Why Don’t you Get a Job? – Cashflow Quadrant

With the continuation of the “Rich Dad, Poor Dad” series, I am hereby starting a series from the book “Cashflow Quadrant” which help us identify our core competencies and which area is suitable for us. And help us to achieve our financial freedom.   

The author explains that when he was homeless, unemployed with his wife and living in the car. Both of them did not get any job but they tried to do some work so that they get money at least for food and fuel their car. It’s always been important for such situations to have job security, steady paycheck. They were graduated and have a good skill set, but they have decided to achieve financial freedom so that they don’t have to work for the rest of their life. The author has achieved the initial part of freedom in the 4 years and remaining in the further five years.

We feel that we need money to make more money but we can see that author got financially free from being homeless once upon a time (Rags to Riches). Then we might have a question in our mind that what is needed to become financially free? The answer is – we require to have a dream, determination, willingness, skill to learn quickly, ability to use our skillsets.

Where we fall under the quadrant, that will identify the way cash flow comes to us.

We have seen in series of rich dad poor dad that – What our schools and poor dad teach us is to get good employment or self-employed. They don’t teach us to do investment. While rich dad advises us to go to school, graduate, build a business and become an investor. This book is for those who are E or S and want to achieve B and I. This is not an easy journey to shift from steady paycheck to volatile paycheck of B and I.

Different quadrant requires a different skillset, different psychological requirements. Employees and self-employed are low with risk-taking behaviour whereas B & I are known for their risk-taking behaviour. B & I require to have a vision (not a Vision from WandaVision ?) that enhance their future success. 

For example – a doctor can be work at a private hospital as an employee or start a private practice as self-employed or open a clinic & hire other doctors as an employee to become a business owner or make an investment in other businesses.

We can become a millionaire or go broken in any of the quadrants, no quadrant gives grantee of financial freedom. Many of us show off due to social fear that money is not at all important for them. But we are working a whole life for the money and then showing off that it’s not important then it’s a wrong thing to do.

Rich dad believed that life is more important than money, but money is important for supporting life. For doing many things in life, we require money. We cannot buy happiness through money but what we need to make us happy is bought through money so that money is important. The major thing upon this all is we have to learn that money work for us, rather we work for money.

For knowing which quadrant suitable for us, we need to work in all four quadrants. These help us to know our temperament, likes, dislikes, strengths, and weaknesses. So that we can choose our suitable quadrant.

If we try to understand that financial freedom is a freedom of time. Getting time available with family, for health, for well-being. Not anyone quadrant is better than others but it’s upon us which one suitable to us. But if we choose to opt for B or I then we need to put a huge effort because the skills required in B and I do not teach us during our school days.

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.

Michael Batnick Looking in the Mirror

Mr.Batnick has mentioned that he has made each of the mistakes made by other well-known investors. He was not clear during his college studies regarding his career. Lastly, he completed his studies into the economics and got a job at a financial planning company for selling insurance. He has sold a policy to his family and not able to sell anything to others. During his job, his father introduces him with a financial advisor and Mr.Batnick has taken place his liking for the wall-street.

During the year 2011, Mr.Batnick has started trading ETFs which are 3x levered. He thought that he can create a fortune by trading. During that time, he got a temporary job and due to his job, though he is not able to stick to the computer, he started trading through options.

He was bearish on the Netflix so that he bought put option of Netflix before earning got announced. The stock fell by 35% and he earned 10 times of his original investment. He started reading on trading, technical analysis. He knows that he couldn’t beat the market but he keeps on doing the same because he does not know anything else.

During the year 2012, he got hired by Josh and Barry. And his journey got started.

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We all have made a mistake to think the stock market as a money printing machine where we put an order and machine make us billionaire sooner. We need to understand that this is not a machine but it’s a platform which facilitates us to make an investment into the various businesses. Businesses having a good time, bad time, best time, worst time as per our life. So that we need to give time to the business to grow, to prosper for creating wealth for every investor. It is just a platform, it does not have emotion, it drives through our emotions.

Everyone has made a mistake, the main difference between best investors and normal people is, best investors learn and grow from their mistakes but normal people do not, they keep their mistakes into their mind and bring them back to achieving the goal. If we want to grow then we need to learn from the mistakes and improve our way of doing things. If we keep on doing things in the same way then the result will remain as same as we have achieved during our mistake. Mistakes provide us an opportunity to change, learn and improve in the way we perform our job.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

Chris Sacca Dealing with Regret

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Many of the immature investors buy overvalued stocks and then they sell when those stocks become cheaper in nature. But this is a wrong way of making an investment and making a decision. If we keep on making a wrong decision, then we keep on feeling a regret which affects our decisions. Our mind carries a past experience which affects our decision. As an investor, we need to make every new decision independently without getting effects from the past experience. If we have a bad past experience then our current decision will affect our regret and if we have a good past experience then our current decision will affect our overconfidence.

