This is an overview of the book Rich Dad's Guide to Investing by Robert Kiyosaki
This is the third and final book in the Rich Dad trilogy.
Kiyosaki's bio: Mr. Kiyosaki is a fourth generation Japanese American who was born in Hilo, Hawaii in 1947. He graduated for from the US Merchant Marine Academy and served as a helicopter pilot in the Vietnam war. Robert is an investor and educator and founder of the Rich Dad company whose stated mission is to, “Elevate the financial well-being of humanity.”
Key point: If you want to be a rich and successful investor learn how to build businesses.
In this book, as to be expected, Kiyosaki gets into some more advanced topics.
The title of this book is, “Guide to Investing,” and yet it's about the importance of building businesses. For some, that might be a let down. But look at it this way, when you invest, what are you investing in? A business, of course. So business knowledge will translate to investing knowledge. Other recommended books on investing are What Works on Wall Street by James O'Shaughnessy and The Intelligent Investor by Benjamin Graham.
Basically there are two types of investors, those like George Soros and those like Warren Buffett. Soros is the shining example of technical investing. As Kiyosaki says, “The primary indicators the technical investor is concerned with are the mood of the market and the price of the stock.” Soros has made a lot of money so he's hard to argue with. However, his technique can quickly, and easily, devolve into gambling. This is what day traders do. They think they can anticipate the moves of the market. And it's a hell of a roller coaster ride. It's investing from the outside. Kiyosaki says, “Day trading is an extremely competitive S quadrant activity.”
This book is really about what is called fundamental investing. Warren Buffett is the best example of fundamental investing. Buffett thoroughly investigates the companies he invests in. Today, because he is dealing with such large sums of cash, Warren mainly invests in companies with quality management and a durable competitive advantage. He uses a castle metaphor with the moat being the competitive advantage. Warren's one piece of advice, to his managers, is always, "Widen the moat." But back when Buffett was trading in smaller sums he searched for intrinsic value, things like the P/E ratio. Warren would dig through Moody's as well as read countless annual reports. He likes to say that while other guys look through Playboy he prefers Standard and Poor's. Buffett can be said to invest from the inside.
As Kiyosaki says, the language of investing is numbers not words. So, it is necessary to have at least a basic understanding of accounting. Robert uses a very simply diagram, like the one below, to explain the basics.
The most important thing to understand is
something called a statement of cash flow. That's the arrows. The
boomerang looking thing, going through income and expense, is the cash flow from your job. It comes in as income and flows out through your expenses. The bottom arrow, pointing to
the right, shows that liabilities cause the cash to flow out of your
pocket. And the arrow on the far left, pointing
upwards, shows that assets put money into your pocket as
income.
Kiyosaki reminds us that money is only an idea, “Since money is only an idea, if your idea is that there is not enough money, then that is what your reality will be.” Robert is big on the importance of words. He says, “If people want to begin increasing their financial success, it begins with increasing their vocabulary in a certain subject.” In this case, we need to know words such as: asset, liability, cash flow, P/E ratios, etc.
There are three types of income: earned, passive and portfolio. Earned income is the income you earn at your job and it is, by far, the most highly taxed form of income. Passive income typically comes from real estate and businesses. And portfolio income, is generally derived from paper assets like stocks and bonds. Kiyosaki says, “Investing in the hopes of making more money so you can pay bills or buy a bigger house or a new car is a fool's investment plan. You invest for one reason: to acquire an asset that converts earned income into passive income or portfolio income.”
Robert's rich dad would say that 10% of the world's population owns 90% of its wealth And so, he would challenge Kiyosaki to find solutions to what he called the 90/10 Riddle. The riddle is this: How do you create an asset in the asset column without spending money to acquire it? There are, in fact, numerous solutions to the riddle. One of them is to build a business.
In building a business rich dad was guided by what he called the B-I Triangle, and here it is:
Kiyosaki reminds us that money is only an idea, “Since money is only an idea, if your idea is that there is not enough money, then that is what your reality will be.” Robert is big on the importance of words. He says, “If people want to begin increasing their financial success, it begins with increasing their vocabulary in a certain subject.” In this case, we need to know words such as: asset, liability, cash flow, P/E ratios, etc.
