Personal Finance

Rich Dad, Crazy Dad

Jack was struggling. It had been a long and arduous mental journey but he wanted to press on, he was, after all, nearly three quarters of the way to the finish line. He flicked through the remaining pages of the book and compared it visually to the pages he had already read. It was a trick that usually encouraged him mentally to press on, but this time it didn’t work. This time he had to throw the towel in. He was done.

Second Chance by Robert T. Kiyosaki… Jack gave a mental scoff as he took one final look of the cover before putting it down, he had given him many more second chances than he probably should have over the years. But this time he was seriously asking the question: had his rich dad finally gone crazy?

Jack owned nearly 300 books spread over two modern (read: IKEA-constructed) bookshelves that flanked his home-office workstation. He counted 10 of those books belonging to the Rich Dad series. He recalled with nostalgia the way that the first book, Rich Dad Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and the Middle Class Do Not!, had changed the course of his life. It had been one of those books that subtly changed his perspective, but in doing so, also impacted and informed every financial decision he had made since. Needless to say, he held Robert, his rich dad, in very high regard.

The first book had such a profound impact on his life that four of the ten books he owned in the series were pocket-sized versions of that first book, which he kept handy for when anybody asked him what they should read if they wanted to learn about wealth creation. Over the last 14 years he had only been asked that question twice.

So it wasn’t easy for Jack to put down Robert’s latest offering. As he found a place to put the book on his shelf he tried to rationalise why Second Chance had been such a let down. It wasn’t so much the question-and-answer style of writing. It wasn’t that there was a clear lack of new useful material on financial literacy and philosophy, either (arguably, the new material had slowed to a trickle after his second book, Cashflow Quadrant). This was it: it had felt like someone who had, over the years, created a platform from which to educate and influence, and then had begun to abuse that authority. It felt like a 400-page rant from an old, crazy man on a street corner. And in that moment of realisation, Jack couldn’t help but feel sad and disappointed.

Could he afford, emotionally, to give his rich dad another second chance? he wondered. And then he realised that… in a way, Robert would always be his rich dad, and he knew in his heart of hearts that he would always be drawn to the next purple covered, gold-emblazoned book to come out in the Rich Dad series. Robert had, over the years, become part of the family, after all.

Personal Finance

The Pain of Financial Loss

Jack checked his email. His computer program designed to read and trade various financial markets had already lost nearly $20,000 of a $50,000 initial deposit… and it had barely been a week. He stared blankly at the screen, “Damn.”

Then he flicked back to the news website he had been browsing and continued catching himself up on the happenings of the world.

It wasn’t until later, in the midst of more procrastination from doing real work, that he realised that it had been a long time since losing any significant amount of money had really caused an emotional reaction. Whether this was a strength or a weakness, had yet to be foreseen.

Jack thought back to one of the formative events of his trading journey so far – a journey that had now spanned 13 years – that had taught him to control the emotion stirred by financial loss…

It was back in 2004, while Jack was still at university. He had been trading naked options for a little while and had made some impressive gains which occurred sporadically between much less impressive losses. The net result had been a modest gain.

It was in the morning of the release of the annual results for one of the Big 4 banks as he sat in his room glued to his screen. He had the day before purchased some at the money puts hoping for a large move down. Despite average reporting numbers, the shares inexplicably bounded higher. His investment had evaporated before his very eyes. He remembered the panic. The shortness of breath. And the total loss of rational thought which led to what he did next…

In a desperate attempt to recover his losses Jack traded in and out frantically as the share price gyrated wildly, trying to overcome the artificial broker spread to eke out a redeeming profit. He had even abused the T+3 settlement rules allowing him to trade more than what he had… and he ended up paying for it by owing $25,000 to his broker in the form of a rather lengthy payment plan. It would take him the better part of two years working part-time to pay it off. It had been a painful lesson.

Much had changed since those days, he had a better understanding of the markets, of how and why it worked. Moreover he had a better understanding of himself and his emotions. He had learnt the hard way what most people know only through clichés: that money is only a means to an end and that the love of money was an evil to be avoided.

Jack no longer had a fear of financial loss. Part of if had to do with the fact that he had become desensitised. The other part was the confidence he had in his ability to make money in more conventional ways. Though, he knew that it would be naïve and premature for him to think that he no longer had any emotion or attachment to money. But he was working on that, too.

Personal Finance

Dreaming of Millions

Jack had always dreamt of early retirement. It wasn’t an active dream, more of a passive dream. Since he was a teenager he had always said he wanted to make his first million dollars by the age of 30 and be retired 10 years after that. Everybody, including himself, thought it was a bit of a pipe dream.

As he sat in his room clattering away on the keyboard his dream coming to fruition right in front of him as he put the finishing touches on his small computer program. It was only a couple of hundred lines of code… but by his reckoning it was the key to financial freedom. He estimated something along the lines of $30-40k a month. A MONTH!

He couldn’t believe it, himself. And he certainly didn’t want to get ahead of himself. But having put his company on the back burner by starting to decline his client’s invitations to quote for jobs, he had in fact already started to put many of his eggs in this one basket.

In the back of his mind he knew it wasn’t prudent. And maybe it was the lure of more money he could ever think of spending… but he also knew that he didn’t get to where he was by being prudent, or by thinking the same way everybody else did.

“To hell with it,” he thought, as a plethora of generic idioms came to mind: Nothing ventured, nothing gained. No risk, no reward. With that, and with a press of a button, his algorithm began trading.