In the books by Robert T. Kiyosaki, Robert often mention the ESBI Quadrant (see below). Majority of the people belongs to the E and S quadrant.
Basically for me I belong to the E quadrant.
He mentioned that the mentality of the people in each quadrant is different. Personally since all my life I have been in the E quadrant, it is often hard for me to relate to how people in the other quadrants think. I have a cousin (around my age) who started a company with his wife right after he graduated… and while I was thinking about my next paycheck, he was already writing paychecks for his employees (what was going through his mind then would be very different from what I was thinking at that time).
Well, a typical route for people is to move from E to S to B to I quadrant eg. they leave their job, set up a small one man company (self employed), then set up a business with a system (that employs people), then finally become an investor.
Even within the I quadrant, there are different categories of investors (The Accredited Investor, The Qualified Investor, The Sophiscated Investor, The Inside Investor and The Ultimate Investor). Some others simply classify them as stage 1, stage 2, stage 3 investors, etc… Well the beginning stage is whereby one thinks about saving (not really investing), then followed by investing for capital gains, then followed by investing for cash flow, etc..
Anyway, Robert has a nice analogy of comparing sports with the transition from E to I. Well, he mentioned that his Rich Dad has a son, Mike. From young, Rich Dad would encourage Mike to play golf. This is because golf is a game that can be played by the young and old. In his opinion, since Mike is ultimately going to play golf when he is old, why not start young and learn it early and be proficient at it, at a young age. In this aspect, he is inferring that since one is ultimately going to be an investor, why not learn about investing early and be good at it since young (instead of waiting till you are old to learn).
(1) The Hunger Stage
When Robert was young, his Rich Dad would often bring him to the meetings he had with his business partners, lawyers, accountants etc. And he would often let Robert sit in while he interviewed people looking for a job in his company (some of them desperately in need of money). He wanted Robert to be grow up knowing how it felt like sitting on this side of the table (being an employer).
Of course there is a certain advantage in progressing from E to S to B to I quadrant – for instance, one should learn about business before investing in any business from the outside.
Ok, this post is not about Robert’s books, but rather the different mentality I had as someone in the E quadrant vs me as an Investor in the I quadrant.
Well, my life is pretty predictable so far. I went to a local university and then upon graduation got a job (since I have a study loan to pay, planning to get married and get a flat etc). To some, the corporate world is an extension of our education system. So from the start, my mentality is that of an Employee’s.
(2) Life as an Employee
So what is the difference between this (mentality as an Employee) and the mentality of an entrepreneur?
In this aspect, I like to quote the book “The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future” by Chris Guillebeau (read here).
At the beginning of the book, Chris mentioned: “More than a decade ago, I began a lifelong journey of self-employment by any means necessary. I never planned to be an entrepreneur; I just didn’t want to work for someone else…..If I needed money, I learned to think in terms of how I could get what I needed by making something and selling it, not by cutting costs elsewhere or working for someone else. This distinction was critical, because most budgets start by looking at income and then defining the available choices. I did it differently—starting with a list of what I wanted to do, and then figuring out how to make it happen.”
I started my working life by working for someone: To provide a service for my superiors / bosses, so that I can get paid. When I needed money, I think of getting a job first. I don’t think about creating something… well yes, being an entrepreneur. But that could mean being in the S quadrant (self employed) – again difficult to be rich. To be in the B or I quadrant (easier to become rich), one need to think of a system, marketing instead of sales and earning via OPM (other people’s money) or OPE (other people’s energy / experience).
Well, I believe most of my superiors / bosses which I had so far are reasonable. But there will be always be cases of bullying in the corporate world. I guess, in some companies, there is always a dominant / resident “B****” or “A**h***” – who happens to be some high ranking director or VP – think “The Devil Wears Prada”.
Check out this funny video.
Abusive boss caught on video admits to assault (read here)
An extreme example of this I think is what I recently saw in the Korean movie, “The New Sassy Girl” (well, may not be the best example. It is fictional. This is what I can think of at the moment :p). Well, if you haven’t watched the movie, and is planning to watch it – just be warned, spoilers ahead. You might want to skip this section.
