Transcription
I'm going to start today's video off with a personal story. Way back in 2008, during the great financial crisis, I watched my father not sleep for almost 6 months straight. I lived in the basement at the time, and I could hear him walking around virtually every hour of the night. Why? Because my family was in financial turmoil. We almost lost our house.
How did we get into this mess to begin with? Excessive debt being used to buy commercial real estate. And these ideas came from a single book that my father read, and that was Robert Kiyosaki's Rich Dad Poor Dad. So, I flunked out of high school twice. I flunked out when I was 15, and I flunked out when I was 17. And what I was taught was that if you want to be rich, it took skills, not a college education, but skills. And the number one skill, not number one, but one of the top skills, is how to use debt as money.
Now, my dad is a fighter and the hardest working person I know. I was a junior in high school at the time. I remember him sitting me down and telling me that he was ready to get a fourth job, yes, he already had three jobs, to pay for me to go through college.
So why am I making this video now? Because I'm seeing Mr. Kiyosaki's advice pop up time and time again on my various social media platforms. The reason I am so rich is because I'm in debt. And I've had viewers in our comment section talk about his material. And I believe that the information he is spreading is toxic. Let's first explore his ideas, and you can make your own determination.
First, the central point in Rich Dad Poor Dad is so blaringly obvious that it borders on being innocuous. He believes that you should acquire assets, which he defines as anything that puts money into your pocket. And that's not a problem. I genuinely can't think of any financial influencer who wouldn't say that. The problem lies in how he recommends you acquire those assets. And I'm going to let him use his own words here. So, how do I get rich? I borrow money. Okay, cool. The idea of using debt to buy an asset isn't novel. This whole idea is called leverage. He's literally just describing capital structure. But the amount of debt he recommends is truly stifling. Here he is again.
"Well, in one of your, uh, YouTube videos, you actually said that you're currently $600 million in debt." "No, $1.2 billion." "$1.2 billion?" "Okay, there we go."
So, first off, I imagine your first reaction is similar to mine. Wow, how can you boldly claim that $1.2 billion in debt is a good thing? What does he claim will happen if he's unable to service the debt? Because, and I know you know this, money isn't free. You have to pay interest on debt. "If I go bust, the bank goes bust. It's not my problem."
So, to get this straight, he thinks that if he goes bust, the bank will go bust? That's not how this works. That's not how any of this works. "I am a billionaire in debt. You know why? Because I get tax breaks for borrowing money."
The strategy that he's proposing here, while me and other Buffett-style investors view it as unwise, is a legitimate way to invest. The idea of using debt to acquire a piece of real estate that produces cash in the form of rent to cover your interest expense is nothing new. And yeah, this works. I have a mortgage on my house, but I Airbnb the first floor of it, which more than covers the insurance, mortgage, and taxes. But here's the thing: if my Airbnb shuts down, I'm ready to pay out of pocket. I'm not going to go under.
What I can't get past in this strategy that he's proposing is that if you can't pay your debt, then the bank, which has underwritten those loans and knows exactly what type of assets you have, will begin seizing those assets. I came very close to finding this out as a child when Mr. Kiyosaki's advice was followed. And he claims to have a ton of hard assets: 12,000 rental units, gold and silver, and Bitcoin. These are absolutely things that a bank will seize. So, using this much leverage is absolutely hazardous, and he passes it off like it's nonchalant.
So, our job as entrepreneurs and as capos is, how do we use debt and create assets that other people reach into their pocket and give it to us? I despise that. Here's Buffett's thoughts on leverage: "To make money they didn't have and didn't need, they risk what they did have and did need, and that's foolish. That is just plain foolish." I don't care what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense. I don't care whether the odds are 100 to one that you succeed or a thousand to one that you succeed. If you hand me a gun with a thousand chambers, a million chambers in it, and there's a bullet in one chamber, and you said, "Put it up your temple," how much do you want to be paid to pull it once? I'm not going to pull it.
What Buffett's saying here is that there is always risk. If we're going to use Robert Kiyosaki's central point on wealth, commercial real estate, then there's actually a good bit of risk. What if we can't find a lessee? What if there's some damage to the property that insurance won't cover? Anyone who's owned any type of real estate knows that there's risk that you can't always account for. But he makes it sound like you can just use debt to finance any sort of asset purchase. Buffett's not taking those odds. And that's how you build wealth. You do it slowly, and you do it with as little risk as possible.
So, whose advice are you going to follow here? A man who's worth literally hundreds of billions of dollars, who, if you didn't start giving money away, would be by far the richest man on earth, or a dude who boasts about being $1.2 billion in the hole? "This here is a 1964 silver dollar. I can go to any coin dealer and change it for $10." So, f you, Buffett.
