The Stock Market Cash Flow Read online

  The mentor has a context. He knows that learning karate is a much more serious venture than his young student can imagine. To me it shows that the eagerness of a new student often overshadows his ability to think at a deeper level about where this new path will lead. It also shows how easy it is to get the squish. That’s an important lesson for us to remember as investors, too.

  “Either you learn to invest ‘yes’ or you learn to invest ‘no.’ You learn to invest ‘guess so,’ sooner or later you get the squish, just like grape”

  Still, it takes the boy actually getting the squish a few times before he learns to accept the mentor’s unorthodox training methods and realizes that learning karate will require his total commitment. His teacher invites him to enter into a sacred promise. The teacher’s job is to teach the student to the best of his ability, and the student’s job is to learn to the best of his ability and give his full effort.

  The mentor emphasizes that the young boy will follow his instructions with no questions asked: “I say, you do. No question. Deal?”

  “Deal,” the boy answers.

  The boy thinks he’s going to be getting cool lessons on kicking and punching. He thinks he’s going to learn a couple of slick moves and go back to those bullies in a few days and take them down.

  To the young man’s dismay, the first lesson has nothing to do with punching or kicking. Instead, the old man instructs the boy to wash several cars and wax them.

  “Wax on, left hand. Wax off, right hand. Breathe in through nose, out through mouth. Very important.” Immediately, the boy questions the methods of the teacher only to be reminded of their promises to each other: “I say, you do. No question.”

  Day after day, the boy is instructed to do various tasks that involve menial labor: waxing cars, painting fences, and sanding floors. With each passing day the boy becomes more frustrated because each day he arrives at the home of his mentor hoping to learn how to punch or kick.

  Eventually the boy decides he wants to quit. At that moment the mentor shocks him by delivering a flurry of kicks and punches. The boy reacts instinctively and effectively blocks each punch and kick. By doing as his teacher has instructed, he has developed the muscle memory he needs to be able to defend himself without thinking. Waxing the cars, painting the fence and sanding the floors helped him learn and gain proficiency in a very natural way. He discovered and learned some things that were outside the traditional classroom through methods that he had never seen or experienced. Most importantly, his context dramatically improved. He was not only learning karate; he was becoming more mature. His philosophy began to change. His view of the world began to change and improve.

  I smiled at the end of that movie, and I’ll tell you, I wasn’t the only one. When Daniel rears up into that crane move with his injured knee he triumphs over those bullies not just by being the better fighter, but by being the better person. He is completely transformed by his education with Mr. Miyagi. Education is transformation.

  I know of no more powerful path to proficiency than when someone who is already proficient shows you the way. Even if you don’t recognize the path they walk.

  The Fog of Concern

  When I finished reading Rich Dad Poor Dad, my wife and I were raring to go. We wanted to start out by investing in real estate. But we still had not changed our context. We were still focused on buying things more than learning things. We had a desire to be rich so we wanted assets on day one, but we had not yet shown proper respect for gaining our financial education. As a result, investing was very difficult for us in the beginning.

  We looked at many houses and became frustrated by what seemed like a fog of concerns. It was as if we could not see what was a good investment and what was not. Every time we got close to making a move, we began to worry. What if there’s mold? It looks good, but I don’t know anything about mold. What if I can’t get a tenant? Worse yet, what if I do get a tenant and they trash the place? Why does the guy want to sell it so low? It seems like it’s almost too good to be true, so there must be a reason why he wants to dump this on me. Can you relate to this? I had a deep desire to buy assets, but I was shrouded in the fog of these concerns.

  I wanted to call Robert (who I didn’t know back then) and just yell, “Why couldn’t you just print the address of the house I’m supposed to buy?!” Because that seemed like the answer—buy the right property, rent it out, sit back, and collect rent. Rinse and repeat until wealthy. If only Robert would tell me the right property to buy.

  I didn’t understand Rich Dad at all. I had missed the point completely.

  But I didn’t give up. I was determined to learn this stuff. I reread the book. What did Robert have that I didn’t have? Duh. It was right on the cover in big yellow letters. He had a rich dad. He had a mentor.

  My wife and I talked and changed our focus from looking for property to buy to looking for a mentor. And (go figure…) if that wasn’t exactly what we found as soon as we started looking.

  Mentors and Criteria Clear the Fog of Concern

  My wife and I ran into an old basketball buddy of mine named Greg. We started catching up and I asked what he was doing these days, and lo and behold, he was a real estate investor. Now, if I hadn’t changed my focus from finding property to finding people, that might not have even registered. But it did. He started talking, and my brain went…Bing! I started peppering him with questions. He was doing a couple deals a week buying residential properties, and had been in the business for about three years. From that I figured out three things: 1) if he’d been doing it that long, he must be more familiar with it than me, because he couldn’t take on that much debt and survive without knowing what he was doing, 2) he had to have a money source other than a bank because no way could he finance stuff that quickly through traditional routes, and 3) he had to have a way to find these deals because I’d looked at dozens of houses and I hadn’t bought one yet. So I knew he knew more than I did.

