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Robert Kiyosaki Why the Rich Get Richer

Robert Kiyosaki, Why the Rich Get Richer

When Pessimism Prevails, It's Time to Get Rich

by Robert Kiyosaki

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Posted on Tuesday, July 22, 2008, 12:00AM

If you're serious about getting rich, now is the time. We've entered a period of mass-produced pessimism, when bad news is everywhere, and the best time to invest is when optimists become pessimists.

The Weird Turn Pro

Journalist Hunter S. Thompson used to say, "When the going gets weird, the weird turn pro." That's true in investing, too: At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.

In an earlier column, I stated that it was time to sell all nonperforming real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.

As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become a bull and save them. But as the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market. That's what's happening now.

Pessimism vs. Realism

In 1987, the United States experienced one of the biggest stock market crashes in history. The savings and loan industry was wiped out. Real estate crashed and a federal bailout entity known as the Resolution Trust Corporation, or the RTC, was formed. The RTC took from the financially foolish and gave to the financially smart.

Right on schedule 20 years later, Dow Industrials and Transports struck their last highs together in July 2007. Since then, nothing but bad news has emerged. In August 2007 a new word surfaced in the world's vocabulary: subprime. That October, I appeared on a number of television shows and was asked when the market would turn and head back up. My reply was, "This is a bad one. The worst is yet to come."

Many of the optimistic TV hosts got angry with me, asking me why I was so pessimistic. I told them, "The difference between an optimist and a pessimist is that a pessimist is a realist. I'm just being realistic."

As we all know, things only got worse in early 2008, with the demise of Bear Stearns and the Federal Reserve stepping in to save investment bankers. In February, many of those optimistic TV (and print) reporters became pessimists -- and when journalists become pessimists, the public follows. By March, mutual funds had a net outflow of $45 billion as investors fled the market.

Surviving the Bad Times

Back in 1987, as savings and loans closed and investors' stock and real estate portfolios were wiped out, my wife, Kim, and I were living in Portland, Ore. Many people were depressed and hiding from the truth. The following year, I said to Kim, "Now is the time for you to begin investing."

In 1989, she purchased a two-bedroom, one-bathroom house for $45,000, putting $5,000 down and earning $25 a month in positive cash flow. Today, she owns over 1,400 units and -- because more people are renting than buying -- she earns hundreds of thousands a year in positive cash flow.

The period from 1987 to 1995 was a rough one, even for the rich. In his book "The Art of the Comeback," my friend Donald Trump writes about being a billion dollars down at the time. Rather than give up, he kept on fighting to survive. He and I often talk about how that period was great for character development.

Two-Year Warning

I believe we're through the worst of the current bust. I know there will be more aftershocks, and the news will continue to be pessimistic for at least two more years, possibly until the summer of 2010.

But the upside to this is that it gives us at least two years to do our market research and find the next big stock or real estate bargain. Before buying, I strongly suggest you study, read books, and take courses on your asset of choice. If your choice is stocks, take a course on stocks or options. If it's real estate, take a course on real estate. Now is the time to learn; not only will you know more than the average person and be in a good position when the market turns, but you'll also meet people with a similar mindset.

You have about two years to get into position. Opportunities this big don't come along often, so this is your time to get rich.

Climbing Bulls, Flying Bears

Am I optimistic for the long-term? Absolutely not. I still believe we're due for the mother of all market crashes, and that the U.S. economy is running on borrowed time -- and I do mean borrowed. I think most baby boomers are in serious financial trouble, and that oil will climb above $200 a barrel. Inflation will also increase, causing more pain for the poor and middle class.

The Fed is flooding the market with nearly a trillion dollars of liquidity, which is why I believe gold under $1,200 an ounce and silver under $30 an ounce are bargains. Gold and silver should peak and decline before 2020, completing two 20-year cycles. My exit is to sell silver around 2015. I plan to hold onto gold, income-producing real estate, oil wells, and stocks.

