 | Investment U E-Letter: Issue # 546
Friday, June 16, 2006 Robert Kiyosaki's Rich Dad, Poor Dad: Why "Rich Dad" And "Poor Dad" Were Both Right
by Mark Skousen, Chairman, Investment U
Father's Day is this weekend, and it reminds me of the bestseller, Rich Dad, Poor Dad. The author, Hawaiian-born Robert Kiyosaki, talks about two fathers…
The first is his real dad, a high school teacher and administrator in the Hawaiian public school system. His father advises him to get a formal education, become a professional, get married and have kids, buy a nice middle class home, and invest regularly in safe mutual funds and blue-chip stocks for long-term financial security. He calls him "poor" dad because he never has much to show for his years of hard work. He's plain conservative, risk-adverse and boring. At one point, he refers to his conservative father as "my socialist dad." But Robert Kiyosaki is attracted more to his best friend's dad, a seat-of-the-pants entrepreneur who runs a series of businesses out of his rundown home. His adopted "rich" dad takes a riskier approach - forget about a traditional education and profession. Be a risk taker and a deal maker! Drop out of school and start your own business. His "rich" dad even advises that a house is a liability that ties up seed capital that could be used in a new business opportunity. This "rich" dad has no time for leisure and sports; his passion is all business and making another deal.
Kiyosaki rejects his "poor" dad's conservative approach in favor of the high-risk adventures of the "rich" dad. He described the thrill of victory and the agony of defeat going this route. Robert invests in income-producing real estate, business ventures and penny stocks. At one point in his mid-40s, he was broke and sleeping in his car. But in the end, he reports, his hard work and risk paid off, and now he's a multi-millionaire and a motivational speaker.
While I Admire the Risk-Takers…
I admire hardworking, self-made millionaires who honestly provide a better product and become rich. I can think of several heroes who have gone this route, including Benjamin Franklin, who ran away from home and his "poor" dad and made his fortune in the printing business in Philadelphia; or J. Paul Getty, America's first billionaire, who gambled his last few thousand bucks on an oil lease in Muskogee County, Oklahoma, and became a rich man overnight; or Fred Smith, founder of Federal Express, who went to Las Vegas and won enough money to keep his payroll going in the 1970s.
But there's nothing wrong with being a conservative investor!
It's a big mistake to recommend a high-risk approach to everyone. Not everyone is suited to be a swashbuckling adventurer; most of us, in fact, are better off working for others and investing in free enterprise through the stock market. And many times we're better off going to college and graduating. If you follow Ben Franklin's trinity of financial virtues - "industry, frugality, and prudence" - you can be just as successful as the high-risk speculator, and maybe even more.
Remember who won the race in Aesop's fable, "The Tortoise and the Hare"? The conservative, slow-going turtle!
Robert Kiyosaki is wrong to criticize his father and his conservative investment strategies. There are many paths to the top of a mountain. Read George Clason's Richest Man in Babylon. Arkad, the chariot maker, was poor, but became the richest man in Babylon by saving 10%, investing it wisely through loans and profitable businesses, and always living within his means.
I look back on my own life, where I gambled too much of my money on "sure fire" private placements, tax shelters, and high-return managed accounts, most of which turned sour. Imagine if I had taken all those thousands of dollars and invested them in more conservative mutual funds. I suspect I would be far ahead of the game than I am today. Sure, I've taken big risks that have paid off, but more often than not, they haven't. Moreover, businessmen who can't relax or enjoy spending time with the family, who can't go out to dinner without talking business, and who don't enjoy reading, music, plays or hobbies, are not to be admired. Here's to a great Father's Day weekend!
Good trading, AEIOU,
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