24/04/2020
[Should you go with Capital Gain or Cash Flow?]
✳️Here's a story by Robert Kiyosaki of why you should have a dairy farmer mindset instead of a rancher mindset!✳️
When Robert Kiyosaki was 16, his dad took his son and Robert to visit the ranch.
On the visit to the ranch, they happened to see cowboys herding cattle from the feed yard to the slaughterhouse. They cattle were slaughtered.
A few months later, rich dad took them to a dairy farm. Early in the morning, they saw the farmer herding his cows into the barn for milking. These cattle behaved differently from the cattle at the slaughter house.
The financial lesson rich dad wanted them to learn was that, while both the cattle rancher and the dairy farmer count their cattle as assets, they treat their assets differently, and they operate via different business models.
The visits to the ranch and the farm were to emphasise the very important difference between:
🔴Capital Gain vs Cash Flow.🔴
Simply put, a cattle rancher can be compared to a person who invests for capital gains. A dairy farmer is more like an investor who invests for cash flow.
One of the reasons so many people lose so much money investing, or think that investing is risky, is because they invest like ranchers. They invest to slaughter than to milk.
Warren Buffett says, “The dumbest reason in the world to buy a stock is because it’s going up.”
A Ridiculous Example:
✅The question is: If you gave me RM10 today, and i gave you back one dollar a month for years, would you think that was a good investment? I hope you do. In other words, you would have your RM10 back in ten months. From then on, it’s free money.
✅Rich dad advice to think like a dairy farmer, not a rancher. Just as what Warren Buffett said, “My favourite time frame for holding a stock is forever.” Warren Buffett thinks and invests like a dairy farmer.
❎One of these reasons so many investors lose so much money is because they pay RM10 a month into a fund for 40 years and do not know if it will be there 40 years from now. That is what we called “Reparking your money”. Obviously it will be something there, but how much? And will it be enough?
❎Investing for capital gains is gambling. Anytime you invest with the hope that something in the future will happen, you are gambling. And that is what investing for capital gains is. Investing in capital gains is like betting at the start of the football season on which team will win the world cup. It is very risky.
Rich Dad does not against investing in capital gain. The difference is priorities! Rich dad advice to invest follow this order of priorities:
1. Cash Flow
2. Leverage
3. Tax Advantages
4. Capital Gains
Rich dad advice to grow assets by using cash flow to increase the size of the herd. Rather than take the cows to market, each year the cows have more calves and the cash flow increases.
Do you agree or not?
✅If Agree please [share] to your friends or tag a friend who you think can benefit from this lesson!
❎If you Disagree please leave your thoughts in the comment section!
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