After the bad experience, people work more cautiously until they do not again start playing the game. As we again start playing a game, our past experience starts affecting us. When things go up then also greed for taking out profit stop us from getting more gain.

Mr. Chris Sacca is the founder and chairman of Lowercase Capital which is a venture capital fund. This fund considers as one of the successful venture capital funds which have recorded return of 250 times from its initial investment. This fund has put $300000 of a fund to Uber, currently, it’s 5000 times. Some of the other success of Mr. Sacca was Instagram, Uber, Kickstarter, Slack, Automattic (WordPress parent company), Twilio, and Twitter.

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He has also a regret of pass on some of the investment. One of the business was Dropbox and giving a pass on to the Dropbox cost him a lot. Another miss of Mr. Sacca was Snap, the parent company of Snapchat. He can speak for his misses because he has a more winner also which has created a fortune. But if we have missed an opportunity or sold-out good businesses earlier then we always remain into the regret. We actually need to move on to the opportunity which we have missed out and need to focus on the other coming opportunities.

Emotional biases affect us badly during our investment journey. If we have a winner into the portfolio and we sold it then also the winner keeps on growing. If we have a loser to the portfolio and we have cut losses then stock again gains from that level. Such situations affect the decision making skill and we make faulty decisions.

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As we have seen that Mr. Sacca has missed a few opportunities, Mr. Buffett has missed many and also he has lost money in a few of his investment. Important is that they have never kept their regret with them which has helped them to build an empire. We have to move on rather than sticking with the past decision or getting attached to the previous decision. Our life is full of such decisions and if we stuck with it then we will not make further decisions in our life. We have to learn from our decision and use it for further decisions.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

Charlie Munger Handling Big Losses

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Majority of the big winners’ companies have also seen the worst period during their journey. It is not necessary that if the company has delivered a 25%+ CAGR then it will get into the smooth way. There always be a huge up and downs to it. Many storms such companies have experience but as investors, we need to stay during those storms if we have made an investment into the great companies then only we can able to earn good returns from it.

Mr. Munger has established a hedge fund company, Wheeler, Munger & Company in the year 1962 which has a pre-fees return of 37.10% during the year 1962 to 1969. And 14-years of partnership, Mr. Munger has delivered around 19.82% CAGR compared to 5.20% CAGR with the dividend of S&P500.

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If we love when stocks moving into the upward direction then we must have to be ready to accept its downward journey also. It is a part of the game and without accepting the losses, we cannot become a seasoned investor. Even Mr. Sachin Tendulkar cannot hit a century into the each of the match, some of the match having a ZERO score also. If he only focuses on the century then it might be possible that he cannot able to play well. Similarly, if we keep focussing on the scoreboard then we may not able to create a good investment fortune.

Mr. Munger has an investment of 61% of his portfolio to the Bluechip stamp and original business of the bluechip stamps has started getting deteriorate from the peak revenue of $12.42 crore in 1982. Bluechip has made an investment into the See’s Candies, the Buffalo Evening News, and Wesco Financial before getting merged into the Berkshire Hathway in the year 1983.

The firm of Mr. Munger has lost 31.90% in the year 1973 and 31.50% in the year 1974 v/s 13.10% and 23.10% decline of Dow Jones respectively. And he bounces back by 73.20% of the gain to the year 1975 but few of the large investors have left him which break him mentally and emotionally. He decided to liquidate the partnership. But after the worst performance during the year 1973-1974, Mr. Munger has delivered a 24.30% CAGR before fees.

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We need to be mentally ready for the big losses during our investment journey if we want to earn a decent return for the long term. If we are not mentally and emotionally ready we will not able to survive to the investment journey.

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We should not sell stocks just due to a fall in the price of the stocks. If we keep on doing such practices then we will not survive for the long term to the stock market. If we know that stock can fall by 50% after we bought it, then we will make a position which is comfortable for us during the decline.

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We need to make a balance between equity and debt as per own comfort. So that we can able to play an investment game in a good manner. Also, get the strength of absorbing such shock.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick