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If you missed the Rich Dad Forum in Orlando earlier this year, you may want to check out 13 Strategies to Grow Your Business. This e-book is based on the presentation made by business writer Jacquelyn Lynn on the Forum's opening day.
Robert Kiyosaki is smart and he is wise, but he is not the first person to hold his opinions. Back in 1775 (a year before the U.S.A. was officially established), Samuel Adams wrote this:
"No people will tamely surrender their Liberties, nor can any be easily subdued, when knowledge is diffusd and Virtue is preservd. On the Contrary, when People are universally ignorant, and debauchd in their Manners, they will sink under their own weight without the Aid of foreign Invaders."
-- Samuel Adams (letter to James Warren, 4 November 1775)
It is education and integrity -- doing the right thing because it's the right thing to do -- that will keep us free.
It is financial intelligence that will give us the resources to enjoy our freedom.
Developing a Playbook: The 5 T’s of Trading
By Tyler Craig
Is it realistic to expect consistent returns from your trading if you have an inconsistent, unsystematic approach? Of course not. Most traders would concede the fact that developing a trading plan is essential to becoming a successful, savvy trader. However, while most accept this, few choose to actually take the time to develop a plan.
We are all familiar with the cliché, “those who fail to plan, plan to fail.” Nowhere is that more apparent than in the financial markets. Some face the struggle of knowing the best way to structure a trading plan. To help Wealth Intelligence Academy students alleviate this struggle, we develop a trading plan in the advanced trading camp, the Master Trader™.
The five key components to a successful trading plan are as follows: goals, risk management, strategic playbook, analysis, and education. While each of these subjects merits its own article, we will focus on formulating a strategic playbook. The cornerstone of the strategic playbook is the 5 T’s of Trading. The beauty of the 5 T’s is their universality. Any style of trader using any trading instrument can use the 5 T’s to categorize their playbook. The following is an in-depth look at the 5 T’s of trading.
Trade Identification: This can simply be defined as the criteria that must be present before you are willing to place a trade. Those familiar with technical analysis know that there are many chart patterns that can be identified and traded, such as bullish/ bearish retracements, breakouts/breakdowns, and double tops and bottoms. Those using fundamental analysis may have other fundamental criteria they wish to be present before pulling the trigger. My recommendation is to focus on one or two patterns until you can properly identify and trade them. As you continue to learn and grow, you will come across other tradable patterns, many of which you will add to your play book. In turn, these new patterns will help you accomplish the goal of becoming a more flexible and successful trader.
Once a tradable chart pattern has been identified, its time to jump in, right? Wrong. To increase the odds of success, try waiting for price confirmation. This falls under our next T—Trigger.
Trigger: Price confirmation occurs when the price breaks pre-determined levels that signify the stock is moving the way you want it to prior to jumping into the trade. One example of a trigger for bullish trades is to buy above the previous day’s high or intraday resistance levels. For bearish trades, one example may be to wait until the stock breaks the prior day’s low or intraday support levels. In order to develop consistency, it is important to decide when to pull the trigger and do it the same way every time. In my experience, the best trades are those that are profitable right off the bat, and waiting for price confirmation helps to accomplish this.
So far you have identified a bullish pattern, set your entry order, and, bam, it’s triggered! Now just sit back and watch the money flow into your account, right? Wrong. Thus far you have been completely objective and disciplined in identifying a pattern, waiting for the trigger, and then jumping in. Now comes the hard part. Now you’ve got money in play in the market. You’re married to this trade for better or worse. In addition, your evil in-laws, Fear and Greed, have moved in and are here to stay for the remainder of your marriage. Their main objective is wreaking havoc on your portfolio and they will do all they can to instigate rash decision making. The next two T’s, target and trade management, will help you dispel these two evils.
Target: What are your pre-defined targets? Pre-set targets help keep you level-headed when in a profitable position and greed starts to whisper promises of windfall profits in your ear. A target serves as a benchmark for what price level the stock is expected to reach. Typically when a stock reaches your target, you take action—such as profit-taking or moving your stop loss up.
Having a specific exit strategy is another key to consistency. How can you expect consistent results in the long run if you continually sell on a whim? There are a myriad of ways to project a target, and as you gain experience, you will continually add techniques to your playbook. Having a pre-selected target also is crucial to calculating potential reward for your trade. Having an acceptable risk-to-reward ratio should be a part of your trade identification. After all, how can one decide whether or not to take a trade if he has no idea how much profit potential there is?