  I was bold. I said, “Look, man, I’d really like to come to your office and just watch what you do.”

  He was kind of polite and changed the subject, but I just kept at him. I explained that I’d been trying to do real estate and was getting nowhere. I said, “Look, Greg, I just want to see, when you pick up the phone, I’m just curious who you call. Because I have a phone but I don’t know who to call. And when you get in your car and drive somewhere, I want to see who an investor goes to see. Because I have a car but I have no idea who to go see. I just want to see what it is you do.”

  But I wasn’t looking for a free ride. I didn’t just want (or expect) to get all of his knowledge for free. In fact I paid him about $10,000 for teaching me how his system worked.

  Now, Greg, he was organized. He had systems and criteria for analyzing a deal I had never thought of. But more than that, the day my wife and I came in, he said, “You’re going to do a deal this week.” He had a backer who didn’t care who I was as long as I could bring him a good deal. That was the first key. His investor cared about the deal, not me or my credit. This was definitely not a bank.

  With Greg’s guidance, my wife and I found a good deal, got it in a foreclosure auction, refinanced it with a bank, and found a renter. We did it all with Greg standing beside us and showing us the way. There was no fog with Greg by our side. It all made perfect sense.

  With Greg’s help, my wife and I learned that investing has a lot to do with measuring an opportunity against certain criteria, and then matching it with a technique to harvest the cash flow. With his help, we had our very first income-producing asset! I shudder to think how long it would’ve taken me to learn any of that on my own.

  Bonus Training!

  Take a peek inside one of my own mentor meetings:

  www.stockmarketcashflow.com

  Today I still work with mentors of all kinds. I have mentors to help with learning paper assets. I have mentors for business. I have mentors for health and wellness.

  There Are No Money Problems
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br />   As a final thought to this chapter on the importance of becoming a great student, I want to offer you a vital truth: money comes from financial education. You don’t need to accept this right away, but you may someday come to realize that there are no true money problems—only education deficits. A lack of money is always secondary. It is never the primary problem.

  As an investor, you’ll find that education goals are vital because education is precisely where money comes from.

  Like most people, I used to find myself falling into the trap of thinking that I had a money problem. I can think of times when I wanted to buy something big that would take more money than I had. In this type of situation, it is easy to think that a lack of money is the problem.

  Equally dangerous is the old cliché, “It takes money to make money.” This is a complete myth that needlessly stops many people from achieving their money goals. Money does not come from money; it comes from financial education.

  Look again to some of our examples of financial success: Warren Buffett, Donald Trump, and Robert Kiyosaki. What if these men were stripped of all their money and assets today? What if they had to start over again with nothing? Would they remain poor or would they achieve success again? Of course they would find success. It’s ridiculous to think they wouldn’t. Their power comes from their education. The secret to their strength is their financial education. Their success comes from what they know, not from what they have.

  Let’s go back to the list of lifestyle goals people commonly list:

  •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.

  In my workshops, I ask my students: “Why don’t you have these things already?”

  No matter where in the world I ask this question, the answer is always the same, “Because I don’t have enough money.”

  Never once, in any country, have I ever had a person reply, “Because I lack financial education.”

  When I speak with people who are struggling financially they usually see themselves as lacking money. None of them see the problem as a lack of financial education—at least not at first. Once we realize that financial education is where money comes from, we can change things.

  This is great news because if a lack of money was really the problem that would be a pretty big obstacle. I don’t have a Parable of the Money Tree for you!

  While you can’t choose to have people, governments, or employers give you more money, you can choose to get educated. You can choose to be a serious student and learn more about money. People who become obsessed with money wind up in a very different place than people who become dedicated to transforming themselves. Remember that education is transformation.

  The Parable of the Orange Tree

  When I was a child my grandma used to peel oranges for me. Whenever I smell citrus I think of her. She told me how oranges were full of vitamin C and how they’d make me healthy and help me grow big and strong. When I teach with Robert and the rest of the Rich Dad Advisor team we often use analogies to illustrate financial terms. My grandma and her oranges helped me understand derivatives.

  Simply stated, vitamin C is a “derivative” of an orange.

  If you want vitamin C every day, you’ll probably become a hunter of oranges. But you’ll quickly become frustrated at having to work so hard every day to find another bit of vitamin C for yourself. You will spend your time, talent, and energy seeking oranges. Some days you might find an orange, and some days you might not. You will likely live in scarcity.

