Kind: captions
Language: en
[Music]
rise Sati welcome back to the show
thanks for having me dude I'm excited as
always what are some of the biggest lies
that society and parents tell us that
ends up keeping people broke and
breaking up
relationships we're told that investing
has to be complicated that you have to
be some genius looking at a screen with
these numbers like PE ratios running
through it all day that's not true we
are told that you have to buy a house
because buying a house is always the
best financial investment that's not
always true and we're told that when it
gets to a relationship oh there's so
many lies in a relationship some of them
are uh he's a spender she's a saver or
I'm not the money person my partner
takes care of that and we accept that
and that leads to a lot of disasters in
relationship ship so the problem with
money is that we're told all these
things and because we don't really
understand how it works we just accept
it it's like the way I accept my car I
don't know how it works I just put the
key in and turn it on that's all I need
to know but money isn't like a car it
cuts across everything in our life
that's why I think it's so important
that we understand it so how do people
begin to figure out how to think about
investing how to get out of what I think
you call money
propaganda and because because as you
well know because you and I have been
discussing this now for years uh I've
been going on my own journey in fact
because of you I'm now going to stop
saying that I'm terrible at investing
I'm getting way better I'll be very
honest in large part because of the show
and so I've got to sit across from
people like you a lot uh but also
putting it into action and having now
enough time under my belt to see what
works what doesn't the emotional side of
it which right now seems to be the
biggest problem that people face is to
your point either they're buying into
propaganda or they're just the emotion
carries them away in the Euphoria or
they panic when Things fall so how do
people begin to tease that out and
really get their head right about money
and investing you know it's interesting
that by the time people turn 40 the
number one thing they're worried about
is money and yet the vast majority of
people have never read a single book on
Personal Finance think about that they
will uh believe what any random person
on some crazy subreddit tells them and I
read all those subreddits not for stock
tips just for entertainment I go don't
do this they'll wa listen to podcasts
which can be better but you're not sure
how to tell if it's good or not they'll
do everything but read a good book on
Personal Finance now I'm not just
talking my book here because I have my
own book there's a lot of great books on
money so if you want to become confident
with money you have to be competent
that's step one you have to be able to
speak the basic language of money and
it's actually not that complicated it's
fun you start to realize oh my gosh
compound interest works this way so if I
put a dollar in today it's worth way
more later okay that's we all kind of
get that but when I show people a
calculator of you're 32 years old if you
put this much a month then this is how
much you'll have if you put that much
you'll have that much more it's super
counter Inu
um I'll give you an
example if you pay a financial adviser
1% doesn't sound like a lot ah 1% as
long as I don't have to worry about my
money over the course of your life that
will take 28% of your returns out of
your pocket and into your financial this
is why I don't like investing so that'll
be the next thing I have to get over so
now SC to admit that I'm I'm getting
good at this but I don't like it why
because it is
the fact I know that that fact is true
but that is so counterintuitive my brain
cannot handle that 1% compounding
becomes 28% like it doesn't sense it
breaks my brain so I accept it but it's
so counterintuitive and I think that's
why a lot of people struggle with this
the good news is the punchline ends up
becoming really basic like just do it
slowly over time and we'll certainly get
to that but what I I want to help people
start thinking about money in a
different way now The Big Break through
for me and this may be something that
frustrates a lot of people in terms of
the way that I interview and because
it's how I have to understand things so
I need to know what is money because if
I can build the logic up if from like
the most base layer then okay now that I
really understand the nature of money I
can predict things once I can predict
things then I can move intelligently
okay well they're probably people who
are much better at the definitions and
history of money I want to get into that
today what what I want to get to is so
if you laid out the the lies that people
get sucked into yeah what are those core
tenants that for the person who doesn't
want to do it like I do it which is like
understand the most foundational thing
in Bill Brick by Brick over three years
and oh okay now I finally get where this
goes what are just like yeah I don't
want to talk about it I don't want to
read a book yeah give me some core
simple tenants but why they work so
compounding is one problem so 1% seems
small but when that stuff compounds it's
one * 1 Time 1 time it just like you get
that result sorry it's not actually one
time one times one it's whatever that
number is times
itself okay but here's another one um in
most parts of life if you spend more
time on it you get better results
cooking to some extent Fitness uh
certainly time with your partner or your
children
in money that is not true when you see
people tinkering around with their
portfolio and trading they actually tend
to have way worse returns than somebody
who puts it in a lowcost index fund and
doesn't check into it for 10 years
there's a famous story it's not clear if
it's true or not about Fidelity
investors so Fidelity you know it's fine
firm whatever there were people who had
forgotten about their money and they had
died so the money was just sitting in an
account just compounding growing the PE
of course these people were gone they
were dead so they didn't log into their
account and the money kept growing and
