the_cashflow_quadrant

Psychiatrists report that cynicism is the combination of fear and ignorance, which in turn causes arrogance. These people often enter major market swings

~te, waiting for the crowd or social proof that their investment decision is the right

decision. Because they wait for social proof, they buy late at market tops and sell

itmarket bottoms, just as the market crashes. They label buying high and selling

low as getting "swindled" again. Everything they were so afraid of happening...

happens, again and again. 7-be CASHFLOW Quadrant

Cynics are often what professional traders call "pigs." They squeal a lot

and

then run to their own slaughter. They buy high and sell low. Why? Because so "smart", they have become overly cautious. They are smart, but are terrified

taking risks and making mistakes, so they study harder, get smarter. The more

know, the more risk they see, so they study even harder. Their cynical caution

11V

causes them to wait until it's too late. They come to market when greed fina Y-

overpowers their fear. They come to the trough with the other pigs and get slaughtered.

But the worst part of the cynic is that they infect the people around them their deep fear, disguised as intelligence. When it comes to investing, they

you why things won't work, but they can't tell you how it could work. The of academia, government, religion and the media are filled with these people.,

They love hearing about financial disaster or wrong doings so they can "sp word." They are truly "Monday-morning quarterbacks" when it comes to inves~ Yet, rarely do they have anything good to say about financial success. A cyn

it easy to discover what is wrong. It is their way of protecting themselves f

revealing their lack of knowledge - or lack of courage.

The original Cynics were an ancient Greek sect despised because of their arrogance and sarcastic contempt for merit and success. They were nicknamed dog-men (cynic comes from the Greek word for dog). When it comes to rno

there are many dog-people... many who are smart, and well-educated. Be catt about allowing dog-people to squelch your financial dreams. While it is true the world of money is filled with erooks, con-men and charlatans, what indu isn't?

It is possible to get rich quickly, with little money, and with little

risk. It is

possible, but only if you are willing to do your part to make it possible. Oneid

things you need to do is keep an open mind and be aware of cynics as wen aS con-men. They are both financially dangerous.

Do you know any Level 3-B investors? (optional)

Level 3-C: The third category of this level is the "Gambler." This group is called "pigs" by professional traders. But while the "cynic" is overly

cautious,

group is not cautious enough. They look at the stock market, or any investm

market, about the same way they look at a Las Vegas craps

latter is

most probable.

They are searching for the "secret" to investing, or the

"Holy Grail." They are

with tell rlds d the sting. finds d the ev, reful that stry

f the

as

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0

is also S, this tment

Tbe CASHFLOWQuadram

always looking for new and exciting ways to invest. Instead of long-term diligence

and study and understanding, they seek "tips" or "shortcuts."

They jump into commodities, initial public offerings QPOs), penny stocks,

gas

and oil, cattle and every other investment known to mankind. They like to use

'sophisticated" investment techniques such as margins, puts, calls and options.

They jump into the "game" without knowing who the players are and who makes up the rules.

These people are the worst investors the planet has ever known. They

always

q to hit a "home run." They usually "strike out." When asked how they are doing,

&v always are "about even," or "a little bit up." In actuality, they have lost money.

of money. Often huge amounts of money. This type of investor loses money

90 percent of the time. They never discuss their losses. They only

remember

the'killing" they made six years ago. They think they were smart and fail to recognize they were merely lucky. They think that all they need is "the one big

deal" and then they'll be on easy street. Society calls this person an "incurable

gambler." Deep down, they are simply lazy when it comes to investing money.

Do you know any Level 3-C investors? (optional)

LEVEL 4: LONG-TERM INVESTORS

These investors are clearly aware of the need to invest. They are actively nvolved in their own investment decisions. They have a clearly laid out long-term

that will allow them to reach their financial objectives. They invest in

their

tion before actually buying an investment. They take advantage of

periodic

Rvesting and, whenever possible, invest in a tax-advantaged way. Most hportandy they seek out advice from competent financial planners.

Please understand this type of investor is not what you would think of as

some

4-time investor. Far from it. It is doubtful that they are investing in real estate,

~usinesses, commodities, or any other exciting investment vehicles. Rather, they

89

The CARIFLO W Quadrant

take the conservative long-term approach recommended by investors such as P Lynch of Fidelity's Magellan Fund fame, or Warren Buffett.

