at 10, 12, 14X.

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There's dental offices.

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There's accounting firms.

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So these are real businesses that can be sold if you're in the right market.

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Again, I'm going to use simple illustrations here.

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So this would then give us $12 million that you would get pre-tax,

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and then you pay your capital gains taxes that you'd have to pay within the US,

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which would leave you with $10 million.

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Now, again, same as before.

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Okay, I had this thing that was passively making me $1.2 million a year, $100,000 a month.

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Well, what am I going to buy with my $10 million that's going to replace this thing?

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Sometimes thinking the second step ahead can influence whether or not you want to sell this overall.

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But I do like to make the point.

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So this one is income plus our active or private equity.

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So we have public here, we have private here,

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and then V4 is going to look a little bit different because we have this $10 million goal.

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And so I want to tell you a different strategy that I think is wildly underrated,

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which is you can go and become an employee at a company or a partner,

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depending on how you want to see this, of a company that then goes public for a billion dollars

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that you own 1% of, and that you earned over 5 years.

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And what's cool about this particular path is that you get all the benefits of this path over

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here is that you can take loans against the stocks that you have that are worth 1%,

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and you too can live like the ultra-rich and take those loans tax-free.

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Now you can't do an ESOP because you're not the owner of the business,

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but you can do, in my opinion, the most attractive of the three of these things,

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which is that you can have in real-time access to liquidity or cash to buy the things that you need

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based on the value of the asset you have.

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And so let's say that you start working at business, they say we'll give you 0.2% per year,

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times 5 years, and you do the 5 years, and over that time period the company goes public for a

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billion dollars, 1 billion, well you get the idea. Then your stock is worth 10 million dollars,

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but here's the nice part, is that you paid probably a very, very, very gracious tax amount

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to get this or these options associated with the shares, and then you have something that is worth

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10 million dollars that you can then take loans against. All right, so these are the four strategies

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from the ultra-rich translated into normal income goals. Now I want to zoom out for a second

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because I think this will be helpful for everyone. No matter which of these paths you choose or the

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versions of the paths that you want, you'll notice some common themes. The first one is that you have

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to be valuable. Like you have to learn how to provide value to the marketplace either as an

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employee or as a small business owner or as a larger business owner overall, but either way you

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have to learn how to generate income and the way you generate income is by solving problems for

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other people and learning skills. And so a lot of time I see dedicated to content from people

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who don't talk about the most important thing, which is sure you can have all these passive

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investment strategies, but if you're working off of 35,000 dollars a year, it's never going to

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happen. Like we like to talk about the one lady who worked in McDonald's for 50 years and saved

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every penny she ever had so she could end up with a million dollars. But is that really the ideal

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strategy when maybe taking a weekend and getting a certification can bump you to 50 or 60,000

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dollars a year or you just learn outbound sales and you bump yourself to 150,000 dollars a year,

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five times the earning potential. And so I think that the investing stuff gets really sexy because

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it feels passive, but you live your whole life. And so you might as well get five times 10 times more

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for the time you are guaranteed to have to give. We all spend seconds every second we're alive.

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And so you might as well get more for them. The second one is what I want to talk about is the fallacy

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or the three fallacies of Warren Buffett. So Warren Buffett a lot of people like I just want to do

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what Warren Buffett did. He just slowly invested, right? Well, let me walk you through it the fallacies of

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Warren Buffett are. So three fallacies of Warren Buffett. Number one, I'm going to be just like him.

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Well, did you buy your first stock at age seven and did you do that weeks after Pearl Harbor?

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When there was literal blood in the streets, well, if you didn't buy your first stock at age seven

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literal weeks after Pearl Harbor, then maybe you don't already have the makeup of somebody who's

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going to be the greatest investor of all time. Something to consider. The second is, are you going

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to live through the greatest growth in American history? As you start your investing career,

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which is exactly what Warren Buffett was able to do. And the third one is one that I actually talk

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about that I don't hear talked about a lot, which is just luck. And so let me hear me out. I think

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Warren is brilliant. And I talk about him all the time. And I think there's a lot of things we can

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learn from him. But what I see when I look at the top 0.1% whatever the top of the top of the top of

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the top is that you have all the skills, all the traits, all the everything, comma, and luck.

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Because the only way, like if you were to think of the hypothetical, the number one person on earth

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in general would have all of the things plus luck. Because someone everyone's going, there is

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luck that goes around. And so the number one person's going to have everything that's required

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plus luck. There's plenty of investors that are brilliant investors that are worth $1

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billion instead of $100 billion. They just didn't get the luck part, right? Or they've been

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only investing for 30 years instead of 70, right? Or 75 or 85 or whatever amount of years he's alive now.

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All right. And so I think these three things are things that are not considered when people

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are like, oh, I want to do the strategy. And I want to highlight this because the main theme of

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all of these is that you have to generate income. You have to make money. It's the only way you can

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even have the income. So like right now, I have a handful of investments that are doing exceptionally

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well. But the only reason that I would be able to make those investments is because I have

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excess capacity in terms of cash, capital, that I could deploy. If you don't, and this is where

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like living below your means to make more. So you have the delta. So you can get aggressive

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is so important. And I think it's really lost the narrative today. And so the last thing I want to

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talk about is what rich parents give as the greatest gift to their kids. And so the number

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predictor of success long-term is the zip code you're born in. All right. And I find that really

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interesting and also disparaging in some ways because it means that it controls for IQ, it controls

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for ethnicity, controls for gender. It's the zip code that you're born in. And I see that as

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mostly due to the associations of other people in that zip code. And so it's like, okay,

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that means that conditions can create our behavior or shape our behavior. So then what behavior

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changes happen in a rich environment versus a poor environment? And I think that it can really come

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down to one main thing, which is the leverage of the opportunity vehicles that you pursue.

