valuable to you, all of your education opportunities can be categorized as trivial, interesting, important, or vital. Don’t waste your time on the trivial. Then be mindful of wasting too much time on that which is merely interesting. Choose to focus on the important and the vital—that’s where you can best spend your time, your effort, and your money. When you set your goals, think about what you are learning in the context of the Education Hierarchy™. When you do, you’ll find that what you study will be more meaningful, more valuable, and more fun.
Make a list of classes you took in school and think about where these classes fit into your education hierarchy and reflect on how much or how little you use that knowledge each day. Then make a list of what you think you will need to learn to achieve the goals you have today. As you progress through this book, you might discover that mastering The 4 Pillars will be more valuable to you than anything you have ever studied before.
Traditional schools tend to focus on what they often refer to as “general education.” The first two years of a typical college experience usually include learning a few things about a bunch of subjects instead of learning a lot about a few subjects. That’s why you’ll often see people with majors as diverse as art history and pre-med taking the same classes their freshman year. That has never made sense to me. We might end up well-rounded, but we also end up bored—and we pay for the privilege with our time and our money. And you know what? I don’t want to be well rounded. I want to be really, really, really good at building cash flow. If I need to dissect a frog, I’ll hire a biologist.
That’s why the books in the Rich Dad Advisor series are so useful to anyone who wants to learn about investing. And with teaching tied to the four pillars, I promise not to waste your time with things that are merely interesting. Moreover, I can promise you that as an investor you will use each of these four pillars on a regular basis, and you will come to view them as vital in your investing.
The Education Continuum ™
The CASHFLOW Quadrant helps us figure out who we are and who we would like to become in terms of how we choose to earn money. The Education Continuum ™ helps us to evaluate our current education level and set vital goals related to where we want to arrive educationally and the degree of our transformation. Remember that true education is transformation. It changes us.
As you read this book, you will move along the continuum. Your context will shift as you evaluate where you are on The Education Continuum ™ and with each new topic of your financial education.
Ignorance
Ignorance simply means we’re not aware of something. If you’re ignorant of something, it doesn’t mean you’re stupid. I’ve observed that most of the people I teach in my workshops have a college education, and, quite frankly, most of them probably have higher IQs than I do.
My grades in school were pretty average—and sometimes even below average. The only reason I am the one who’s often teaching others is that I have been a student of investing for a longer period of time than most people. My mentors have been students of investing longer than I have been. I was smart enough to seek out those mentors—and listen to them.
What you lack in smarts or talent, you can make up for with passion and hard work. Effort is the great equalizer.
Most people don’t have a clue about the stock market because it’s not a topic that is taught effectively in traditional school environments. Realize that you’re a very smart person; you just have not yet focused your full intellect on learning about investing.
What makes paper assets somewhat dangerous is that, unlike real estate and business, almost anyone can buy stock at any time. And many people do. There is very little barrier to entry when it comes to the stock market.
Think for a moment about your country’s retirement system. In my home country, the United States, the dominant program is a contribution retirement program called a 401(k). In this 401(k) program, workers take a portion of every paycheck and let the “experts” in the financial industry spend it on mutual funds. The majority of these workers know next to nothing about the stock market: the risks, the fees, the laws, or even the basic details of a given plan. Like a herd of sheep, they are funneled into the stock market by the Wall Street sheep herders.
It takes only a little common sense to break from the herd and say, “I probably shouldn’t invest my money in something I don’t understand.” But evidently there aren’t enough “common” people in the herd because the herd is getting fleeced on a daily basis.
When we lose money in an investment, it’s most often because of something we don’t understand. I know that when I look back at my gains and losses, my biggest losses have come when I was delving into something I did not yet understand. More money is lost due to ignorance than anything else.
Luckily, we can escape ignorance.
Awareness
Moving from ignorance to awareness is a good feeling. It is illumination, it is discovery, and it’s awesome. But it’s impossible to set good solid education goals unless we discover a little bit about the things we need to learn.
I remember years and years ago when I took my first investing course. The instructor put several stock charts up on the screen and began to teach us about “technical indicators.” I remember thinking to myself, “This is one of the most impressive things I’ve ever seen.” I became very excited about what I was discovering. I could see that this was something I was going to want to study and learn more about.
When we have moments of discovery we simply learn about what’s possible. It was much the same as the first time I ever attended a concert as a child. The concert featured an extremely accomplished pianist, and I discovered what the possibilities were with that particular instrument. With playing the piano it’s pretty easy to feel the distance that exists between being aware of what the instrument’s potential is and becoming an accomplished musician.
As you read each chapter in the book you will become more aware of what professional investors actually do when they make investment choices. Chances are you will then want to delve even deeper. It’s natural to want to move from mere awareness to a more complete level of understanding. That understanding is called competency.
Competency
Think of an airline pilot who has passed a written test on flight regulations, but has not yet had a chance to practice what he has learned in the air. Think of a musician who has spent many months in a classroom learning to read music, but has yet to pick up an instrument and practice. Competency is that level of understanding that does not yet translate into ability.
Competency denotes a minimum amount of knowledge and skill to perform an act. In a court of law, a witness would be expected to be competent to testify. But competency is often associated with minimums. In most countries there are minimum competency tests for various professional licenses to practice medicine or law.
Competence denotes the ability to get an A on a written test. But understanding how something is done is not the same as being able to do it. The real world demands proficiency. Classrooms are havens of competency. Classrooms reward competency. You can move through your whole academic life with nothing more than competency.
There is little room