If you are not yet a long-term investor, get yourself there as fast, as you

can

What does this mean? This means that you sit down and map out a plan. Get control of your spending habits. Minimize your debt and liabilities. Live within

your means and then increase your means. Find out how much invested per month for how many months at a realistic rate of return it will take to reach yo

goals. Goals such as: At what age do you plan to stop working? How much will you need per month?

Simply having a long-term plan that reduces your consumer debt while p away a small amount of money (on a periodic basis) into a top mutual fund

give you a head start on retiring wealthy, if you start early enough and keep a

eye on what you're doing.

At this level, keep it simple. Don't get fancy. Forget the sophisticated investments. just do solid stock and mutual fund investments. Learn how to

buy closed-end mutual funds soon, if you haven't already. Don't try to outsm the market. Use insurance vehicles wisely as protection but not as wealth accumulation. A mutual fund like the Vanguard Index 500 fund, which in the has outperformed two-thirds of all mutual funds year-in and year-out is worth

using as a benchmark. Over 10 years, this type of fund may give you a return exceeds 90 percent of the "professional" mutual-fund money managers. But a remember, there is no "100 percent safe investment." Index funds have their inherent tragic flaws.

Stop waiting for the "big deal." Get into the "game" with small deals (like first small condo that allowed me to start investing for just a few

dollars). Don'

worry about being right or wrong at first, just start. You'll learn a lot more on

you put some money down... just a little to start. Money has a way of increas

intelligence quickly. Fear and hesitation retards you. You can always move up,

bigger game, but you can never get back the time and education you lost by waiting to do the right thing or make the big deal. Remember, small deals o lead to bigger deals... but you must start.

Start today, don't wait. Cut up your credit cards, get rid of "doodads" and good no-load mutual fund (although there is no such thing as a true

"no-load! 47+

fund). Sit down with your loved ones and work out a plan, call a financial or go to the library and read about financial planning, and start putting money'

away (even if it's only $50 a month) for yourself. The longer you wait, the mo

you waste one of your most precious assets... the intangible and priceless as

time.

90

The C4SHHOWQuadrant

An interesting note. Level 4 is where most of the millionaires in America

come

kom. The book 7-be Millionaire Next Door describes average millionaires as

ing a Ford Taurus, owning a company and living within their means. They study or are informed about investing, have a plan, and invest for the long

term.

ey do nothing fancy, risky or sexy when it comes to investing. They are truly

servative and their well-balanced financial habits are what make them rich

and

successful over the long haul.

For people who don't like risk, and would rather focus on their profession,

job

or career, instead of spending a lot of time studying the subject of investing, Level

~ is a must if you want to live a prosperous and financially abundant life. For these

individuals, it is even more important to seek the advice of financial planners. They

can help you develop your investment strategy and get you started on the right

tmck with a long-term investing pattern.

This level of investor is patient and uses the advantage of time. If you

start

euly and invest regularly, you can make it to phenomenal wealth. If you start late

in lie, past age 45, this level may not work, especially between now and the year

2010.

Do you know any Level 4 investors? (optional)

Level 5: SOPHISTIC4TED INVESTORS

These investors can "afford" to seek more aggressive or risky investment sntegies. Why? Because they have good money habits, a solid foundation of

money and also investment savvy. They are not new to the game. They are focused, not usually diversified. They have a long track record of winning on a

Pconsistent basis, and they have had enough losses that give them the wisdom that

Y comes from making mistakes and learning from them.

These are the investors that often buy investments "wholesale" rather than Iretail." They put their own deals together for their own use. or they are

"sophisticated" enough to get into deals that their Level 6 friends have put together

need investment capital.

What determines whether people are "sophisticated?" They have a

financial

base that is sound, from their profession, business or retirement income, or have a

liase of solid, conservative investments. These people have their personal

-1

Al -be C

AwFlo ir"Pwad, wyl

debt/equity ratios in control, which means they have much more income than expenses. They are well educated in the world of investing and

actively'see' n n'

information. They are cautious, yet not cynical, always keeping an open miid They risk less than 20 percent of all their capital in speculative ventures.

often start small, putting a little money down, so they can learn the business of

investing, be it stocks, a business acquisition, a real estate syndication, buying

foreclosures, etc. If they lost this 20 percent, it would not damage them or take

food off their table. They will look at the loss as a lesson, learn from it, and get

back into the game to learn more, knowing that failure is part of the process of

success. While hating to lose, they are not afraid of losing. Losing inspires them to

move forward, to learn, rather than to dive into their emotional cave and call their

attorney.

