and doing pretty well for myself,
I found the secret to becoming an
Literally that's it.
All right, that's gonna do it for today.
Thanks for watching.
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Okay, I suppose I'll save you a decade of reading
and just give away
that help me make millions in my 20s.
So settle back and enjoy a
trip through investing memory lane.
Now, I don't remember much about the year 2000,
but I know it was the year the dot com bubble went..
When I started investing in 2012,
that bubble felt like ancient history.
Right alongside Japan, the South Sea, and Tulips.
They all felt like the same exact event
this wild game of musical chairs where everyone's having fun
until the music stops, causing a panic for survival.
Then I read a book called The Intelligent Investor,
and this completely opened my eyes.
It said, "The stock investor is neither right nor
wrong because others agreed or disagreed with him.
He's right because his facts and analysis are right."
This made so much sense, I needed to learn more.
And I proceeded to have my mind blown again,
when I found out that there's always
five stages to an economic bubble.
Your fate and fortune come down to
when you join every single time.
And it's pretty predictable.
Get in early and you'll probably make money in a bubble.
The Nasdaq 582% before falling by three fourth.
Get in late and you know what happens.
And there's tip number one.
If you miss an opportunity, move on to the next one.
There will always be something else.
But how do you know if the
bubble is getting close to popping?
Well, you can't predict the exact day.
You can see the warning signs.
As soon as everyone you know is investing in that thing,
and every news site is suspiciously positive,
the music is about to stop, and you better find a chair.
And don't get me wrong, not
everything is a bubble either.
However, the best profits still
come to the early birds.
In 2000, I could have bought Apple stock for pennies,
but I didn't
because I was five and my funds were pretty limited.
But also, the Apple of 2000 was
not the Apple we know today.
It was far from a sure bet.
So how do you increase your odds of getting in early
and finding that company that could be the next Apple?
This is tip number two.
Investing in the early stages of a company
is the riskiest time possible, but that risk is
dramatically reduced if you can answer
in one easy to understand sentence,
Think about it.
So often, when you look at an exciting new startup,
their landing page is just filled with corporate
jargon talking about how they'll disrupt health and human
happiness through the capture of synergistic partnerships.
But what does it actually do?
The best businesses are easy to understand.
They solve an important problem, make money doing it,
and have the ability to do it for a long time.
Let's not overthink investing.
Now, what if I told you
you're actually the problem here?
Startups use that confusing jargon
for a very specific reason.
We eat that s**t up.
It captures our imagination and makes us think
it's worth more than it really is.
When we don't understand something, we're more
likely to think it's valuable, and we're
less likely to see the issues.
I was lucky to learn this concept really early on,
because I've always been a big fan of
how Warren Buffett creates these mental models for investing.
And one that really stuck with me is
the idea of your circle of competence.
Basically, Buffett believes it's vitally important to
understand not only what you know, but
also what you don't know.
Here's a direct quote from him.
So you're looking at the next big biotech startup
aiming to revolutionize the way we see.
They're aptly named iBall.
Sounds interesting, but should you invest?
Unless you're an expert in biology or optometry,
it's probably best to pass on this one.
And this might feel cynical, but
I promise you it's not.
The first goal of investing is
to preserve what you have.
The second goal is to make money on your money.
So this is tip number three,
The simple truth is, investing in that which you
don't understand is a high risk activity, because you're
not only taking on risk, but you don't even
fully understand what your risks are.
Now, this isn't meant to hold you back.
This is actually meant to propel you forward.
Maybe you think bionic eyeballs really are the
next billion dollar industry, and that's fine.
But now is the time to start studying.
You better become an expert on the topic.
You better find an answer to
every question you might have.
Get robot eyeballs within your very own
circle of competence by brute force.
However, here's the thing.
Everything is far more complicated than you think.
Becoming a true expert could easily take years.
So what do you do?
It feels a bit hopeless.
Last thing you want to do is spend six
years becoming an expert only to find out android
eyeballs kind of suck as a business model.
So you do what the pros do
It takes far less time to get a company that
sells coffee or general merchandise in your circle of competence.
And here's the thing, there are plenty of
great investment opportunities in the simple stuff,
so just make it easier on yourself.
Now, what if there's a new thing that you really want to
invest in but you don't have the time to be a pro?
I totally get it, and I got you covered.
I did this back in 2013.
I had just heard of Bitcoin, but
I didn't really know much about it.
Besides, it was some kind of internet money.
People used to buy drugs online.
I stuck to the basic principles of investing.
I tried to figure out why it should have any value.
What service does this provide?
Why will it grow in value?
What does it offer that other investments don't?
I could answer some of those questions,
but my understanding was still limited.
And I was acutely aware of
hype and scams within investing.
I read,
It's an obvious lesson, but one frequently ignored.
What if it's a scam or a flop?
Finally, I read the Bitcoin white paper and that explained
why this tech is needed and how it works.
It made sense, but I was still no expert on the topic.
I liked the idea, but I knew
there was so much more to learn.
So what did I do?
