90/10 Rule

Their rule is that in investing 10% of the players win 90% of the money. This is opposed to the 80/20 rule where 20% of the clients generate 80% of the money.

What they're trying to say in both rules is that one ought to concentrate one's time and energy on those activities that will generate the most rewards.

Doing What You Enjoy

Starting at page 87, they go on for several pages about having fun is essential to investing to win.

While it is important to have fun, many of us have responsibilities. Lots of work has to be done in the world and someone has to do it. That work is not fun. - Though menial jobs can be fun. I remember washing dishes in a resteraunt and thinking that if the pay was enough, I would like to do this forever. It gave me a rush to see how fast I could push them through.

Investors

They give 3 types but they really only mean 2: those who invest not to loose and those who invest to win.

Not to loose investors utilize mutual funds and believe in diversifing. This is probably still better than not investing at all. Even if the market falls, and they recover pennies on the dollar, those are still pennies they would not have had had they just spent them.

Investing to win means making informed decisions about a few vehicles. Kiyosaki and Trump both made their piles in real estate but their general idea is to invest in something that one has knowledge of and some degree of control over.

The Importance of History

Everything that is in our minds die when we die. Whatever is left of our thoughts, either from the written word, memories of those still living, indirect evidence from clues we left behind, those are the stuff of history. History is the shared knowledge of real people great and small that came before.

Knowledge is power.

Donald Trump writes:

Give some thought to your roots and why you're doing whatever it is you're doing today. It's a good way to start thinking for yourself - and it's likely no one else but you will come up with the right answers.

- from page 84.

Financial IQ

Economics are important because they describe the environment in which we make financial decisions. They call it "Financial IQ". From Donald Trump:

To me, it means the ability to chart the economic waters nationally and internationally, to be able to look beyond the present and into the future, and to make decisions based on those assessments and insights.

- from page 83.

The Perfect Storm

They believe things are going to get worse, citing:

1. Growing trade deficit. This is like a family earning $5,000 per month, spending $6,000.
   
   
2. Growing national debt. G.W. Bush's administration borrowed more from foreign sources than all previous administrations combined, but he had at least eight years to do that in. Since the book was published before Obama was elected, it is silent on the present administration, but I'm sure he's closing in fast.
   
   
3. Falling dollar. This leads to inflation which causes wealth go drop.
   
   
4. Baby boomers without money. - And they're reaching retirement age.
   
   
5. The entitlement mentality. People look to the government to solve their problems instead of looking for opportunities.
   
   
6. Higher oil prices. There's a point where this could trigger the entire economy to implode due to those other factors.
   
   
7. Tax breaks for the rich. My reaction is "huh?" The facts they present do not justify this statement.

- from page 77

The General Motors Example

Here’s an illustration of the mentality of what has gone wrong with finances at the national, the corporate, and the individual level.

Between the years 1985 and 1994, General Motors earned $17.92 per share of stock but paid out dividends of $20.62 per share. So, where did the $2.68 come from?

But wait! In addition to paying out $2.68 more per share than they took in, GM also spent $102.34 per share on capital improvements.

But wait! There’s more: loss of market share, employees out of work (but still being paid) and under-funded pension plans and medical liabilities. No wonder they needed a bailout.

While the book is silent on how Donald Trump got himself in so much debt, the wisdom here applies to us all.

- from page 69.

Focus Your Energy

Concentrate all your energies on the task at hand. At some point one must determine what tasks to do and what order to do them in. This is where discernment comes in. Making a little effort to decide what to do and then doing it will matter a lot.

Bad Times Can Give You an Edge

- By selling harder. Selling in hard times gives the person who works harder and smarter an edge because the toughness of things weed out competition. "If you are in business, you need to learn how to sell."

I spoke today to the manager of a cab company. He told me that he's never seen times as tough as they are right now. I told him that I've experienced cab drivers who are not nice to the customers. He said some were like that. I did not have the heart to tell him that I think almost all the drivers I've experienced treat people badly.

