Rich Dad's Guide To Investing
What The Rich Invest In,
That the Poor and Middle Class Do Not
By Robert T. Kiyosaki, with Sharon L. Lechter, C.P.A.
Rich Dad's Guide To Investing: What The Rich Invest In, That the Poor and Middle Class Do Not is Part Three of Kiyosaki's personal money trilogy. The saga begins with Kiyosaki as a young officer and fighter pilot returning home from war only to find his Poor Dad, having fallen out of favor in his cushy government job, recently unemployed. So, at age 52, Poor Dad is looking for work and just starting to rebuild his financial life. Rich Dad has been building up his assets and is incredibly wealthy.
After a day in Rich Dad's spacious mansion discussing accredited investors and private placement memorandums, Kiyosaki returns to his cramped officer's quarters, his three beer-guzzling, pizza-eating, TV-watching roommates, and his $12,000 annual officer's salary. Kiyosaki contemplates what he wants from life. Kiyosaki decides not to re-enlist. He will become rich. Rich Dad agrees to resume his role as Kiyosaki's financial mentor.
As in Rich Dad, Poor Dad, Kiyosaki's writing is very personal and grabbing. But, what about the quality of the financial advice? I disagreed with much of Rich Dad, Poor Dad and partially expected Rich Dad's Guide To Investing to discuss the power of day trading, getting rich quickly in the stock market, and building a fast fortune with real estate. When I picked up the book, I found my expectations were wrong.
While I don't agree with everything in Rich Dad's Guide To Investing, I feel it is packed with some great observations, good advice, and excellent insight into wealth building. Kiyosaki says you should make a plan to be financially secure, a plan to be financially comfortable, and a plan to be rich.
Kiyosaki writes: "There is nothing more high risk than a person who does not have those two basic plans [one for becoming financially secure and one for becoming financially comfortable], who is focused only on becoming rich. While a few make it, most don't..."
Kiyosaki says that many people are so concerned with security and perceived risk that they never have a plan to build financial comfort, let alone significant wealth. People don't stick to boring, but workable, plans. People want riches fast. They are pulled in by tales of those who make wealth quickly. Kiyosaki advises setting realistic goals based upon your level of financial knowledge. Then, as you gain experience, add more ambitious financial goals.
For example, Kiyosaki writes: "In order to be a good investor, you first need to be good at business." So, Kiyosaki recommends starting a part-time business. Even if your part-time business doesn't make you rich, you will learn much about business, and those lessons will be valuable. Why study business? Kiyosaki points out that "Roughly 80% of the very rich became rich through building a business."
Kiyosaki continues: "The reason we have billionaires who are still in their twenties is not because they bought investments. They created investments, called businesses, that millions of people want to buy." He compares investors to people buying tickets to a game. Businesses are the one selling the tickets to the game (i.e., shares of stock).
Kiyosaki acknowledges that part of the huge creation of recent wealth is due to Internet-IPO mania. I particularly liked Rich Dad's Guide To Investing's sections called "Sharon's Notes."
Lechter stresses the importance of a business to having a mission, other than just making the founders rich. She writes: "Today, I notice people becoming instant millionaires, even billionaires, just by taking a company public through an IPO. I often wonder if the company's mission was just to make money for owners or [Venture capital and founding] investors or was the company really formed to fulfill a mission or some kind of service? I am afraid that many of these new IPOs will ultimately fail because their only mission was to make money quickly. Besides, it is in the mission of a company where the entrepreneur's spirit is found."
Kiyosaki suggests that as billions in stock market capitalization evaporate, many people will feel (and be) much poorer. They might stop spending, and this could lead to a recession.
I feel Kiyosaki is a bit too obsessed with building a company for the sake of selling it to investors. And, only the smallest number of companies ever go public.
He does acknowledge that many wealthy people own private businesses which generate significant cash flow. And, they have no intention of selling their companies. They are not the "Ultimate Investors," selling shares of publicly traded companies to investors, but they do OK. And, there is a question of ethics in selling retail investors shares of dubious, new companies.
The book might better be titled Rich Dad's Guide To Entrepreneurship and Investing, because there is some great discussion of building a business. Kiyosaki says to be successful in business, you should learn: communication skills, leadership, team-building skills, tax laws, corporate law, and securities law. He also suggests learning to read financial statements. Most crucial is overcoming fear of failure and learning sales skills. Public speaking is important, because to lead you must speak. And, if nobody follows you, it's not leading! Kiyosaki, himself, says he wasn't a natural speaker. But, he worked on it. He writes, "Successful people find their weaknesses and make them strengths."
Kiyosaki says that building wealth should be based upon simple, not complex, strategies. He likes investing in small companies with market capitalizations under $25 million. The graph on page 221, showing the relative returns by market capitalization, is pretty amazing. Of course, as Kiyosaki acknowledges, there are far more bad deals than good deals with ultra-small companies. So, you must know what you are doing to try to buy them.
Rich Dad's Guide To Investing:
What The Rich Invest In, That the Poor and Middle Class Do Not