Chapter Five: Lesson 5
108
Most large brokerage houses will not touch speculative transactions
in order to protect themselves and their clients. And that is a wise policy.
The really hot deals are not offered to people who are novices. Often,
the best deals that make the rich even richer are reserved for those who
understand the game. It is technically illegal to offer speculative deals to
someone who is considered not sophisticated, but of course it happens.
The
more sophisticated I get, the more opportunities come my way.
Another case for developing your financial intelligence over a
lifetime is simply that more opportunities are presented to you. And
the greater your financial intelligence, the easier it is to tell whether
a deal is good. It’s your intelligence that can spot a bad deal, or make
a bad deal good. The more I learn—and there is a lot to learn—the
more money I make simply because I gain experience and wisdom as
the years go on. I have friends who are playing it safe,
working hard at
their profession, and failing to gain financial wisdom, which does take
time to develop.
My overall philosophy is to plant seeds inside my asset column
That is my formula. I start small and plant seeds. Some grow; some
don’t. Inside our real estate corporation, we have property worth several
million dollars.
It is our own REIT, or real estate investment trust.
The point I’m making is that most of those millions started out
as little $5,000 to $10,000 investments. All of those down payments
were fortunate to catch a fast-rising market and increase tax-free. We
traded in and out several times over a number of years.
We also own a stock portfolio, surrounded by a corporation that
Kim and I call our “personal mutual fund.” We have friends who deal
specifically with investors like us who have extra money each month
to invest. We buy high-risk, speculative
private companies that are
just about to go public on a stock exchange in the United States or
Canada. An example of how fast gains can be made are 100,000 shares
purchased for 25 cents each before the company goes public. Six
months later, the company is listed, and the 100,000 shares now are
worth $2 each. If the company is well managed, the price keeps going
up, and the stock may go to $20 or more per share. There are years
when our $25,000 has gone to a million in less than a year.
Rich
Dad Poor Dad
109
It is not gambling if you know what you’re doing. It is gambling
if you’re just throwing money into a deal and praying. The idea in
anything is to use your technical knowledge, wisdom, and love of
the game to cut the odds down, to lower the risk. Of course, there is
always risk. It is financial intelligence that improves the odds. Thus,
what is risky for one person is less risky to someone else. That is the
primary reason I constantly encourage people
to invest more in their
financial education than in stocks, real estate, or other markets. The
smarter you are, the better chance you have of beating the odds.
The stock plays I personally invested in were extremely high-risk for
most people and absolutely not recommended. I have been playing that
game since 1979 and have paid more than my share in dues. But if you
will reread why investments such as these are high-risk for most people,
you may be able to set your life up differently,
so that the ability to take
$25,000 and turn it into $1 million in a year is low-risk for you.
As stated earlier, nothing I have written is a recommendation. It
is only used as an example of what is simple and possible. What I do
is small potatoes in the grand scheme of things. Yet for the average
individual, a passive income of more
than $100,000 a year is nice and not
hard to achieve. Depending on the
market and how smart you are, it could
be done in five to 10 years. If you keep
your
living expenses modest, $100,000
coming in as additional income is
pleasant, regardless of whether you
work. You can work if you like or take time off if you choose and use
the government tax system in your favor, rather than against you.
My personal basis is real estate. I love real estate because it’s stable
and slow-moving. I keep the base solid. The cash flow is fairly steady
and, if properly managed, has a good chance of increasing in value.
The beauty of a solid base of real estate is that it allows me to take
greater risks, as I do with speculative stocks.
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