# What do you think of Robert Kiyosaki's definition of an asset?



## Tyler Durden (25 November 2011)

I'm reading his Rich Dad Poor Dad book a second time now, and am pretty sure a lot of the things he says are just made up, so I treat it like fiction now, but regardless of that and what you may think of him, I just wanted to know, what do you think of his definition of an asset?

He defines an asset as "something that puts money in your pocket". This, of course, is different to the traditional definition, which identifies it as something you own and has value, so that it can be sold (realised).

He also definies liability as something that takes money out of your pocket.

So according to him, a car is not an asset because it does not produce money (unless you're hiring it out). To the contrary, it is a liability because it takes money from your pocket because you have to pay petrol, tax and insurance.

He then says "if you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities".

This, to me, sounds fair enough. If every dollar we saved produced more money for us, then we'd be a lot better off than using those very same dollars for buying items which we'd traditionally label as 'assets' yet which do not produce income.

What do y'all think?


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## Julia (25 November 2011)

Probably in the context of what he's writing about, his philosophy is reasonable.

In a broader context, however, I'd prefer to think of an asset as anything which makes someone's life richer.  

To a certain extent, money in any of its forms is clearly worth having.

But maybe of more 'value' over good times is the capacity to lose oneself in music, to become absorbed in great literature, to create a beautiful garden, and to experience the loyalty and love of animals.  Just a few examples.  Others will have different joys.

Probably not the sort of comment you were looking for but it's what makes for (imo) a balanced existence.


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## FxTrader (26 November 2011)

Tyler Durden said:


> He defines an asset as "something that puts money in your pocket". This, of course, is different to the traditional definition, which identifies it as something you own and has value, so that it can be sold (realized).
> 
> He also defines liability as something that takes money out of your pocket.
> 
> He then says "if you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities".




The focus on acquiring assets (investment in an income or profit producing instrument) is fine as long as you have an exit strategy prior to the asset turning into a liability or big loser.  Boom and bust cycles ensure that if you hold certain "assets" to long your net worth can be decimated even though your assets may still be producing an income (many examples come to mind).

Share XYZ may provide you with a consistent income through dividend payments but if the share price is half what you paid for it with little prospect of improvement is it really an asset?  I think Kiyosaki's definition of what constitutes an asset is simply to narrowly focused.


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## Tyler Durden (26 November 2011)

FxTrader said:


> The focus on acquiring assets (investment in an income or profit producing instrument) is fine as long as you have an exit strategy prior to the asset turning into a liability or big loser.  Boom and bust cycles ensure that if you hold certain "assets" to long your net worth can be decimated even though your assets may still be producing an income (many examples come to mind).
> 
> Share XYZ may provide you with a consistent income through dividend payments but if the share price is half what you paid for it with little prospect of improvement is it really an asset?  I think Kiyosaki's definition of what constitutes an asset is simply to narrowly focused.




Hmmm ok, I see what you're saying. But what if, although the share price has halved, the dividend is still giving you a better than average rate of return on your original investment?


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## Chupacubra (26 November 2011)

Tyler Durden said:


> Hmmm ok, I see what you're saying. But what if, although the share price has halved, the dividend is still giving you a better than average rate of return on your original investment?




Realistically if your share price were to halve but your dividends were still giving a better than average rate of return on the original investment, I'd be wanting to know how the company was funding/generating revenues to pay those dividends. You'd also have to question what has happened to the company to see that kind of reduction in price (e.g. restructures, asset sales, bonus issues, changes in market or competitiveness of the company).

If you look at it from the perspective of the difference in your shares value versus the total amount of dividends paid out (with discounting) then you should be able to know whether or not you're ahead in the long run, however a halving in your underlying capital will generally mean you would have had to have held the stock for at least 8-10 years before dividends start to make up for the loss in capital value.


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## medicowallet (28 November 2011)

Tyler Durden said:


> I'm reading his Rich Dad Poor Dad book a second time now, and am pretty sure a lot of the things he says are just made up, so I treat it like fiction now, but regardless of that and what you may think of him, I just wanted to know, what do you think of his definition of an asset?
> 
> He defines an asset as "something that puts money in your pocket". This, of course, is different to the traditional definition, which identifies it as something you own and has value, so that it can be sold (realised).
> 
> ...




If only our government thought like this... then we would scrap "liabilities" like the FHVB


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## Tyler Durden (29 November 2011)

medicowallet said:


> If only our government thought like this... then we would scrap "liabilities" like the FHVB




I was about to reply saying that not everyone can do this, because one person's asset is another's liability. But I am not so sure anymore?


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## So_Cynical (29 November 2011)

FxTrader said:


> Share XYZ may provide you with a consistent income through dividend payments but if the share price is half what you paid for it with little prospect of improvement is it really an asset?  I think Kiyosaki's definition of what constitutes an asset is simply to narrowly focused.




The value of the asset may have fallen however if you don't sell, then the asset hasn't taken money out of your pocket, as long as the asset continues to put money in your pockets (dividends) then its still an asset....what the value of the asset is at any one point in time is irrelevant over a decade or more.


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## Knobby22 (29 November 2011)

So_Cynical said:


> what the value of the asset is at any one point in time is irrelevant over a decade or more.




If the asset is losing value, i.e. the dividend stream is shrinking, then it is a depreciating asset, if increasing, then an appreciating asset.  Still an asset.