Trade Management: The adage, “maximize your gains and minimize your losses,” is the goal here. Having set rules in place will allow you to do just that. Trade management is where rules for stop placement and movement, hedging, and techniques such as scaling in and out, are determined. It is nice to have rules in place that dictate when to adjust your position, rather than making a decision on the fly. By pre-determining stop placement, you can then calculate your potential risk in the trade, thus allowing you to evaluate the risk-to-reward scenario and whether it is acceptable.
Tradable Instrument: Throughout your trading career, you will learn to utilize different financial instruments. Stocks, options, spreads, and futures are all tools used by savvy investors. As part of planning your trade, it is necessary to specify your instrument of choice for that specific chart pattern and trading style.
Equipped with the 5 T’s, every trader will be on their way to a more consistent, systematic approach to the markets. However, keep in mind that having a trading plan and following that plan are two different things. You must develop the discipline to follow your plan to the “T” (pun intended). Once your playbook is compiled and you have the self-mastery to follow it, you are one step further along the path of market proficiency.
Tyler Craig is a stock coach for Wealth Intelligence Academy®.
Keep It Covered: Insuring Your Real Estate Investments
As an investor, your insurance needs are different than a typical consumer—and as your portfolio grows, those needs will change
As part of the terms of a mortgage loan, most lenders require borrowers to carry property insurance. But simply meeting the requirements of your lenders does not necessarily mean that you are adequately insured. To be sure that your real estate investment business is properly covered, understand what your risks are, how much liability you are able to accept, and what types of policies are available.
The basic types of business insurance include:
• General liability and property coverage. Liability insurance protects you if someone is injured while on your property. The insurer not only pays the damages, but also funds and handles your legal defense. Property insurance covers your physical assets—building, equipment, furnishings you own, fixtures, etc. In most cases, your property insurance will not cover the tenant-owned contents of a rental unit; your lease should clearly state that tenants are responsible for insuring their own belongings.
• Umbrella policy. Umbrella policies provide additional liability coverage after the limits of your underlying policy are reached. For example, if someone was injured on your property and required $300,000 in medical treatment but the liability limit of your underlying policy is $250,000, your umbrella policy will pay the additional $50,000 (provided, of course, the limit of your umbrella policy is at least that amount).
• Automobile. If your company owns vehicles or if you use your personal car for business purposes, you need appropriate coverage. Such insurance typically includes bodily injury liability for injuries you or another authorized driver cause someone else; medical coverage for treatment of injuries to the driver and passengers in your vehicle; property damage liability; collision (damage to your car from a crash); comprehensive (damage to your car not resulting from a crash); and uninsured motorists coverage. Be sure your vehicle insurance complies with the laws of your state and offers you sufficient coverage to protect you financially—which means you may want higher limits than the law requires.
• Life. Various types of life insurance can be designed to protect your company, investments, and family in the event of your death. Life insurance is often part of buy/sell agreements in partnerships, where the insurance is used to buy out the interest of the deceased. For example, let’s say you own property with a partner. Will your spouse want to continue as an active partner in the investment if you should die? If not, purchase life insurance and create a buy/sell agreement so the surviving partner can buy the property and your spouse will get the cash.
• Disability. There a number of options for business owners and investors when it comes to disability coverage. The most common type of disability insurance protects your income if you are disabled and unable to work. You can also buy disability coverage to fund a buy-sell agreement that addresses what will happen to a partner’s investment should he or she become disabled. Disability buy-sell policies can include a lump sum payment option or have benefits paid over a period of years.
• Workers compensation. If you have three or more employees, you are probably required by law to provide workers compensation insurance. Laws regarding this coverage vary by state; check with your insurance agent and state insurance department to find out exactly what you need and how it is purchased.
• Business interruption. This coverage is designed to replace lost income, pay ongoing expenses, and cover the costs of setting up in a temporary facility if necessary when a business is unable to operate due to a covered peril (such as fire, storm damage, vandalism, etc.). If you have rental units that cannot be occupied due to a covered peril, business interruption insurance may replace the lost rent revenue.
• Destroyed or damaged records. If your business records are destroyed or damaged by a covered peril, this insurance will compensate for the inability to collect income and the cost of reproducing the records.