So, not only does Robert Kiyosaki recommend that his followers use debt with reckless abandon, his ideas about savings are even more reckless. "I only use debt to buy assets. So I drive a Ferrari, and I don't save cash because in 1971, the dollar became debt. And all the cash I make, I convert to silver and gold. And pretty soon, it got to be a big problem, which is my own Bitcoin also, because I just don't trust the freaking dollar."
Okay, before I start destroying his logic here, I just gotta pause for a second because, for being a super-rich dude, it's odd that most of his money has come from the sale of books and courses, not the investments he's claiming to make. This is, by the way, our mass training curriculum in big bold letters on the first page. I want you guys to write: "Advanced Training Investment from $12 to $45,000." I'll say it again: "Our advanced training ranges from $12 to $45,000." And I went onto his site. When you go to buy one of his courses, I wasn't able to complete the purchase in silver or gold, which I understand, those are hard assets, or Bitcoin, which exists on the internet. I was only able to buy it using the US dollar, which is toilet paper. I thought, "Never work for this. This is toilet paper." That is so odd for someone claiming that the dollar is on the brink of destruction over and over again for years. Just take a look at his YouTube channel and how many times he's talked about the dollar's assured destruction. Quite strange for someone who will still gladly take it from you.
Let's see what Buffett has to say. "The best investment against inflation is to improve your own earning power. You, your own talents. Very few people maximize their talents. If you become more useful in your activities, your profession, you know, doctor, lawyer, whatever it may be, uh, that is the best protection against a currency that might decline at a rapid rate. And, uh, uh, the best investment, passive investment, I I think, is is is a good business."
The last time we had serious inflation during the late '70s, he wrote really, really extensively on how to combat that inflation. And it starts with finding a company that has pricing power. Basically, a company with pricing power is able to increase their prices, and they're able to fight the effects of inflation because of that, which he believes is indicative to finding a company with a moat. A central theme to Buffett's investing, and that's a reason why he likes buying pieces of business to grow wealth, and it's a central component to investing. It is very difficult to value something that has no yield. Gold will just sit there. Silver will just sit there. Bitcoin will just, I guess the ledger needs power to run, but businesses make money every year. We can make valuations off of that.
The last point I want to cover why I have such a distaste for this guy's advice is that he preys on his customers. I found this heartbreaking piece on Reddit. This user read Rich Dad Poor Dad and he liked it enough to attend a strategy session where he said he was constantly berated and he got conned into buying a course and thought it was only $99, but in the fine print, it was $99 per six months. And this person wasn't wealthy, he was distressed. He feels like he was taken advantage of, and he got off easy compared to some of his other followers. In fact, his courses can cost a serious amount of money. My research, I found that the first class is normally free, and then the second class, and he's adjusted prices over the years, is around $495. But then everything after that, and one reviewer I found said that class number two, the $500 course, was 60% a sales pitch, leads to class three and their mentorship program, which can cost $45,000 or more.
So, all this goes to say, the idea that you can get rich quick using leverage, that's not a new idea. We've seen all of this before. There's no financial education in schools because if you knew how to handle debt, you wouldn't save that crappy dollar you have in your hand. Robert Kiyosaki's game that he's playing is a typical guru who preaches a get-rich-quick scheme. He was just a little bit earlier than everyone else, in my opinion, so he got first-mover advantage. I just can't for the life of me understand why more people haven't called him out. Well, I guess they have. He's been sued multiple times for fraud. His own company had to declare bankruptcy. Odd for a rich dude to have to do that.
So, I'm not some sort of dollar maximalist, or I'm not some sort of Buffett acolyte. But I do think that if you're going to study the game of basketball, you're going to want to look at Michael Jordan. Just in the same way that if you want to study the game of investing, you should look at Buffett. There's no question that he's the greatest of all time. And I think that's a really great way to sum up why I dislike Robert Kiyosaki's investing style so much. We have to beware the man of one book. "Debt is money." Today, and so when I acquire an asset, I use debt. So what happens? I make money in my, let's say, my comp, my business. Book sales. And he's got his one book, and he wants to sell it to you for a lot of money.
I really hope you all enjoyed this video. Our mission at Flank is to tangibly reduce the wealth gap by empowering individual investors and restoring stakeholder capitalism. There is no way to get rich quick. Anyone selling you that is a liar. But there are ways to get rich slowly. And two of the best ways to do that are dollar-cost averaging into the S&P 500 or any other low-cost ETF, which you don't need Flank to do. And the second way is by learning the art and skill of long-term fundamental investing, which is why we're building a community of investors who study companies, not stocks. The entire idea of Buffett-style investing can be summed into the idea that when you buy a stock, you aren't just buying a piece of paper that trades; you are buying a business that you can own for years and years to come, and that you should have a relationship with.
There's a link to our Patreon in the description where we've created a research platform that is solely focused on long-term investing and fundamental data. By joining early, you'll also play a key role in helping us design our next set of features. We have a very ambitious and long roadmap, and we want to figure out what to prioritize, and we could use your help doing that. Thanks again for watching, and we'll see you next time.