they compared the returns of
those dead investors from the average
investor the average investor gets only
a fraction of the returns that you and I
can get in an index fund and anybody
watching can get in an index fund why
because the average investor is
undisciplined they are emotional they
log in they get scared they see the news
they sell they they call their friend
they hear about some land deal they do
all this crazy stuff and they lose their
returns so the counterintuitive thing
with investing is the more time you
spend often you get worse results so set
it set it with the right plan and then
forget it okay so I think we need to
drill into some of why that works so a
dead investor is invest
in that scenario I'm going to guess that
they're in index funds like you said
yeah and what is an index fund it's just
collection it's a collection of stocks
it is Diversified usually there are
index funds that are just in healthare
or Tech but when I talk about index
funds I'm talking about like the S&P 500
index funds it's well Diversified and
because it's a index it's just matching
the market that means there's not
somebody in some expensive suit who's
charging
1% it's just a computer your fees will
be something like
0.1% which is very inexpensive over your
life and just so that I understand how
this works so the S&P 500 is the
standards and pores they're looking at
stocks that meet a certain requirement
they have the biggest market cap I don't
know what their actual requirement is
but you're at that point you're
basically betting on the American
economy correct RIT large like as broad
as you can manage it and as a company
falls off the S&P 500 a new company
comes on so all of that the managing
just is like there is a criteria if you
meet the criteria you're in the S&P 500
if you don't meet the criteria you're
not and therefore I assume as a company
falls off you're effectively then
selling that and buying the new one that
comes in here's what people are thinking
as they hear this they go well that
sounds fine S&P 500 but what if I have
my own idea aide of what I should invest
in what if I want to pick my own
companies that's the first thing again
in normal life we want control that's
what we're taught in America we want to
take control Manifest Destiny these are
deep deeply embedded cultural values but
when you apply those same values to
investing they can often be
counterproductive so people you're
really hedging they're counterproductive
in
99.999999 yeah yeah of course you can
pick you can pick an amazing stock and
outperform the market you can but the
odds of that consistently are virtually
zero correct and I want people to hear
what you just said because it is so
counterintuitive like if I go I'm gonna
pick a restaurant I know what's a good
restaurant I'm not just going to look at
the reviews I know and I go odds are
pretty good I'll pick something that I
like with stocks you cannot predict it
over a long period of time so there are
people on my Twitter they go REM Index
Fund is fine for like people who don't
know that much but I do my research I do
my research and I invested heavily in
Tech I go okay and Tech has been booming
for many years but guess what happened
Tech came down hard and this is what
happens Industries go up and when
they're going up you know there'll be
companies like Facebook when it started
it was inconceivable that there would
ever be a day where Facebook wouldn't be
the biggest social network for us that
day has come right now it's hard that
for us to imagine that there's a day
where Amazon will not be the biggest and
most convenient company that day will
come as well history has shown that and
so what Savvy investors do is they do
not try to make individual bets in their
portfolio they just acknowledge I have
no idea I'm going to bet on an index
some are going to win some are going to
lose but over the course of time we know
that the index S&P 500 tends to return
about 7 to 8% that's after inflation by
the way I'm saying that because these
days everybody wants to talk about
inflation that's like the I'm getting
two questions right now inflation and
ibonds ibonds I don't even know what
that is let me tell you the fascinating
thing is there's no real reason that the
average person should be asking me about
ibonds it is s it's basically a a type
of investment that you can get like
pretty high returns for a bond and
particularly in High Times of inflation
and it's like it can be considered to be
a good investment here's why people are
asking cuz it's all over the
news and I go why are you asking me this
like do you have a diversified portfolio
what's your asset allocation do you
understand how much guilt-free spending
you have those are big questions and
ibond is like me coming into this house
and saying Tom what finish did you use
on your door knob like it's just so
esoteric it's it misses the point and so
this is why individual investors get
poor returns they are fickle whatever's
in the news they start chasing it and so
what Savvy investors do is they have a
plan they understand the plan it's a
simple plan counterintuitively simple
and then they don't deviate from it one
of the reasons that I think that I've
achieved what I've achieved is I don't
trust myself I don't trust my emotions I
don't trust my ability to read the
future and so because of that I'm
constantly seeking disconfirming
evidence here at the company we have
something comes from Ray Delio the
largest hedge fund manager in the world
and it's called principles the doc
collector and what it is I just had one
of my employees write me today and he
was he didn't want to he had critical
feedback for me and he didn't want to
put it in in the dock collector because
it's public and people can see it and I
was like no no no please like I want
people to see because he was like I'm
just convinced that people are going to
get punished in some way for giving
critical feedback and I'm like they're
not because the reason that we structure
it this way the reason that I want you
to tell me what you think I'm doing
wrong is what if you're right and now if
I can get my ego out of the way I just
got more powerful so does it sting when
you realize you're doing something wrong
