Conspiracy of the rich - an excerpt...

[rusha84]

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Guys, just wanna share this.... This is the latest online book of Kiyosaki and tackles the current crisis, his views on mutual funds and a look on financial history...I know some might disagree with his views, but it makes a good reading and it does make me rethink my views on some of the more conventional wisdom....

ENJOY !!!


CHAPTER 8 - Print Your Own Money

As we recapped in Chapter 7, new rule of money no. 1 is Money is Knowledge, and new rule of money no 6 is Learn the Language of Money.
One reason why so many people lose so much money in bad investments is because our schools fail to teach us even the basics of financial education. This lack of financial education often leads to a misunderstanding of the language of money. For example, when a financial planner recommends you invest for the long term, a sophisticated investor would question the definition of long term. As Einstein discovered, everything is relative.
As a general rule, traders are very short term investors. For a short-term trader, investing long term might be a day or even an hour. Rather than use the word long-term, a sophisticated investor would use the word exit strategy. A smart investor knows that its not about how long you hold onto an investment. It's about how you plan to increase your wealth with that investment over a stated period of time.
Another word often misunderstood is diversify. If you listen to most financial pundits, they will always say smart investors diversify. Yet, to quote Warren Buffet in The Tao of Warren Buffet, "Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing."
Another reason why people lose so much money is because they don't know what they are doing and they are not diversified, even though their financial planner tells them they were. let me give you some examples:
1. A financial planner will tell you you are diversified if you invest in different sectors. For example mutual funds of small cap stocks, large cap stock, precious metal stocks, REITS , bond funds etc....While you are technically diversified into other sectors, the reality is that you are not diversified because you are only in one asset class - paper assets. When the stock market tanked in 2007, all paper assets associated with stock market tanked. Being "diversified" is of little use to those who are only diversified in solely paper assets.
2. A mutual fund by definition is already diversified - in paper assets. It is a fund made up of diversified group of stocks. To make matter worse, there are more mutual funds than there are individual stocks. Therefore, many mutual funds contain the same stock. A mutual fund is like a multivitamin. Buying three mutual fund is like taking three multivitamins. You may be taking 3 pills but in the end, you are taking many of the same multivitamins - and possibly even overdosing on those vitamins.
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As you can see, this is already Chapter 8. You may read the ongoing online book for free here:

Home | Conspiracy of the Rich: The 8 New Rules of Money

[darkcrux]

Good topic. I agree and disagree with some points.

Regarding Short and Long Term investments... Both are necessary. I agree with the "holding on to investments to increase your wealth". Short term and Long term always goes hand in hand. Long term investments are needed for long term goals too like retirement, or buying a house spot cash.

One thing Kiyosaki didn't point out was that Day Trading is also risky.. a study shows that majority of the Day traders only gain up to 7% (It will be chased down by taxes and inflation). Day trading is for the people who have the time and resources. Kiyosaki makes it sound so simple but sometimes people are misled by this and may even start day trading without the proper information. As Einstein says, everything is Relative.

Regarding the "Sophisticated Investor"... not everyone needs this. A lot of people may not even agree with him on this. Warren Buffet even has a very simple investment strategy. "Be fearful when others are Greedy, and Greedy when others are fearful". Just simple plain concepts. No need for sophistication. But you do need the knowledge though.


1. About Diversification.
- Warren didn't mean that diversification is bad. He meant that people who are not experts on this needs diversification more than those people who breathe, sleep, eat, and drink investments. It is needed, but it must be done right.
- Diversification in paper asset is not THAT diversified. There are plenty other liquid and solid investments out there. Proper diversification does help. It is not useless.

2. He does have a point. Yes. A mutual fund is already diversified. Buying too many MF is overkill. The only thing about mutual fund is that it is either invested in stocks or bonds. What Kiyosaki said about the number of mutual funds refers to the situation in the United States. It's true there are too many mutual funds compared to stocks and that they may share the same stock investments. That's not quite true yet here in the Philippines. Mutual funds is a good way to start though. But over diversifying on MF's is not quite wise.

Final thought on diversification.
- Diversification is important but over diversifying will make your investment spread to thin. Sometimes losing the chance of really growing much as your investments on those that really grow are also small. Diversify but don't overkill. It's also foolish to invest in just one vehicle. ^_^

[rusha84]

Ummmm...I just wanna ask those who are really familiar with the market in the Philippines and have the experience in trading or investing, does a good percentage of MFs outperforms Philippine index fund Kay I'm thinking man gud wats d use of investing in a mutual fund if an index fund performs more than most mutual fund I know for a fact that this is the case in the US, is it d same in the Philippines?? Thanks for whoever answers...

[darkcrux]

Bro, an index fund can be a mutual fund or it may not be a mutual fund. Anyways, check this link.

Investment Company Association of the Philippines

It shows all the investment funds in the PH including Equities, Index, Bonds, and Money Market. It also shows their performance. So far PhilEquity still performs the best.

[neil11]

Bro, an index fund can be a mutual fund or it may not be a mutual fund. Anyways, check this link.

Investment Company Association of the Philippines

It shows all the investment funds in the PH including Equities, Index, Bonds, and Money Market. It also shows their performance. So far PhilEquity still performs the best.

darkcrux..i wana learn from you...can we meet?

[rusha84]

Bro, an index fund can be a mutual fund or it may not be a mutual fund. Anyways, check this link.

Investment Company Association of the Philippines

It shows all the investment funds in the PH including Equities, Index, Bonds, and Money Market. It also shows their performance. So far PhilEquity still performs the best.

Sori i was vague with my question...I was asking, compared to most mutual fund i.e equity, bond and balanced fund, is Philippine index fund performing better?? Kay d ba wla man fund manager ang index fund mura ra man computer ra ang mag tracking ana?? So, I gather na mas lower ang fees na makaltas..higher returns for the investor...?? Did I make the correct assumption??

[darkcrux]

Sori i was vague with my question...I was asking, compared to most mutual fund i.e equity, bond and balanced fund, is Philippine index fund performing better?? Kay d ba wla man fund manager ang index fund mura ra man computer ra ang mag tracking ana?? So, I gather na mas lower ang fees na makaltas..higher returns for the investor...?? Did I make the correct assumption??

Bro, they still do have a fund manager. Ang fund manager ang person na in charge sa investment na mo tubo. try to check sa icap.com.ph, they have the websites of the different funds and we can check sa ila different charges. I'll try to check to and get back with you on this. ^_^

regarding sa fees, an entrance fee is better than an exit fee.

[darkcrux]

darkcrux..i wana learn from you...can we meet?

Sure neil11... PM me when you would like to meet and I'll try to see if I can adjust my schedule. ^_^