Road To Becoming A Rich Idiot

By Julie Rains on 3 April 2008 17 comments

Ever met a rich idiot? I’ve known at least two. Not counting my telephone conversation with self-proclaimed Rich Idiot and multimillionaire Robert Shemin (author of “How come THAT idiot’s rich and I’m NOT?”), I’ve also shaken hands with a guy who impressed me with his simplicity and wealth. We met briefly in a parking lot before a company meeting: I was dressed in standard corporate attire; he wore a khaki jumpsuit with his first name (“Don”) stitched in red. A college dropout, Don had just purchased my employer, a food processor with an Ivy League grad as its chief executive and a Ph.D. at the helm of its largest subsidiary. So what do Robert and Don (#346 of Forbes’ The Richest Americans in 2005) have in common?

Other than being action-oriented and not overly analytical, they both aggressively bought or controlled assets offering future benefit. Robert acquired rental properties in Nashville, Tennessee. And Don (Tyson) as President and CEO of Tyson Foods led the Arkansas-based publicly-held company on an asset safari, acquiring Mexican Original in 1983; Holly Farms, 1989, Arctic Alaska Fisheries, Inc. and Louis Kemp Seafood, 1992; Cargill’s U.S. broiler operations, McCarty Farms, Inc., and Culinary Foods of Chicago, 1995; and Mallard's Food Products of Modesto, California, 1997.

In his book, Robert tells readers that “…true assets share these three characteristics:

  • They have value. 
  • You own or control them.
  • They provide you with future benefit (a.k.a. money).

Rich Idiots check off each of these essentials before they buy anything.”

In Robert’s ideal world, you too will be a rich idiot, owning or controlling assets that generate income, spending time with your family and friends, and enjoying your favorite activities, all without stressing about money or your to-do list. Here's his map (partial list) of the road to riches:

1) Set a goal for the amount of money you’d like to accumulate and your time horizon, which may range from 5 to 30 years. Don’t set multiple goals: set one goal that you will pursue relentlessly. Per Robert:

“Setting too many goals is like taking aim with a shotgun. Setting one goal is like taking aim with a laser beam.”

2) Figure out a way to produce income that doesn’t require direct, daily actions from you (aka residual income or as Robert mentions making money while you wash your hands or comb your hair) such as:

  • Investing in the stock market
  • Owning rental properties (Robert says that rental properties should always generate a positive cash flow; borrowing on the right property at a low interest rate can increase your investment return via Rich Idiot Debt Thinking; see my Rental Property Cash Flow Evaluation spreadsheet that helps me understand his idiotic thinking)
  • Running a business that allows you to benefit not only from your work but also from the efforts of others
  • Creating intellectual property that will generate payments (e.g., royalties from a licensing agreement, patent, or creative work)

3) Do one thing each day that will bring you closer to your goal. Take action rather than (over) analyze what you should do.

4) Learn from the “repercussions of your previous actions,” making mental connections to what has succeeded and failed in the past, and always applying what you already know to new business ventures, office procedures, investing strategies, etc.

Sound simple? It is. Nevertheless, I found it helpful to consider that radically changing or slightly modifying my actions based on my experiences is much more effective than pure persistence.

5) Access the power of other people (what Robert calls "OP Power"), rather than trying to do everything yourself.

There are 4 types of other people you should engage:

  • Mentors who have experienced success in the fields you are pursuing 
  • Idea people who have an idea but need business expertise (yours) or have developed a business model that you can replicate
  • Team members who contribute to your productivity by doing things that are time-consuming for you and/or just not your expertise (professionals such as CPAs and attorneys as well as employees, independent contractors, or outside firms who provide services to you and your company)
  • Investors who will help fund a new business, major asset purchase, or project 

The OP Power concept and Robert’s discussion of working all the time or thinking he should be working while managing his business resonated most with me. He handled all the day-to-day operations associated with his rental properties such as finding renters, collecting rent, sourcing contractors, and keeping the financial records. Here’s his story:

“…though I was working all the time, I wasn’t making a ton of money. Even my weekends were filled with business, because whenever I took a Saturday off, I’d spend it worrying about all the stuff I hadn’t finished on Friday. And when I took a Sunday off, I’d spend it worrying about all the stuff that was waiting for me Monday morning.

What’s more, I felt tired, cranky, and fearful that I’d make a lot of mistakes that would cost me my hard-earned money. The point is I was trying to do everything.

What happened? I got some really good advice and took it. What was the advice? It’s the same advice I’m giving you…Don’t do it all alone.”