Basically, the male lead being a mediocre local graduate had difficulty finding a job in South Korea, due to the large number of local graduates (and few openings). He desperately want a stable job before he gets married.
Eventually, to his surprise, he managed to get into a large Telco corporation… He was allocated a place under the “Oxford” team. After some time, he and his team mate realized why their team was called the “Oxford” team. During the recruitment exercise, because the company needed to employ local graduates to make up for the local employment ‘quota”, the chairman decided to let his dog (named Oxford) to pick the applicants for him. There are ‘tonnes’ of local applicants. In short, the applications were littered on the floor and the dog just rummage through the stacks.
So technically they were ‘paw-picked’ by a dog (and laughed at by the rest of their colleagues from other teams). And to add to their humiliation, shortly after, their Oxford team was dissolved under a company restructuring exercise, and the male lead became the driver of his obnoxious boss while his team mate was fired. He decided to endure the humiliation so as to have a job (while keeping his wife in the dark)… ok eventually he left that job.
Another extreme example, would be the early years of billionaire Chris Sacca. At one time, he was $4 million in debt. Nonetheless, he refused to declare bankruptcy and negotiated a workout plan with his creditors which reduced his total debt to $2.125 million. He would do all kind of jobs just to pay off his debt:
“Over the next five years Sacca completed law school, and got his hustle on. He “sold his soul” to a Silicon Valley law firm, from which he got fired 13 months later, and then took a few personal marketing and branding liberties to started his own consultancy. The journey took him through writing terms and conditions for online adult sites and a variety of other less than impressive tasks.”
How Chris Sacca turned his student loans into $12 million… and then lost it all (read here)
Then there are some who ask for the sky just because they are the one paying.
Govt tender asking for ‘unlimited changes’: Designer fears such clauses could be abused (read here)
Ok, these are extreme examples, but you get my drift.
Back to my point (sorry for the long detour). Well, my working life is not that extreme. But I do have my fair share of difficult bosses and clients.
There is a saying in the construction industry about the difference between those marginally rich buyers and the very rich buyers of properties. Not sure if that is true… But I often hear contractors complaining about the so called newly rich or marginally rich people. These people will complain a lot about their new property, often over the smallest defects, like a chipped corner in the cabinet, poor paint jobs, ugly marble etc…
While the very rich buyers seldom complain. Why? Because to the latter group, these problems are easily solved with money: Why worry over a chipped tile, when it is only a few thousands to change the finishes. What is a few hundred thousands? The rational is that these rich people tend to see the bigger picture. Some even demolish what was newly installed, only to totally renovate their apartments (think: hack away the 300K quartz German system kitchen counter or newly laid marble to install their preferred floor finishes).
Well, of course there are really rich people who are particular about Everything…. and frankly, I think really rich people might be more particular about how they spend the money. For one, Warren Buffett would probably not buy a condo here only to demolish what was installed… a $100k to him would probably mean a lot more in the future.
“Another story is about how Buffett picked up a one cent coin in his head office.”
Warren Buffett, The Example of Contrary Conspicuous Consumption (read here)
Well, back to Robert T. Kiyosaki. His Rich Dad does not really advocate extreme saving and depriving oneself to be rich. Rather his Rich Dad advocates that one must educate oneself financially and seek additional cash flow to purchase the finer things in life. If you want to be financially free , think of how much passive income you need for your daily expenses. If you want a car, think of how to achieve that much passive income to afford the car (via learning financial literacy). Eg. assets to generate cash flow to pay for your liabilities and more assets. Well like what Createwealth8888 blogger mentioned – YOLO (You only live once).
As highlighted by Robert, his Rich Dad at one time bought a beach. When questioned, the Rich Dad said that individually he could not afford the beach, but his business could.
