Every so often I get a book suggestion from a client that they think I should check out.
There are also a number of ideas he brings up that I disagree with.
Despite the catchy title of this blog post, it’s not all bad news. As a matter of fact, there’s some good content. Let’s talk about that first.
First, he has a number of different resources of other books that could continue to help broaden your financial education. Although, I would read each of these with a grain of salt.
One of them is “The Creature from Jekyll Island.” It’s a really good book that I would suggest checking out if you’re interested in how the Federal Reserve was founded and created.
You can tell by the title that it’s got a bent of a horror story (oohhhh… a ‘creature’)- obviously, he isn’t a fan of the Fed. The author is a typical ‘gold bug’. That being said, there are absolute historical truths contained within it and they are worth understanding to get a handle on how money works in the US.
Anyhow, getting back to Second Chance…
The book has a bent towards real estate and other assets that supposedly cash flow like oil wells, equipment leasing, and other investments. Kiyosaki hates the stock market and is generally against financial professionals like me.
Regardless of his hateration, there are golden nuggets from the book that everyone should think about applying.
He wrote a tale of how this gentleman was broke back in the mid-1980’s.
What did he do to raise himself out of this financial pit? He surrounded himself with mentors and people he could learn from. Slowly, but surely, he started building his real estate empire.
The key wasn’t just surrounding himself with mentors, but also taking the corresponding action. When you want to do something yourself, you test, and you test, and you test, and you test before you ever take massive action.
For example, he looked up and did extensive due diligence on probably 99 different real estate properties before he found his gold nugget and bought it.
The key: He didn’t just jump on the first property or the second or the third or the fourth. He kept on digging and poking around until he found what would work.
He looked, and looked, and looked, and looked, and looked, and looked, and looked some more until he finally found the one that could do the cash flow that he was looking for.
Another major piece of this book is imbuing the entrepreneurial spirit. I think every physician (and other professionals for that matter) should have a business of some sort. (Alternatively, their spouse could have a business).
So, I would encourage you to think about this question…
What is that business?
Here are some suggestions:
It could be that you invest in a partnership. It could be you invest into a medical center or a surgery center. Something that gives cash flow AND that you understand.
You can check out this post for more thoughts on those kinds of investments.
Where He is Wrong
The second half is pretty darn boring. I like learning new information, new tools, and even new stories. Unfortunately, he didn’t talk a whole lot about that. This book is very general in scope and not specific.
The other thing, which I can take issue with this particular book is the use of debt. He highly emphasizes being fully leveraged (meaning that you take out loads of debt for every asset purchase and pay very little down).
Think about this for a moment…
When you are a physician and you already have $150,000 or $200,000 or $250,000 or $300,000.00 or $400,000 of student debt... your leverage was getting a fantastic career in medicine.
Then, in order to buy these assets- you are going to get more leverage and more debt, to buy real estate, or oil wells, or whatever?
To me, it seems really financially unsound.
Don’t get me wrong. I think using leverage can be a great wealth creator. However, you have to be extremely careful.
Let’s say that you want to acquire a private practice or buy into a surgery center. I stress that you have to know the business inside and out. You need to understand the details. You need to know the financials, where revenue comes from, the expenses, and what can be adjusted. Furthermore, you need have the power to make changes if necessary. If that’s the case, I’m totally onboard.
If you have a small amount of leverage to acquire some businesses like I am, I think that’s great too! I’m totally on board with that as well.
The problem is debt- particularly large levels of debt with real estate- is that you HAVE to pay it back every single month. That’s a huge issue when you consider some common issues.
What if you don’t have a tenant? What if the roof starts leaking?
Do you have the cash on hand to potentially deal with these problems?
With real estate, you also have to deal with property upkeep and property taxes. You have to deal with the county and renovations and property management companies.
Certainly, you could build a great deal of wealth- but he is making it sound way too easy as though there are NO risks.
These sorts of opportunities are far more cash-intensive and risky than presented in the book.
My friends with these kinds of investments- depending on the loan- there can be a great deal of interest rate risk and liquidity risk.
On top of all of that, he doesn’t tell you HOW to do it. A lot of talk, but not much substance. Where’s the formula and steps we need to take??
For someone who has the time and dedication (& willingness to make mistakes along the way), real estate and alternative investments can work out great.
But for a busy physician that is mildly interested in real estate and business, I’m not sure how well they can do.
The mistake comes in outsourcing all of this to someone else and not doing the due diligence and ongoing analysis AFTER you buy the property.
What About The Shiny Stuff?
The other big issue with the book was the emphasis on investing in gold and silver. He emphasized again and again that cash flowing assets are so important… yet gold and silver have NONE.
To be fully transparent, one of my big mistakes a few years ago was investing in gold and silver after it went down. (We dumped it for a slight loss- so it wasn’t too painful, but it definitely caused some heartache and stress)
Unfortunately, gold and silver have gone nowhere while the stock market has increased multiple double digits over the last five years.
Perhaps, given some of the political risk with North Korea… this could be a good buying opportunity.
But, in terms of having it in a cash flow asset? No, it’s all about speculation and appreciation. There’s no cash flow behind those beautiful, shiny, and solid bars. They stay put, locked in a vault.
There’s a lot of fear-mongering in the book about what the Fed has done and the overall devaluation of the dollar.
In fact, nearly every single developed country in the world is running into a similar problem. Japan has had a tremendous QE (quantitative easing) program. Europe has had a tremendous QE program. China has had a potential local government borrowing issue- building cities that aren’t occupied in the middle of nowhere.
Is the dollar and the Fed’s action really that much different? I don’t think so.
But if you are concerned about a bubble bursting, the overall concern about the federal debt load in twenty or thirty years? Those could be good investments to keep up with inflation or to hedge against a devaluated dollar.
However, if you are just looking up just a relatively short horizon- let’s say one to five years… I would not count on precious metals as a good place to invest.
If you’re interested in mind set and you’re interested in real estate investing and out of the box thinking, this is a good book to grab the mentality and understand the very basics of ‘passive’ investments (I take issue with that too- they are actually really active when you do them right).
My friends, the biggest issue I have of all is that this book doesn’t tell you how to do look at these investments. What makes a good one from a bad one? How should you analyze them? What are the tools and resources you need to be empowered?
Instead, it simply describes the general philosophy of why you should be financially free and having multiple income streams. If that tickles your fancy, I think this is a great book to check out.
However, if you are an intermediate or advanced investor, I would suggest that this is not the book for you.
I’d love to hear from you. Do you agree or disagree? Also, what are some books that you would recommend reading?
Let me know so that I can review them as well!