Maria Aramburuzabala: Strategic Investing

11.10.2020 |

Episode #5 of the course 10 billionaires and their lessons on success by John Robin


Welcome to our fifth lesson about the world’s billionaires and their lessons on success.

So far, we’ve learned from four billionaires, two in Africa, two in Asia, and now today, we’re going to another continent to learn from a billionaire in Mexico.


Maria Aramburuzabala: The Power of Combined Stakes

Worth $5.6 billion as of August 2020, Maria Asunción Aramburuzabala’s inherited fortune could have been worth nothing if not for her careful investing tactics.

Maria’s father was a brewer, who inherited his own father’s company, Grupo Modelo, a famous brewery in Mexico founded in 1925. If you’ve enjoyed a corona beer, then you’ve enjoyed one of Modelo’s famous products.

Maria inherited the company when her father, Pablo, died unexpectedly in 1995, but there was no succession plan in place.

Pablo’s wife and each of his two daughters did have small shares in the company, but on their own, they did not have enough voting power to prevail against the company’s other shareholders, who wanted to cut them out of the business.

They were not idle. In 1996, they founded the investment company Tresalia Capital. Named from the Spanish tres alia, which means “three allies”, Tresalia embodied the family’s determination to use their combined shares effectively. With Maria as CEO, they developed a diversified investment strategy and used their collective ownership to grow their money.

Maria and two-family allies came full circle, and now their growing fortune has made Maria the second wealthiest of Mexico’s eleven billionaires.


Maria’s Billionaire Lesson

Maria’s story teaches us the power of a coordinated investment strategy. This lesson will go a bit longer, but I promise you, there are valuable devils in these details!

1. First, let’s imagine a common investing scenario. Here, you aren’t employing Maria’s tactics:

Let’s say you have $10,000 and want to invest it to earn more than 7-8% per year without fail.

Imagine you found six savvy entrepreneurs who need a $100,000 investment to build and launch their revolutionary new app, in exchange for 30% of the company. You and three other investors come forward. Your $10,000 is 10% of what they need, but the other three investors fill the gap, putting forward $30,000 each to match the $90,000 needed.

Because your stake is small, you get a smaller cut. They offer you 3% of the company, and 9% to each of the other investors, meaning each year, you get 3% of reported profits.

Let’s imagine it’s year 1 and the app has launched. The team spent $96,000, and earned $120,000, for a total of $24,000 profit. This means you get $720. That’s a 7.2% return on your $10,000 investment. That’s pretty great.

But hold on before you get too excited…

Year 2 comes. Because the team didn’t make a big profit, they need $100,000 more to pay their developers. They ask you and the other three investors to help. You don’t have more money to invest, but the other three do. They each put down $33,333.33 to make the $100,000 needed.

The team proposes the other three investors should increase their percent share to 10% each, and yours should become 1%.

Everyone meets to vote, and though you don’t agree, everyone else does, so you are outvoted 9:1 and your 3% share is now 1%.

At the end of year 2, the company spends the full $100,000 and earns $250,000 in revenue. That’s great! They profited at $150,000. Even with only a 1% share, you earned $1,500. That’s a 14% return on the $10,720 you had sitting in the company.

Next year, though, the company wants to expand. They try to raise $1,000,000 to launch their app with major international advertising. This attracts 25 new investors, who each get 1% of the company, and the other three original investors all offer more money.

You don’t offer anything, because that $10,000 is all you can afford.

The team meets and proposes the original three investors keep their original 10%, but yours goes down to 0.1%. They have a vote and you are again outnumbered 9:1, so your share devalues to 0.1%.

Year 3 was a disaster. The team spent the full $1,000,000 and only made back $96,000. That’s a loss of $904,000. In this case, your 0.1% share was a blessing, because it meant you only lost $904 from the $12,220 accrued, a return of -7.4%.

In year 4, the team pursues the same aggressive marketing strategy and more investors come on board to raise another $1,000,000. The original three investors each offer more money to keep their 10%, but you offer nothing.

Now there are 35 stakeholders who meet for the vote, so you’re outnumbered 34:1 when they decide that you should be paid out at a flat $1,000 for your 0.1% share. You are offered to reinvest at a $200,000 / 1% share. That means, if you reinvested $10,000, you’d have a 0.05% share.

You don’t like being outnumbered and devalued each year, so you take your $1,000 buyout and leave.

In total, your $10,000 became $12,316 over three years. That’s equivalent to an annual return of 7.2% on your initial $10,000, but it’s a dead-end that could have gone a lot further if you’d had a better strategy.

In fact, in year 4, the app was a smashing success. They invested the full $1,000,000, and made $3,600,000. That’s $2,600,000 profit. If you’d taken their offer to reinvest at $200,000 / 1% share, and invested your full $12,316, you would have had 0.0615% ownership, and made $1,601. That’s a 13% return and an average of 8.6% per year on your original $10,000.

2. Now, let’s see how this situation would play out if you’d entered with Maria’s strategy:

Imagine the entire scenario over again, except in this case, the other 3 investors are your Tresalia Capital partners.

Your share with the startup is still 3%, but the total share for the $100,000 your partners have in the company is 30%. Entering your agreement with the app team, you agree with your Tresalia partners that, because they will put in more money than you, you will get 10% of what the investing team makes, without exception. Because you are already friends and allies, you’re able to cement this kind of agreement at the start.

Each year, though the company as a whole may still vote to reduce your individual share, overall, the 30% share held by your team of four doesn’t change as more investors come on board, since collectively your team comes up with enough money to match the raised company value.

Because of this preexisting strategy, and the trust you have with your small alliance of investors, you are likely to stick around longer because your team’s success means better long-term success for all, and you know you have your 10% stake regardless.

In fact, I’ve done the math on this and it would work out that, by year 4 in the example above, assuming you reinvested your full $12,316 back in to own 0.0615% of the company, your investment team would have earned $577,586, and your 10% share would net you $57,758.60. That’s a 577% return on your original $10,000, which is equivalent to a 55% annual return.

That’s six times higher than your 7-8% per year investment goal!

And that is the power of a combined investing strategy, by way of studying Maria’s success.

Phew! We went into some serious overtime this lesson, but I hope the extra time here at our Mexico destination has taught you something valuable about how you can forge alliances that make your small percent count for a lot more.

Get ready for another plane ride tomorrow, as we cross the Pacific Ocean again to meet our next billionaire!


Recommended books

Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis

The Intelligent Investor by Benjamin Graham

Expected Returns: An Investor’s Guide to Harvesting Market Rewards by Antti Ilmanen


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