Oct 13, 2010

Investment Gems from book "Rich Dad's Guide to Investing"


Introduction to a New Initiative from MEGHA INVESTMENTS AND RESEARCH team:
Friends and readers,
I am very glad to present to you the first step towards a new initiative from Megha Investments and Research.
It is in the form of invaluable excerpts from books and personalities of high esteem, knowledge and vision in the world of investing, finances, business and economy.
Many of you have asked us about our secret of success. And here we present one of the very powerful and important facet of it. We do extensive reading and out of it many times there is only a single line of lesson or learning for us from study of a book of a thousand page. While many times we find a well of lessons from a book as tiny as 20 or 50 page. It is not that we have a line of a lesson or learnings of a hundred pages. Because we do not study books to learn from page 1 to page last. It is the extract mainly. It is those few gems, for some books it is those few lines only; that we earn while doing the task of studying a book. Yes, earn is the word we use. Because when you study a book out of seriousness and perseverance, whatever you learn, you’ve earned it.
Any ways, from now on, under this ‘tag’ of ‘book excerpts’, we will present excerpts and comments wherever necessary,  from the books that we study and feel beneficial to the investor community.

Regards,
Yogesh Raval,
Manager


HERE ARE THE EXCERPTS FROM BOOK “RICH DAD’S GUIDE TO INVESTING”
BY ROBERT T KIYOSAKI
NOTES:
We have tried to give interpretations and explanation wherever required.
The author has broadly written the book keeping in mind the USA readers. So we have skipped or modified such instances wherever felt necessary.
Due to ease of explanation and keeping in mind the copyright issues we have not put all the ditto sentences and texts but modified many of them.
Robert Kiyosaki’s view, in almost all his books, are focusing on becoming rich and riche. In this book on investing as well he emphasizes on investing to become rich. So while reading these excerpts; please keep this fact in mind and take lessons accordingly your economic status and desire to become rich and how.
The author has dedicated a large part of the book n describing and how to achieve the status of accredited and sophisticated investors, as they are defined by the SEC, the US counterpart of our SEBI. This enables one to invest from ‘inside’ i.e. through VC, PE, QIB, Private Placement, pre-ipo placement and so on.
While there are a lot of gems and lessons that can be extracted from this book, but keeping in mind the general visitor and viewers of this website, we have tried remain focused on investing lessons that can help all, while selecting and presenting these excerpts.
If you find any query or question or want to put a comment or discussion on any of the excerpts, please feel free to write to us.
THE EXCERPTS:
ü  The advice to average investor is ‘Don’t be average’.
ü  Wealth is the way of thinking, and not the money amount in your bank account.
It is the Thinking Pattern of rich investors that makes them successful investors.
ü  Learn about ‘business’ if you want to become a successful/rich investor. Because what we ultimately invest in is a business.
ü  Most of people are not rich because they invest as individual and not owners of business.
ü  If your investment portfolio/amount is large than do not invest as an individual. But instead take a route of trust/huf/company by which you benefit from lower tax and such other benefits.
ü  The average investor does not make money in the market. They do not necessarily lose money. They just fail to make money. So many investors make money one year and give it all back the next year.
ü  Money is just a point of view.
ü  If you want to be rich, just find out what everyone else is doing and do exactly the opposite.
ü  The 6 differences between average investors and rich investor:
1.    Most investors say “Don’t take risks.”. the rich investor takes risks.
2.    Most investors say “diversify.” The rich investor focuses.
3.    The average investor tries to minimize debt. The rich investor increases debt in their favor.
4.    The average investor tries to decrease expenses. The rich investor knows how to increase expenses to make themselves richer.
5.    The average investor has a job. The rich investor creates jobs.
6.    The average investor works hard. The rich investor works less and less to make more and more.
ü  Money will be anything what you want it to be.
ü  Any investment instrument of vehicle is not the ends, it is only the means to achieve the end i.e. objective of investment.
Investing is a plan and Not a product or instrument.
Trading is a procedure or technique.
Do not invest until you have a plan.
ü  Simply buying low and selling high is not real investing.