I just bought a small amount, a few hundred dollars.
And by the way, back then, the easiest way
to buy Bitcoin is through this service called Local Bitcoins,
where you'd have to meet someone in person
and give them cash for Bitcoin, seriously.
So why did I buy it before
it was within my circle of competence.
I knew in this case that there
was so much yet to learn.
But by buying a small amount, this would create the
incentive I needed to dive in and learn even more.
And worst case, I would be out a few
hundred bucks, not the end of the world.
And this is tip number four.
But what if you're all in on investment?
You've done the research, you're a pro, and the
odds of you winning are vastly in your favor.
It's extremely tempting to use
leverage borrowing money to invest.
I mean, why wouldn't I want to
make more money on a sure bet?
My first experience with leverage personally really opened my eyes
was when I purchased my first home at 21.
My moving and storage business was growing rapidly.
We are now in four different states, close to 100 employees,
and it was time to buy some property.
I ended up purchasing the house that I was renting.
I bought it for $365,000.
All in, my total upfront cost was just $23,000 down.
That meant my purchasing power just increased 15X,
meaning if my property went up just 1% in
value, my cash on cash return was 15%.
That was mind blowing to me and a little bit scary.
Now, luckily, in this case, it worked out
that house is now worth over $750,000, meaning
the return on my down payment is about
1700% on an investment that I lived in.
And now cash flows, that's a mind blowing return.
So I needed to learn more about this leverage stuff,
and I came to the conclusion it's one of the
most powerful forces in the universe, both good and bad.
People like Tony Robbins and John D. Rockefeller
have talked about the immense power
of leverage, while Warren Buffett warns using
it unwisely is extremely dangerous.
When you combine ignorance and leverage,
you get some pretty interesting results.
A mortgage is the safest type of
leverage because house prices tend to rise.
But it can still go wrong, especially
when interest rates are spiraling upwards.
Now, what about leverage for scalping,
day trading or shorting?
The profit and, more importantly, the loss is amplified massively.
Many of the world's largest successes,
as well as the most catastrophic failures, are
thanks in part to leverage.
So this is tip number five
Most successful people use it, but it's also the only
way to lose more than you have in investing.
Now, most of the tips we talked
about involve taking action of some kind.
But what if there's such thing as doing too much?
My brain likes to tell me that the
more I do, the better off I'll be.
And in most cases, that's a pretty good motto.
It works for the gym.
It works for my own businesses.
But investing is different.
When I first got into investing, I wanted to
just buy everything that was interesting to me.
The more the merrier.
Bigger portfolio, right?
But I came to realize that if I was investing because
of some deep knowledge on the topic, I had to keep
up with that topic because things are constantly changing.
One bad news event may mean you
need to reevaluate your entire strategy.
If I'm investing in 25 different things, how
can I possibly keep track of all of
them on top of my personal ventures?
It's just not possible.
Famous investors like Warren Buffett and Jim O'Shaughnessy
mention the benefits of doing nothing more often.
It sounds boring, and I guess it is.
But I'd rather be bored than broke.
And here's what really drove this point home for me,
again, from Warren Buffett.
He's so good.
He said, Imagine you have a punch
card with 20 spots on it.
These 20 spots represent all the investments
you can make in a lifetime. That's it.
Under those rules, you'd really think carefully about
what you did, and you'd be forced to
load up on what you really thought about.
You'd do so much better.
So this is tip number six.
Now, I hear you pushing back on this,
saying, what about diversification?
Doesn't that mean less risk?
And of course, yes, but also no.
Diversifying is a tried and trusted way of managing risk,
especially if you don't have much time.
Something like an index fund
is great to diversify into.
And I'm not saying go all in on one thing either.
I mean, let's say you have
all your money in Amazon stock.
Then one day, Jeff Bezos rips off his
mask to reveal he's actually Ming the Merciless.
It doesn't even have to be that good
of a mask to pull it off.
But Ming Bezos announces that e-commerce was part
of his fiendish plan to enslave humanity.
That stock is going to tank.
No one can save you from getting wiped out. No one.
Now, just 20% of your portfolio is in Amazon.
The unveiling of this ruthless tyrant still stings,
but it's not going to destroy you.
Diversifying stops you from putting all
your eggs in one basket. So there's a balance.
And here's the key don't diversify for the sake of it.
Charlie Munger has an excellent quote on this.
Each investment has to make sense on its own.
And better yet, if all of your investments fit together,
this could mean choosing assets that are negatively
correlated or at least not closely correlated.
Think gold and tech stocks or crypto and
commodity stocks or beanie babies and literally anything else,
If you chase the highest returns,
Luna, Celsius and meme coins are where
you might have put everything in 2022.
Not good.
So this brings us to tip number seven.
Your portfolio should be built on investments that solve problems
and make sense for the time, filled with things that
you truly understand at a level of risk you can accept,
and are diversified, but not so much so that
you're taking action for the sake of taking action.
So I'd like to thank you for watching.
I'm Max Maher, and I hope you have a profitable day.