Rich Dad Misses the Price Point

An excerpt from a recent Rich Dad Poor Dad column by Robert Kiyosaki:

So how can I say that the market is crashing even if it continues to go up? To see the true crash, educated investors need to compare apples to oranges, not apples to apples. When you compare the Dow to the Dow, or the S&P 500 to the S&P 500, that’s comparing apples to apples. The Dow at 12,000 appears better than the Dow at 9,000, just as an apple at $1 a pound looks better than at $1.50 a pound, even though it’s still the same apple. All that’s happened is the price per pound of the apple has gone up — the apple hasn’t changed. Years ago, my rich dad taught me to be a comparison shopper, especially when it comes to investments. He said, “You need to understand value more than price. Just because the price of something goes up doesn’t necessarily mean the value has gone up.” He also told me, “If prices go up without a corresponding increase in value, it means the value of the asset has actually gone down.” This holds true for all assets, including stocks, bonds, and real estate. For example, when the price of a house goes up it doesn’t mean that the house is more valuable. And prices going up may mean that something else is going down in value. In today’s global markets, what’s going down is the purchasing power of the U.S. dollar.

He is right: price going up doesn’t mean value is going up. But does it matter? If you have a strategy predicated on riding price increases (long for profit) and riding price decreases (short for profit), why then does it matter if you are able to discern the elusive “value” or not?

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