yeah I guess a little bit but I over
time have accumulated so many pieces of
information that I can then leverage to
tremendous success but it had to start
with me being very skeptical of myself
understanding how people trick
themselves into thinking they know
something and and my big fear that over
time you're going to hold me accountable
to this every time you see me that
people's thinking calcifies into Dogma
yes and so they think they've got it
they think they have everything figured
out because it's worked and so what I'm
trying to do is as I get older I know
the tendency is to go towards I'm like
look look at what I've achieved I know
everything totally and then you die well
it's a gift that you give all of us me
coming here and getting to go back and
forth with you and
everybody watching and listening to this
because what you do is hard it's hard to
say I don't trust myself and the more
successful you are like you are easier
it is to say no you know what I actually
do know that and so I don't need to
listen to anybody so I think it's a real
gift you're giving us and it's
interesting that's not hard for me it is
out of almost Panic really yeah so Panic
that what what will happen that I will
make the wrong move I know how easy it
is to be wrong and how hard it is to be
right and how hard it is to be right
consistently and on top of that dude
other people are smart and so not
everybody obviously there are morons and
so you really you really do have to get
good at filtering so in fact the guy
that gave me critical feedback today my
punchline was I think you're wrong but
I'm like this is a data point and so if
I keep getting this data point from a
bunch of people I'm going to start to be
like maybe he wasn't wrong I I called
them seagulls seagulls you know there's
this old story about Sailors and they
would look for Birds when they were
sailing to know that they were close to
shore that's a clue you're close to
Shore and so when I hear a seagull like
somebody telling like they used to tell
me um I used toh hear that I was skinny
like and I heard it one time I I was a
really skinny guy and I heard it two
times and I heard it three times and I
was like oh I must be really skinny I
didn't realize it until I heard these
seagulls and I started listening to him
and I hear him in business and I hear
him with the economy and in my
relationship
and I don't always listen to him because
sometimes I'm just like whatever but
sometimes I'm like whoa what what's
going on there I got to lean in and try
to figure that out so that's it's very
interesting that we both have that uh
principle yeah I wonder sometimes so
looking at the way that people invest
they invest like life has taught them
that they're right all the time and I'm
like whoa has life just taught you a
different lesson like when I look at
investing I think oh cliches become
cliches for a reason people say that
you're not going to beat the market Ray
Delo is screaming from the rooftops I
have $100 million a year spend in AI I'm
trading in milliseconds you're going to
try to go up against me and 1,00 people
in my company all like doing things with
AI in the fraction of a second with
gazillions of dollars what on Earth
makes you think you're going to beat me
how do people look at that fact though
and still do it they don't remember when
I told you they do but they lose money I
know but listen remember when I told you
they haven't even read a single book
about money yes they haven't read that
they they have heard Ray on some podcast
for 5 seconds but they never actually
cracked his book they don't even
understand the basic language of money
is it arrogance though like what makes
CU we'll get to people that just bury
their head in the sand but what makes
the person think that they're going to
beat the market are they they're a
gambler it's actually the worst
combination it's a little bit of
arrogance but it's ignorance as well so
ignorance and arrogance it's basically
like being a teenager you're like God
these teenagers are so dumb but they're
not dumb we were not dumb maybe we were
at some points but it was a combination
of ignorance and arrogance I have uh
ridden in my car a thousand times
without the seat belt so why do I need a
seat Bel nothing bad's happened until it
does and when you don't have that
experience of being scorched in your
portfolio it's really easy to say oh my
gosh it all goes up and we should
remember the Dynamics of Manas okay I uh
like in the last few
years the market has gone up in a huge
way and if you notice the entrance of
new
investors they come and they people Wall
Street pejoratively calls them the dumb
money so most of the dumb money comes
towards the end of a Mania
because uh your taxi driver is talking
about how much money he made in crypto
the news is talking about how
everybody's getting getting rich and if
there's one thing people in America
hate it's your friend who's stupider
than you who got richer than you we just
can't accept it so we go you know what
I'm getting in I'm opening up a Robin
Hood account you should never open a
Robin Hood account and they get in this
they don't understand what's going on
but all they know is the number goes up
so they start pushing some buttons they
take 2,000 bucks or 5,000 bucks whatever
they have and they go I'm going to be
you rich and if you were to stop them
right there you go hey I have a question
are you trying to get rich quick what do
you think they would say no yeah they
would say no no no no no no I'm not
trying to get rich quick but everybody's
making money in crypto and like I did my
research I went on three different
subreddits and I put my money in here
and look and this is the craziest thing
of all it actually does go up for a
while so there is no disconfirming
evidence until the day their car runs
into a tree and they're not wearing a
seat belt now most people actually do
not do this I don't want to scare people
away from investing investing is
actually not this roller coaster of
emotions you know what it is for me it's
like watching paint dry I spend one hour
per month on my money I don't it's like
asking me um how do I feel about uh the
two two different pairs of underwear I