Most of us know the bull climbs slowly up the stairs, but the bear jumps out the window. I believe the bull is still climbing the stairs, and the bear hasn't jumped yet. But rest assured that it will.

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482 Comments

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  • Jerry - Friday, December 5, 2008, 12:09AM ET  Report Abuse

    • Overall: 4/5

    you're not a pessimist... you can't say a prediction is an optimist or a pessimist one. it's a prediction made for a caution.... wether it'll come true or not it's just a prediction...... a predection made for us to think what action should we do next for our own benefit.... wether it's an optimist os pessimist one. yes gold is very good investment for a bad condition of economy. but if we have a very healthy economic activity i think gold won't be so interesting... but today... yes i'll buy gold...

  • bill - Tuesday, December 2, 2008, 12:35AM ET  Report Abuse

    • Overall: 3/5

    not sure of much,as Im sinking every dime into the market,in high hopes,being 55,but I am also going to the coin dealer and buy several,{2 to 5} rolls of dimes per week because my Dad hoarded siler and gold for many years,which I still hold for him,this is not my stash,but he said " Son YOU will see a day when $10 wont buy a loaf of bread,but a silver dime will" I didnt understand then but Pop may have known what he was talking about,,YOU THINK?

  • Herbalider - Thursday, November 13, 2008, 1:29PM ET  Report Abuse

    • Overall: 5/5

    Most of times people believe only in the dyly news. So, it makes a generalizad pesimistic mentality. Let´s continue giving hope to the world.

  • Ilya - Thursday, November 13, 2008, 4:28AM ET  Report Abuse

    • Overall: 5/5

    Always good to hear the professional explain!

  • pyuk - Thursday, November 13, 2008, 4:17AM ET  Report Abuse

    • Overall: 4/5

    its my turn to be rich!

  • Yahoo! Finance User - Thursday, November 13, 2008, 12:58AM ET  Report Abuse

    • Overall: 3/5

    Invest in camping and hunting gear, so when the going gets weird, the weird get into survival. There really is no other long-term solution to what's going to happen. This is not just going to be an American economic crash. Currency and resources in general are going to lose enourmous value so that the central banks can begin high interest lending to governments again. This is how they stay mega-rich and put the other big banks out of business, as we are beginning to see now. Only certain banks and large companies will be "bailed out" (meaning something else, you can be sure).It's all a process of keeping the size of the middle class under control. They want rich and poor, not middle ground. Plug-in or stay out is the running philosophy in the world economy. No government can fix it, nor control it short of enforcing a completely new, localized economic structure within their borders--surrendering a lot of the frivolous importing and exporting that happens now. Bye-buy China! Anyway, hey I read Robert's stuff because it gives a lot of insight into what's going to happen and how to deal with it on an attitude level. His actual solutions may not work for anyone but him, but at least he is out there filling you in on how he deals with it. Use your imagination and make your own deductions about how you should deal with it. A great transition is about to take place for all of us worldwide, and we need to keep our eyes on the guys who work with it way more than we need to get bogged down with the media crud. BTW, when the media tells you to stay calm, run like hell!

  • Todd - Wednesday, November 12, 2008, 6:13PM ET  Report Abuse

    • Overall: 1/5

    I love the Kiyosaki followers. They're apparently so detached from reality they can't see the scammer for what he is. Since he wrote this article real estate has crashed and highly leveraged investors are probably facing bankruptcy. They'll face selling "assets" at a huge loss because the market is going to continue to tank. Real estate prices, especially residential, have outstripped the increase in personal income for years. That's not sustainable no matter what the fed or anyone else does. So when Bill Clinton pushed for easing mortgage requirements to get more people into housing, we saw a bubble in the housing market. Guess what? That bubble is in the midst of collapsing and will continue to do so for at another 1-2 years. On hand inventories are at record highs, and many ARMs are still adjusting. So go ahead, keep letting this con artist tell you what to do, all the way to bankruptcy court.