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## FxTrader (1 December 2011)

So_Cynical said:


> The value of the asset may have fallen however if you don't sell, then the asset hasn't taken money out of your pocket, as long as the asset continues to put money in your pockets (dividends) then its still an asset....what the value of the asset is at any one point in time is irrelevant over a decade or more.




The logic employed here, that a loss only occurs when realized by a sale, is only valid in a vary narrow context.  Wealth, as measured by net worth at any point in time, can be estimated by calculating the liquidation value of one's assets minus debts.  If one's asset base has declined substantially in value the likely significantly reduced income stream from this asset base will hardly be any real compensation or consolation to the frustrated long term investor.  A significant decline in one's net worth is a form of loss, just ask a lender how significant it is when applying for a loan or line of credit.

Are Telstra shareholders who bought into the T2 float at $7.40/share in 1999 feeling the value of this asset is now irrelevant after 12 years?  I seriously doubt it.  Have the dividends paid over the last 12 years been sufficient compensation for the fall in share price? Not even close.  

So then, at this point in time, are T2 shares an asset or have they actually been liability (cost money in terms of net worth and lost opportunity cost) to Telstra shareholders who have held them since '99?  I suggest the latter.


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## Tyler Durden (1 December 2011)

FxTrader said:


> Wealth, as measured by net worth at any point in time, can be estimated by calculating the liquidation value of one's assets minus debts.




Kiyosaki also redefines wealth to mean, how long you can survive if you stopped working.


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## Tyler Durden (5 December 2011)

Tyler Durden said:


> Hmmm ok, I see what you're saying. But what if, although the share price has halved, the dividend is still giving you a better than average rate of return on your original investment?




I guess this article answers my own question:

http://www.smh.com.au/money/investi...ith-term-deposits-is-lazy-20111202-1oakh.html


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## Julia (5 December 2011)

Typical of Marcus Padley, that article is thoroughly sensible and realistic.
Wish there were more commentators with his realistic approach.


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## Sir Osisofliver (6 December 2011)

FxTrader said:


> The focus on acquiring assets (investment in an income or profit producing instrument) is fine as long as you have an exit strategy prior to the asset turning into a liability or big loser.  Boom and bust cycles ensure that if you hold certain "assets" to long your net worth can be decimated even though your assets may still be producing an income (many examples come to mind).
> 
> Share XYZ may provide you with a consistent income through dividend payments but if the share price is half what you paid for it with little prospect of improvement is it really an asset?  I think Kiyosaki's definition of what constitutes an asset is simply to narrowly focused.






FxTrader said:


> The logic employed here, that a loss only occurs when realized by a sale, is only valid in a vary narrow context.  Wealth, as measured by net worth at any point in time, can be estimated by calculating the liquidation value of one's assets minus debts.  If one's asset base has declined substantially in value the likely significantly reduced income stream from this asset base will hardly be any real compensation or consolation to the frustrated long term investor.  A significant decline in one's net worth is a form of loss, just ask a lender how significant it is when applying for a loan or line of credit.
> 
> Are Telstra shareholders who bought into the T2 float at $7.40/share in 1999 feeling the value of this asset is now irrelevant after 12 years?  I seriously doubt it.  Have the dividends paid over the last 12 years been sufficient compensation for the fall in share price? Not even close.
> 
> So then, at this point in time, are T2 shares an asset or have they actually been liability (cost money in terms of net worth and lost opportunity cost) to Telstra shareholders who have held them since '99?  I suggest the latter.




Hi FX what about insurance in the form of put options or the like?

If we were discussing an investment property instead of shares, usually due to the level of borrowings, the bank makes you take out insurance to protect the value of the asset.  Similarly you can protect the value of your shares assets, so that when corrections in the market inevitably happen, your *value* is not destroyed.  The shares may have halved in value, but the insurance you've placed against it to protect the downside risk protects your value and can actually increase your yield (if you choose to purchase more shares with the proceeds of your protection).

Cheers

Sir O


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## village idiot (6 December 2011)

> So then, at this point in time, are T2 shares an asset or have they actually been liability (cost money in terms of net worth and lost opportunity cost) to Telstra shareholders who have held them since '99? I suggest the latter.





the trouble with classification based on past performance is that at any point in time there are multiple lookback periods you could choose to , er, lookback on, and even each of those will change  as time moves on.

to someone who bought Telstra at 2.80 a year ago, they have been a star performer, and an asset in their hands under any definition including yours FX.

Either a share in telstra is an asset or it is not. I dont think it can be an asset in the hands of one person and a liability in the hands of another based on past acts of one induvidual, except in the colloquial "they have been nothing but a liability" sense.

 A classification at any point in time ought to be based on return or expectation looking forward rather than backwards, (although that does have the disadvantage of being harder to determine)


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## Tyler Durden (27 December 2011)

I'm now reading his book Unfair Advantage, and in the beginning he stresses that the most important thing is cash flow - he says your assets need to produce incoming cash flows consistently and constantly.

So I am thinking about this in the context of shares - if a company is consistent in giving dividends, yet the SP is on a downward trend, then does that mean it should be a sell? I mean, the cash flow is constant, albeit the capital is diminishing.


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## prawn_86 (27 December 2011)

Tyler Durden said:


> So I am thinking about this in the context of shares - if a company is consistent in giving dividends, yet the SP is on a downward trend, then does that mean it should be a sell? I mean, the cash flow is constant, albeit the capital is diminishing.




I guess it depends on your valuation of that business. Personally with my dividend portion of my portfolio, i am happy with my buy in price, so if they price falls below that i either buy more or just hold on knowing i am getting >8% on my initial investment


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