ü  Too many so called investors get attached to one investment product and one investment procedure. For example, a person may invest only in stocks or a person may invest only in real estate. The person becomes attached to the vehicle and then fails to see all the other investment vehicles and procedures available. The person becomes an expert at that one wheel barrow and pushes it in a circle forever.
A true investor does not become attached to the vehicles or the procedures. A true investor has a plan and has multiple options as to investment vehicles and procedures.
All a true investor wants to do is get from point A to point B safely and within a desired time frame. That person doesn’t want to own or push the wheelbarrow.
ü  There is more to an investment plan than simply investments and money. A financial plan is important before someone begins to invest because it needs to take into consideration many different financial needs. These needs include college education, retirement, medical costs, and long-term health care. Many of these often-large and pressing needs can be provided for by investing in products other than stocks and bonds or real estate, such as insurance products and different investment vehicles.
ü  The problem with being young is that you don’t know what it feels like to be old. If you knew what being old felt like, you would plan your financial life differently.
ü  “The only reason I go to the market is to see if someone is about to do something silly.” – Warren Buffet.
ü  Most people think investing is exciting process where there is a lot of drama. In fact investing is a plan often a dull, boring and almost mechanical process of getting rich.
And this is also the reason why it is so hard for most people to follow a simple plan….because following a simple plan to become rich is boring
Human being beings are quickly bored and want to find something more exciting and amusing. That is why only three out of a hundred people become rich. They start following a plan, and soon they are bored. So they stop following the plan and then they look for a magic way to get rich quick.
They repeat the process or boredom, amusement, and boredom again for the rest of their lives.
NOTE FROM US:
That is why we also sell simple PMS portfolios and not every time like to advertise like ‘buy multibagger stocks’ or ‘buy stocks at throw away prices and so on. Our standard ‘ready-to-invest portfolios’ are simpler yet effective form of extracting the best out or stock market investing. A best trade-off between diversification and market-beating returns!
ü  Nine out of ten investors do not make money.
ü  We must look at how well strategies, not stocks, perform.
ü  …always remember that it is best to start by walking before you begin to run in a marathon.
ü  ...and when it comes to investing I learned more from my bad investments, investments where I lost money, than I learned from the investments that went smoothly.
…if I have ten investments (not necessarily stocks), three of them will go smoothly, and be financial home runs, five will probably be dogs and do nothing and two would be disasters. Yet, I would learn from the two financial disasters than I would from the three home runs…
ü  Write a financial plan for life-time financial security.
ü  Time is more precious than money. (Time is an asset)
Think like you are buying time when you are taking a 30 minute route by plane than 13 hours by train. Thus the 12.5 hours are think of them as you have bught them by paying money, by way of paying extra fair to take the air route than going from train route. Thus the moment you think of time as precious and that it has a price, the richer you will become…
Price is really measured in time.
Poor people measure in money, and rich people measure in time.
ü  Think money as only a medium of exchange. In reality, money by itself has very little value. So as soon as I have money, I want to exchange it for something of value.
ü  …many of people try to get rich by being cheap (miser). But at the end of the day, you may have a lot of money, but you’re still cheap!
ü  95% of all small business fails in the first five to ten years.
…Don’t be in such a hurry to make money, that you eventually lose both time and money.
ü  …so if you want to move onto the rich level of investing, you are going to have to invest much more time than you do (meaning learning how to invest to become successful, or find a good advisor, or financial/investment team. Otherwise invest for getting usual market return, remain an average investor, if not worst to even lose)
ü  3 reasons why people say investing is risky:
1.    They have not been trained to be investors.
2.    Most investors lack control or are out of control. (of the investment vehicle and self as well)
3.    Most people invest from the outside rather than from the inside.

