Rich Dad's Guide to Investing by Robert Kiyosaki

  • Invest from different quadrants.

    • Most tax loopholes through being a business owner.

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  • People don’t get rich because they get set in their ways and think there is only one way to do something.

    • Must have a flexible mindset and will to be more than average.

  • Three E’s to Becoming a Sophisticated Investor:

    • 1.  Education

    • 2.  Experience

    • 3.  Excess Cash

  • Becoming an investor is like riding a bike.

    • Requires risk, trial and error and proper guidance.

  • Don’t worry about money, if we do the right things, money will come.

  • Investments are cheaper if you buy them through a business, rather than buying as an individual.

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  • More Security = more scarcity

  • Need a financial plan for not having enough money, how to get more money and what to do when you have too much money.

  • Investing is a very personal plan you must make, not a product or procedure.

  • Think of investments as vehicles - a tool to take you from point A (where you are financially) to point B (where you want to be financially).

    • Have a plan with multiple options / different vehicles (stocks / real estate).

  • Don’t fall in love with the stocks or real estate you use to invest in - use them merely as vehicles to get from point A to point B.

    • Don’t invest without a plan.

  • Lean one new financial word / vocab per week.

  • Make a simple plan and stick to it, trust your process and don’t chase money.

  • Set realistic goals and improve upon them.

    • Alway walk before you run.

  • Take your time, don’t let others influence you.

    • Find people who have done what you want to do and ask for advice.

    • Learn how to ask for help.

  • Create a financial Team:

    • Banker

    • Accountant

    • Lawyer

    • Broker

    • Book Keeper

    • Insurance Agent

    • Mentor

      • Have lunch meetings with them on a regular basis.

  • Do not let people with limiting beliefs sway you in regards to money.  

  • Time > money.  Don’t short change trading your time for money.

  • Cash doesn’t have a tangible value, exchange cash for investments with real value.

    • Many poor people have a lot of money (like my mom and dad) and cling to it like it’s magical, then trade cash for trash.

    • The rich do not value money, but value what money can bring them.

    • Don’t be cheap (wasting time coupon cutting).

  • Invest the time to learn & study about how to mind your own business.

    • Make time for your business, more important than your “job.”

      • Invest time to learn about investing.

      • Make and follow a plan.

      • Have money work for you.

  • The best deals are made by legal insider investing.

    • The more people you know.. The more knowledge there is available.

    • “If you want to be rich, you have to be closer to the inside than the most professional traders to whom most people entrust their money.”

  • Come up with security and comfort plans first.  Don’t invest before planning.

  • RULE #1:  Always know what kind of income you are working for (3 types):

    • 1.  Ordinary Earned (paycheck)

    • 2.  Portfolio (stocks)

    • 3.  Passive (real estate)

  • RULE #2:  Always convert earned income into portfolio or passive income as efficiently as possible.

    • Don’t let it sit or waste it on trash.

      • Due to inflation - saving money is a liability, not an asset.

      • The poor and middle class struggle because they value money more than assets.

  • RULE #3:  Keep ordinary earned income secure by using it to purchase a security you hope converts earned income into passive / portfolio income.

    • Security - An investment that will keep your money secure… not all assets are securities.

      • Asset - Puts money in your pocket.

      • Liability - Takes money out of your pocket.

  • RULE #4:  The investor is the asset or liability.

    • Best investors follow behind bad investors (sharks), because that is where the best deals are found.  Buy low from bad investors who bought high and are selling low.

      • Bargains are found where the tails of woe and misery are - look for the captain of the Titanic.

      • Find securities that are liabilities and turn them into assets.

        • But only if it is something that could be in high demand.

        • An investment isn’t risky, an unprepared investor is risky.

        • Be prepared for whatever happens:

          • The bull climbs up the stairs, the bear dives out the window.

        • Don’t make emotional predictions, be mathematical.

    • If you are prepared and find a good deal, the money will find you or you will find the money.  A good deal will attract partner investors / cash.

  • In any investment, the key is to evaluate risk / reward with accuracy.

  • Keep It Simple Stupid (KISS):

    • You should be able to explain your investments at a 10-year-old level.

      • If you can’t; you don’t understand it well enough to invest.

    • If you let the ups and downs of the market run your life, you should not be an investor.  A true investor will make money either way.

      • Use logic, not emotion.

  • STEP 1:  Have a plan for security and a plan for comfort.

  • STEP 2:  Learn the skills of a successful business owner - then you will know what to look for in successful businesses - stocks.

    • The best way to become rich is through business building.

      • Business owners know to trade excess cash for investments.

        • Passive and Portfolio income.

      • Never stop growing / learning!!!

  • Don’t base your financial decisions on the opinions / expectations of others - Don’t follow the averages!

  • Don’t fear making mistakes - “The biggest failures I know are people who have never failed.”

  • When making an investment, look at the business / investment financial statement, then match it with your own to make sure it fits.  Include any debt for borrowed investing money.

    • The best investment opportunities are found:

      • Understanding accounting, tax codes, business law and corporate law.

