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I look at Robert Kiyosaki's market predictions in light of Nassim Taleb's book, The Black Swan
You’re not half as smart as you think you are. That’s the message in Nassim Nicholas Taleb’s book, The Black Swan: The Impact of the Highly Improbable. I sure wish Robert Kiyosaki (famed author of the Rich Dad Poor Dad never-ending series of books) would read The Black Swan. For our purposes today, Taleb argues that we convince ourselves that the world is more orderly and coherent than it really is. We look back at historical events and mistakenly believe we can make sense out of it all, that we can fill in the right causes for all the effects we see. The problem is, we can’t. And for those really unexpected events, he calls them Black Swans, from the once long held belief that since all observable swans are white, Black Swans don’t exist. Trouble is, they do.

Well Kiyosaki takes all this to a new level. In his most recent column published in Yahoo! Finance, he showcased himself as the greatest prophet of our time, or as I like to say, The Great Black Swan Hunter. His article, When the Squeeze is On, Bargains Abound, is here, but please allow me to deconstruct his article for you. And there is a point to all of this (several actually), and I’ll return to them at end of the post.

I Told You So

First, Rich Dad tells us that he told us so:

I know it’s not polite to say “I told you so,” but early this year I wrote two columns here predicting that what happened in August [market “mini-crash”] might be coming. Well, it did, and I told you so.

At first I thought who cares; so he predicted that something might happen. That’s not a prediction, it’s a truism. But never to disappoint, he followed up later in his article with his clear prediction: “The August stock market mini-crash I predicted. . . .” Ok, so there it is. Early in 2007, Rich Dad predicted the stock market “mini-crash” in August. Now my first reaction was, “What, the market crashed in August! This I gotta see!”

So off to the charts I went. It turns out, though, that the markets were UP in August, not down. On July 31, 2007, the S&P500 closed at 1455.27, and at the end of August, it closed up for the month at 1473.99, for a monthly GAIN of more than 1%. So what is Rich Dad talking about?!!? Then I realized both my mistake and Rich Dad’s brilliance all at once. He didn’t just predict a mini-crash in August, he predicted it in “early August.” And sure enough, over a seven day period, the market was down about 6%. That’s not even a correction, so I’m not sure why he calls it a “mini-crash” or even what a mini-crash is, but at least now I’m tracking his great prediction.

So now let’s go back to the articles in early 2007 in which Robert Kiyosaki predicted that in early August of 2007 the stock market would experience a “mini-crash.”

Two Articles with Zero Predictions

The two articles he links to were written in February and March. The first was entitled, Throwing Good Money After Bad, and the second article was entitled Rich Today, Poor Tomorrow. I read both articles very carefully and here is the upshot–NEITHER PREDICTS A MARKET MINI-CRASH or EVEN DISCUSSES A MARKET MINI-CRASH. In fact, both articles are about deflation, and in one, he predicts that due to what he calls a “short squeeze,” the market will go UP:

Suddenly, all the other traders who shorted the stock need to buy shares of XYZ in order to return them. As more short tranders begin buying XYZ, the price of the stock goes up and up–from $150 to $160 to $170, for instance. This is a short squeeze in stocks. The traders who thought the price of the stock would go down are squeezed into becoming the ones who drive the price up.

So what’s going on here? Well with respect to Mr. Kiyosaki, I have no idea. I’ll leave it to you to read his articles (if you care to ) and decide for yourself. But there are several key lessons to be learned here:

  1. Question Everything: Whether its a Rich Dad article, Hillary Clinton’s health care reform plan, or an article on The Dough Roller, question everything.
  2. Don’t Predict Future Prices: One of my concerns from articles like Rich Dad’s is that he may actually convince people that he can predict future markets. He can’t. Even worse, he may convince unsuspecting folks that predicting future markets is key to successful investing. It isn’t.
  3. Embrace Uncertainty: I’m convinced that certainty is overrated. The fact is, we live in an uncertain, unpredictable world. The sooner we realize that, the more certain our world will become.

Message to Yahoo! Finance

Hey Yahoo! Finance, when your contract with Mr. Kiyosaki expires, drop me a line.

Author Bio

Total Articles: 1118
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

plonkee says:

Black swans. Yes.

Kiyosaki. No.

Nuff said.

PFJournal says:

I was really impressed with Taleb from Fooled by Randomness and look forward to this new one. I agree, Koyasaki and his ilk would do well to pay more respect to uncertainty.

shadox says:

With all due respect to Mr. Kyosaki, that guy is a fraud. I only read Rich Dad, Poor Dad but I was so underwhelmed by its mediocraty that I made up my mind up him right then and there. I thought his advice was simply horrible. In his book he actually goes as far as to advise people not to diversify. Seriously.

DR says:

Shadox, I agree with you. I actually found some value in Rich Dad, Poor Dad, but it’s been downhill ever since.

Dan at Everydayfinance says:

I read an item with him in Businessweek where he advocated keeping 95% of your holdings in TIPS (Gee, thanks for the 2% return matching inflation!) and the other 5% in way out of the money index call options; the thought being that in down markets, you’ll break even, but in up markets, you’ll make a killing when your out of the money calls come into the money, assuming the return outpaced the premium priced in when you purchased and they didn’t expire yet.

I haven’t modeled this historically yet (as you could practically back into a good model to prove the theory, so I’d have to do it randomly), as I’ve modeled other quantitative plays, but it is interesting, have to give him that.

I’m glad I didn’t entertain it this year though, killing in internationals and tech.