Book Review: Rich Dad's Guide to Investing

Rich Dad's Guide to Investing: What the Rich Invest In, That the Poor and Middle Class Do Not!

If you like to read, you pick up books and tear through them because its just what you do. Most you like, some you don't like, but mostly, they fade into the background and you only think about them when something triggers your memory.

But once in a while you read a book that truly changes your life, and your perpective, and Robert Kiyosaki's Rich Dad's Guide to Investing is such a book. I know, because it changed mine.

My first introduction to Kiyosaki was his informercial that ran around 2000. This was the infomercial where RK was interviewed by the young guy and talked about "50% money, 20% money and 0% money" - the young guy started doing his mock run on the treadmill. I figured that the book was just another "it's easy to get rich, you just need to follow my formula" books, so I ignored it.

A year later, though, I was channel surfing and found Kiyosaki on PBS. It was late at night, so I figured: ok, what does he have to say this time? Kiyosaki wasn't talking about another system for getting rich in real estate - he was talking about financial freedom, that it was essential to have financial education, and, most interesting to me, about the importance of financial statements.

At the time, I had just finished a successful stint as the CFO of a small not-for-profit, where I had helped engineer a turnaround by helping the organization rediscover its cashflow cycle and sources of revenue. I knew I understood financial statements - I had to find out more about what to do with this understanding.

Having seen the PBS special, I decided that I could skip the first two books, Rich Dad Poor Dad, and Cashflow Quadrant, as RK had already covered those topics in detail. So I went for Rich Dad's Guide to Investing, instead.

If the first rule of investing is "Don't lose money", then the core of this book is the very first principle of investing, which is "Don't be average". The distribution of wealth in any system tends to skew towards a few people. The Italian economist Vilfredo Pareto explained this in his Pareto Principle, the 80/20 rule. The exact ratio varies from system to system (it isn't always 80/20), but the math works in every system, even blogging.

This principle is the foundation for one of my major investing strategies: seek extraordinary returns. Since ordinary returns will not get one out of the rat-race they will likely lead to a lower standard of living in retirement.

For the record - high rates of return are available, even the "indexing" studies admit it (they usually throw in a caveat that higher returns aren't available without assuming more risk). But actually, higher returns are available with lower volatility, if you select the right investments. That is what this book is about. It is about pursuing outsized returns through selecting only the best investments. Focus, control, leverage (which you can employ comfortably, once you have control of the right investments) are the ways to achieve these goals. But without education, he stresses, you cannot distinguish the right investments from the wrong ones.

He gives terrific examples of the kind of things that a real investor knows. You need to know SEC Regulation 506D. You need to know about private placements, hedge funds, pre-IPO financing, and how to get access to them (hint, it helps to already be rich).

Kiyosaki does frown on registered securities, in my opinion somewhat unfairly. He rationale for frowning on these investments is *mostly* solid, but there are still opportunities to get rich in registered securities, he just thinks they aren't as good as opportunities in other investments.

Like most things, being really good at something requires work. If you want to be a successful investor, you need the vocabulary and awareness that this book offers. It is a launching pad to begin further investigation of investing.

Above all, he stresses the fact that using the right strategy is also a function of your goals and objectives, and that you need to set these goals high, if you want to be rich, at least.