There are three types of income: earned, passive and portfolio. Earned income is the income you earn at your job and it is, by far, the most highly taxed form of income. Passive income typically comes from real estate and businesses. And portfolio income, is generally derived from paper assets like stocks and bonds. Kiyosaki says, “Investing in the hopes of making more money so you can pay bills or buy a bigger house or a new car is a fool's investment plan. You invest for one reason: to acquire an asset that converts earned income into passive income or portfolio income.”
Robert's rich dad would say that 10% of the world's population owns 90% of its wealth And so, he would challenge Kiyosaki to find solutions to what he called the 90/10 Riddle. The riddle is this: How do you create an asset in the asset column without spending money to acquire it? There are, in fact, numerous solutions to the riddle. One of them is to build a business.
In building a business rich dad was guided by what he called the B-I Triangle, and here it is:
Rich dad said mission is most
important so he always began with the mission. That's why it's makes up the base of the pyramid. He also said,
"Business and investing are team sports.” He went on to say,
“The problem with being in the E and S quadrants is that you play
the game as an individual, playing against a team.” If you don't know the different quadrants, go here: The Cashflow Quadrant
Kiyosaki says that the purpose of a business is to buy assets. He often points to Ray Kroc, of McDonald's fame. Kroc would always maintain that his business was not hamburgers. His business was real estate. Indeed McDonald's is one of the largest owners of real estate in the world. Kiyosaki writes, “The more you practice building B-I Triangles, the easier it will be for you to create assets that buy other assets.”
In reality, B-I Triangles aren't very easy to build. They take a lot of learning and practice. In turn, Kiyosaki recommends network marketing. He views network marketing as an opportunity to practice building a B business.
I'll end with this. According to Kiyosaki, one of the main reasons people never venture out, and build a business of their own, is fear of making mistakes. In school we're taught to NOT make mistakes. Indeed, we're punished for making mistakes. Unfortunately, mistakes are the only way to learn. You can't learn to ride a bike by reading a book. Real world education is what Kiyosaki is all about. And it's the education that comes from trying and making mistakes. As his rich dad would say, “Some of the biggest failures I know are people who have never failed.”
What can you do with this information right now?
If you want to be rich, learn to build businesses. If you haven't already, review Rich Dad's Cashflow Quadrant. Rich people live in the B and I quadrants. According to Robert Kiyosaki and Donald Trump, the best option for most people, is to join a network marketing company. This way you can keep the job you have while learning Rich Dad's lesson on the side. To get into the I Quadrant you need three E's: education, experience, and excessive cash-flow. If you have questions, feel free to hit me up.
Kiyosaki says that the purpose of a business is to buy assets. He often points to Ray Kroc, of McDonald's fame. Kroc would always maintain that his business was not hamburgers. His business was real estate. Indeed McDonald's is one of the largest owners of real estate in the world. Kiyosaki writes, “The more you practice building B-I Triangles, the easier it will be for you to create assets that buy other assets.”
In reality, B-I Triangles aren't very easy to build. They take a lot of learning and practice. In turn, Kiyosaki recommends network marketing. He views network marketing as an opportunity to practice building a B business.
I'll end with this. According to Kiyosaki, one of the main reasons people never venture out, and build a business of their own, is fear of making mistakes. In school we're taught to NOT make mistakes. Indeed, we're punished for making mistakes. Unfortunately, mistakes are the only way to learn. You can't learn to ride a bike by reading a book. Real world education is what Kiyosaki is all about. And it's the education that comes from trying and making mistakes. As his rich dad would say, “Some of the biggest failures I know are people who have never failed.”
What can you do with this information right now?
If you want to be rich, learn to build businesses. If you haven't already, review Rich Dad's Cashflow Quadrant. Rich people live in the B and I quadrants. According to Robert Kiyosaki and Donald Trump, the best option for most people, is to join a network marketing company. This way you can keep the job you have while learning Rich Dad's lesson on the side. To get into the I Quadrant you need three E's: education, experience, and excessive cash-flow. If you have questions, feel free to hit me up.