Beyond the traditional types of insurance are a variety of specialty policies offering coverage you may or may not need, such as flood, earthquake, and terrorism insurance. Talk with your agent about what’s available, the cost, and your potential risk so you can make an informed decision. If you work from home, be sure your business equipment is covered and that you are protected for business-related liability. Most homeowners policies provide only nominal coverage for business equipment and activities, so check with your agent to determine if you need a separate business policy or if you can add an endorsement to your homeowners policy.
Managing Your Insurance
As much as you’d probably like to, insurance isn’t something you can take care of once and then forget about. In addition to making sure you have coverage each time you buy or sell a piece of real estate, you should do an annual review of your needs, your coverage, and what new products are available that might work for you. Keep records of all your assets in case you need them to document a claim. If you make changes to existing policies, follow up to make sure the necessary paperwork was completed properly. It may be your agent’s job to do the paperwork, but it’s your responsibility to make sure you have the right coverage in place.
Keep in mind that insurance companies often structure their policies differently, so if you change any of your insurers, study the new policy carefully to be sure you really have the coverage you think you have. Don’t buy a policy based on rates alone. Be sure the coverage is what you truly need and the company is financially sound with a reputation for good customer service.
Remember that insurance is essentially a gamble—you’re betting that you’ll need it and the insurer is betting that you won’t. Be sure that you can still come out a winner whether you win or lose the bet.
Jacquelyn Lynn (www.jacquelynlynn.com) is a business writer, speaker, and author of The Entrepreneur’s Almanac.
Being an Investor Means Being an Investigator
By Mich Christensen
Why do we need to investigate properties when investing?
For the investor to choose a property wisely, he must find out everything about who owns the property, the history, and what is happening to the property. In anything we do in life there is a process—a procedure, a logical reason, and a methodology to accomplish our goals. Just as you follow a recipe for consistency in the kitchen, there is also an optimum plan when investing in property.
Organize yourself—give yourself the best opportunity to do your best!
When you have all your ducks in a row, you can go through the steps quickly and efficiently, without having to spin your wheels. Why re-invent the wheel when it is already there, right? So now, what do we do?
First, you need to ask yourself these questions: What am I looking for, where am I looking, and when will I do this? Obviously, you will need to manage your time, meaning you will set aside time to do your work. Then, you will take that time to determine what area to search in, what type of properties you seek, and how you will find them.
In the meantime, you need to put your Power Team in place and find your inner circle team members. They may consist of a title company or attorney to close your deals, a mortgage broker or bank to finance the deals, and a real estate agent to work along with you. You may require a CPA to do your books and taxes, a general contractor or handyman to do repairs or rehab, and an insurance company if you own rental properties. You may also need a surveyor or an appraiser. As your business grows, so does your team. Once all are in place… then we start having fun!
The Game Plan
1) Locate the properties. As we discussed in the August issue, we need to find our “farming areas,” the geographic areas we plan to work or farm for properties. Once we find the areas we want to work in, we determine which properties we want to go after, and whether we are cherry-picking or going for quantity.
2) Investigate. Look at the properties—determine how they are situated, what is happening in those particular areas, and what is planned, if anything, for those areas. What is the condition of the other properties in the vicinity?
3) Determine what repairs are needed. Eyeball the outside. Take a look at what type and how much work the yard and buildings need. Does it require landscaping, cleaning up, paint, roof repairs, or more? Is this property in need of only cosmetic repair? Or, does it need a significant “face lift” with minor or major rehab? Is this house obsolete because it is too small? For instance, a property could have only one bath and two bedrooms in an area with homes that have three or more bedrooms and two baths. These are questions you want to ask yourself.
4) Get the ownership information. Now the real fun begins—it’s time to get down to the nitty-gritty. We obtain the information on who owns the properties and write it down. We may keep a spread sheet on all the properties we locate, thus we have instant access to the data we have collected.
5) Look at the history. How long have the owners had this property, and what type of deed or mortgage(s) do they have? Who did they buy it from, and when did they buy it? Who is on the deed or mortgage(s)? Are they the same names? If not, we might want to find out why, and what the relationship is. There are several reasons why only one name might be on one document and two or more names on another document.
6) Are there judgments or liens on this property? Each county accesses its records differently. If it is modernized, the records will be computerized and that makes our job easier. However, if it is an antiquated system, we may have to look it up in the big black book. Be aware that in some counties, the regular judgments and liens may be in a black book, and federal judgments or liens in a red book. Make sure you ask in advance so that you don’t miss anything!