How should you find qualified people to help you run your business? I asked Robert that question when we spoke. He told me that I should find them the same way I might locate a good doctor (or mechanic or beautician):

  • Ask people you trust for recommendations 
  • Check references and verify credentials
  • Arrange a meeting
  • Make sure that you feel comfortable working together 

Robert assured me that many successful people are willing to help those who are genuinely interested in receiving guidance.

But don’t stop there. Monitor what your other people are doing, check your results periodically, and adjust your actions as needed.

6) Anticipate and prepare for potentially asset-robbing events such as natural disaster, divorce, death, disability, and taxation. Robert advises to get insurance coverage, sign a prenuptial agreement, and exercise tax deduction and tax reduction strategies.

7) Keep cash flow positive.
Even the asset rich can run out of cash as Robert learned when tornadoes blew through his hometown of Nashville, Tennessee (USA) and location of his 40 or so rental properties. He had to spend thousands of dollars in repairs and came close to running out of cash and credit while waiting for his insurance check. When his son asked to go to the movies, Robert scraped coins out of a jar to buy their tickets.

He did get his property insurance payments in time to avoid bankruptcy but retooled his business approach (see #4) and began tracking cash flow and reviewing his cash position every Friday.

What is the one thing that holds people back from acquiring assets and becoming wealthy? “Fear of making mistakes,” Robert told me. So go ahead and try, learn, and move forward because “the wealthy make a lot of mistakes.”

I received a copy of "How come THAT idiot's rich and I'm NOT?" in exchange for a book review. Though I've never sought to emulate Don Tyson, I was intrigued by his grassroots approach to interacting with people: he personally handed out flyers to hourly workers guaranteeing their benefits, quickly winning their support for Tyson's acquisition of Holly Farms.  

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Guest's picture

He seems to take the same approach that we see in the "Rich Dad / Poor Dad" series. This kind of writing is helpful if it teaches people to think about their spending and realize that a jet ski is not an asset.

It's not so helpful if people get the idea that everyone needs to be a high-roller and a business owner. Some of us can be quite happy as an employee spending half of what we earn and not stressing out over business risk.

Most businesses fail and the owner is left with debt. We employees can live off our emergency fund until we find new employment.

Julie Rains's picture

I also take issue with the idea that everyone must have a business empire in order to be worthy and happy. Having work that you enjoy, time to be with your loved ones, and resources to pursue your interests is a nice definition of wealth (see first post on rich idiocy). Building sources of income outside of your daily efforts (which could be dividends from equity holdings, income from rental properties, and/or a government pension) can enable more choices careerwise (not all funds have to come from a paycheck) and may allow better relaxation (full attention on family, meaningful activities) when not working.  

Guest's picture

Great and simple ideas and I share some of the above philosophy in my blog - - where I am on road to financial freedom. The most underated one is "Access the power of other people" - very powerful if done correctly.


Guest's picture

I'm not in these guy's league but I'm doing OK. Reminds me of the story about the High School Idiot who turns up at his 10 years reunion driving a Ferrari.

One of his old classmates asked him how he made so much money so quickly ... he said:

"It's simple, I buy stuff and sell it for a 3% margin"

The old class-mate says: "how can you possibly make any money at only 3%"

To which he replied: "I buy stuff for $1 and sell it for $3 ... that's 3%"!

You dont have to be smart to be rich ... math optional!

Trust me ... I should know ;)

Guest's picture
Minimum Wage

Robert says the Universe is an abundant place, and there is more than enough for everyone.

Robert became rich through rental properties. The typical residential rental relationship is zero-sum and the tenant isn't the one feeling the prosperity.

How then does Robert say there is more than enough for everyone?

Guest's picture

This is GREAT advice and I agree that people are afraid to fail. I also like the idea that we should be learning from others and set goals for what we want to achieve.

This book reminds me of How To Think Like a Millionaire which I love and continue to read over and over because I learn something new each time.

I'll pick this up and see if it generates same or new information. I definately have plans, I just need to find someone who's been there done that to serve as mentor as I make the first few steps.

Guest's picture

To which he replied: "I buy stuff for $1 and sell it for $3 ... that's 3%"!

What kind of idiot pays $3 for something that is worth $1??

Guest's picture

Some "homeowners" paid $3 for houses worth $1 ; stocks, ETF

Guest's picture

Wholesale is AT LEAST 50% off retail. For books its more, for information.... don't ask.

So the answer to your question is EVERYONE!!!

Guest's picture

You would be surprised how many are buying for $2.95 and selling for $3.00 after really figuring expenses.