have one's black and one's gray I I
don't care it's a commodity it's the
same thing to me that's investing
because once you really understand
it is so simple it's counterintuitively
simple you almost feel like what's the
catch but just like in Fitness just like
in food just like in relationships it's
counterintuitively simple when you
really understand it with relationships
people want to feel hurt they want to
feel appreciated they want time quality
time do that you get the basics right
and that's why I always encourage the
85% solution with your money get 85% of
the way there and then move on you do
not have to be perfect to be successful
all right so I want to go into the
detail of what people are combating in
their own minds and then what success
looks like for what you call a Savvy
investor but I think
is uh a wise investor maybe okay so uh
you many people think that they know
better yeah many people are prone to
Mania yes everybody thinks that Buy Low
sell High will be easy but the reason
Buy Low so high has become a thing is
because the actual preponderance of
activity is the reverse they buy High
panic and sell low the reason they buy
high is the Euphoria I I had never paid
attention to the markets before until
like 2020 through 2021 and I watched it
felt awesome it was so fun at money
everywhere it was just it was rad and
everybody was like yeah you can make
money everybody felt like a genius I've
heard you say that before and so in the
Euphoria you feel dumb if you don't do
something yes so now you've both got the
excitement and the fear of the Dumber
guy than me is making more money than me
and I'm an [ __ ] for not doing it like
that I wouldn't actually be able to look
my wife in the eye or my parents in the
eye or my friends in the eye or my kids
in the eye that I didn't take advantage
of this moment I had my money manager
was like yeah Tom what are you doing
you're missing out on historic gains
because I so paranoid I was like this
can't go up forever so I was like I'm
going to be cautious at this moment so
to finish that thought you're more
likely to buy high and sell low the
reason that you buy high is the Euphoria
the reason that you sell low is the
panic when it starts to drop because
you're not realizing the way that you've
gotten wealthy the way that you advise
people to get wealthy which is really
about time and so the reason that you're
not worried about volatility the reason
that you aren't panicking is one you're
investing at the index level so you're
betting on a huge group of things that
just meet some criteria S&P 500 it meets
that criteria and while there will be
short-term volatility short-term meaning
a year two years three years eh no big
deal s years 15 years 20 years we're
going to be
winning but most people can't do that
honestly everything you just said is a
true master class in investing I have to
say and I was here a year ago and we
were not having this level of discussion
it is really impressive thank it's
amazing what you just said takes a
lifetime to learn the truth is hitting
your career goals is not easy you have
to be willing to go the extra mile to
stand out and do hard things better than
anybody else but there are 10 steps I
want to take you through that will 100x
your efficiency so you can crush your
goals and get back more time into your
day you'll not only get control your
time you'll learn how to use that
momentum to take on your next big goal
to help you do this I've created a list
of the 10 most impactful things that any
High achiever needs to dominate and you
can download it for free by clicking the
link in today's description all right my
friend back to today's
episode just to comment about you're not
concerned about volatility in the short
term because you have a 25-year Horizon
that there are thousands of books that
have been written about just that
concept so for everybody everything you
just said is deep and usually it will
take people making their own mistakes to
come to the conclusion you just said but
it gets me excited to hear that because
if you're saying that and everybody
watching and listening is hearing you
and if they if they even pick up on one
thing they go you know what I don't want
to buy High I want to avoid Manas or I'm
going to check out this Index Fund thing
what is an index fund that sounds pretty
good that is gamechanging it can change
your entire socioeconomic trajectory I
talk to these folks all the time they're
instagramming me they're sending me
emails and they go I was the first kid
in my family to go to college um I used
your material I landed a job I started
investing I do the 401K match and I am
now 31 and I have
$140,000 in my accounts and I already
know that I'm going to be a millionaire
by this month of this year and I go this
is amazing they have changed the
trajectory of their lives and their
family's lives it's amazing it's
incredible so now getting into the
psychology of why I think I'm going to
make a hypothesis you don't like Robin
Hood yeah they give you credit which
people need to be very thoughtful and if
the one piece of advice I would give
people is supposedly rich people know
how to use leverage and all that as a
rich person I'm just telling you right
now I don't [ __ ] with leverage thank you
like that is terrifying that's how you
get yourself into trouble okay can we
just talk about this before the
Robinhood slam so people have a lot of
misconceptions about rich people it
drives me insane so when you get rich
people to actually share openly it is
revelatory so I wrote a PO a series of
tweets about how everybody thinks rich
people have these secret Investments
that they're getting like 10 times the
returns of normal index funds I go
listen I'm rich I have access to all
this stuff
and I can tell you right now yes I do
have access to more things than the
average person like private Equity some
Venture Capital certainly private
Investments uh companies but guess what
they usually do not outperform an index
fund and so can they yes we both know
investors I know you've invested there's
a lot of investors who have picked a
company it went Bonkers and they're
incredibly wealthy amazing but that
doesn't happen every day and that's very