  A wiser solution might be to think about derivatives. Yes, vitamin C comes from the orange. But where does the orange come from? Of course, oranges come from orange trees. Instead of focusing on orange hunting, focus on growing your own orange tree. Find out the best seeds to get, the best soil to plant in—everything you’ll need to ensure the most oranges from your tree. Now you have a plan for abundance. It’s true that you might have to wait a season or two, but by focusing on the tree you will soon have more oranges than you can ever consume by yourself. In fact, your problem will be figuring out how to give your excess harvest away. You will live in abundance.

  I like to also think of money as a derivative. Our lifestyle goals will depend on money, but where does the money come from? Just as oranges come from orange trees and a good harvest comes from learning about growing oranges, money comes from financial education. So you can take your current amount of time, your current amount of talent, and your current amount of ability and simply shift your focus.

  Instead of focusing on money you can focus on learning where money comes from. Instead of focusing on the orange, you focus on the orange tree and growing oranges. Now you have a plan for abundance. It is true that you’ll wait for a season when you focus on your financial education, but you’ll have more money than you will ever be able to consume by yourself. Your greatest challenge might be figuring out how to give your excess money away. This is where Bill Gates is today. He left Microsoft because he needed to devote his time to the Bill and Melinda Gates Foundation and figure out the most effective ways to give his money away. That’s not a bad place to be!

  Chapter Summary

  Let’s review some of the important points of this first chapter:

  1.We can discover new things in different ways than we learned in school.

  Learning does not need to be rigorous or difficult. In fact, learning is something our minds can do naturally and easily when we participate in the process. Discovery is a wonderful feeling; learning should be fun.

  2.Context is about how we think.

  We can often learn about our context by paying attention to the questions we ask. Content is about the details, the how-to of a given task. Context is about the big picture, the why we are doing the task.

  3.Use The Education Continuum.

  One of the most common mistakes to avoid is confusing awareness with proficiency. Set your educational goals within the context of The Education Continuum and know where you are in the process. It doesn’t matter where you are on the Continuum at any given moment. It only matters that you are honest about where you are and that you have a plan to continue moving toward proficiency.

  4.Learn by teaching.

  As you continue through the remaining chapters of this book, consider doing so with a pencil or pen and mark the sections that are particularly important to you and write down what you are learning so you can build on it as you go. Teach the things you discover to other people. This will help you remember more than if you simply read the book. Remember, you don’t need to be an expert to share the things that you are learning.

  5.Educational goals enable us to meet money goals set to achieve lifestyle goals.

  To improve your standard of living, you can set lifestyle goals. Those goals will have more meaning when you actually research how much money it will take to purchase your lifestyle goals. Once you’ve established your money goals you can look at different ways you can create that money by increasing monthly cash flow rather than by just saving and scrimping or loading up credit cards. You can set some educational goals even after you have graduated from high school or college. Educational goals should be specific ways of learning how to get more cash flow so that you can achieve your money and lifestyle goals.

  6.Seek out and find mentors.

  As you focus your mind on investing, you’ll begin to see things differently. You’ll discover that some of the people you know and the people you need will become your allies. You will be on the lookout for mentors who can help you, and you’ll be eager to invite them into your circle. In the process, you will also become part of their circle.

  7.Money comes from financial education.

  Always remember the parable of the orange tree: Don’t be an orange hunter, be an orange tree grower. Focus on
your educational goals, and the money goals will follow naturally.

  Chapter Two

  Paper Assets in Your Wealth Plan

  Building wealth is a matter of learning to buy or create assets intelligently and is part of a deceptively simple plan:

  1.Get financial education.

  2.Buy income-producing assets.

  3.Build cash flow.

  I’m a fan of Dr. Stephen Covey’s The 7 Habits of Highly Effective People. If you’ve read the book, you might recognize that the above sequence of steps is a demonstration of at least two of the seven habits: begin with the end in mind, and put first things first. (If you haven’t read the book, I highly recommend it. But remember: Don’t just read it, study it.)

  So if getting financial education is your first goal, then what kinds of things should you begin to study? As a serious student you might begin by studying all of the four income-producing assets classes:

  Please understand that different assets and asset classes have different advantages and pitfalls. It is vital to find a combination of assets that will suit your goals and strengths. You might find that you are best suited to focus on one type of asset, such as stocks. Maybe you have what it takes to be successful in business. Perhaps you’ll find that real estate is what revs your engine. Or maybe you want multiple streams of income from all the assets classes. There is no right way, no one-size-fits-all answer, no magic bullet. The way that works for you might not work for your neighbor. But the more you know, the better equipped you’ll be to put together the plan that will work for you.

  To figure out what is best for you, you need at least a basic familiarity with all the asset classes. Only then can you find which combination will take you to your dream. Once you understand them, you can start to visualize how they will fit in the assets column of your balance sheet.

  Let’s get started by taking a brief look at the four asset classes.

  Businesses