Monthly Archives: May 2015

Book Review: Rich Dad Poor Dad by Robert T. Kiyosaki

rich dadAnyone who enjoys personal finance books has read or should read Rich Dad Poor Dad. This classic has transformed many people’s lives and is still working its magic on all of us.

The book starts with a parable about Robert’s personal life and his two dads. His own father, a well educated university professor who struggled financially all his life, and the father of his childhood best friend who had very little formal education but who became one of the most successful business people in Hawaii.

Robert sought the mentorship of his rich dad and through that mentorship he learnt the importance of self education and the accumulation of assets that produce cash flow.

Some of the major points emphasized in the book are:

  1. School does very little to give us a financial education. We mostly learn how to be docile good employees who follow orders. Creativity is discouraged in the school system. We learn more and more about less and less through specialization. In order to succeed in the corporate world we have to get master’s and PhD degrees and follow the orders of our employers. This option, instead of giving us more financial security, makes us more vulnerable to the whims of our employer and the market place. Personal note: I know many PhDs who struggle financially and who live in constant fear of losing their jobs. Higher education does not translate into higher income nor higher job security. Some of these PhDs have confessed to me that they would have been better off working as waiters.
  2. Wealth is defined, not by how much we earn but by how long we can live from the income of our assets. Financial independence is achieved when our monthly income from assets exceeds our monthly expenses. Many people have high salaries, but they also have high expenses and they are not better off financially.
  3. In order to become wealthy, we have to invest in income producing assets such as real estate and/or stocks. The secret to wealth is to have your money working for you instead of you working for your money. If you have high a salary but don’t have assets producing cash flow, you will always be a salary slave.
  4. Our house should not be considered an asset. Instead it should be considered a liability. An asset is something which produce revenue. For the majority of us, our house does not produce revenue. Instead, it a house is one of the biggest expenses in our budget. Personal note:The only way a house can become an asset is if you rent the extra space either to roommates or via Airbnb.
  5. Many financial writers (such as Dave Ramsey) warn us against financial leverage. They claim that we should save until we have enough money to buy an asset. Robert suggests the inverse. He suggests that we use other people’s money to achieve our financial objectives; for example, borrowing money to buy commercial properties.

I think the book may be a great motivational tool for people who wish to leave the rat race. Robert tells us that it is possible to become wealthy and we believe him. However, he does not share any specific information with us.

Robert has licensed his name and his trademark “Rich Dad” to sell educational products and expensive real estate seminars. The price of those courses can be as high as $45,000. Although the book is a great source of inspiration, I believe that Robert is in the business of pushing his workshops to desperate people. In my eyes this different business model tarnishes his reputation as a source of inspiration.

Book Review: Reminiscences of a Stock Operator by Edwin Lefevre

operatorThis book has been recommended to me by so many sources. One day I was doing my rounds through a second hand store and there it was, on sale for only $2. The regular price was $20. I had to buy it and read it.

The book is a disguised biography of legendary trader Jesse Livermore. What struck me the most is that even though the book was written in 1923, it feels as if it was written today. It accurately describes how time stands still in Wall Street. We clearly see that the psychology and emotions of a stock market trader are timeless.

The story takes place at the beginning of the 20th century. The main character, Larry Livingston started trading at age 14. He was hired to write stock quotes on a blackboard at a local bucket shop ( a place where people gamble on the movement of stock prices) . As he was writing quotes, he started discovering price patterns. One day, prompted by one of his friends, he made his first speculation trade. The trade was a success and this was the beginning of a lifetime career as a stock operator.

Larry got better and better at the game until he became so successful that he was banned from all the bucket shops in the United States. Eventually he moved to New York, where he knew that there was space for him to grow and to learn all the secrets of the stock market.

Larry made and lost millions of dollars many times. At the beginning of his career in N.Y. he learned that he could be right about the direction of a stock and still lose money. There is a delay between entering an order and the order being executed. Also, at the beginning he used to focus on the movement of one individual stock, but later on he learned that all stocks move in groups, so he started focusing on complete industries, and then on the movement of the whole market.

He lived by a certain set of rules and he lost money when he broke his own rules. 1. He didn’t take tips from anyone nor let anybody’s opinion interfere with his own. 2. He had no problem taking a loss, if he was wrong he corrected it as soon as possible. 3. He used to add to his winning position. If a stock was going up, he would buy some more, and if it continued to go up, he would buy even more.

He became famous mostly for taking advantage of the bear market of 1907 and on the bear market of 1929 he made about $100 million. In today’s dollar that would be about $1.4 billions.

If you like the stock market, I think that this book could play a major role in your success.