unpredictable so this enraged people it
enraged them because oddly enough we
have a cultural belief here that the
rich get richer which is true but
primarily because of tax reasons and
therefore if RIT is telling me that the
rich don't actually have access to these
secret Investments then the entire
Paradigm for them falls apart I can tell
you if you look at private Equity return
like if you go look first of all most
people don't even know what private
Equity is but let's just say you get
access to a PE fund the way PE funds
Market their returns they're like we get
like 22% irr but in a tiny little
asterisk on page 62 of the prospectus
they will say amount return to the
investor is something like 5% very often
these super sophisticated Investments
when once you factor in fees and taxes
underperform a simple Vanguard S&P 500
Index Fund 80 plus% of VC funds fail to
beat the market 80% of active investors
on Wall Street these are highly paid
investors fail to beat the market so
what I'm saying is there's this big myth
that the rich have access to these
secret Investments now they do have
access to more Investments but that
doesn't mean they are better and I can
tell you as someone who has access to
these I've basically decided I
prioritize simplicity I want to wake up
in the morning and not have a gillion
things around me Simplicity and I know
for my goals a simple set of index funds
sure maybe a few different individual
Investments you know some angel stuff
maybe but like tiny you peel off a
certain percentage to play with exactly
just like going to the casino you go
okay I'm gonna do a hundred bucks and
that's it cool you managed your risk the
problem is like when I talk to these
crypto Bros and they go REM you're such
an old guy who wants 7% returns that's
so boring I go okay so you're into
Bitcoin that's cool uh what percentage
of your portfolio is in Bitcoin they go
portfolio what's that that's their first
comment and then I I'll suggest to
people hey if you want to invest in
speculative assets okay but why don't we
limit it to maybe like 2% or 5% and they
just look at me like Diversified
portfolio why would I diversify and they
then they use words that really
sophisticated investor do the only
problem is they don't understand them
they go it's concentration concentration
is how you make your money
diversification how you preserve it I go
do you know what the [ __ ] you are
talking about you have $300 in your
portfolio and you're talking about
concentration risk some people cannot be
helped that's okay with me I do what I
can but the people who are watching and
improving for them there are a lot of
simple ways that you can make a lot of
money it just takes time here's where it
gets tricky
they're not wrong and I forget who said
diversification Is for Suckers it was
somebody huge yeah and they're right but
only if you get it right the odds of you
getting it right oh my God they're
vanishingly Slim So This is it's the
same reason that people chase money or
fame there there really is utility to it
so money is incredibly powerful and it's
why people can't stop themselves from
trying to get rich even though I how
many people have to tell you that if
you're chasing money you're going to end
up emotionally bankrupt it's just
ruthless they don't believe you though
they don't they do it they have to do it
themselves and make the mistake but the
reason that that won't go away is
because money actually is powerful the
reason that the idea of the crypto bro
whether it's crypto or anything else is
that when it hits for somebody it really
hits man and it is transformational and
they tell everybody about it and it's
for that person it's probably real like
and so everybody chases that one it's
like somebody becoming a movie star you
go I want that if that if Tom Cruz sits
here and says well let me actually
explain the statistics of how many
people were in my class and how I'm the
only one who everyone's like whatever
Tom I just I want to be like you and
so it's okay if that's what you want to
do then God Bless but you need to
understand the game you are playing some
people go I am going to give my entire
life to try be Tom
Cruz okay do you understand the
tradeoffs and maybe it will work one in
a million one in 10 million okay but
what if it doesn't work so this is a
common thing for entrepreneurs as well I
have a lot of entrepreneur friends and
we talk about what are we doing with our
business and our money and you wouldn't
believe it but very few of them invest
in the market and I go what do you mean
you don't invest in the market you're
rich you have a lot of money put let's
put it to work and they go dude they
look at me like dude I can make way more
putting it in my business than putting
it in the market which may be true in
the short term but I go you're right you
should probably invest aggressively I
mean your business is great I have
nothing to say about your business but I
also say how many businesses do you know
that were around for 60 years seers even
they went out like big companies go out
I say why take the risk of going from
here to here why not take some of your
cash flow FL and diversify it it makes
you sleep at night if something
catastrophic happens to you or your
business you and your family are taken
care of like why not and that that is a
productive conversation because I think
business owners they kind of get risk
they think about risk a little
differently um honestly you know I don't
want to scare people with money where it
gets most exciting for me is people who
go okay I'm ready to invest I just don't
understand it those that is an amazing
conversation because in the course of
couple of hours you can change the way
somebody thinks about money if they're
scared of money if they talk about it
with their partner with money and those
are the people that are ready to make a
change all right so let's get into the
person that they decide okay cool I am
going to invest but what I think we're
up against because I think they're going
to be drawn to the robin hoods of the
world they're going to be drawn to Wall
Street bets yeah my hypothesis is that
there really is something about um
gaining mechanics gambling that is so
enticing and so fun and so innate to The
