The Stock Market Cash Flow Read online

  It takes only a little common sense to break from the herd and say, “I probably shouldn’t invest my money in something I don’t understand.” But evidently there aren’t enough “common” people in the herd because the herd is getting fleeced on a daily basis.

  When we lose money in an investment, it’s most often because of something we don’t understand. I know that when I look back at my gains and losses, my biggest losses have come when I was delving into something I did not yet understand. More money is lost due to ignorance than anything else.

  Luckily, we can escape ignorance.

  Awareness

  Moving from ignorance to awareness is a good feeling. It is illumination, it is discovery, and it’s awesome. But it’s impossible to set good solid education goals unless we discover a little bit about the things we need to learn.

  I remember years and years ago when I took my first investing course. The instructor put several stock charts up on the screen and began to teach us about “technical indicators.” I remember thinking to myself, “This is one of the most impressive things I’ve ever seen.” I became very excited about what I was discovering. I could see that this was something I was going to want to study and learn more about.

  When we have moments of discovery we simply learn about what’s possible. It was much the same as the first time I ever attended a concert as a child. The concert featured an extremely accomplished pianist, and I discovered what the possibilities were with that particular instrument. With playing the piano it’s pretty easy to feel the distance that exists between being aware of what the instrument’s potential is and becoming an accomplished musician.

  As you read each chapter in the book you will become more aware of what professional investors actually do when they make investment choices. Chances are you will then want to delve even deeper. It’s natural to want to move from mere awareness to a more complete level of understanding. That understanding is called competency.

  Competency

  Think of an airline pilot who has passed a written test on flight regulations, but has not yet had a chance to practice what he has learned in the air. Think of a musician who has spent many months in a classroom learning to read music, but has yet to pick up an instrument and practice. Competency is that level of understanding that does not yet translate into ability.

  Competency denotes a minimum amount of knowledge and skill to perform an act. In a court of law, a witness would be expected to be competent to testify. But competency is often associated with minimums. In most countries there are minimum competency tests for various professional licenses to practice medicine or law.

  Competence denotes the ability to get an A on a written test. But understanding how something is done is not the same as being able to do it. The real world demands proficiency. Classrooms are havens of competency. Classrooms reward competency. You can move through your whole academic life with nothing more than competency.

  There is little room for mere competency in the real world. The real world rewards proficiency. It’s much easier to describe than to go out and do.

  In basketball, it’s easy to draw a play on a chalkboard. It’s the easiest thing in the world: just a bunch of Xs and Os, a few arrows here and there. Go out in front of 13,000 people and a couple of blind referees and pull it off—that’s a whole different ball game. That’s proficiency. Step onto even a college-level court and try to compete with just competency, and watch yourself learn the real meaning of getting schooled.

  Proficiency

  Closely related to the word competency is proficiency. Proficiency is a higher degree of competency, and that difference in degree can mean the difference between making money and being wealthy. If competency is knowing the play book, proficiency is education of the play. Competency is the intellectual ascent to the truth. Proficiency is execution.

  In my experience, proficiency is a pursuit and not a destination. We can always become more proficient. I hope that you will be more proficient in the stock market next year than you are today, and even more so the year after that. But, as I said earlier, the stock market is a moving target, and as it changes, so will you. As the markets change, as economies change, so will your need for changes in your knowledge base. You can never be satisfied with competence.

  People wonder at what moment they will know that they are able to successfully trade stocks and options. I don’t know the answer to that question because proficiency is a process, not an event. I compare it to the drum lessons I took when I was a kid. I could always hit drums, but it sure didn’t sound very good at first—at least not to my parents. Today I can play in my rock band—and we’re not half bad. But it was a long process over many years of practice. There is never a singular moment where you say “yesterday I could not play but today I can.” There are milestones, however. If you have never owned shares of stock, there will be a day when you begin trading on paper or in a virtual account. There will come a day when you invest a small amount of real money. Then the day will come when you short a stock…and so on.

  Over time, you travel along the Education Continuum to proficiency. But you can’t always put your finger on when those transitions happen. There are thousands and thousands of drummers more proficient than I’ll ever be (and that is true for investors as well), but there are probably many more thousands who are less proficient. I can play in my rock band and enjoy making music without effort. Because of my learning and practice, it’s now automatic, and it sounds like actual drumming to most people.

  Confusing Awareness with Proficiency Will Cost You Money

  Part of the value of the Education Continuum is the humility that comes with knowing that if you are an investor, you are also a student. One of the dangers of the stock market is its accessibility. Unlike playing the drums, you can play the market and not realize you don’t know what you are doing. I see some people make the leap to awareness and confuse that with proficiency. Sometimes this happens because of arrogance, and sometimes it’s merely from the excitement of discovery. If you keep yourself in check with the Education Continuum, you can avoid the costly tuition of the school of hard knocks.

