Investments - Think like RICH do
posted in investments |
Going through rich dad series has been a great experience and I learn a new thing every time I go through any book or article, it just makes me think over it.
Kiyosaki says it’s important to take your investment decisions seriously and treat your investments as if you will be buying over the business. This does not mean that you really have to buy the business, this is about having a clear understanding of your investments, what are you investing in, what is the business model , what are the risks involved, how the company makes its profits and so on. These are the basic facts and figures you should know before making your investments.
To give an example if I was to buy some shares of a company, I would be one of the many share holders of the company owning a very small portion of the company. I should not treat my investment decision lightly just because I am a small investor. Kiyosaki says we should treat our investments as though we are going to buy over the business and take it very seriously.
For this we have to think like business owners first and when we think like that, we get to know the pros and cons of various kinds of businesses and will be able to identify and manage the risks involved. This will help us to make a better investment decision.
Kiyosaki says, “As a business owner, I definitely want my business to be profitable. Thus, the first thing that I want to do is to find out whether the business that I am interested to invest is profitable. If it is not profitable, then I will not want to invest in it”.
The second concern that I have is whether the business can continue to be profitable in the long run. For that, there are a few factors to keep in mind.
1. Does the business have a competitive advantage over the others in the same industry? If the answer is yes, then the chance of the business continues to make profit in the long run is more.
2. Is there a barrier to entry for that particular industry? If the answer is yes, then there is little or no risk of copycat businesses that will come into play and steal away the profits.
3. Does the business need to reinvent itself frequently? If the answer is yes, then there is a risk that it will lose its competitive.
4. Does the business need to spend a lot of money to reinvent itself? If the answer is yes, then it may not be a good business to invest in since there is a lot of wastage. A large portion of the profits is used for reinventing itself. And there is little left to build the cash reserve.
Then there are other things that should be considered as well. Like return on investments and that whether the business is rich in cash reserve. It is important to think like a business owner to make good investments and financial education helps you doing so. Good investments go a long way in making a passive income source.
“You have to be smart. The easy days are over.” Robert Kiyosaki
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