Rich Dad Education Blog

One of the first questions asked when meeting someone new is, "What do you do for a living?" This type of question is a natural conversation starter as it gives us some small insight into the other person. Typically, this leads to a casual conversation about their job. You will likely hear about what they do, what they like or dislike about their job, and why they chose that particular field.

When asked some form of the question, "Why did you choose to go into that occupation?" there are likely to be a variety of answers. The responder might say that their chosen occupation was their childhood dream. They might also respond that they had skill sets that made that occupation appealing, that the money was good, or that the field was one where they felt they could make a difference. Aside from these answers, there is another answer that is, unfortunately, far too common—some form of "they were hiring." It is a common tale that a temporary job obtained through a friend, relative, or job service ends up as a career. People whose careers are determined through this path often get to a place in their life where they get comfortable, and don't venture out to find an occupation that might be more rewarding, personally or financially.

The Real Estate Comfort Zone

Many newcomers to real estate enter the field with enthusiasm and excitement. They are working for themselves, and have broken free of the 9-to-5 chains. As with other lines of work, however, real estate entrepreneurs can soon find themselves in a comfort zone—typically, a one-strategy rut. For example, the most common real estate strategy new real estate investors utilize is the buy-fix-sell model. If the novice real estate entrepreneur makes money using this strategy, they will likely repeat it. Before long, the investor may look back and realize that is the only strategy they have used for years!

While the investor may be achieving some level of success, he soon becomes one dimensional. Even worse, being a one-strategy investor limits the amount of deals they can be a part of. There may be other areas that are more exciting, offer more potential rewards, and/or are better suited to fit their lifestyle.

Being a one-strategy investor can be successful; many seasoned real estate veterans have found one strategy that they enjoy, become an expert at, and specialized in. The main point is that these veterans are usually well-versed in numerous strategies, and eventually settled with the one that best fits their strengths and fulfills their personal and financial goals. As a real estate investor, this is where you want to be—specializing on the strategy or strategies that best suit you.

For those new to the real estate world, or for those seasoned vets who want to try something new, here are a few strategies outside the traditional buy-fix-sell model.

Property Management and Cash-Flow Properties. Many new real estate investors shy away from this strategy because they are uncomfortable with the thought of managing tenants. This is unfortunate because there is perhaps no better manner of generating multiple streams of income. One of the fundamental principles of the Rich Dad philosophy is to generate cash flow to escape the rat race. This strategy can give you great flexibility in how you handle deals depending on the particular market conditions, and get you to your goal that much sooner.

Wholesale Buying. This is a great strategy for beginners who are lacking the financial capital to complete a deal on their own. It also works tremendously well for investors who want to actualize a profit on a deal they discover, but have too much on their plate at the moment. Whether you ever utilize this strategy or not, you should be familiar with it because it provides opportunities to become part of deals that you otherwise would not be able to.

Tax Liens. This is an area that the vast majority of new real estate investors never even look into. For many who do look into it, they wonder why they ever tried to do anything else. Tax-lien opportunities exist in every state, and can be the type of strategy that becomes your niche or an additional means to expand your investment portfolio.

Properties in Probate. This is another potential niche strategy for the right investor. Similar to tax liens, it is an area that most new real estate investors never even think to investigate. Becoming knowledgeable in this area increases investors’ ability to find motivated buyers.

Commercial Real Estate. This is another area that new real estate investors often overlook because they fear it is beyond their skill set; however, when combined with wholesaling strategies, it can provide even the beginner investor the ability to make the big deal. For those that hold onto the property, it is an excellent source of cash flow that can lead to a quicker escape from the rat race.

In the coming months, this newsletter will discuss real estate strategies more in depth. In addition, Rich Dad education offers courses in these and a wide variety of other strategies. Real estate investors should never limit their potential simply because they have found a comfort zone. If you find a niche in the real estate market, it should be because it was a choice, not because it was something that you simply fell into.

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When you ask someone who does not actively follow the markets to describe how the markets work, you are likely to initially be met with a blank stare. While a great number of people have their retirement plans based on the financial markets, it is likely that very few have spent any time thinking or analyzing why the markets go up and down.
If you press these individuals further, you are likely to get a variety of answers relating to the fundamentals of companies and/or larger economic conditions of the country. Common answers will be, "stocks move up because the companies are profitable and show constant growth" or "the market moves up or down based on how the economy is doing." These simplified answers have a great deal of truth to them, but they certainly do not paint the entire picture.