I believe that the key to success in this business in tough times is to be treat customers nicely - and ask them to repeat the experience.

Oil and Gas Prices Going Up

They discuss the general trend of oil prices going up. This is before the great BP oil spill in the Gulf. Obama has shut down other off-shore oil rigs.

With less supply of oil, this means that prices will go up, even if only because we have to replace the domestic output with foreign sources. This is in addition to the general upward trend in oil prices.

Retirement Ripoff

This is the headlines in a TIME Magazine story from the October 31, 2005 issue:

The Great Retirement Ripoff

Millions of Americans think they will retire with benefits are in for a NASTY SURPRISE.

How corporations are picking people's pockets with the help of Congress.

The generations have developed the mentality of just kicking the funding of retirement issues over to the next generation. Trouble is that this just makes the problems even worse. Eventually one generation will get stuck with the tab.

People have go to develop their own retirement personal fund that they alone control.

From Mark Twain

They cap their section on self reliance with a quote from Mark Twain.

"Don't go around saying the world owes you a living. The world owes you nothing. It was here first."

Today's Major Economic Problems

What are today’s major problems? (Remember, the book was published in 2006.)

• Dollar is falling
• Debt is rising
• Retirement funds (social security, Medicare, pensions) going bankrupt
• Oil prices rising
• Gap between rich and rest increasing
• Wages decreasing

They say and I strongly agree that the reason for these long term problems when they first arose. Instead people were taught to depend on government to solve their personal problems for them.

Investment Diversification

Warren Buffet said, “Diversification is protection against ignorance. (It) makes very little sense if you know what you’re doing.”

Their book is about knowing what you're doing.

The Entitlement Mentality

Both men are against the entitlement mentality. Too many people figure that they are entitled to government to take care of their needs – and not just poor people, either. Pensions are a huge national liability and it is not certain that they will be collectable with the time comes.

People have to take charge of their own finances and their own futures.

It's significant that their book was written before Obamacare passed last year.

How Government Makes More Problems

According to Trump and Kiyosaki, in the 1930’s FDR rolled out social security which is a huge problem for us today. In the 1960’s Medicare and Medicaid came out and now these, too, are huge problems today. In 1971, the dollar went off the gold standard and the falling dollar is another huge problem today.

Many of the economic problems that so bedevil us today are caused by government programs that were supposed to be solutions to problems. They just kicked the can down the road. Now the problems are much worse.

Money Can Not Solve Poverty

No it cannot. I recall that during the period when welfare spending was riding high, over a trillion dollars was spent. If that money had been given directly to the poor, this was enough to make each of them rich. All that spending really accomplished was to create a culture of poverty: government bureaucrats and recipients alike enjoying careers based on this program. What the poor really need is financial education. – And jobs.

Mutual Funds

They say that they do not invest in mutual funds because the funds’ expenses are not disclosed. For myself, I think that mutuals are a way station on the path to building wealth. It is a place for ordinary people to get their start. And mutuals give a rate of return that is higher than bank accounts.

Once one builds a pot of money that one can afford to loose (at least partially), then I think that one can “gamble” on a wise, active investment.

Financial Planning for the Poor/Middle/Rich

The poor are advised to count on Social Security and Medicare. My own advise is to increase income. Personally, I suggest the poor start in network marketing because that way they get financial and business education. This is addition to the obvious: get the best job you can.

The middle are advised to work hard, live below their means, save, invest for the long term in mutual funds. They are passive investors who invest not to loose.

The rich are active investors who invest to win.

All of this tells me that the problem of poor/rich narrows down to achieving the active investor status. Of course, one has to know how to do this – and be smart.

The Problem of Financial Education

Both men believe that much of the economic problems the middle class and the poor face is caused by lack of financial education. In another book, Robert said that one has to know how to earn money before one can know how to spend money. He cited that as the reason that many lottery winners are unable to keep the fortunes that they won.

I think that this is a reason that the economy is the way it is. People listen to politicians who make no sense because they do not know better.