Human Condition yeah that people cannot
help themselves so as let's use Robin
Hood as an example I actually don't know
them very well but I know enough that I
think I understand why you don't like
them but tell me where I go as yeah they
they have gamified um gambling by doing
what speculating when you when you first
of all where where is it uh advertised
where is it talked about in the height
of the crypto boom it was talked about
all over the crypto rooms you don't
really want to be in those rooms if you
are a long-term investor you do not want
to be uh but okay that's where their
marketing was happening fine when you
sign up for an account and log in they
give you free money they go pick pick
something part scar here's a free token
that is not how investing should be done
and do you have to pay that money back
is it a loan or is it you can lose it
and it doesn't matter yeah I think free
um this is long-term investing it should
be it's not it should not be speculating
because individual MERS should not be
speculating and how do you speculate
because the part that scares me about
Robin Hood isn't even that okay they're
encouraging you to pick your own stocks
and make you think you're fancy and
you're going to end up losing your money
yeah it's that they get into puts calls
options where you have infinite downside
correct that's where people commit
suicide that's the one that freaks me
out and and things like that have
happened it's um quite
dangerous that's a rarity you know um
they do offer it and in my opinion the
individual investor should not be doing
it I don't just to give you an example
why am I going to take so much risk to
make a little bit more money than I even
need why I I'm making enough and I have
a longtime Horizon I'm
good for the individual investor who's
just opening an account they've never
invested they come in it's like going
into a candy store except it's candy
laced with drugs it's not the kind of
thing I would never put my family
members on Robin Hood what's the drug in
the
scenario uh just picking stocks well
that is a minor drug that's like um
what's worse than caffeine but it's like
a drug speed I I'm not the drug guy I
don't know I don't know anything about
drugs I was like doing spelling bees
when I was a kid not drugs uh better for
you yeah
um the risks are number one you start
thinking that investing is picking
individual Investments that's individual
stocks that crypto should be your entire
portfolio there's a huge risk number two
all the advanced things that really you
should not be using as an individual
investor call options trading there's no
reason for it uh and worst of all once
you get into this world this Zeitgeist
and you're of course going to search
Robin Hood investing tips you're now
surround it's like you've gone down the
rabbit hole and this is your world it's
like you took a wrong turn on the
internet I have a personal theory that
people who signed up for Robin Hood
during the crypto boom will have lower
lifetime returns than the average
Vanguard investor why because if you get
used to 300 or even 3,000% returns for
two or three or four years how are you
ever going to be satisfied with a 7%
annualized return it's impossible and so
this is important it's like making a
decision in your adolescence that can
affect the rest of your life and I know
you said that you believe a lot of
people are subject to um manipulation or
being gamified and things like that I
agree that is very true and it's
exploitative my my view is there are
also a lot of people who want simple
investing they're willing to put in the
time they don't want uh whizbang fancy
stuff they just want to know how basic
investing really works they want to
understand their money psychology they
want to feel good about money those are
the people I talk
to okay so tell me a little bit more
about leverage so that's the part about
Robin Hood that scares me is that people
can get themselves in a situation so I
certainly understand you're what you're
telling people to do invest in an index
fund put it in wait a long time just
dollar cost averag and keep adding money
and don't touch it yeah we know though
that people get excited they like the
gambling mechanics so what are the
things that they should be on alert for
how how does leverage enter it what is
leverage how do people get themselves in
trouble would you ever use leverage with
the S&P 500 no way okay Leverage is
basically um it's it's putting put a
turbocharger on your Investments now if
that sounds awesome it sounds really
good however
however people forget that leverage
works on the way up but it also works on
the way down so when things are good and
you use leverage they can be really good
you're borrowing money you're applying
that towards your Investments and it's
like oh my gosh it's appreciating
fantastic of course you need to manage
your
leverage uh you need to sell you need to
do all these very complicated things
that the average person on the street
has no idea about where it goes really
bad is when things start to
turn there's all these famous stories
about people who had tons of money and
then one day they are wiped out those
stories terrify me and they also confuse
me
because if you have a million dollars
or10 million or however much is a
lot you have to play a different game
you have to
decide what what is risk to me like when
I was 22 and I was not making that much
money and I was starting my first
company I was like I'll work really hard
my risk my downside is low because I
live in a house where my rent is 800
bucks a month and like I'll go with my
friends at Google and eat lunch there
and take my backpack pack and stuff it
with food to take home like great my
risk is much higher now if I lost it you
know I got used to these sweaters man
what am I going to go back to wearing
the old sweaters I used to no I have a
family uh I have a lifestyle that I like
and I have Investments and plans for how
I use my money I have a team I have
employees so my risk tolerance changes
okay when you're using leverage if you
are really really really Savvy and I
mean
um probably savier than
99.5% of
investors leverage can make sense many
borrow money to