7) What is this property assessed at? What are the taxes on this property and where can we reach the owners? Remember, the tax-assessed value is not necessarily the fair market value. The county must assess a value to properties via a formula, and this may include any type of exemption, such as a homestead, a greenbelt/farming, or widow/widower exemption. Just remember each state has its own types of exemptions.
8) What are the comps in the area? The word “comps” is a short way of saying comparables. We need to find and compare similar properties that have sold in the last 12 months. This gives us an indication as to what the market is doing. For a fluctuating market (going up or down), although we may pull comps for the last 12 months, the last six to eight months give us a true picture of what is happening now.
These are the questions, and you need the answers. Thus, you become the investigator, and investigating leads to sound investing.
Mich Christensen is a real estate coach for Wealth Intelligence Academy®.
Rich Guide Answers
Question: What is an appropriate assignment fee on a contract with $35,000 equity?
Answer: In general, without knowing any other details, $5,000 is probably fair; $3,000 to $7,000 is a typical assignment fee. You will be paid well for negotiating a deal but you still make it attractive for another investor to purchase the property. However, $35,000 equity doesn’t tell us everything we need to know to make a complete evaluation. What is the market value of the property? If the property is worth $75,000 and doesn’t need much work, this is a great deal and another investor should be happy to pay $5,000 for the contract; if it’s is worth $1 million, the equity won’t even cover the real estate commission when the property is sold. As you calculate the assignment fee, you should also consider the fix-up and holding costs for the investor and set your fee at a point where you can all win.
Rich Guides answer questions from students about real estate investing and give them support and guidance as they develop their investing skills and knowledge. Rich Guides are available to take your calls at 800-978-8068, option 3, from 8:30 a.m. to 9:00 p.m. Monday through Thursday; 8:30 a.m. to 7:00 p.m. Friday; 10:00 a.m. to 1:00 p.m. Saturday (all times Eastern).
Is Your Mind Geared for Investing?
By Kim Kiyosaki
Do you want to be a Rich Woman?
Most women will answer, “Yes!” Or “Well, I’d rather be a rich woman than a poor woman.” And, of course, there are those who will reply, “You know, money isn’t everything. And I’d rather be happy than rich.”
I never understand why some people think happy and rich are mutually exclusive–that you must choose one at the expense (or exclusion) of the other. My question is: Why not be both? Why not be rich and happy?
A Rich Woman is a woman who is financially independent—a woman who is dedicated to taking charge of her financial life, and who is not depending on someone else for her financial well-being. She is a woman who insists on becoming financially free.
So the first question I usually get is, “Where do I start?” And if you’ve already started then the question is, “How do I keep growing what I have?”
For me, the answer isn’t in a precise, step-by-step formula. The most important next step is found in you–specifically in how you think–and your mindset.
Why is the mindset so essential? Because how and what you think, what you say to yourself, how you react to circumstances, and what you aspire to will directly affect what you receive in life.
For example, if you think life is tough then life will be tough. If you say, “I can’t do that,” then you can’t do that. If you’re so afraid of making a mistake that you avoid the new and unknown then you don’t learn or grow. Yet if your words are, “I can!” “I will!”–in other words, if you say “Yes” more often than “No”–and you look at the new and unknown as an adventure and an opportunity to learn, then your chances for success increase dramatically.
James Allen, the author of my all-time favorite book As A Man Thinketh, says, “All that a (wo)man achieves and all that (s)he fails to achieve is a direct result of (her) own thoughts.”
He also states, “Men are anxious to improve their circumstances, but are unwilling to improve themselves.”
Adopting a mindset that produces what you truly want in life versus one that leaves you struggling is definitely a willingness to improve yourself.
So it’s easy to simply say, “Change your thoughts, change your mindset,” but is it actually that easy to do it? This is the question I began asking. And it’s amazing when you start seeking out answers how quickly they appear.
One day a friend, out of the blue, gave me a book she had just read (so appropriate to this message) titled Mindset, written by Carol Dweck. Ms. Dweck’s research struck a chord. Here is a quick summary:
There are two types of mindsets. The first is the Fixed mindset. People with a fixed mindset believe that a person is born with a certain amount of intelligence and that amount does not change. Her personality, talents, strengths and weaknesses remain constant throughout her life. She may learn new things but her intelligence does not grow.
