Page 132 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

exploit. For example, if the computer picks up a 1 percent differential, let’s
say in tech stocks, the investment house will bet millions of dollars, hoping

to gain 1 percent on millions of dollars in a few hours. This is very high
leverage, and very risky.
These computer models also cause a lot of the volatility in the markets
and often cause crashes. When the stock market announces that program

trading has been halted, it is talking about these computer programs’ being
halted. The markets crash if the computers say sell. If the computers say
buy, the markets boom, and then they crash. In other words, prices can go
up or down for no fundamental or business reason at all. A stock price may

have no relationship to the value of the company because the computers
created an artificial supply or demand. If you recall the dotcom era,
companies that were not companies, but rather just good ideas, were valued
at billions of dollars, and companies that were really valuable had their

share prices trashed when the dotcom boom busted.
As an old-time investor in this new era of capitalism, I must be smart
enough to invest for capital gains, cash flow, leverage of debt, and tax
advantages, as well as be above the turmoil the whiz kids and

supercomputers cause in the marketplace.
For instance, I recently purchased a stock, even though I do not have
control, because the company, an old boring Industrial Age company,
historically pays a steady 11 percent dividend. When the share price

dropped in the recent market crash, I bought the stock because the price of
the cash flow became cheaper. So I do occasionally buy paper assets, but I
tend to buy for cash flow. Being a little guy and not having control over the
company, I do not use leverage. I only invest with cash I can afford to lose

if I’m wrong. If this particular stock goes up in price, I may sell because I
like investing for both cash flow and capital gains. My ROI, return on
investment, goes up if and when I can receive both cash flow and capital
gains.

There are three components to being a good real estate investor. They
are:

1. Good partners. As Donald Trump says, “You cannot do a good deal with
bad partners.” This does not mean bad partners are bad people. They may