As for me, like I said, I am still an employee. Every month I look forward to my full time employment income. However, the thing is, for most people, if you have a stable job, and diligently put away some money every month, over time, you would have a lump sum of money in the bank (unless there are some unforeseen incidents – critical illness, accidents, robberies, natural calamities etc – needing large sum of money). You will over time, have a ‘war-chest’. An amount of money which you would not urgently need in the near future, and would not need now for your daily expenses. You might even manage to pay off your mortgage / have a positive net worth. Then you will start to think about investing your ‘war chest’.
(3) Life as an Investor
Ever since I started working, I have also started investing the money I saved. So all these while I am also an investor.
“Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.” Warren Buffett
Now, the feeling and mentality of being an investor is different from that of an employee.
Firstly, earning an income is very different from managing your finance. I often thought that earning an income is hard, but over time, I think managing one’s wealth is harder (and much less predictable).
Secondly (as an extension to the first point), this might be surprising to some. I feel that to properly invest money is difficult. It is not easy ‘giving’ money to the right person or company at the right price. Well, yes, it is easy investing in stocks or loan companies money / invest via crowd-funding (thanks to the internet).
However, there will always be more mediocre or lousy companies than those truly great companies. There are lots of startups with no cash flow or actual customers.. but founders expecting Angel Investors or Venture Capital firms to invest millions solely on their ideas.
While on the other hand, as a typical retail investor (not a high net worth Accredited Investor, with lots of contacts, influence or know-how), if you are to invest in a private company (or lend money to companies) on your own and choosing to only do so for those private companies which are really profitable and with high pre IPO potential.. it is really difficult. Think about it , if you are a founder who has invested your own time (sweat and blood) in your company, it is only natural to want the company all to yourself – why share it with some passive investors (unless you need the cash to expand) – for the founders, there is a difference between ‘smart’ and ‘dumb’ money. Heck, I was even rudely rejected by some founders.
“The number of things that can go wrong (in business) greatly exceeds the number that can go right.” Seth Klarman
Thirdly, you are now earning via OPM (other people money) – eg via rental income, or OPE (other people energy / experience) eg. being a business owner. The potential is limitless (compared to using your own time and energy). Your income as an investor or business owner may come from multiple sources, while as an Employee, your basically derive your income from one principal source (your job). Our own human capital is limited.
Lastly, the feeling of being paid is very different from ‘paying’ someone else. When you are paid, you are obliged to provide value. When you are investing or paying someone, you are expecting value from them. All of sudden, you are seating at the other side of the table (the side where the investor or business owner sits)…
(4) The Payee vs The Payer
Now let’s expand on the last point.
Let’s think about the definition of the word ‘Invest’.
When we invest in stocks – there are good stocks and there are bad stocks. For the latter group, the companies involved usually have poor quarterly earnings.
Now, most investors would feel bad about the latter and some might even blame the management. In some extreme cases, the investors might even have fiery arguments with the management during the AGMs. (Think about the fiery AGMs of Golden Agri and Noble).
Then, if you are lending money to companies or individuals, you would expect payment. If there are defaults (might be a few hundreds or a few thousands), legally you can request money from the other party. Some platforms might engage money collectors while other engage lawyers. The feeling of being on the ‘other side’ of the table is more keenly felt if you are a lender. After all, a company is obligated to repay you even they have a poor quarter etc (even if there is no profits).
On the other hand, as an equity investor, if the company does poorly, the shares will typically drop in price while dividend might be reduced.
Frankly, I am not that extreme (started off investing because I wanted to be financially free). I have lousy non performing stocks, and a P2P loan which the borrower has defaulted for a month.
I don’t actually demand back my money, and has always treated it as part of my ‘education’.
I do occasionally check with the platform why the company defaulted on its loan, and read up on the reports of listed companies which I have invested in. Nevertheless, the mentality of an investor is different.
At the end of the day, a ‘payee’ thinks differently form a ‘payer’.
I hope that I will never become the “B****” or “A**h***” who ask for the sky just because he/she is ‘paying’. There is a subtle difference between “I anticipate results” vs “I demand results”.
“I had a considerable passion to get rich. Not because I wanted Ferraris – I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t where I got that notion from, but I had it.” Charlie Munger
It is late – shall leave you with a slow Chinese song.