The second mindset is called the Growth mindset. These people believe that your intelligence, abilities, aptitude and character can constantly change and improve through learning and experience.
Here’s the key: Because a fixed mindset person has a set amount of intelligence they spend their whole life proving how smart they are. These are the people who flaunt their degrees and titles. They know all the answers. They constantly seek out validation. And because of this they cannot make a mistake. They cannot fail. For if they did, that failure would jeopardize their very existence. They think, “If I make a mistake or fail then I’m not as smart or talented as I portray myself to be.” They do not seek out the unknown. They do not take chances because, God forbid, they might fail. These are definitely not the entrepreneurs of the world.
The growth mindset people, on the other hand, welcome challenges. They want to tackle the unknown. They opt for the more difficult problems. They have a passion for learning and for growing. They want to constantly stretch themselves because that’s how they get better.
When it comes to success, Carol Dweck points out, “In the world of fixed traits, success is about proving you’re smart and talented. Validating yourself. In the other (growth mindset) it’s about stretching yourself to learn something new. Developing yourself.”
I love learning. I know very well from first-hand experience that the way I personally grow is to face things I don’t know I can do, things that are often frightening, and to do them. That’s the ultimate! Yet, in understanding the two mindsets, I realized that I actually have both mindsets in play–depending upon the subject. For instance, I’ve always thought of myself as all thumbs when it comes to painting and drawing. I now realize that’s not true. I simply have not taken the time to learn it and do it. The same with gardening–hopeless. Again, not true. If I learned gardening and applied what I learned, I’m sure I could be an excellent gardener.
Which brings me full circle–360 degrees back to the focus of The Rich Woman In You: money and investing. Have you ever heard a woman say (or maybe you’ve even said this), “I’m not good with money.” Or “My eyes glaze over when I think about investing.” How about this one: “Investing is too difficult. My mind doesn’t think that way.” Or this: “I started investing but I’m bored with it.” Those thoughts are all coming from a fixed mindset. The growth mindset would say, “I don’t know much about investing today but I can learn it and apply it and probably become a great investor.”
So if you have a fixed mindset, how do you adopt a growth mindset? I’ve found that the first and easiest step is to simply be aware of the two mindsets. If you listen to your words and watch how you react to situations you’ll begin to recognize when you’re in a growth or a fixed mindset. What you say to your kids is another sure giveaway.
When it comes to investing, if you stay in a fixed mindset I believe your chances for success are slim. I see people freeze up when I guarantee them that they will make mistakes with their investments. It’s part of the process. But if you’re in a mindset where mistakes threaten your very existence then what I’ll hear are all the reasons why investing won’t work. In investing, sometimes I win and sometimes I lose, but I always come away smarter and better prepared for my next investment. Making mistakes, learning from them, and getting smarter are all part of the investment process and, as you can see, are ideally suited for the growth mindset.
Investor, entrepreneur and author of Rich Woman, Kim Kiyosaki educates women about money and investing through books, speaking engagements, a PBS TV show and RichWoman.com. Kim and her husband Robert created the CASHFLOW® board games and own The Rich Dad Company.
© 2007 Rich Woman, used with permission
Robert Kiyosaki will be a guest on CNN’s 360 with Anderson Cooper on CNN, Friday, Oct. 10, 10:00 p.m. to 11:00 p.m., eastern time.
Robert Kiyosaki will appear on Fox News’ Geraldo At Large, hosted by Geraldo Rivera, on the Fox News Channel, Saturday, Oct. 11, 10:00 p.m. – 11:00 p.m. eastern time.
Robert will be appearing as a financial expert along with two political experts.
The topic is: What can people do to protect, invest, and prosper in these uncertain/unsettling economic times.
Be sure to tune in, then let us know your thoughts.
Next week in Miami, Florida, we will test a new version of Rich Dad’s Learn to Be Rich: Rich Dad’s ¡Aprenda a Ser Rico!, which is the program in Spanish.
Spanish-language introductory classes will be taught on Oct. 7-8.
We feel this is a win-win opportunity: The Spanish-speaking population is hungry for financial education and it is an exciting market for us. We have added a Spanish events button on our website at www.richdadeducation.com or you can go directly to the site at www.padrericoeducacion.com