  • Yahoo! Finance User - Wednesday, October 22, 2008, 9:24AM ET  Report Abuse

    • Overall: 5/5

    Old market adage: "Buy when there's Blood in the Streets". Rothschild did, two hundred years ago, and his wealth became legendary. Stay alert, read, recognise what's happening and buy the bargains. It's buying time now. The great companies are on sale.

  • Randy - Tuesday, October 21, 2008, 4:44PM ET  Report Abuse

    • Overall: 1/5

    Gee Bob, what a great piece of advice. If i had remained invested in the DJIA, I would have lost 32% between July 22 and today. However, since I sold my stocks and bought silver and oil, I'm only down 47% (silver) and 44% (oil) to today. And they don't pay dividends.

  • adam - Tuesday, October 14, 2008, 6:16PM ET  Report Abuse

    • Overall: 5/5

    excellent

  • Sandman - Friday, October 10, 2008, 2:52AM ET  Report Abuse

    • Overall: 4/5

    The American economy is due for a large crash. The $700 billion bailout is only going to delay the real carnage that is waiting to happn when the US defaults on it's debt. The USD will plunge as Asian, Arab & South American countries go on a shopping spree of America.

  • Charles - Friday, October 3, 2008, 6:46PM ET  Report Abuse

    • Overall: 2/5

    IT IS EASY TI LOOK BACK..WHAT IS HARD IS TO LOOK FORWARD...TRY A LITTLE MORE OF THAT..

  • Bassist - Thursday, October 2, 2008, 1:55PM ET  Report Abuse

    • Overall: 1/5

    What a joke! The economy started tanking right after this article was written. Hey RK, do you still 'believe we're through the worse of the current bust'?

  • Ro Morrow - Wednesday, October 1, 2008, 12:13AM ET  Report Abuse

    • Overall: 5/5

    I hate it when people criticize Robert. If you can write a best seller and make millions because it is so easy then do it. Otherwise shut the hell up! He was rich long before he even decided to write a book.

  • Yahoo! Finance User - Tuesday, September 30, 2008, 3:33PM ET  Report Abuse

    • Overall: 5/5

    Folks who continue to criticize RK about his books on real estate do not have an investor perspective. Whether it's real estate or stocks or commodities or something else, a good investor knows when to sell out. If you're the buyer of an investment that's going to tank, don't blame RK. The buyer didn't look at the bigger economic picture--the macro view. That requires financial "education" in the sense of reading more finance blogs and newspapers, books, economic philosophies, etc. It takes years.

  • Jorge - Monday, September 29, 2008, 10:47PM ET  Report Abuse

    • Overall: 4/5

    thanks for the advice....i concur....

  • Yahoo! Finance User - Sunday, September 28, 2008, 10:34PM ET  Report Abuse

    • Overall: 1/5

    ha ha ha look at what happened since you wrote this.

  • Yahoo! Finance User - Friday, September 26, 2008, 4:38AM ET  Report Abuse

    • Overall: 1/5

    Hey Bob. Why don't you tell these naive people the REAL secret to getting rich. All youhave to do is write some fiction book that makes it look like real estate is a great and easy way to get rich. Then pay some PR person to get you on Oprah. Since Americans are so stupid and gullible, after being on Oprah you'll be seen as some "guru." Next you continue living this dream pretending to know jack about investing, paying others to write your stupid books and marketing yourself as some expert. Bobby, isn't THAT the way to get wealthy? It's called being a con artist. America has many besides you Bobby. Suze Orman, David Bach, and many others. People those who spend their time telling you how to make money have no idea themselves how to make money. They are too busy making money.

  • Gerald - Wednesday, September 24, 2008, 11:11AM ET  Report Abuse

    • Overall: 1/5

    RK forgot to mention that owning real estate of 1400 units comes with risk of vacancies/tenants moving out, bad tenant evictions, property vandalism, tenants damaging the rental unit, higher property taxes, higher insurance costs, litigation costs, utility costs, etc. Is it really that glamorous to own 1400 units when 20-30% of the units occupied are on shaky grounds with economic tough times and unemployment high. RK needs a reality check and stop bluffing that real estate is good because it has already started crashing. As for oil and metals, good luck that's coming down too.

