February 23, 2023

JF3094: How to Play the Odds and Avoid the Mirage | Passive Investor Tips ft. Travis Watts


Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.

We’re taught to invest in the stock market, hold for the long term, diversify in index funds and mutual funds, etc. — convictions that perpetuate the “buy, hold, and pray” mindset.

In this episode, Travis shares how he shed these learned convictions through education, the importance of evaluating odds and market cycles to identify opportunities, and avoiding the get-rich-quick, gold-rush mentality when investing in real estate.

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Travis Watts: Welcome back, Best Ever listeners, to another episode of Passive Investor Tips. I'm your, host Travis Watts. Today's episode is how to play the odds and avoid the mirage. Disclaimers as always, never financial advice, not telling you or anyone else what to do; educational purposes only. With that top of mind, let's go ahead and dive in.

The first thing I want to say is a strong conviction that's based on your own beliefs can actually be your downfall. Now, that's a very packed sentence, and I want to unpack that for you. So when I first started investing, believe it or not, it was actually in the stock market. This was leading up to 2008 and what would become the great recession, and I had some money saved up for college and miscellaneous from jobs I had been doing, and I had 100% of my investable portfolio in mutual funds, with the help of a financial advisor and my parents, who initially set up that account for college purposes. And what's funny is we were all taught the same convictions; it probably started with that financial advisor led to my parents, which got instilled into me, and those convictions were that you invest in the stock market, you hold for the long-term, you diversify in index funds and mutual funds, and you don't sell during down markets, and you dollar-cost average. These were all of our beliefs and convictions, until I started doing my own self education on investing and looking at things like real estate and alternative assets, and the whole world that's available to us in terms of investing, and this really started to change my convictions.

See, I've always been fascinated with this idea that you could multiply your money without having to work a job. And I think that's because work was never fun to me growing up. Work was certainly the grind. And that wasn't only my own experience, that was watching my parents struggle with small businesses that they owned, and trying to work up the corporate ladder... And for me, it was always mowing lawns, and having paper routes, and detailing cars, and working in oil and gas... I was doing these things 100% for the money and 0% for the fulfillment or for purpose.

So I think to myself today, what if I had held on to those strong convictions about investing in the stock market and working really hard at a job and just putting in more and more overtime, where would I be today? If I had to guess, I would say I'd probably be very burned out, number one, I would probably have lower investment yield than what I ended up getting, because I didn't put enough attention on investing, and quite frankly, I probably wouldn't even have an interest in investing, because my belief was "Work really hard and hand your money over to a financial advisor and let Wall Street just do their thing, and buy, hold and pray." So one key is to question your convictions.

Alright, so that's the intro and the mindset here, the framing for this episode. Now I want to dive into the actual title here, "How to play the odds and avoid the mirage." Let's talk about the odds. So back to the story really quick - I ended up pulling out of the stock market in 2007, after reading the book Rich Dad Prophecy by Robert Kiyosaki. And the takeaway was just the biggest stock market crash in history is coming. So something - if you follow Robert Kiyosaki has been saying for a very long time, and he says it very often, year to year really... But at that time, I had no other perspective, and it scared me to death, and I thought, "Okay, this is basically all of my money. This is all my net worth, and I don't want to squander it. This is my college savings." So I ended up going into cash. Now, I wasn't trying to time the market; what I was doing was trying to do more learning and research to find some asset or some investment that was more stable and predictable, and didn't have all the volatility that may or may not come in the near future with the market. And I think most importantly, even at that young age, I was looking for something that produced passive income, because I also got very fascinated with the idea that if you had enough passive income, you didn't have to work for, that you didn't have to have a job, or that you didn't have to go to work... And again, that was a big pain point for me back when. So I wasn't quite ready to dive into the world of real estate, I wasn't prepared, I wasn't educated; I quite frankly didn't have enough money to really dive in the way I wanted to, so I sat in cash for a period of time, and this is where my learning and education really started to unfold in terms of investing and finances.