ü  Saving money is for the masses but not for anyone wanting to become rich.
ü  People who think things are risky often also avoid learning something new.
ü  First become an investor. You’ll become far richer if you learn to be an investor, regardless of what you do to earn the money along the way.
ü  Investing is not a race. You are not in competition with anyone else…you are not here to try to finish first. All you need to do to make money is simply focus on becoming a better investor.
ü  …most people never learn the simple basics of investing before investing their hard earned money.
ü  …All securities are not necessarily assets as many people think they are…
…so it is up to the investor to know which securities are assets and which securities are assets and which securities are liabilities.
Suppose I have some number of shares and I sell half of them at profit then those, shares were an asset for me. But, if I sold the other half of them at below cost price then those same stocks are a liability to me because it generated a loss (expenses).
(Thus, the same security can change from being an asset into a liability)
“So there are investments called securities in which I invest, It is up to me as the investor to determine if each security is an asset of liability.
ü  It is not the investment that is Risky or not, but it is the investor.
(for example, if everyone invest rationally/say use value investing and knows intrinsic value of a share of any company and not buy above it, anyone who buys will make money and no one lose money in that)
ü  Listening to tales of quick money and instant wealth is a fool’s game…
ü  Most people just think a contrarian investor is anti-social and does not like going along with the crowd. But that is not true.
ü   An investor is prepared for whatever happens. A non-investor tries to predict what and when things will happen (for e.g typical brokerage reports)
(For e.g. people would say,
“I could have bought that land for $500 an acre 10 years ago and look at it now someone built a shopping center right next to it, and now that same land is $500000 an acre!
“I could have bought XYX LTD. shares at Rs.100 in last crash, and now look at it is trading at Rs.1000 a share!
…both are a case of someone not prepared. Most investments that will make you rich are available for only a narrow window of time…if you are not prepared, the opportunity will pass…
ü  I have heard many people when presented with a good investment opportunity, back away from the investment because their core fears begin to predict the disasters that will occur…They sent out their negative vibes and never invest…or they sell when they shouldn’t and buy something they shouldn’t buy based on either optimism or pessimistic emotional predictions. (this is a typical reason small/retain investors never benefit from investing in a crash/bear market)
ü  If someone cannot explain the investment to you in less than two minutes, and you understand it, then either ou don’t understand, he doesn’t understand, or you bothe don’t understand. Whatever the case it is best that you pass on the investment.
OUR NOTE:
LIKE OUR ALL SERVICE ARE ALSO SO SPECIFIC THAT ANYONE CAN GET AN IDEA BUY HEARING FROM US IN TWO MINUTES. OR READING FOUR LINES WRITTEN TO DESCRIBE DIFFERENT SERVICES.
ü  A person can predict something happening may be once, may beeven twice, but I have never seen anyone predict anything regarding the market three times in a row.
ü  Time is your most important asset.
ü  The number one control you must have as an investor is control over yourself.
ü  Financial literacy is one of the most important investor basic.
ü  You invest for one reason: to acquire an asset that converts earned income into passive income or portfolio income. That conversion of one form of income into another form of income is the primary objective of a true investor.
ü  …being able to read financial statement will allow you to see investment opportunities that the average investor misses. The average investor looks primarily to price as the opportunity to buy or sell. The sophisticated investor has trained his or her brain to see the opportunities other than price.
ü  Where you will find the best investment opportunities is from understanding accounting, the tax laws. And it is in these invisible realms where the real investors shop for the biggest investment bargains. That is why I call the income statement and balance sheet the magic carpet.
ü  People and businesses struggle financially because they are out of control of their cash flow.
ü  The moer you read financial statement, annual reports, and prospectus, the more your financial intelligence or financial vision increases. Over time you begin to see things that the average investor never sees.
ü  I recommend training your brain to analyze financial statement.
Analyzing financial statements is basic to the world’s best fundamental investors, investors such as Warren Buffett.
ü  Mistakes are opportunities to learn something new, something we did not know before.
ü  The best thing a market can teach you is how to learn from your mistakes.
ü  …the rich invent their own money.
ü  “Thinking is the hardest work there is. That is, why so few people engage in it”
-Henry Ford.
ü  What good in making a lot of money if you don’t keep it?
Investing is the way smart people keep their money.
ü   Wait until you are rich, and the best investment will come to you first. The rich always get first pick of the best investments. In addition, the rich can buy at very low prices as well as in volumes. That is one of the reasons why rich get richer.
ü  Vision= The ability to see what others cannot see.
ü  A business needs both a spiritual and a business mission.
ü  Business is a team sport.
Investing is a team sport.
ü  The numbers tell a story. If you can learn to read financial statements you can see what is happening within any company or investment.
ü  The total risk that a company carries in its present business is the multiple of its operative leverage and its financial leverage.
ü  A sophisticated investor understands the terminology of the ratios and can use the ratios in evaluation the investment. However, the ratios cannot be used in a vaccum. They are indicators of a company’s performance. They must be considered in conjunction with analysis of the overall business and industry.
ü  …those who do not risk failing ultimately fail.

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