The reading level for this article is Novice
There are many types of investors. There are traders and there are speculators. There are small-cap, mid-cap, and large cap investors. There are day traders and those that bet on the long term. There are those in mutual funds, those in public equities, and those investing in early-stage private companies.
In Rich Dad’s Guide to Investing author Robert Kiyosaki goes into the different levels of an investor. He notes that the most advantaged investors are those that are also business owners, for by building their business they are also investing, have more information than outside investors, are building an asset, and are learning everything they will need to know to invest in other companies.
In the book Kiyosaki lists thirteen characteristics of the ‘Average Investor’ and thirteen characteristics of a ‘Sophisticated Investor.’ I would encourage you to study the following chart in depth before you put any of your money into other companies.
Only one financial statement
Multiple financial statements
Wants everything in their name
Wants nothing in their name. Uses corporate entities. Often personal residence and automobile are not in their names.
Does not think of insurance as an investment. Uses words such as ‘diversify.’
Uses insurance as an investment product to hedge against exposed risk. Uses words such as ‘covered,’ ‘exposure’, and ‘hedge.’
Holds only paper assets, which includes cash and savings
Has both paper assets and hard assets such as real estate and precious metals.
Focuses on job security.
Focuses on financial freedom.
Focuses on professional education. Avoids making mistakes
Focuses on financial education. Understands mistakes are part of learning.
Does not seek financial information or wants it for free if sought.
Willing to pay for financial information.
Thinks in good or bad, black or white, right or wrong.
Thinks in financial gray.
Looks are past indicators such as P/E ratios and Capitalization rates
Looks for future indicators – trends, pro formas, changes in management and products
Calls broker first and asks for investment advice or invests alone, asking no one for advice
Calls broker last—after consulting with plan and team of financial and legal advisors.
Seeks external security, such as job, company, government
Values personal self-confidence and independence
Makes money only when the market goes up
Uses things such as put and call options and short selling to make money no matter which direction the market goes
Buys when the stock price is increasing sells when the stock price is decreasing.
Buys at the bottom and sells at the top.
Source: Rich Dad’s Guide to Investing