On October 9, 2007, the Dow Jones Industrial Average closed at a record high of 14,164. Less than 18 months later on March 9, 2009, it would close at 6,547. At the time of this writing, the Dow is hovering around the 12,000 level. Such dramatic volatility within a four-year timeframe should provide a clear example that market movement is not solely based on company fundamentals. There is something far less tangible than a company's quarterly report that causes such large swings in the market. While they come in many forms, the two most common of these intangible causal factors are fear and hope.

Hope

One could argue that the entire premise of modern-day retirement accounts is sold on the idea of hope. Individuals invest now on the hope that their money will escalate in value, so later, they will be able to comfortably retire. Individuals hope that the market will go up over the year; they hope that the economy remains stable; they hope that their hope is well founded.

At times, hope manifests itself in such a way that it becomes painfully obvious to the astute observer. Alan Greenspan, in a speech given during the dot-com bubble of the 90s, coined the term "irrational exuberance" to describe the emotions behind hope that drive a market to escalated values that are not backed by financial reality. When a market has been driven to these artificial values, at some point, hope will give way to its ugly sibling—fear.

Fear

Hope can take time to form in a market, and when it sets in, the market generally makes a slow and steady climb upward that sometimes can last years. Fear takes far less time to do its damage. When fear sets in, you can see dramatic drops in a very short timeframe.

Fear can also have a snowball-type effect. In September 2008, it became evident that the financial crisis that had been driving the markets lower in previous months was more serious than originally thought. The market was crippled with fear in the following months, and went on a long slide to its low point of 6,547 on March 9, 2009. Many investors simply couldn't take the losses anymore and sold off, which only led to more fear and continued the slide downward.

Fear, Hope, and Your Trading

While hope and fear definitely fuel the markets at times, they can impact the investor in his or her daily decisions. A little self-awareness can go a long way to improve your overall trading. Depending on your personality type, you may be more likely to be susceptible to the pitfalls that hope and fear can bring than a trader who bases their trades solely on technical analysis. If you are more susceptible to letting hope and fear interfere with your trading decisions, then you need to figure out whether you are a glass-is-half-full or glass-is-half-empty type of individual.

The Glass is Half-Full Trader

This type of trader sees unlimited potential in their trade setups. When they set their targets, they might be a little too optimistic. This type of trader is susceptible to continue a profitable trade further than they should, even though their indicators and the chart show that it is time to exit.

If this was the only problem the emotion of hope created, then we could live with it. However, even more dangerous is when a trade does not start off as anticipated. While no trader ever has a perfect batting record, none of us like losses. When the trade does not materialize as expected and our actual or theoretical stop has been reached, there is the temptation to continue on with the trade a little longer to see if it corrects course. If the trader crosses this line, they have entered the world of pure hope—they have left the world of technical analysis and entered the world of gambling.

The Glass is Half-Empty Trader

Perhaps the most paralyzing thing that fear does to the technical-analysis trader is that it creates inaction. Those traders that let fear take hold will ignore trades that should be made. There is nothing wrong with taking your time and being selective; however, if you find yourself never actually taking action, then you know you are letting fear take over. If you are unsure, set a weekly goal for the number of trades you think you should participate in. If, by the end of the week, you are far under this number, then you may be are succumbing to fear.

Fear can also take hold when a trade is going well. For example, you may find yourself in a trade that is on target to make money. Your indicators and analysis may indicate that there is no reason to exit the trade, yet you exit. Fear can manifest itself as you worry that you should exit now despite no evidence that you should. So desperate to capture the small profits that are on the table, fear can cause this type of trader to ignore their training, and thus forgo larger profits. Fear truly limits what this trader can earn and become.

Hope and fear are real emotions that directly influence the markets and investors. The first key as an investor to combat hope and fear is to analyze objectively what role they play in your trading. Once you have identified how hope and fear affect your trading, then you can work toward making decisions based on sound technical analysis. If a trader can minimize these emotions, then they increase their chance of becoming a successful trader.