So this is the first time I started considering the odds - and I'll give you an example; I remember pulling up the Forbes 400 list, or maybe back then it was called something else, the Forbes 500... This is basically the wealthiest people in America, and it's their net worth. And what's cool about the Forbes list - if you pull up the individuals, it'll show you which category they made their money in. And to no surprise, at least to me, the number one category about how people got wealthy was finance and investments.

Break: [00:06:33.23]

Travis Watts: I also remember reading from various sources that something like 90% of millionaires owned some type of investment real estate. And now zooming forward a few years, I went to go work for one of the largest brokerage firms in the United States, and I remember learning about market cycles and what impact that has. In other words, there's odds to "Are you investing after the stock market's just ran up really strong for 10 years straight? Well, the odds are it's going to have a correction or a recession in the near future, so that may not be the best time to dive in." And also started looking at "What is the best time to dive in?" and usually it's when people are fleeing the market and everybody's selling and everything's crashing and the market's down 30%, 40%, 50%. This is where people get wealthy.

And the reason I ended up leaving the Wall Street world, so to speak, years later, was that real estate fundamentals just made sense to me; it just clicked. There's some things that click in life. I remember when I was younger taking guitar lessons, and I could not do it, man. I could not play one chord, it just didn't make any sense. And then I started playing drums, and from day one I was playing; I could probably do two or three beats on day number one, and it just clicked.

Some other things I really liked about real estate when I was doing it on my own in the single family space is you can buy a distressed property at a discount, you can negotiate terms, you can force appreciation into a property... These are things you can't do with a publicly-traded stock. You don't have the [unintelligible 00:09:01.10] them. You might be able to buy at a discount from time to time, but there's nothing that you can directly do to add value or income to a particular stock, unless you're working in the company. With real estate there's tax advantages that you can reap, there's the ability to use leverage or debt and have a mortgage, and there's my personal favorite, the ability to collect monthly passive income, which is probably what I was looking for the most outside of something being a little more stable, consistent and predictable.

But I digress from real estate... The point is to look at the odds, to look at market cycles, to understand what you're investing in, and why, and not just to throw money at the wall your whole life, and hope that it always works out. It's kind of like playing blackjack. If you look up the statistics on your odds when playing blackjack in a casino, it's a 42% chance for a win. What that means is that the house or the casino wins the game over the long-term, at least statistically speaking.

And that brings me to the second point I want to make in this episode, which is avoid the mirage. And what the mirage is - it's like get rich quick, let's say. It's the California gold rush; it's investing in penny stocks that might go up 1000s of percentage points, or something like that. It's playing the lottery, it's gambling in casinos, it's moving to Los Angeles thinking you're gonna get famous, it's multi-level marketing schemes... And the list goes on and on. These are mostly high risk, high return, but statistically speaking, it usually doesn't work out for most people. Sure, some people have made money doing these things, but you have to consider the odds. Are the odds in your favor.

And I'd like to end this episode on something kind of unique and interesting. I was just reading -- it comes from the Journal of Roman Studies. It's volume 67. This was published in 1977. But this is essentially about Ancient Rome, nearly 2000 years ago... And I'm gonna put this up on the screen for you and read the first couple sentences here. And the title is "The rental market in early Imperial Rome." "In Rome of the early empire, most of the residential population lived in rented apartments. Only the privileged few could afford single-family dwellings."

My friends, multifamily apartments have been around for 1000s of years. It is a tried and true way to build wealth. Sure, there's risks. Sure, there's downsides. Sure, it's not the perfect investment all the time, in every situation. But you guys, it's also not a mirage. It's also not the latest and greatest newest trend that people are trying to chase and get rich on. It's not a get rich quick scheme. It is simply a human necessity.

So I'm gonna leave you with that to think about here for the week. You're listening to Passive Investor Tips. I'm Travis Watts; I hope you've found some value in this short episode. As always, let's connect on social media; you can always reach out to me if I can be a mentor or resource for you along your investing journey. Travis [at] AshcroftCapital.com. Bigger Pockets, LinkedIn, Instagram, Facebook. Have a best ever week, everybody, and we'll see you in the next episode.

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