WHY PEOPLE CHOOSE SECURITY OVER FREEDOM

Why we seek job security over freedom? Because we taught in such a way at school as well as at home. Our mindset has to get developed in a similar way where we seek security first. So, E & S quadrant people are motivated by security whereas B & I quadrant people are motivated by freedom.

Similar to the debt trap, there is a very interesting success trap. When B quadrant person gets success, they expand their system, then hire new talent, they work hard. B quadrant person also invests and when it meets succeed, they reinvest it. So that as time passes, they attract more success and which results in the freedom of time. They have time for family, for their hobby, etc.

Financial intelligence does not mean by how much money we make but it’s how much money we keep and that work for us. Also, money keeps working for how many of our generations.

Rather than this, what middle-class people do it. They work hard for a paycheck then they make a plan to save tax, take a home loan to write off interest to save tax. So, they again work hard to pay bills. When people get a job with a high paycheck and benefits, they work hard more to pay bills and increase more liabilities which increases more bills. They jump from one job to other to get a higher amount of paycheck with job security.

S quadrant is the riskiest and needed huge efforts. As they have to do it by themselves so for achieving success and keeping it, they have to work harder.

Many of the E quadrant people start a business by deploying their lifelong savings, borrowing from friend’s family to start a business. And after 2-3 years when the business starts generating cash flow then they have to pay debt first. ~99% of the business getting disappeared in the first 10 years of establishment.

B and I quadrant person also legally take tax advantages compared to the E and S quadrant person. Most people do not focus on the asset column to generate more income but they focus on income and increase in liabilities. Knowledge is a power which used by B and I quadrant people to grab opportunities when it arises. This also gives them confidence. So, if we are into an E quadrant and simultaneously learn about the I quadrant then it will help us to get financially free, also make us confident. Few people are good with both the side of a quadrant, they get a good paycheck, security as an employee and also invest to create more wealth. People those do not have investment knowledge, then they tend to park money in FD or other deposit which is good compare to people who do not save or invest. But this investment does not help us to fight against inflation. If we rely on our employers that they will make us rich then it’s not to be their responsibility. Their responsibility is to provide a steady paycheck to us. It’s our responsibility to create investment to become rich. When we have an abundance of money and time then we directly jump to the I quadrant. But if we do not have time and money then we have to follow the safer path.

Investing is also an investment into the business so it’s advisable to understand businesses. Investing is capital and knowledge-intensive so we have to ready with both for being successful in it.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for development of Lucky Idiot website.

Different Quadrants, Different People

People of different quadrants have fear, doubts, beliefs, strengths, and weaknesses, but all people respond to them differently.

We all have acquired technical skills but we have to learn emotional abilities as well. Also, when we faced difficulties then how we respond to them, will decide our future. When we face difficulties then either we go back to our comfortable quadrant or face it and choose to be free. This ability is much needed to become successful in our life.

Even though we’re all human beings. when it comes to money and the emotions attached to money, we all respond differently. And it’s how we respond to those emotions that often determines from which quadrant we choose to generate our income.

Changing quadrants is often a change at the core of who you are—how you think and how you look at the world. The change is easier for some people than for others simply because some people welcome change and others fight it. And changing quadrants is most often a life-changing experience.

When we belong from the E quadrant then we talk about safety, security, good paycheck, etc. E quadrant people prefer to get a certainty, extra benefits. They have security is more important rather than money.

S talks about their commission on an hourly basis or percentage of the entire project etc. These people prefer to be their boss, like to do their work, like independent rather than money. In many respects, they are true artists with their style and methods of doing things.

B quadrant people talk about hiring new talent, new president etc. for business. They are the opposite of S; they hire people rather than do work themselves. They like to delegate works; they keep thinking to produce better growth. Business requires leadership skills that help us to bring out the best from people.

And I quadrant people talk about the rate of return, risk-adjusted return etc. For the understanding core of the people, we need to be a listener. This helps us to understand the core of people and we can lead them.

People think that they only get financial security by establishing a business. So, for that many starts from Employees to self-employed and then transfer to business. Many from self-employed to business. And many employees to business but not all can achieve success because each quadrant requires a different type of human and mental skills. When S goes for a B then first has to learn to prepare the system and hire competent staff. As he as a system in S quadrant.

When people try to shift from E or S quadrant to the B quadrant then they have such thoughts in the mind. The people who try to shift from E or S to B then they think to have a better product or services compared to XYZ but the B quadrant requires a better system.

I quadrant is the last quadrant where we can able to convert our money to wealth.

For creating wealth, we require Other People’s Time and Other People’s Money. So, E and S quadrant people are other people and B and I use their time & money to creating wealth.

When we compared the cash flow of rich person and middle class than rich have the majority of ~80% income from investment and ~20% as wages. Whereas the middle class have reversed to it, their ~80% of income comes as wages or commission and ~20% from investment. And for becoming wealthy, we need to get passive cash flow from different assets.

The definition of wealth is the number of days you can survive without physically working (or anyone else in your household physically working) and still maintain your standard of living.

When we do not focus on this part then when we have an extra income, we buy liability from it and liabilities will result in the expense. This is a wrong practice. We also make some wrong practice of making an investment which generates income after completion of our working years. We need to focus on making an investment that generates income during our working years and help us to becomes Financially free.

