MIND YOUR OWN BUSINESS – RICH DAD POOR DAD

Posted on July 12, 2020 by Jimit Zaveri under Bibliophile: Rich Dad Poor Dad

We have seen in the previous chapter that many of us working for the others and lastly that would keep us into the financial struggle. We consider many things as an asset such as a car, wristwatch, expensive products, smartphone etc. But does it have the same value when we going for sold?

Though we are doing a job we need to build an asset which has a real value. This act only can help us to become rich.

RDPD03 01

When we earn during our job, we need to focus on buying an asset rather than spending money on luxury items. Rich spend last on luxury items but poor spend it on first. These luxury items will create an impression of a rich person but actually, we stuck into the more debt trapped. We should focus on not to look rich, but to be rich. We need to understand the difference between looking rich and being rich. Looking rich is easy nowadays and anyone can look rich but being rich is difficult. We have to control our emotions, saved ourselves from social traps, not falling into the debt trap, etc. We need to make an arrangement that our assets earn for us and we buy luxury from that income rather buy it on the credit. Credit help us to fulfil our temptation immediately but using that we cannot put our step forward to being rich.

Poor and middle-class people suggest that rich people should get punished through tax but actually, middle-class people get highly punished through taxes. They try to look rich and buy an asset which does not have real value so that they have to pay a tax when they acquire depreciating assets. And rich people buy appreciating assets which don’t have higher taxation compared to depreciating assets and also earn income from it.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

Read for more detail: Rich Dad Poor Dad: What the Rich Teach their Kids About Money that the Poor and Middle Class Do Not!

WHY TEACH FINANCIAL LITERACY? – RICH DAD POOR DAD

Posted on June 28, 2020 by Jimit Zaveri under Bibliophile: Rich Dad Poor Dad

If we see many of the richest people have failed and died in a poorer life. What happened to them? What can be the true reason?

If we have a Money without proper financial intelligence then it will sooner or later find a way to go away from us. It is not always important to make huge money but important is to learn how to keep money with us. If we make huge money and does not able to keep it with us then that is of no use.

“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets,” said rich dad.

We must have to understand the difference between assets and liability for getting rich.

What we need to understand for understanding assets and liability are – An asset puts money in my pocket. A liability takes money out of my pocket.

RDPD02 01

RDPD02 02

RDPD02 03

As our income increases, similarly, our expense increases or might be increased higher than income. This will further increase our liability side such as mortgages, credit cards payments, etc. We go for the shopping, we make shopping with full of credit card, we extend our loan for 30 years to make yearly lower payments. And these all keep pushing us to the rat race. These liabilities make us helpless to continue with the rate race. But when we look for the cash flow pattern of a rich person then the rich person has many assets which help to manage all the expenses and also has multiple income streams. Creating multiple assets only help a person to become a rich person.

A person can be highly educated, professionally successful, and financially illiterate.

We keep on repeating the same mistakes again and again – get a secured job, work hard to get a good paycheck, diversify, our house is an asset, our house is our biggest investment, don’t make a mistake, don’t take a risk etc.

Fear of sports, relationships, getting socialize, career, business, money and all these attract us to play in the safe. We start evolving ourselves, outlook our fear and look inside to find out our wisdom. Our education system is designed in such a way that we get trapped into many of the fears. Schools teach us to study well, get good grades, get a good job. Does it solve our actual problems? When I look back and think then I got an answer that they produce me as a good employee but where are the good money handling skills, skill to engage money to work for myself, skill to become an employer? I have to build all these by myself and if we think calmly then similar has happened with the majority of us.

The mindset of the majority of us in the society is led us towards a safer zone which creates a distance. This mindset creates distance between rich mindset people and poor mindset people, between us and the majority of society. The same I have observed in my life. I always remain a bright student during my studies because I always taught in a way that I have to get a good grade and get a good, secure job. Though many of my family members are engaged in the business. I never have forced to do what everyone else said, I have a freedom of decision but I cannot get escape from the mindset of everyone and engage into the biggest mistake with accepting that common mindset. I have always told to my professor that one day I will become a successful businessman but my mindset was not suitable for that decision. My mindset is of getting safer and secure, fear of losing paycheck due to struggle in past. I experience that struggle with the proper mindset can build us stronger but struggle with a poor mindset builds us weaker. So that as I keep on achieving my different dreams but get distance from original dreams of becoming independent, freedom of time and getting financial freedom. I am telling this from my experience that, it is much difficult for us to change our mindset. It took a tremendous time for me. I suggest it to everyone that we should get out of the trapped from such fears in our early life, else we have to suffer a lot and have to do a tough fight with ourselves to get proper mindset.

I have discussed in the previous chapter that we should use emotion to favour our financial decision. But we get much emotional when it comes to making a financial decision. Especially house, I have a personal experience regarding it. All of my relatives forced to sell off my old house and moved to the bigger house by taking a huge loan for 20 years. In our society, the house is our status symbol, good big house for welcoming society people, proof of getting more wealthier (as we get wealthier, we have to move from old smaller house to new bigger house), proof that we are working with a good paycheck, getting lots of hate & humiliation if not upgrading your house, vehicles, lifestyle with an upgraded paycheck. But no one guides an investment, how to make extra money which can support cash outflows, they advise how to stay with rat race only.