Guest's picture

what kind of people? we all do at one point or another. 300% markup is very common in a lot of industries, fashion, cosmetic, jewelry, chemicals for end user etc, etc

Guest's picture

This is what my dad has always told me since I was a kid.

It is better to make $100 by having $1 profit from 100 workers than to make $100 by doing all the work yourself. (Something like that, I am paraphrasing very poorly here but you get the idea)

Guest's picture

I read a book called, “How come THAT idiot’s rich and I’m NOT?”), I loved the fact that he included spiritual key's for gaining wealth...

I believe in the law of reciprosity, give and it shall be given.

Guest's picture

More of the same tired crud from the Kiyosaki school of real estate investment and finacial planning. Honestly, lets look at the similarities:

Distaste for education (e.g. school is bad and they don't know what they're talking about). Of course then he mentions he's got a law degree, but he's dyslexic and graduated 454 of 455 in his high school class, but somehow got into college and law school. What! I'll admit to going by memory on this, but if he could read and understand much of what he claimed he read and understood, school should not have been as much a problem for him as he claimed despite his disability. High Schools and teachers are always an easy target, but like anything else it is what you make of it.

DO, don't Think (Doers don't need to know all the ins and outs, they just do it rather than overanalyze things). Of course, buying real estate to rent it out, without checking out if the rent you'd have to charge to make a positive cash flow is even possible, doesn't seem to enter the picture. Just do it!

Insulting those who criticize (they are called RUBs in this book). Have to agree here, if you want to focus on money, the easiest way to take advantage of others is to classify them as less deserving than you.

Make it happen with other people's time, money, energy, expertise (and I'm sure he'll tell you how in his seminar for only a couple of thousand dollars). Of course, somehow you've got to hire and pay people with the right expertise to make your business work, and they have to be willing to do all the actual work while you're out spending quality time with your family. Yeah, lots of RUBs out there willing to do that.

Fake it 'til you make it. Attitude precedes ability. Looking good and hanging out where the wealthy spend their time makes you wealthy eventually. Or broke pretty quick, you decide.

Then throw in a couple of actual, tried and true parts about personal finances that can be found on most any blog or article just so you can have your followers point to the "advice" you provide. Also, provide contradicting sections of the text so you can always point to it and say you said that.

I was severly disappointed in this book. Same pump you up stuff I've seen a dozen times, then the focus on real estate and multilevel marketing. Sadly a waste of a good evening reading through it.

Guest's picture

I hope you don't become too miserable living "inside the box" your whole life. Your perspectives about everything that Kiyosaki, and this guy teach are very skewed. I may sound ignorant only being 21, and saying that I am not going to live in the rat race, but my mother has lived it her whole life. And it's funny how my dad (who shares the same ideas as you) is too big headed to hear what I've got to say about wealth, yet he and his wife are struggling financially. It's funny how opinionated some people are, yet they don't even understand(or want to understand) these concepts of the wealthy. I feel that when I am rich, my biggest battle will be to accept that there are people who think like you! First, my dad doesn't support me financially through college, claims I should work full time, and go to community college (which where will that get me in life?), and then he can't even try to be positive and support me on this road. Life is so terrible in the rat race,and I know ways that my dad could improve his life greatly, but he is so ignorant, and there's no getting through to him. These guy's main points are that your financial life has much less to do with traditional education, and everything to do with your financial education. I fear the day that I'm wealthy, and my dad acts as if I should help him financially, even though he never supported me in any of this, and just made me feel terrible for taking a non-traditional route. Buuuut One of Shemin's key virtues is forgiveness, and I feel like my soul will be free if I forget my dad's ignorance, and help him with whatever he needs. Because I live in abundance: )

p.s. I'm more afraid of struggling, and living miserably in the "rat race" than going down this path and failing.

Julie Rains's picture

Although I think that other people power can be abused, it can be very positive in a collaborative way. Few people can build businesses without help of some kind (I have many years of experience working on my own and it is extremely difficult to do everything a business requires, sales, service, accounting, etc. and do it well); hiring others either as an employee or contractor is really something that can benefit many people rather than just the business owner.  

Guest's picture

The fact remains that RE is the common component of the rich. Harvard and Yale both include massive amounts of RE holdings in their portfolios. Obtaining RE requires common sense and most of all, courage. On a buying junket in NC, I was talking to a realtor who owns 13 properties. In this area, almost everything cash flows. I asked him why the "locals" weren't scooping up these great deals, his answer, "they don't have any balls". North Carolina crude but dead on.

Your spreadsheet Julie, albeit missing some things that I like to include, is a very good snapshot and guide to investing in property. Thanks for your article as well. It is a good read and I am forwarding it to all my employees.