  Powerful Suggestions for Becoming a Great Student

  Are you ready to take control of your education and become a serious student? Of course you are. You’re the one who knows what you want and what captures your interest. You know what is vital to your education and what is trivial. So let’s get down to some studying.

  As Robert often teaches, there is a drastic difference between “reading” and “studying.” I’m going to help you supplement your reading with activities that will make this a study of investing that will actually apply to all the asset classes—not just the stock markets of the world. If you like the idea of becoming a serious student, the suggestions that make up the remainder of this chapter will ensure you a more rapid and powerful transformation than reading alone.

  1.Discuss what you read and share it with others who share your interest.

  2.Set education goals, not just lifestyle goals or money goals.

  3.Begin working with mentors.

  4.Do it now!

  When you reach the end of this chapter, start writing down additional ideas of your own. Remember, you are now an active participant in your learning. Bring your own experience, your own stories, your own examples to your learning. And be ready to participate.

  Share Your Discoveries with Others

  You don’t have to become an expert to share what you discover. Let yourself get excited about what you’re learning. Share that excitement and your newfound knowledge with someone else.

  I have found that teaching is a great way to learn. As you read, keep a pen or pencil handy to mark the sections that really resonate with you or that you feel you need to review. Write down notes in a journal or notebook, adding your own thoughts or examples. Sharing those notes and sections with someone else will help you remember what you learn. Explaining concepts to someone else will help you
keep things simple and putting the ideas into your own terms and your own examples and stories will cement them in your brain. You will find that you can remember the things that you read and then share much better than the things you just read and keep to yourself.

  Check out the Cone of Learning developed by Edgar Dale. Years ago he discovered that reading alone was actually one of the least effective ways to learn something new.

  Source: Cone of Learning adapted from Dale, (1969)

  Consider forming a group with two or three friends who are reading this book at the same time you are, and then meet for breakfast once a week to discuss what you’re learning. Be sure to steer clear of forming too many opinions too quickly. Just focus on what lessons are being taught, being sure to build on each section as you learn.

  Review Your Education Goals Now

  At the beginning of any journey, it is a good idea to set some goals. It’s not uncommon to have lifestyle goals. And it is not uncommon to have money goals. But few people I meet continue to set significant education goals once they leave school.

  As you complete each chapter of this book, remember to keep setting education goals.

  Lifestyle Goals

  I’m sure that you and I will always have the desire to improve our lifestyles. We all have that in common. You can think of some of these specific desires for improvement as lifestyle goals. As I travel the world and speak at various events I often ask my students to list a few of their goals. Here are some common responses:

  •I want to quit my job.

  •I want to own a house on the beach.

  •I want to own an exotic car.

  •I want to travel the world.

  •I want to be financially free.

  •I want to help and serve others.

  Go ahead and make a list of your own goals. Not the goals someone somewhere told you should have. But the goals that would make you happy. Write them down. No one has to see them; you don’t have to justify them to anyone. You know why they are important, and that’s enough. Write them down as the first step toward recognizing that you are in control of this journey. You decide what is trivial and what is vital—that is true for every aspect of your life, from your education to your goals.

  Dreaming Is Free

  I’m alarmed at how little time people spend dreaming these days. Nearly everywhere I visit, times have become so tough that people are concentrating on mere survival rather than making plans for abundance. The conversations people are having now about their finances are too often focused simply on getting by, rather than on achieving their full potential or exploiting their opportunities to the very maximum.

  I like to remind people that dreaming is free. It’s an indulgence we need not feel guilty about. Wherever you live, you stand on the shoulders of those who went before you. I’m sure you can think of sacrifices made by others that have provided you with opportunities you can seize on this very day. When you think about it like that, not only is it okay to dream, but it’s actually a very important activity for you to do. You owe it to those who have gone before you to honor their sacrifices. You can enjoy time spent dreaming of the great things your future can hold.

  Let your dreams fuel your determination and fill you with energy. Dreams unleash the power of both your conscious and subconscious mind. Dreaming feels good. Dreaming is good.

  Take these dreams and turn them into goals by writing them down.

  Money Goals

  We can also have money goals. Money goals are different from lifestyle goals. But money goals alone tend to lose their power. They’re too vague, too dry.

  •I want $1,000,000.

  •I want $10,000 a month.

  •I want to be free of debt.

  For some people, perhaps these statements are more wishes than goals. But money goals become instantly more meaningful when they grow out of your lifestyle goals.