If people are sophisticated, they can create their own deals with returns

of 25

percent to infinity. They are classified as sophisticated because they have the extr2

money, a team of hand-picked professional advisers, and a track record to prove ii

As mentioned earlier, investors at this level put their own deals together.

just

as there are some who buy computers right off the retailer's shelf, there are some

people who buy components and create their own customized computer system, Level 5 investors can assemble their investments by bringing different componem

together.

These investors know that bad economic times or

markets offer them the 7

opportunities for success. They get into markets when others are getting out. Tb

usually know when to get out. At this level, an exit strategy is more important Nt e

entry into the market.

They are clear on their own "principles" and their "rules" of investing. The vehicle of choice might be real estate, discounted paper, businesses,

bankruptcks ot

or new issues of stocks. While they take risks greater than the average person, ~~

abhor gambling. They have a plan and specific goals. They study on a daily basis,

They read the paper, read magazines, subscribe to investment newsletters, and

attend investment seminars. They actively participate in the management of investments. They understand money and know how to have money work fo them. Their main focus is on increasing their assets, rather than investing so th

can make a few extra bucks to spend. They reinvest their gains to build a bigger

asset base. They know that building a strong asset base that throws off highcash,

yields or high returns with minimal tax exposure is the path to great long term

wealth.

They often teach this information to their children and pass on the fa fortune to the generations that follow in the form of corporations, trusts and

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The C4SHFLOW Quadrant

erships. They personally own little. Nothing is found in their names for tax purposes as well as protection from Robin Hoods who believe in taking from

the

kh to give to the poor. But although they own nothing, they control

everything

through corporations. They control the legal entities that own their assets.

They have a personal board of directors to help them manage their assets. They take advice and learn. This informal board is comprised of a team of

bankers, accountants, attorneys and brokers. They spend a small fortune on solid

professional advice not only to increase their wealth but also to protect their

wealth from family, friends, lawsuits and the government. Even after they have

departed this life, they are still controlling their wealth. These people are often

calltd'-sLewards of money," Even after death, they continue to direct the fate of the

money they created.

Do you know any Level 5 investors? (optional)

LEVEL 6- C4PITALISTS

Fe" people in the world reach this level of investment excellence. In America,

less than one person in a hundred is a true capitalist. This person is usually an

excellent "B" as well as an "I" because he or she can create a business and an

I 2westment opportunity simultaneously.

A capitalist's purpose is to make more money by synergistically

orchestrating

other people's money, other people's talents, and other people's time. Often they

ire the "movers and shakers" that allow America and other great countries to become great financial powers. These are the Kennedys, Rockefellers, Fords, J, Paul Gettys, and Ross Perots. It is the capitalists that provide the

money that

create the jobs, the businesses, and the goods that make a country prosper.

Level 5 investors generally create investments only for their own portfolio us~g their own money. True capitalists, on the other hand, create

investments for

~Lemklves and others by using the talents and finances of other people. True capitali~ts create investments and sell them to the market. True

capitalists do not

need money to make money simply because they know how to use other people's money and other people's time. Level 6 investors create the investments

that other

They often i-nake other people rich, create jobs, and make things happen. In

93

The CASHFLOW Quadrant

good economic times, true capitalists do well. In bad economic times, true capitalists get even richer. Capitalists know that economic chaos means new opportunities. They are most often involved early in a project, product, compa

or country years before the masses find it popular. When you read in the papef

about a country in trouble or in a war or a disaster, you can be assured that a

capitalist is going in soon, or may already be there. A true capitalist is going in

while most people are saying, "Stay away. That country, or that business, is in

turmoil. It's too risky."

Returns of 100 percent to infinity are expected. That's because they know

0 i

to manage -risk and how to make money without money. They can d this be, they know that money is not a thing, but merely an idea created in their heact.

While these people have the same fears everyone has, they use that fear and it into excitement. They convert fear into new knowledge and new ealth. Th w '

I f mot

game in life is the game of money making money. They love the game o n more than any other game... more than golf, gardening or goofing off. This is

game that gives them life. Whether they're winning or losing money, you can always hear them say, "I love this game." That's what makes them capitalists.

Like those at Level 5, investors at this level are also excellent "stewards

of

money." When studying most of the people at this level, you often find they generous to their friends, family, churches and to education. Look at some famous people who founded our well known institutions of learning. Rockefell helped create the University of Chicago, and J.P. Morgan influenced Harvard wd

more than money. Other capitalists who gave their names to the institutions th

helped found include Vanderbilt, Duke and Stanford. They represent the great'

captains not only of industry but also of education.