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As you grow older, you'll find the only things you regret are the things you didn't do. ~Zachary Scott

To change one's life: Start immediately. Do it flamboyantly. No exceptions. ~William James

A few years back, Jack Nicholson and Morgan Freeman starred in the movie The Bucket List. The plot followed two terminally ill men on a road trip with a list of things they wanted to do before they died. While the movie received mixed reviews from critics, the theme of the movie drew people in. The Bucket List opened number one at the box office, and grossed nearly $100 million domestic, and over $175 million worldwide.

That such a theme would resonate with audiences should not come as a surprise. For ages, poets and philosophers have written about the brevity of life. Hundreds of years from now, it will likely still be a theme discussed. While different people have different ideas on how we should spend our time on Earth, a common connection between these ideas is the maximization of that time.

The Dreams of Our Youth

In our culture, thinking about what we want to accomplish in this life starts in our youth. It is extremely common for children to have dreams about what they want to be when they grow up. Occasionally, teachers will ask kids to make lists about what they want to do when they grow up—and the dreams on these lists are big! Owning the Yankees, starring in movies, curing cancer, and buying the M&M Company were a few I can remember on my list.

Somewhere along the path to adulthood, our dreams tend to shift. The little boy who dreamed of being the second baseman for the Dodgers now dreams of becoming manager of his department. The little girl who dreamed of curing cancer now spends her time hoping that she will get a four-percent raise at the end of the year. Another child who dreamed of playing the guitar in front of thousands of cheering fans now spends his or her time thinking about getting to 10 years of service for their company so they can get a couple of extra vacation days. These scenarios are far too common.

This writer isn't smart enough to fully understand why the dreams of so many die along the path of life. I do know that the world is marred with negativity, and those that are closest to us are often the worst offenders. Robert Kiysoaki warns of this: "Be aware of people who want to kill your dreams. There is nothing worse than a friend or loved one killing your dreams." This is wise advice that we should all remember.

Whatever the reasons, it is time to call upon the imagination of your childhood. Your time on Earth is precious and limited, and there are undoubtedly still things you want to accomplish, things you want to do—perhaps even time for you to become the person you want to become. If you are even tempted to put on your list that you want to become manager of your department, then remember how unimpressive that would have sounded to yourself as a child.

Creating Your Bucket List

Creating a list of things you want to do in this life—your own bucket list—can be a highly energizing and rewarding activity. Perhaps the little boy in you that wanted to be an NFL quarterback now wants to run his own company. Perhaps the little girl in you that wanted to cure cancer now wants to make enough money where she can donate millions of dollars to the charity of her choosing. Whatever you put on your bucket list should be big, be at the heart of what you truly want to do in life, and should have no limitations.

This list is not a list of moderate, incremental goals. There is a time and a place for that. This truly is a dream list. This should be things that, if you don't accomplish, you will regret at the end of your days. As such, there is no room for moderation or playing it safe on this list. As Robert Kiyosaki said, "If you’re the kind of person who has no guts, you just give up every time life pushes you. If you’re that kind of person, you’ll live all your life playing it safe, doing the right things, saving yourself for something that never happens. Then, you die a boring, old man."

No Room for Can't

If you take some time to make this list, you will likely realize that you have many things you want to do. Unfortunately, there will be that little voice in the back of your mind that tells you your dreams are foolish or too big, or tells you that you aren’t good enough. There will be moments where you might fear, "I can't do it.” Remember the words of Robert Kiyosaki when he wrote, "The word can't makes strong people weak, blinds people who can see, saddens happy people, turns brave people into cowards, robs a genius of their brilliance, causes rich people to think poorly, and limits the achievements of that great person living inside us all."

Do not limit yourself in this life—do not fall into the “I can’t” trap. Whatever time you have left, maximize the talents that you have, and fulfill the dreams and passions of your heart. While obstacles are presented, there are no limits to what you can accomplish in this lifetime. Creating your bucket list can be a special activity, one that allows you to revisit the imagination of your youth coupled with the goals and desires that you have as an adult.

Don’t wait till you are facing your end, like Jack Nicholson and Morgan Freeman’s characters did. Take this opportunity right now to start writing down a few things you have always wanted to do, or things you have just recently realized you want to do. Don’t be embarrassed or scared—write down whatever comes to mind. Once you understand what it is that you really want to do, you can start taking the steps to get there.

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