    • A key to becoming wealthy is to keep an updated personal financial statement (balance) and read financial statements on a regular basis.

  • 90/10 investor question - Focus on creating your own assets for the asset column, rather than buying assets.

    • Not just creating companies, but content that brings in money (books, internet, etc.)

    • Your real job is to create assets.

  • Ten Investor Controls:

    • 1.  Yourself

    • 2.  Income / Expense, Asset / Liability Ratios

    • 3.  Management of Investment

    • 4.  Taxes

    • 5.  When you Buy / Sell

    • 6.  Brokerage Transactions

    • 7.  ETC (Entity, Timing, Characteristics)

    • 8.  Terms and Conditions of Agreement

    • 9.  Access to Information

    • 10.  Giving money / knowledge back to the community

  • Levels of Investing:

    • 1.  Accredited Investor - Earns a lot of money or has a high net worth.

    • 2.  Qualified Investor - Knows fundamental and technical investing.

    • 3.  Sophisticated Investor - Understands investing and the law.

    • 4.  Inside Investor - Creates the investment.  Invests in his/her own company.

    • 5.  Ultimate Investor - Becomes selling shareholder.

  • Anyone can start as an inside investor, by building your own business - you can create your own assets.

    • IPO - Initial Public Offering - A great way to get rich, first by opening a company and opening bidding on stakes / shares of the company.

  • Two Types of Investing:

    • 1.  Fundamental Investing - Seek value and growth by looking at financials of the company… future earning potential is what you look for.

      • ie:  Warren Buffet - Track economy / industry of company.

      • Study financial statements and balance sheets.

    • 2.  Technical Investing - Invests on the emotions of the market and with insurance from catastrophic loss.

      • Studies patterns of supply / demand of company stock and fluctuations of the stock market. (market trends and stock prices).

      • One day the stick is in the news, next it isn’t.

  • All markets go up and all markets come down.

    • Don’t invest heavily into a bull market while it’s hot.  Keep cash reserves for when the market comes crashing down.  Markets are cyclical.

    • Bull climbs up the stairs, the bear falls out the window.

    • Never invest in stocks with borrowed money.

  • Use a stop loss when investing, better safe than sorry.

  • Have an exit strategy in every investment.

    • Learn investment terminology (one word per day).

      • Short sales, call options, put options, straddle.

  • Study P/E of the current year and compare with P/E of the past years to track growth… EPS CAGR.

  • The Sophisticated Investor:

    • Familiar with tax law, corporate law and securities law.

    • Investments based just as much on the law, as on investment product and potential returns.

    • ETC - Entity (control over choice of business - never form partnerships), Timing (control when you pay your taxes… ie: C-corp can pay taxes at any month of the year - extensions) and Character.

  • Business Structures:

    • C-Corporation:

      • Non-Professional (no doctors, architects, dentists, etc.) has a 15% tax rate… professional is 35% tax rate.

      • Operate from the B “business” quadrant, not the E “employee” quadrant.

      • Own your own business, the E quadrant gets screwed by taxes.

      • C-Corp benefits of S-Corp or partnership - those things are an extension of yourself.  The C-Corp is a different entity than yourself - better protection / liability.

      • If you want to be rich, your private citizen should be poor and penniless on paper.  Assets in the name of your companies.

      • Don’t own assets or liabilities in your name, or you become a target for thieves and lawyers - have the corporation own everything.

      • Do not strive to own things, but to control them through a corporation.

      • Make sure you have a team for your business (lawyer, accountant, etc.)

      • Passive and portfolio income are not subject to mediocre or social security taxes.

      • The purpose of a business is to buy assets.

        • McDonalds is a real estate company - has the most valuable real estate in the world.

  • The rich pay for things through their company using pre-tax dollars.

    • Buy assets first, pay taxes later.

    • Employees pay taxes first, then buy assets last.

    • Most big companies start as part-time businesses.

  • Don’t quit your day job, keep it and use extra time to start your own part-time business.

  • Don’t bother with making a great product - buy one from someone else and build better systems.

  • Don’t concentrate on one business, build many businesses - develop, then sell them.

  • Must have the entrepreneurial spirit - you are the business, not the product.

    • Build a successful business and sell it, then build another one.

    • Don’t settle.  Don’t let yourself become your hardest working employee.

  • Six Priceless Skills For Building Your Own Business:

    • 1.  Communication Skills

    • 2.  Leadership Skills

    • 3.  Team-Building Skills

    • 4.  Tax Law

    • 5.  Corporate Law

    • 6.  Securities Law

  • Three Reasons to Create a Business Other Than to Simply Create an Asset

    • 1.  To provide excess cash flow

    • 2.  To sell the business for profit

    • 3.  To build a business and take it public

  • Traits of a Successful Entreprenuer:

    • Vision

    • Courage

    • Creativity

    • Ability to Withstand Criticism

    • Ability to Delay Gratification

B-I Triangle

***Keys to Business Success

  • #1 Mission:

    • Every business needs a spiritual and a business mission to be successful - no matter how big a company gets it can’t forget it’s mission.

      • “To make money” is not a good enough mission.

      • The mission of a business should fill a need that customers want.