We should buy a house but first, we need to create an asset which supports the cash outflows due to purchase of a new house.

Why rich get richer? The answer is into the above image. Rich having a more asset than liabilities which generates enough cash flow to support all expenses and left with huge for reinvesting it for an asset. This process helps them to grows their assets and income from assets. Such activities led to make them richer.

Opposite activities performed by the poor and middle-class people. And that brings them down more and more. Also, keep them into the rat race. This class only has one source of income and that is salary. So, for increasing their income they have to be strongly performed into the rat race. Poor and middle-class people are taking the major risk by playing safer and not taking a risk.

People attract towards the products which seem to be safer to them. If we want to sell any of the products to the people then show it as a safer product, everyone stands into the queue to purchase it.

Mr Fuller has defined wealth – Wealth is a person’s ability to survive so many numbers of days forward—or, if I stopped working today, how long could I survive?

When we have a lesser expense, lesser liabilities compared to the income and assets then obviously we will survive for a longer period. Else, we will go out of the game soon. Similarly, we can compare with the companies in which we want to invest.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

Read for more detail: Rich Dad Poor Dad: What the Rich Teach their Kids About Money that the Poor and Middle Class Do Not!

Jesse Livermore Manage Your Risk

Posted on February 3, 2019 by Jimit Zaveri under Bibliophile, Bibliophile: Big Mistakes

We cannot make a rule of thumb for the investing world because there are lots of parameters which can affect the price of a business. If today some parameters driving prices of businesses then tomorrow there will be some another parameter which drives the prices of businesses.

We need to focus on to be on the right side. If we cannot short the overvalued businesses then also we can book the position of overvalued businesses, we hold into our portfolio.

When Mr. Livermore was learning about the market, he kept records of his trades to the journal. Keeps journal of our trades helps us to overcome many emotional biases and help us to stick with our predecided process. I am keeping a journal for my investment studies and decision since the last 2+ years which has helped me to build strong decisions.

In May 1901, Mr. Livermore has experienced first larger loss as a professional speculator. He put an order of short sale of US Steel and Santa Fe Railroad at $100 and $80 respectively before the market got opened. He had also taken leverage for this trade. But his US steel and Santa got executed at $85 and $65 respectively, it is a price where he intended to cover his position.

When we are engaged in the trading or into the investment, we need to spend the time to learn. We have to train ourselves as we get training in any other field. We cannot able to survive and win without getting thorough education, knowledge, experience, and temperament. If we are making an investment without spending time on above points then we have depends on the luck which we do not know that favor us or not. Rather being dependent on luck, we should work for developing our skills and temperament. If luck wants to favor us then it will add additional advantages to us.

He has a conviction on his position with the proper logic and he did not change his conviction into the worst period which has made him a rich man.

Many times, we get influenced by the other person or information overload (noise) which affect our decision. We should work on evolving our process but should not make a decision by just getting influenced by others. We should increase our position to the odds which are into our favors, not to the odds which are not into our favors. While we keep on accumulating our winners then we can have a huge probability to win. And when we keep on accumulating our losers then we can have a huge probability to lose.

We need to do our homework before making an investment, we cannot bet our money on the decision of others. If we see the past track record of so-called professionals then we can realize the importance of own homework.

Mr. Livermore had been cheated by people many times which also teach us that we should not trust others easily. We should work on what we know, not what others want us to do. If someone knows much then lets them take benefits. Because staying on the pitch is much important rather than getting wiped out. I have already implemented such learning into my investing career but still struggling with my personal life.

After the few snake and ladder game, Mr. Livermore has started to short from the year 1927 and the great recession of the year 1929 has created fortune of him.

The year 1932 was set for the bottom of Dow Jones but Mr. Livermore was on the wrong side. He had made the biggest mistake ever, he covers his shorts and goes for long on the top of the Dow Jones. After this failure, he declared bankruptcy for the second time.

One of the biggest lesson from Mr. Livermore –

We also need to prepare a list of “Don’ts” and which can be through our own experience or through the experience of others, such as learning from the mistakes of others.

He was also failed in his last attempts in the year 1939 and after that, he took his own life.

As Mr. Livermore quoted that there are a huge amount of mistakes available to the investing filed. We cannot avoid all of them but we can definitely avoid repeating those mistakes again and again.

The main lesson from the mistake of Mr. Livermore is to manage risk. He has not properly managed risk and he blows up. Investing itself as an uncertain and we cannot control our return, we cannot control uncertainty but we only can manage risk which is only into our hand. We need to construct our investment process in a way which can help us to manage risk and avoiding a few of the mistakes which can increase the probability of our winning. We need to work on the checklist, process, do’s and don’ts etc. I have work on the same and still making my checklist and process stronger which has to help me well.

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