Investing for the Long Term

Rich Dad's Who Took My Money? : Why Slow Investors Lose and Fast Money Wins!
by Robert T. Kiyosaki, Sharon L. Lechter C.P.A.

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Millions Lose Trillions

As mentioned earlier, between March of 2000 and March of 2003, it is estimated that millions of people lost $7 to $9 trillion in the market crash. Those losses do not include the loss of jobs and the emotional pain that such losses bring with them. Why did so many people lose so much money? While the reasons are many-reasons such as a weakened economy, terrorists, corruption, bad analysis reports, fraud, market trends, and other oversights- one little-known underlying reason is because millions of people mistook a common industry sales pitch for sound financial education. Many always sent their check in, or did not sell ... investing and holding on for the long term, even as the biggest stock market crash in history was crashing all around them.

The Money Was Not Lost

Michael Lewis is a respected financial writer best known for his bestsellers Liar's Poker, The New New Thing, and Moneyball. He has been the American editor of the British weekly The Spectator and senior editor at The New Republic. He has also been a visiting fellow at the University of California, Berkeley.

In an article written for the October 27, 2002 New York Times Magazine, Lewis states, "Stock market losses are not losses to society. They are transfers from one person to another."

He further describes his own experience in the market. "I should have sensed that the moment I finally decided Internet stocks were a buy is precisely when they became a sell. Instead, I jumped into Exodus Communications at $160 a share and watched it run up a few points-and then collapse.

What happened to my money? It didn't simply vanish. It was pocketed by the person who sold me the shares. The suspects, in order of likelihood: a) some Exodus employee; b) a well-connected mutual fund that got in early at the I.P.O. price; or c) a day trader who bought it at $150."

In other words, between 2000 and 2003, $7 to $9 trillion was not lost ... $7 to $9 trillion was transferred from one investor to another. Between 2000 and 20003, some investors got richer and other investors got poorer ... which is why rich dad was more concerned about me, the investor, than what I was investing in.

When Do I Sell?

In 1965, after realizing that rich dad was not happy with my first investment, I asked, "Should I sell those mutual fund shares?" Grinning, he said, "No. I would not sell them just yet. You may have made a mistake but you have not yet learned your lesson. Hang on for a while longer. Keep making those monthly payments until you learn what you need to learn. If you will do that, this lesson will be priceless. If you learn from this event, you will gain something more important than money. You will be on your way to becoming a better investor. One of the first things you need to learn, if you want to be a better investor, is the difference between a sales pitch and sound investment advice."

Investing for the Long Term

Once Christmas vacation 1965 was over, I returned to school in New York. It was tough leaving the warm beaches of Hawaii and stepping back into the coldest part of winter in New York. Instead of surfing I was now shivering. Following rich dad's advice, I continued to send in my check to the mutual fund company once a month. Being in school, the extra money was hard to come by, especially since I had very little financial support from home. I still had expenses and an occasional social life to support. To make up for the shortfall there were many Saturdays I went out into the neighborhood to do odd jobs for $2 an hour. If I worked one or two Saturdays a month, I could afford to send the check in to the mutual fund company as well as pay for the necessities of life, such as fun.

Occasionally, I would open the newspaper to the investment section to find out how my fund was performing. The fund did not do much. It sort of sat at one price and stayed there, just like a sleepy old dog. Once a quarter, I received an envelope from the company with a statement verifying my contributions. After a while I began to dread opening the envelope because I was usually less than impressed with the fund's performance. The number of shares I owned was increasing but the price per share remained about the same. Truthfully I felt kind of stupid for buying such an under-performing investment.

Six months later, I was back in Hawaii, this time for summer vacation 1966. When I stopped by rich dad's office to say hello he invited me out to an early lunch. "How is your mutual fund doing?" he asked once we were seated at the restaurant.

"Well, I put in nearly $100 in six months, but the fund is not doing anything. The shares were about $12 when I first started investing in them and they're still at $12 today."

Rich dad chuckled. "Getting impatient?" "Well, I would like to see a little more action," I replied. "It's not good to be impatient," smiled rich dad. "Patience is important in investing."

"But the fund is not doing anything," I responded. Rich dad laughed out loud after my last comment. He obviously found it funny. "I'm not talking about the fund," he said. "I'm talking about you. You need to learn patience if you want to be an investor." "But I have been patient. My money has been in there for nearly ten months. The price per share remains the same."

"As I said, that is what happens when you are an impatient investor," rich dad said sternly. "Impatient investors often invest hastily-hence their impatience causes them to invest in under-performing investments."

"Under-performing investments ... just because I invested with impatience?" Rich dad nodded, "How long did you talk to your mutual fund salesperson before you made the decision to invest?"

"We talked for about an hour. He asked me about my goals in life. He showed me a few charts showing me how the Dow Jones Industrial Average was going up and up. He explained the value of investing a little bit of money over a long period of time."

"And you made up your mind and bought the shares," rich dad said with a smile. "Yes," I replied.

"I'd call that impatience." Rich dad chuckled. "You invested impatiently and now you wait impatiently while your investment does nothing. How can you expect to find a great investment if you first of all don't know what a great investment looks like and you're not willing to invest the time to look for the investment? You got what you paid for. Your impatience caused you to find an investment that makes you even more impatient. And always remember this: The worst investments go to impatient investors. Got this lesson?"

"Yes, I have," I replied impatiently. "So am I wasting my money?" I asked. "No," said rich dad strongly. "Right now, don't worry about the money you're making or not making. Right now, you're learning a priceless lesson. Most investors never learn this lesson on impatience. Don't be so impatient. Take time to learn the lesson."

Copyright © 2004 by Robert T. Kiyosaki and Sharon L. Lechter

About the Author

Robert Kiyosaki a financier, author and teacher says "that the main reason people struggle financially is because they have spent years in school but learned nothing about money. The result is that people learn to work for money... but never learn to have money work for them."

Co-author of the Rich Dad series of books and CEO of the Rich Dad Organization, Sharon Lechter has dedicated her professional efforts tot he field of education. She graduated with honors from Florida State University with a degree in accounting, then joined the ranks of Coopers & Lybrand, a Big Eight accounting firm. Sharon held various management positions with computer, insurance, and publishing companies while maintaining her professional credentials as a CPA.