  • Yahoo! Finance User - Wednesday, September 24, 2008, 8:28AM ET  Report Abuse

    • Overall: 1/5

    yet more poor advise from RK. here's a hint folks: if the system collapses, nobody's gonna want your gold or silver anyway. we've seen far worse than this before. we'll get through this and, with a bit of luck, we'll actually get an administration that understands limited gov't and fiscal responsibility (and, no, that AIN'T Obama).

  • bill - Wednesday, September 24, 2008, 5:09AM ET  Report Abuse

    • Overall: 3/5

    We will overcome this problem again just like... we always have. The real problem is the BALOON is getting bigger and bigger and it will POP one day. Folks.. find a cover now and run for your life when you hear the big bang.

  • Christopher - Tuesday, September 23, 2008, 1:42PM ET  Report Abuse

    • Overall: 5/5

    Robert has being correct all along, The Fed and Bernanke have caused the collapse of the financial system by raising interest rates until everyone defaults. US dollar isn't worth nothing, buy Gold and silver. Keep up the wise council :-)

  • Gary - Tuesday, September 23, 2008, 10:32AM ET  Report Abuse

    • Overall: 5/5

    To the one stars; OK silver is down, but holding it will still get your money back at some point; the gold call is still good; 50% in each would have still been a far better bet than the overall stk market. As for the collapse of the financial system, do you think that Paulsonboy/ Bernimack/ Greenears would have been better served listening to RK? This is the far reaching, original thinking BIG ONE that RK was so couragously FORSEEING! Non of these "experts" fully got it, but RK nailed it; even though a full collapse I don't believe will happen because the US gov. won't let it! It will take 1 trillion to stop it. If things were left to eventuallity, RK's forecasting could not be better. We would have been far better off had RK been the Fed chairman!!

  • Yahoo! Finance User - Tuesday, September 23, 2008, 12:33AM ET  Report Abuse

    • Overall: 5/5

    Robert has taken a lot of grief from this comment section over the last year. But, he has been pretty spot on and valuable to those who listened to logic. All I gotta say is, who the hell is Ben Stein! Nice work!

  • Yahoo! Finance User - Monday, September 22, 2008, 11:08PM ET  Report Abuse

    • Overall: 5/5

    Who's your daddy now? huh? keep up the wisdom Mr. Kiyosaki!

  • william - Monday, September 22, 2008, 1:49PM ET  Report Abuse

    • Overall: 5/5

    You the man Kiyosaki!! I almost gave up on you with the precious metals call but it looks like everything you predicted is coming true.

  • Tony - Monday, September 22, 2008, 1:11AM ET  Report Abuse

    • Overall: 5/5

    I was a disbeliever of Robert before. However, I have been following his predictions and more importantly his insights and explanation of what is happening. He is good, actually better than good, Robert is great!

  • Sandra - Friday, September 19, 2008, 6:46PM ET  Report Abuse

    • Overall: 5/5

    TERRIFIC ADVICE I ALSO BELIEVE IN YOUR PREDICTIONS. I AM SEEING IT. GOOD JOB ROBERT AND KIM.

  • Yahoo! Finance User - Thursday, September 18, 2008, 5:02PM ET  Report Abuse

    • Overall: 5/5

    For years I've been reading this, and Robert always said to buy gold. He was right. Gold is going throug the roof. Highest raise in 8 years. Congrats MR. Kiyosaki, you're getting richer.

  • Yahoo! Finance User - Thursday, September 18, 2008, 10:47AM ET  Report Abuse

    • Overall: 1/5

    Where is the column? Dihe he remove it out of shame? My rating is based on his body of work.

Showing comments 6-35 of 482<< PreviousNext >>
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