Level 3: The I’m-Too-Busy Level
This is the investor that is too busy to learn about investing. Many
investors at this level are highly educated people who are simply too
busy with their careers, family, other interests, and vacations. Hence,
they prefer to remain financially naïve and turn their money over to
someone else to manage for them.
This is the level that most 401(k), IRA, and even very rich investors
are at. They simply turn their money over to an “expert,” and then hope
and pray their expert is really an expert.
Soon after the financial crisis broke in 2007, many affluent people
found out that their trusted expert was not an expert at all and, even
worse, could not be trusted.
In a matter of months, trillions of dollars of wealth vaporized as
real estate and stock markets began to crash. Panicking, these investors
called their trusted advisors and begged for salvation.
A few rich investors found out that their trusted advisors were
extremely sophisticated con men, running elaborate Ponzi schemes. A
Ponzi scheme is an investment scheme where investors are paid off with
new investors’ money. The scheme works well as long as there are new
investors adding new money to pay off the old investors. In the United
States, Bernie Madoff became famous because he “made off” with
billions in rich people’s money.
There are legal Ponzi schemes and illegal Ponzi schemes. Social
Security is a legal Ponzi scheme, as is the stock market. In both
instances, the scheme works as long as new money flows into the
scheme. If new money stops flowing in, the scheme—be it Madoff’s
scheme, Social Security, or Wall Street—collapses.
The problem with the Level-3 investor, the I’m-too-busy investor,
is that the person learns nothing if they lose their money. They have
no experience except a bad experience. All they can do is blame their
advisor, the market, or the government. It is hard to learn from one’s
mistakes if the person does not know what mistakes were made.
Level 4: The I’m-a-Professional Level
This is the do-it-yourself investor in the S quadrant. Many retirees
become Level-4 investors once their working days are over.
This investor may buy and sell a few stocks, often from a discount
broker. After all, why should they pay a stockbroker’s higher commissions
when they can do their own research and make their own decisions?
If they invest in real estate, the do-it-yourselfer will find, fix, and
manage their own properties. And if the person is a gold bug, they will
buy and store their own gold and silver.
In most cases, the do-it-yourselfer has very little, if any, formal
financial education. After all, if they can do it themselves, why should
they learn anything?
If they do attend a course or two, it is often in a narrow subject
area. For example, if they like stock trading, they will focus only on
stock trading. The same is true for the small real estate investor.
At the age of nine, when rich dad began my financial education
with the game of Monopoly, he wanted me to have a bigger picture of
the world of investing. The following are some of the basic big-picture
asset classes he wanted me to spend my life learning.
As more people realize the need to invest, millions of them will
become small Level-4 investors in all four categories.
After the 2007 market crash, millions of people have become
entrepreneurs starting small businesses, and many are investing in
real estate while prices are low. Most, however, are trying their hand at
stock trading and stock picking. As the dollar declines in value, millions
of people are beginning to save gold and silver instead of dollars.
Obviously, those who also invest in their ongoing financial
education, taking classes regularly and hiring a coach to enhance
their performance, will outpace those who just do it on their own.
With a sound financial education, a few of the Level-4 investors
will climb to the next level, the Level-5 investor, the capitalist.
Level 5: The Capitalist Level
This is the richest-people-in-the-world level. The Level-5 investor,
a capitalist, is a business owner from the B quadrant investing in the
I quadrant.
As stated earlier, the Level-4 investor is the do-it-yourselfer from the
S quadrant investing in the I quadrant.
The following are a few examples of the differences between a
Level-4 investor and a Level-5 capitalist investor.
- The S-quadrant investor generally uses his or her own money
to invest.
The B-quadrant investor generally uses OPM (other people’s
money) to invest.
This difference is one of the major differences between the
Level-4 and Level-5 investor. - The S-quadrant investor is often a solo investor. (The S also
stands for smartest.)
The B-quadrant investor invests with a team. B-quadrant
investors do not have to be the smartest. They just have to
have the smartest team
Most people know that two minds are better than one. Yet,
many S-quadrant investors believe they are the smartest people
in the world. - The S-quadrant investor earns less than the B-quadrant investor.
- The S-quadrant investor often pays higher taxes than the
B-quadrant investor. - The S quadrant also stands for selfish. The more selfish they are,
the more money they make.
The B-quadrant investor must be generous. The more generous
they are, the more money they make. - It is difficult to raise money as an S-quadrant investor. It is easy
for a B-quadrant investor to raise capital. Once a person knows
how to build a business in the B quadrant, success attracts money.
It becomes easy to raise money in the I quadrant if you are
successful in the B quadrant. That is the big “if.”
The ease of raising capital is one of the biggest differences between
being successful in the S quadrant versus being successful in the
B quadrant. Once a person is successful in the B quadrant, life is easy.
The challenge is becoming successful.
The problem with success in the S quadrant is that raising capital is
always difficult.
For example, it is easy to take a B-quadrant business public via
selling shares of the business on the stock market. The story of Facebook
is a modern example of how easy it is to raise capital for a B-quadrant
business. If Facebook had remained just a small web-consulting firm,
it would have been very difficult to raise investor capital.
Another example is McDonald’s. If McDonald’s had remained just
a single hamburger store, an S-quadrant operation, no one would have
invested in it. Once McDonald’s began expanding into the B quadrant via
sa franchise system and was listed on the stock exchange, money poured in.
source: CASHFLOW-Quadrant BOOK