  Let’s take an example of a goal to make $10,000. Standing alone, $10,000 is just money.

  But if we start with a lifestyle goal, such as to buy yourself a top-of-the-line Harley-Davidson motorcycle, suddenly your heart beats faster and that dream starts to come alive. You might visit a dealership and pick the one you’ve always wanted. You could sit on it, touch it, and feel it. This becomes a very powerful experience for you.

  Now it’s time to look at the price tag. How much money will you need to make that dream come true? If the price tag is $11,799, you now have a meaningful money goal. At this point you can choose to buy it outright or set a goal to increase your cash flow to cover a payment of $389 per month. Now your money goal is even more specific.

  Education Goals

  So how are you going to increase your cash flow by $389 each month? The good news is that earning that extra $389 per month is simply a matter of education and action. Some folks may think the only way to gain that amount is to cut an equal amount from their monthly spending. I don’t know about you, but I’m not really interested in giving up anything in my life. But there is another way—a better way. Instead of cutting your current spending, you can decide to learn how to acquire income-producing assets that will create that extra money for you.

  What Is Wealth Building?

  In a nutshell, wealth building is simply learning how to buy assets intelligently. These assets can come in multiple forms:

  •Business

  •Real Estate

  •Paper assets like stocks

  •Commodities like gold or oil

  When I look at wealthy people like Warren Buffett, Donald Trump, and Robert Kiyosaki, I see people who have become wealthy because they have become educated about how to buy assets. I imagine they wake up in the morning and ask, “Where will I find an asset I can buy today?” They don’t need a hot tip. More importantly, they don’t sit around waiting and hoping for a hot tip to find them. They know how to look for and look at an opportunity and use their financial knowledge to decide whether to play or pass.

  If someone with a financial education wants to buy a Harley, they don’t skip their morning latte and put their pennies in a savings account and until they have enough money. They don’t put it on a credit card and cross their fingers each month when the bill comes due. They don’t get a second job. What can you do when you want to make a lifestyle goal a reality?

  •Start a business to earn the $389 per month...if we have a business education.

  •Acquire a rental property to earn $389 per month...if we have a real estate education.

  •Sell some covered call options to earn $389 per month...if we have an options education.

  Now can you see that earning extra income is simply a matter of gaining the right financial education?

  As we learn about these different asset classes, we can choose which ones we want to dive into and learn more about. Then we can set specific money goals tied to acquiring assets that will meet our lifestyle goals. We use education goals to achieve money goals to meet lifestyle goals. It’s a formula that works time and again for the wealthiest people in the world. And it can work for you, too.

  Education gives you power.

  When you think about it, you might find it striking that once people leave college, they often look only to lifestyle goals or money goals. Many folks draw a blank when asked about their education goals because they never learned to be an active participant in their learning.

  The Best Path to Proficiency Is Mentorship

  If you’re reading this book it’s likely that you’ve also read Rich Dad Poor Dad, which is the cornerstone of your financial education. You might take note of the fact that the book Rich Dad Poor Dad is primarily a story of mentorship. A great question to ask yourself after reading the book is: “Would Robert Kiyosaki have become successful without the help of his rich dad?” Knowing Robert as I do, I would say absolutely yes. But I would also say that he would have found another mentor. Even after his rich dad passed away, Robert still sought out new teachers and mentors, just as he does today.


  When I read Rich Dad Poor Dad for the first time, I realized I wanted to find many rich dads to help me along my journey. I am always looking for fellow journeymen who are further along the path than I am. It’s just common sense.

  If you have ever seen the movie The Karate Kid, you’ve seen a great portrayal of how a mentor can change a student’s context for the better. We all know the story, I think. (Or maybe I’m dating myself.) It’s the story of a student-mentor relationship that develops when an average kid decides to defend himself against the neighborhood bullies. The mentor agrees to train him, but the boy becomes frustrated almost immediately with his teacher’s unorthodox methods. Why? Because the student’s context is so different from that of his mentor. He believes that success is going to come by learning how to punch and kick. His mentor, being much wiser, begins the training in a very different way from what the boy expects.

  In his thick Japanese accent, the mentor begins the first lesson by asking the boy if he is ready to begin.

  “I guess so,” says the boy.

  The wise old mentor tells the boy to sit down so that they can have a talk.

  “Walk on road right side, safe. Walk on road left side, safe. Walk on road middle, sooner or later, get the squish, just like grape. Here, karate same thing. You karate do ‘yes’ or you karate do ‘no.’ You do karate ‘guess so,’ sooner or later, get the squish, just like grape. Now ready?”

  “Yes, I’m ready,” says the student. And so they begin.