People avoid investment due to risk but there are possibilities to earn a decent return by lowering risk. We have to learn it. Those who want a safe return, avoid taking a risk but rather to avoid taking a risk, we need to learn to manage it. When we able to learn such skills then the “I” quadrant always welcome us.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for development of Lucky Idiot website.

SIMPLE IS BETTER – ISSUE -9 – OUR LIFE AND INVESTMENT – 3

We have seen profit and loss statement in issue 8. Now, in the current issue, I am going to discuss on the balance sheet. The balance sheet is another important financial statement which is essential for analyzing the financial strength of the person and of the company.

“A Balance Sheet is a statement of the financial position of a business which states the assets, liabilities, and owners’ equity at a particular point in time. In other words, the balance sheet illustrates your business’s net worth.” – The Balance

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -9 – OUR LIFE AND INVESTMENT – 3

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “THE RELATIONSHIP BETWEEN PRICE AND VALUE”

As we have discussed regarding value in the previous article of a Bibliophile. Now, I am going to talk about the 4th Chapter of The Most Important Thing – The relationship between price and value.

01 P&V

There is not an availability of any asset class which having a birthright for providing a higher return. If we bought a particular asset class at an appropriate price, then that provides us a higher return to safety.

02 P&V

An example of one the biggest wealth creator company of the Indian stock market—

INFY Chart

If someone has bought this company during the March-2000, At the high price of around Rs.431 then after the 16 years of the period, he gets returned at 7% CAGR. And if enter to the similar company at the low price of around Rs.275 during the March-2000 then after the 16 years of the period, he gets a returned of 10% CAGR (*Considering all time high price for calculating returns). Though revenue grew at 30% CAGR, Operating profit grown at 27% CAGR and Net profit also grown at 27% CAGR during the same period with supported by the good management team.

If we buy such a good thing at a too high price, then we have to wait for the very long time for getting fair returns rather getting superior returns. But if we have bought junk asset class or good asset class at an appropriate value, then we can able to create a superior return.

We should focus on correctly buying an asset at a cheaper price so that we need not keep focusing on the selling decisions. Because our buying decision provides us a huge safety. Whenever we buy any stock at a cheaper price and all our calculations of intrinsic value are correct, then over a period of time, the stock price should reach its intrinsic value.

So, that One of a good idea of making an investment is to buy whenever the pessimistic situations around us which provide us a good return with proper safety. But such scenario not always comes. This means we construct our portfolio at the time of crisis, but every time, we cannot stay only dependent on the crisis for making our buying decisions.

03 P&V

Thus, most important are to understand the relationship of price & value. By knowing the relationship between price and value, we can able to take an advantage of mispriced valued stock and consistently create a wealth for the longer period of time. We also need to understand the Psychology of investors along with the understanding the price – value relationship because the psychology of investors can drive stock prices in the short run. But at a longer period, the price should reach its intrinsic value. So, that it is an essential for us to buy an asset at a discount from its intrinsic value.

IT Bubble

Infra & Logistics

04 P&V

Investors Psychology is also one of the important factors along with the Fundamental value of the security which can drive stock prices to an extreme side and that provide us an opportunity for our entry/exit. We should avoid falling into the trap with short term price fluctuation due to the psychology of investors but should take an advantage from it.

05 P&V

06 P&V

RKD BUY

People never focus on the price at clever people make an investment. But they start herding towards the news of such deals. So, that more and more people start buying the same stock and due to the flow of buying, the stock starts rising and again more investor start buying into it and stock start rising again. Thus, psychology drives a price much more rather than its fundamental in the shorter period of time. Everyone starts creating stories after the clever people make an investment, those stories drive the price of the asset class at extreme direction.

As per the Howard Marks, there are few ways by which we can earn a profit on the investment:

  • Benefiting from rising in the asset’s intrinsic value.

In this method, an investor has to predict accurately to the improvement in the intrinsic value of the assets in the future. But this task is not as easy as it seems. We even don’t know our future and we are going to predict the future of the intrinsic value which is very uncertain in nature.

  • Applying leverage

Leverage means investing using borrowed money. Leverage always works as a double edged sword. It can either make you or will break you. It magnifies both gains as well as losses. So, leverage might provide us a higher return, but it can also create a threat to our own capital. Selling for more than your asset’s worth

  • Selling for more than your asset’s worth

Here, we need to hope for the buyer who is ready to buy an asset at a higher price. If we are holding an asset which is overpriced or fairly priced than we need a greater fool to buy an asset from us at a higher price.

  • Buying something for less than its value

In this option, we are buying an asset at the discount, from its intrinsic value. It’s just required for the proper functioning of the market and that brings an asset to its intrinsic value. This can be one of the most useful ways to make a consistent return with a safety of our capital.

Sultan Mirza

Click for Video — Sultan Mirza

As we have seen in the video that Ajay Devgan has bought Guava at a very high price compared to the real value of the Guava. We have many a time experienced such kind of the irrationality among the investors who focus on story prevailing at market space rather than focus on the real value of the particular stock. We will not always able to meet Sultan Mirza (Ajay Devgan) / Irrational investor who buy an asset from us at a very irrational price. So, that we always need to focus on the buying an asset at a discount from the real value for getting a consistent return to safety.

Read for more detail: The Most Important Thing Illuminated by Howard Marks

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