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And so I remember this clear as dex. I came from what? What? I consider upper middle class. So my

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dad's a doctor. But when I went to Vanderbilt, I was exposed to an entirely different level of

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wealth that I didn't even really knew existed from Baltimore. There just wasn't any like New York

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money. Like it wasn't really a thing. Like if like it just, it was a concept I didn't understand.

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But for them, the opportunity vehicle that they wanted their kids to pursue had leverage,

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meaning they got more for what they put in. And so a middle class parent might say, hey,

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you're a salesman. Awesome. And you sell cars. Okay. Well, you sell cars and cars cost whatever.

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And the top, top, top cars, salesman might make, you know, 300 to 400,000 year. Okay.

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Now some people were like, well, there's this one guy cool. Well, good for him. But for us,

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like, let's call it top one percent or make you three to 400,000 years. Now the upper class salesman

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or the upper class or the ultra rich, whatever you want to call it, ultra salesman

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sells companies. And guess what he makes? 4% on the deal. And so if he sells a 200 million dollar

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company, he makes 8 million bucks for one sale. And so same fundamental skills, obviously the

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little bit more analysis here, but fundamentally you are selling stuff. And all somebody who is

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wealthier does is tries to get more for what they put in. They try and add zeros to the price tag

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of the things they sell. If you sell a 500 million dollar building, you get a commission for that

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just like you get for selling a 50,000 dollar house. Same concept, you just add scale to it. And

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every one of these people has the same number of hours per day, which just means they get more for

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their time. And so thinking through this, what poor people or middle class people miss that rich

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people or rich kids, rich parents passed to their kids is which opportunities to say no to.

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They don't even consider the quote lower class or middle class opportunity. And I think of this

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on something that I like to refer to as measuring sticks. And so I'll give you a little story to

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illustrate the point. So when I was a kid in high school, I worked, I started my first job when I was

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15 in nine months, which is like the legal age that I could start working. I started working as a

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blender tender at Smoothie King. And as I leveled up and became a lead, and then I think a manager

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at some point, and then eventually I shifted to catering, which I got 25 bucks an hour for,

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which was awesome back in my day. Anyways, I was hood rich. And the thing is, is that I measured

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how much money I had and how many chipotle burritos I could buy. Because I knew that chipotle

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burritos were about seven bucks. And so I was like, man, I just got 200 bucks for this shift.

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That's like 28 burritos that I can buy now, which is awesome, right? I was super excited about it.

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And so what happens is the measuring stick that you use to measure stuff, the wealthiest people in

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the world just have a larger stick in two ways. One is they measure over longer time horizons,

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and they also use like they literally call by the way in Wall Street a stick is one million dollars.

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So that's the slang among rich people. Like if you're like, oh, I didn't know that there was slang

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for a million dollars. There is slang for a million dollars when you have lots of millions of

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dollars. You say, give them two sticks. It means two million bucks. And so when you hang around people

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who talk in increments of one million dollars, imagine the opportunities that they're pursuing,

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and more importantly, for everybody who's listening to this, the many things they say no to.

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And so this is where you lose years and decades of life, is that you say yes to opportunities to

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you otherwise shouldn't. And so they're able to be patient or more selective because they know that

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they're going to get, they want to maximize how many dollars they get out for the effort and

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time they put in. And unless something is going to ladder up to, remember thinking longer time horizons,

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something where they can get sticks for their time, then they're not going to do it. They're

404
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willing to take a job for 50 or 60 thousand dollars a year or 80 thousand dollars a year as an

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analyst at, you know, PWC or it's a young or McKinsey or an investment bank with Goldman Sachs.

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They're willing to eat dog shit for that period of time because they know that that's not the plan.

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This is just the period that they're learning and gaining experience so that they can do the next

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thing. They see it in stepping stones. And the vast majority in my opinion of people who stay stuck

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don't have a plan. They don't see where things ladder up to and they don't reverse their go into

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the present. And so no matter what whichever of these paths you use, one, you have to focus on

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income generation and learning skills. Two, you want to make sure that you actually say no to the

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things that don't matter and be very selective about the things that will give you the highest return.

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Three, surround yourself with people who have bigger measuring sticks in terms of time and money

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than you because whatever opportunities they're discussing will likely be higher levels of the

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opportunities that you're considering. And then finally, in with regards to the fallacy of Warren

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Buffett, if you want to make obscene amounts of money, you will not make it the way that someone

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else has already made it. It will be made in a new way, which means the single greatest and most

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valuable skill that a human being can have is the ability to come to their own conclusion and

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have the confidence to act on it despite it being contrary to what other people are doing.

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Because if it's what everyone else is doing, then it's not an opportunity because the funny thing

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about opportunities is they look like risk while they're opportunities. And the moment they're no

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longer risky is when the opportunity has closed. And that's how life works. You have to make bets

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and you want to make the bets that you feel like you have an information advantage over other people

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so that you can come to your own conclusion rather than listening to other people. Have an amazing

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day. Hope you enjoyed this stuff. That's how the all church do it. And if you like these kind of

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deeper business concepts, I have two free gifts for you. I wrote $100.00 and $100.00 leads. These

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00:27:09.520 --> 00:27:14.080
are both available for free on my podcast, which is the game. Alex, you can just search my name.

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00:27:14.080 --> 00:27:18.160
You'll probably find it. I also have these in course. If you like watching rather than listening,

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00:27:18.960 --> 00:27:22.400
on my site at acquisition.com, you can just click training and you'll see the courses that we

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00:27:22.400 --> 00:27:26.160
have available. They're all free. But if you like something hard, you can grab these wherever you buy

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00:27:26.160 --> 00:27:29.360
books and hopefully make a lot more money.