    • Ex:  Perkins Roofing - A trustworthy, efficient, reliable roofing contractor who is personable, has the client’s interest at heart and responds quickly.

    • Spiritual and business missions need to be strong and alligned.

      • Ex:  Perkins Roofing -  “Provide jobs and livelihoods for hard working, blue collar guys and their families.”

    • The entrepreneur must believe the mission for the duration of the life of the business.

      • When the entrepreneur forgets the mission, the company must be sold or dies.

        • Steve Jobs example:  Apple went downhill until they brought Steve Jobs back.

      • Invest with and in the spirit of a company and the entrepreneur. 

      • Focus of the company must be on the mission - this mission must serve customer’s needs.

  • #2 Team:

    • Business and Investing are team sports.

      • Team of Investors, every investor needs a team working for them:

        • Accountants

        • Attorneys

        • Brokers

        • Financial Advisors

        • Insurance Agents

        • Bankers

      • Dream of Success - not of money, of things you want.

      • How could someone minding other people’s business completely focusing on their own business?

      • Prioritize on building your successful team.

        • As an outside investor, look at the team behind the business.

          • Don’t invest in a company where those running it pay themselves fat salaries.

          • It shows their focus isn’t in growing the business, but in paying themselves.

            • Look for experience, passion and commitment.

  • Tetrahedron of Business:

    • This is a stable business structure, without any of these - the business can NOT work.

      • 1.  Business Owners

      • 2.  Employees

      • 3.  Investors

      • 4.  Specialists

  • #3.  Leadership:

    • Need leadership skills - more teams / businesses fail from the inside than from the outside.

    • Five Essential Building Blocks to a strong business:

      • 1. Cash Flow

      • 2.  Communication

      • 3.  Systems

      • 4.  Legal

      • 5.  Product

    • The ability to run a business from financial statements is the difference between a small business owner and a big business owner.

    • Do not make a purchase without a justifiable rise in sales.

  • CASH FLOW TIPS:

    • Cash flow is the life blood of the company.

      • In the development phase do NOT take a salary or keep salary low.

      • Start your business part-time, keep your full-time job.

      • Invoice quickly

      • Require payments up front.

      • Require credit applications - if needed.

      • Establish late payment penalties and ENFORCE them.

      • Keep OH to a minimum.

      • Have an investment plan for cash on hand to maximize earning potential (personally and as a business).

      • Review cash position, funding needs and expenses daily.

  • COMMUNICATION MANAGEMENT

    • The better at communications you are and the more people you communicate with / to, the better your cash flow will be.

    • Listen - To what clients want.

    • Internal and external communications are directly related to cash flow.

    • Raising capital is the most important job of an entrepreneur - keep cash flowing in until a stable structure / system is built.

    • Sales skills are insanely important, as an entrepreneur.  Also, being an extrovert with no fear of rejection.

  • Defeat your fears and your world will open up, give in and your world will shrink every year.

  • TWO most important skills for the B quadrant:

    • 1.  Sales - overcome the fear of rejection.

    • 2.  Public Speaking - “toast masters”

      • Must dress the part - only one chance to make a first impression.

  • Marketing - Selling through a system.

    • 3 Ingredients to Marketing / Sales:

      • 1.  Identify a need.

      • 2.  Provide a solution.

      • 3.  Communicate a sense of urgency to customers, “What’s in it for me?” and special offers.

  • SYSTEMS MANAGEMENT:

    • Many small businesses fail because the operator has too many systems to monitor - delegate tasks.  Spread management duties out to responsible managers.

    • Real estate is the best investment to start with - fairly stable market.

    • Banks loan money for business if you have a stable system and can demonstrate the money will be paid back.

      • Look at McDonalds - run by teens all over the world, but it’s still successful because of the superior system.

    • Systems are the business, without proper systems, a business can NOT be successful.

    • The more you can formulate and define the specifics and systems of your business, the more efficient it will become - and the more of a saleable business asset the business will become.

  • Inside of the B-I Triangle from most important to least important:

    • Cash Flow

    • Communications

    • Systems

    • Legal

    • Product

  • Most investors thing the product is the most important aspect of the business, but it’s not.  A product can also be a service.

    • “Most of us can cook a better burger than McDonalds, but few have a better business system.”

  • “True happiness is not attained through self-gratification, but through fidelity to a worthy purchase.”

  • If your company and B-I triangle (systems) are successful, the company should be able to operate without you or your hard work and make more money.

    • Being too “hands on” keeps you poor.

      • The success of business is through building systems, not keeping busy.

      • If one part of the triangle is weak or falters, the entire company can falter.

  • Before you build a business, have a solid plan on what you want to get out of the business and how to get out - sell it?  IPO?

    • The key to keeping your wealth is to constantly evolve - don’t be an old stubborn dog.  Stay ahead of the curve and learn new tricks.

    • You don’t need new ideas to become rich, just need to improve on old ideas and have a better B-I triangle.

  • Always challenge your own business and ideas.

    • Old ideas don’t make money - continually refresh your business plan.

  • If you don’t risk failure - you will never succeed.