What Schools Will Never Teach You About Money By Robert T. Kiyosaki

Insurance for Paper Assets
Andy put it very well. In 2007, it disturbed me deeply to watch 
the stock market crash, knowing the consequences for millions of 
investors, investors who believed that the stock market always goes up 
over the long term and that diversification was insurance against losses. 
Making matters worse, in 2010, uninsured investors were 
reentering the market, hoping prices would go up again (capital gains). 
Professional investors invest with insurance, even in the stock market. 
Again, I turn to Andy to explain how he uses insurance to protect 
his paper-asset investments.

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percent of the money I’ve spent on the option. To me, the context is not 
much different than the money I spend on insuring my rental property. 
The income from the rental property pays for the insurance, just as the 
income from a paper asset will pay for the option that protects it.
Printing Money with Paper Assets
FAQ
Can you print your own money with paper assets? Can I achieve an 
infinite return on my investment?
Short Answer
Yes.
Explanation
I will let Andy explain, since this is his area of expertise. 
Andy Tanner explains:
We know that it is impossible for a stock to actually reach the theoretical 
number of infinity. However, in the stock market, we can place 
transactions that can put us at risk for an infinite loss. One example 
of that is shorting a stock. When we short a stock, we lose money as the 
stock price goes up. Since there’s no limit to how high a stock price can go, 
shorting a stock is considered to be a transaction that carries infinite risk. 
So while the stock price will never actually reach infinity, infinity is a 
concept we must understand for both gain and loss.
Another way to look at infinity is this: As the amount of our own 
money that we place in an investment approaches zero, the return we 
receive on that investment approaches infinity. So if we can find a real 
estate investment that doesn’t require any of our own money, we are 
applying the concept of infinite return. That’s one of the reasons why 
debt, in the real estate world, can make you rich.
But a person doesn’t need to be a multi-multimillionaire to take advantage 
of hedging. With a little bit of education, anyone can learn how to use an 
option contract to protect themselves against loss.
The irony of this idea is that many people label the options market as 
too risky. In reality, many of the people who purchase options are doing 
so to reduce their risk. They use the option as a hedge, rather than for 
speculation. I purchase many options with the idea that I will lose 100 
Reprinted with permission

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Here is an illustration of the ups and downs of the S&P 500:
Since there is a strong level of support just above the 1,000 level, an investor 
might seek to “print some money” by selling a put option contract at, say,
the 945 level. But we don’t actually call it “printing money.” We call it 
“writing an option.” 
That simply means that the buyer of the contract would now have 
“insurance” on the S&P 500 if it were to fall below 945 before the
contract expires. 
With paper assets, we can do this without using any debt at all. That’s 
right: zero debt. And because one of the things that paper assets brings 
to the table is the ability to scale, this type of investing is available 
to almost anyone who is willing to obtain the necessary financial 
education. Again, I want to emphasize that a person does not need to 
be a multimillionaire to learn about these types of investments. 
When Robert asked me to show how to “print money,” I thought the 
easiest way to do it might be to make a very small trade (1,000 shares) 
and use it as an example that earns between $500 and $600 or so in 
cash flow. Even though this is the same process my hedge-fund friends 
apply to millions, we can actually scale it down to someone who just 
wants to generate their first few hundred dollars from somewhere other 
than a job. I will use some pictures to illustrate and also use the simple 
concept of hedging we discussed earlier in the chapter.
In the world of paper assets, an investor can choose to be a buyer of 
a contract and spend money, or be the seller of a contract and receive 
money. It’s actually a very straightforward concept. Buyers spend money. 
Sellers receive money. 
Robert often mentions the importance of taking a class to learn basic 
technical analysis. It’s the term we use to look at the ups and downs of 
markets. It’s one of the things we can get somewhat familiar with by 
playing the CASHFLOW 202 game.
Reprinted with permission

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Here we see how the market actually moved until expiration. 
Of course, when we are the buyer of insurance, it is an expense, and it brings 
the buyer no money unless our house burns down. The same is true with this 
put option example. So being the seller of an option is a common way that 
sophisticated investors make money. 
This is actually very similar to one of the ways Warren Buffett
has been making money in the market for a long time. As the
Wall Street Journal reported:
On a financial statement, we can draw a picture of that sale “that puts money 
in our pocket.” It would look something like this:
It’s interesting to note at this point that a lot of people criticized Robert for 
saying that “your house is not an asset” because it doesn’t put money in your 
pocket. I could see myself drawing similar criticism for placing a short stock, 
or a short option, in an asset column. So be it. The fact is, they produce 
income. On your brokerage statement, it might look something like the 
picture below. Notice that the adjusted cost is zero, so the adjusted return is 
infinite (or undefined) when the option expires. 
While it can be difficult to predict the direction the market will go, finding 
a range in which it is likely to reside for a short time—be it up, down, or 
sideways—is much easier, in my opinion.