Have you or someone you know fallen into the “crypto” craze?
Do you know what you’re doing, or are you rolling the dice with your hard earned money?
I ask because too many people today have no idea what they are investing in.
They are just following hot investing trends with the hopes of striking it big.
Warren Buffett, the world's most successful investor, does the opposite.
When you ask Warren Buffett what his secret to successful investing is, he holds his hands together to form a circle.
“Do you see this? This right here is my circle of competence. Anytime I have a new investing opportunity, I ask myself if it is within my circle of competence. Do I understand it? If the answer is no, then I don’t invest”
During the 90’s, the “Dotcom boom” made a lot of investors very rich. Internet stocks were killing it.
Warren famously missed out on all of those opportunities.
In fact, he did it on purpose. He didn’t understand internet companies, so he simply didn’t invest.
Yet, he still did OK. Warren is currently the third richest man in the world, only 8 billion behind Gates and 5 billion behind Jeff Bezos of Amazon.
Do you think we should take advice from our buddies, or a man who built a fortune worth 80 billion dollars on the back of wise, disciplined investing strategies?
Like Warren, you also don’t need to jump on every flashy opportunity in order to be successful.
In fact, you shouldn’t. It’s too risky.
The formula for successful investing is
Opportunity + Competence = Success
Nothing is a good idea just because your buddy says it is, or you see it in the news. Those are opportunities, but without competence to ANALYZE those opportunities, you have no way of knowing if it’s a smart investment or not.
Then, if you don’t have the competence to invest in those opportunities to produce a safe, predictable return, then you are just rolling the dice.
Yes, you could get lucky. It happens all the time. The opportunity could work out for you, without you really knowing anything about it.
But, if you’re wrong, what happens?
You lose money.
You make backwards progress.
You violate Warren Buffett’s #1 rule:
Never Lose Money.
People ask me all the time “Brian, is real estate a good investment?”
My reply: “I don’t know, do you know anything about real estate investing?
“Well what about stocks? Are stocks a good investment?”
“Well, how good are you at investing in stocks?”
Do you see the point?
The asset class that you choose to invest in has MUCH LESS to do with your success than your knowledge OF the asset class and how to invest in it to produce a return.
With stocks, you can make money when the stock goes up or when the stock goes down (by betting against it, called “shorting” the stock).
You don’t just buy things and cross your fingers, hoping they go up. You learn the asset class inside and out, how to invest in it, and then you can make money in a myriad of ways.
Why does every dinner conversation (especially involving men) always gravitate towards money and investing?
Because we want more of it. We want to “figure out” the game of money and have more money than we’ll ever need. We want to feel SECURE.
The recipe for figuring out money is as follows:
1) earn a decent income
2) live as far below your means as possible (creating space between your income and your expenses) so you can invest the difference
3) pick preferably ONE asset class and really learn it inside and out. Learn how to invest in that asset class in a predictable way so that you get a good return every time.
Also remember that how you invest should fit your your lifestyle goals.
Investments like stocks and Bitcoin don’t put off cashflow like real estate does. Stocks pay dividends but you have to own a ton of shares to see any real money.
Bitcoin could make you rich, but you have to sell it (or, since it’s an accepted currency, spend it) in order to actually dip into your wealth. You have to dip into your earnings to have anything to spend.
Many people choose real estate because it puts off spendable cashflow each month while keeping your principal investment (the equity in the house) safe and untouched.
On the flip side, buying stocks and currencies is less involved than buying real estate. To buy houses, you need to assemble and communicate with a team of people (like realtors, lenders, property managers, etc) to help you succeed. Buying stocks and currencies is more passive.
So if you love what you do for a living, and just want to earn money and invest it, then those types of asset classes might be a better fit for you. IF you really know what you are doing.
I chose to put Bitcoin in the title of this because it’s the current flavor of the month. I don’t actually think it’s a bad investment. I can’t possibly think that. Let me explain.
I know nothing about Bitcoin. If I were to comment on Bitcoin as being either good OR bad I’d be contradicting my entire argument. I am aware that Bitcoin is an opportunity right now (possibly a powerful opportunity), but I don’t have any competence to go along with it.
Opportunity + No Competence = Rolling the Dice
I don’t understand the cryptocurrency market. I’ve never proactively learned a thing about it.
Why, you ask? Because I’ve already mastered a different type of opportunity, investing in single family rental properties. I can get those investments to give me a safe, predictable return over and over again.
I don’t need anything else to invest in. I’m done.
In the comments down below, let me know:
Your favorite asset class to invest in
Whether or not you are competent in that niche
Also, If you want to learn how I invest in single family rentals to produce cashflow and FREEDOM, join me on our next weekly live training class for FREE!
Grab your seat here:
Remember that most good things don’t come easy. You gotta put in the work. But then, when you succeed, you feel much better about it, because you earned it!