buy some yeah some type of security it
could be a house even you know people
use leverage for their house and that's
great a lot of people point to that as a
great reason for Real Estate
outperforming true on the other hand
when prices go down as they are now
leverage can be your enemy so if you put
a little bit of money down and the price
of the house goes down just by this you
can be wiped out why how how does that
happen I have to show you the math I
don't have it handy but imagine what is
the metaphor here that I can share with
you it's like putting on um a a heavy
weight vest and and I get launched into
the sky I'm gonna go faster because I
have this weight vest it's just like
forcing me up there any physicist
watching this please don't write me
about how I don't understand gravity
you're right but when you turn and come
down that weight V is going to make you
come
down way faster than you ordinarily
would have um that's the best example I
can give let's step out of analogy and
go into just the reality because in in
the housing market I think the only way
that Leverage is going to bite you in
the ass is the following so Leverage is
literally just borrowing money so you
have the leverage of somebody else's
money so they give you money let's say
you put 10% down but you buy the whole
house so if the house costs $100,000 you
put $10,000 down you now owe $90,000
when the house is worth more than the
amount that you owe all is well because
you could sell the house and get that
money and you can pay the bank where you
get into trouble is if your house is
worth less then you owe on it yes and
your payment goes up let's say because
interest rates change you had an arm an
adjustable rate mortgage and so now you
can no longer make your payments you
can't make your payments now the bank is
sweating you saying hey you better give
us our money back you can't sell the
house at least not for what you owe and
so boom you end up losing your house
yeah that's basically it although the
interest rate doesn't necessarily need
to reset there are a lot of reasons why
you can be in a bad position but that's
a you can't make your payment is the
punch line because if you can make your
payment it doesn't matter the price of
your house or the value of your house
could go down down down down down and it
wouldn't matter uh technically yes uh
there are some psychological wrinkles
people hate to keep making payments on
something when they know it's worth less
than they paid that is a minor
psychological difference but nothing is
forcing correct nothing ising but now I
want to talk about using leverage to
invest in crypto or the stock market
because here's where people get
absolutely
obliterated so you're using the value
let's just use Bitcoin you're using the
value of Bitcoin yeah as The Leverage to
get the loan so hey you have Bitcoin
that's worth $100,000 we're going to
give you $50,000 loan use the uh Bitcoin
as the collateral so you then use that
to buy more Bitcoin the problem is if
the value of the Bitcoin drops enough
the second that value equals how much
you owe them they force liquidate you to
make sure that they don't lose any money
yeah so they're like word thank you they
sell they get all of it you go from
having something to having nothing in an
instant known as a force liquidation
yeah wait has this happened to you no
but I couldn't understand how people
were getting in trouble I was like I
what do you mean a liquidation so
because I was used to thinking like a
house and I'm like as long as you can
make a payment what's the problem but
they're not making a payment it's just
the collateralization so the second that
it drops to matching then they're like
we can't afford this dropping anymore we
have to sell to get our USD back so they
force you to sell I didn't know that was
a thing yeah so thankfully because
here's my thing dude going back to the
first thing I said I do not trust myself
I'm going to be very trepidacious so so
even now with as much money as I have
dude a I don't have leverage on anything
but the only time I would ever even
consider doing something on Leverage is
if I understood that thing and had
proven to myself that I had performance
over long periods of time completely I
love that you say that we have a similar
philosophy you know there's a spectrum
of how risk seeking you are with money
and you know people follow these
somewhat
predictable moves on the Spectrum when
you're young you'll take all the risk in
the world when you have a little Capital
you maybe get a little bit less risky um
that's normal but I remember a mentor of
mine many years ago uh he was he was a
pretty successful Silicon Valley
investor so we were out for lunch and he
was talking we're talking about money
and he said R I have a no debt policy in
my family and I thought to I was young I
thought to myself wow must be nice not
have to take any loans buy a car cash I
wasn't even thinking about a house but
he has a no debt
policy now that I've gotten older I've
grown my own business and personal
wealth I actually admire him even more
because as someone who has a lot of
money he could easily leverage himself
to buy a house buy a car all kinds of
stuff but he doesn't he knows what
enough is so out of all my friends well
let me ask you do you have enough
enough no okay we can get into why I
want to know why so I've actually heard
you say and people say this all the time
you want to talk about a money lie that
drives me crazy uh you've got hundreds
of millions of dollars you could never
spend it what dude I could drop easily
half a billion dollars just making one
film and marketing it so to me it's like
bro I need so much money to do what I'm
trying to do so even though in the
average world I'm freakishly wealthy
with what I'm trying to build I feel
hamstrung by money all the time wow so
all I think about is how do we generate
more Revenue so that we can keep
investing in the business so but I don't
fall prey to that I don't actually have
enough you know what I mean like for
what I'm trying to build I don't have
enough but if I stop having fun H then I
just stop and go be rich okay so I'm not
I don't trap myself in in uh foolish
beliefs we could really derail into
frame of reference right now which I
