Why Being Cheap Doesn’t Mean Being Rich
Robert Kiyosaki writes in his Yahoo Finance column about a friend of his who wants to buy a house. Kiyosaki, in case you spent the last decade in a cave, is the author of the Rich Dad, Poor Dad series.
The real estate crash meant that the price of his friend’s dream home went from about $700,000 to $250,000. Pretty cheap, right? Kiyosaki advised his friend to stop looking at the price and look at the value. The house was in a bad neighborhood and in a bad school district.
No matter how low the price dropped, it doesn’t matter if that price doesn’t reflect the value, he advised.
Despite Kiyosaki’s advice, she still tried to get a loan. Her idea that the house was cheap totally blinded her from realizing that it wasn’t good value for a home.
Kiyosaki points out that people tend to be too emotional when they make financial decisions. And this extends to the stock market and other investments.
Traders who try to call bottoms on stocks often ride them down even farther down the hole, or they stay on the sidelines waiting for the bottom to appear even as a bull market rushes by. Investors who believe in the infinite upside of a stock often hold stocks that are dogs that will never regain their price.
Kiyosaki wrote that the cheap never get rich. Neither do the greedy. Or the fearful.
Emotional investing, whether it’s stocks or houses, is a major handicap of most investors. Most of us are emotional investors, too.
To stop being an emotional investor, you can use training and education to negate the influence of emotions. Or, you can use technological tools to take as much of the emotion out of your financial decisions. Automated Trading is one of those tools.
Related posts:
- Rich Dad-Wrong Dad: The Case For and Against 401 (k) Plans
- Uncovering The Conspiracy Of The Rich
- Conspiracy of the Rich
- What Does The Market Measure?
- Contrarian Style: How Pessimism Can Pay
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