actually think is the ultimate thing
that you point out for people yeah but
to get into frame of R maybe later but
well first of all I just say I like your
answer a lot um I only know one other
person besides me who says he has enough
he's a friend of mine he also studied
all my money stuff years years ago and
he's done very well and I asked him
recently do you have enough yes didn't
miss a beat I was stunned I was like
meeting a unicorn I said what you have
you're the only person I've ever heard
say that besides me and we talked about
it he understands money he understands
compounding he knows how much he has
today and he knows if he does nothing
else he just leaves that turkey in the
oven and just lets it sit it's going to
turn into a huge amount of money he
knows how to spend it how to leverage it
leverage meaning not use leverage but
how to um make use of his Mone use of it
yeah
so I don't mind if most people would not
answer yes to that question I don't mind
it your answer is great it's on a far
end of the spectrum but I do want people
to know what is enough and if I ask
somebody what is I asked them this all
the time in my podcast and their answer
is uh a million bucks or three million
bucks I go okay how'd you come up with
that and they go well you know I just I
feel like that's like a good amount like
I'll feel safe when I have that and I go
can I tell you something they go yeah I
go you genuinely believe that when you
have $2.5 million in the bank you're
going to feel safe it's never going to
happen the way you feel about money is
highly uncorrelated with how much you've
got in the bank and I I've talked to
people on the podcast who have they
believe they need
$100,000 to feel safe a million 10
million 15 million and without fail when
they get there they're still worried
they're still worried because the two
are independent so we have to understand
first of all what does a million dollars
mean how much can you generate from that
if you do nothing and you want to keep
that money safe how much can you turn
that into in terms of cash flow that's
just basic understanding things like the
4% rule but then we need to understand
the emotional psychological part of
money that's super neglected especially
among techy guys you know they're over
here on making their spreadsheets and in
the fire Community they go oh I need my
Trinity rule I need to do my
spreadsheets I go man you're going to go
the rest of your life optimizing your
spreadsheet and you're never going to
actually feel good about money and that
has been the focus of my work for the
last few years it's very interesting I
always find myself drawn to what's the
psychology of that
person because the fire person they're
not focused on the same thing that you
are correct but they're getting off on
like really scrimping and scraping and
like it that has become the game for
them and I remember when I was really
broke and I wanted to spend money and I
didn't have money to spend and I'm not
sure what gave me the the idea but this
ended up working amazingly what if I
gamified saving what if I put all of my
dopamine in that basket so that as I
watch my bank balance go up even though
it was going up from like $115 to
$127 could I get a dopamine spike out of
that and become obsessive about saving
and it worked it was awesome you still
do that no not at all how'd you turn it
off I got really
rich but so I mean this is like and okay
so there there are things about my brain
that I am really grateful for and
there's things about my brain that
really piss me off but I am hyper
malleable and I know how to change
myself so when I needed to save I was
like intuitively I understood I need to
make this a game because then I'll be
attracted to that I didn't I wouldn't
have said oh this is about dopamine but
I knew it'll be fun that was the only
way I could explain it I'll make this
fun so I knew how to make that fun but
the whole point of me getting into
business and doing all this was so that
I could build the studio so so I once I
got there then it just became a question
of what do I want to use the money for
which I know is a big thing that you
talk about but I want to talk about
safety for a second because as you were
saying that I realized I will never
having money in the bank will never make
me feel safe the O there's literally no
amount of money because I know how easy
it is to spend on something big or take
a big risk and it's all gone the thing
that makes me feel safe is that I know
how to make money and so my skill set
makes me feel impervious so I don't the
only fear I actually do have one fear
around losing my money and that's it
will it will really not make me look
cool to my wife if you lose money if I
lost money yeah so that would I would
not feel studly in front of my wife and
so that makes me really bummed out the
thought of that happening but because I
know I can rebuild yeah dude honestly
like I sometimes
fantasize about I lose starting it all
over but like not I can't even start my
own company I have to go in somebody
else's company do you know how fast I
would get promoted through that [ __ ]
company the ma that would be amazing yes
if should it all go away I will come
knock give me a call but yeah uh okay so
that's amazing the fact
that when I talk to you it's so
interesting I hear similar things that I
hear from other people but your
reasoning and your level of reasoning is
just completely different from others it
makes perfect sense you know you are as
successful as you are and you think
about this stuff every single day it's
like a joy to talk to you most people
are scared of not having enough most
people worry about money they believe
that a certain number will make them
feel safe in your case you worry about
money a little bit you don't feel safe
with money those two things are the same
but you're you're impervious to uh that
type of risk CU you know know how to
make money and you acknowledge it might
be embarrassing you know for you and
your life would definitely be
embarrassing what I want people to do is
to go deeper than just saying um I don't
feel safe with money I want people to go
deeper than saying I worry about money I
and I this is what I do I