Actively Passive Show host Travis Watts has dedicated his career to investing. After years of working in investor relations, reading hundreds of books from expert authors, listening to podcasts, and attending seminars, he’s compiled the top five fundamental tips he has heard again and again from expert investors:
- Focus on the fundamentals. People often confuse investing with speculating, Travis says. They also try to time markets, but no one can consistently predict what will happen in the long term. He argues that it’s best to be a long-term investor who focuses on the fundamentals rather than speculation.
- You can’t be good at everything. It’s important to double down on what is working for you. Travis recommends the 80/20 rule when it comes to risk-taking: He allocates 80% of his personal investment portfolio into what he knows and understands the best, then allocates the other 20% experimentally into things he’s still learning and grasping.
- Learn, learn, and learn some more. You have to continually educate yourself in order to produce long-term success. As Warren Buffet has said, “The more you learn, the more you earn.” Whether it’s books, podcasts, YouTube videos, seminars, or through mentorship, never stop self-educating.
- Not all your investments are going to be amazing. You’re not always going to hit it big with every investment you make. You’re occasionally going to lose money, and sometimes you will miss opportunities, Travis says. That’s just part of the unpredictability of life. “You have power over your mind — not outside events. Realize this, and you will find strength.” —Marcus Aurelius
- Don’t unlearn old tricks. Don’t forfeit the old-school principles that got you where you are today. Of course, it’s great to learn new things, but it’s also important to remember and continue to practice what made you successful in the first place.
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Travis Watts: Welcome back, Best Ever listeners, to another episode of The Actively Passive Investing Show. I'm your host, Travis Watts. Today's episode is very exciting. It is not clickbait, it is genuinely five investing tips that I firmly believe can help lead you to a better life.
The overarching theme here is there are a lot of people who genuinely know how to invest their money and there are an awful lot of people out there that are claiming to know the investing game. With all the noise in social media out there today, it's really tough to decipher the two and to know who to listen to. One of the things I've shared many times on the show is that I myself am not a guru here, I am not the end-all-be-all. What I came up with years and years ago is when I wanted to learn something like investing or something more specific like multifamily investing, I would go out and I would listen to the so-called experts. I would find 5 to 10 individuals that I felt were doing things successfully, and I would try to find the commonalities between all of these people. So I wouldn't so much tune in to the differences of opinion, but I would find what all of them agree upon.
That's really the basis of this episode, our five fundamental tips to investing that not just 5 or 10 people agree upon, but I compiled this list from years and years of working in investor relations, number one, with one of the largest brokerage firms in the United States and private equity groups in the real estate space, so there's that perspective. There's also the perspective that I've read hundreds of books from expert authors on these topics, and I've listened to - oh my god, I don't even know how many podcasts, and attended so many seminars and things like that. This episode encompasses the five tips I find are most congruent among thousands and thousands of different articles and sources and individuals.
Years ago, I dedicated my life to investing. I dedicated my career, I should say, not my life, that sounds pretty dramatic, but I kind of did, in a sense. I recognize not everyone has the time to go read hundreds of books or fly around the nation or the world doing seminars and conferences, and all this kind of stuff, getting mentors and getting coaches. I'm willing to do all of that stuff on my own terms, but then my way of giving back is to take all of that information which is very complex and long-winded and simplify it for you. Just kind of extract, here are five things I think are most practical from 13 years. That's what this episode is, not to be too long-winded on the intro.
The goal is twofold, it's to help you succeed, it's to make your life easier, simple as that. I encourage you, on this particular episode, to write this information down, get a pen and paper, pull out your notes under your phone or your computer, and seriously, at least jot down these five things. Go ahead, I'll give you a second right now to hit pause, grab the pen and paper, grab the phone, grab the computer, and then we'll get started. All right, I trust at this point that you are going to dedicate this to memory or write it down.
Number one is focusing on the fundamentals. A lot of people think of trading as buy-low sell-high, flipping houses, day trading stocks, and making money quickly. While some of these strategies can work, and certainly at certain points in the market cycle, it is not a long-term strategy, unfortunately. House flippers, for example, got crushed in 2008 and 2009, and crypto traders over the last six months, or probably a lot of them have lost money when it peaked out, you get the point, there was a massive decline.
I was just reading an article by Citi A.M. this morning and it said the average stock investor now today in 2022 has a lower account balance than when they first started investing. That is insane, that is crazy. But a big reason for that is that people confuse investing with speculating. I made an actively passive episode on this, it was probably six months ago, give or take, you might go back and search for that if you have an interest in diving deeper into this topic.
The other thing is that people try to time markets. I talk a lot about how impossible it is to time markets even when you use technical analysis. We've got this Russia-Ukraine invasion happening, you can't control what the Fed does, you can't control what the President says or does, you can't control people's tweets, things happen in the world, hurricanes and natural disasters. As much as we like to try to think now's a good time, or it's not going to fall any further, or we're going to fall another 20%, nobody knows. Nobody can be consistent long-term with that so just quit trying is the best advice, quit trying to time markets.
The best investors in this world are long-term investors that focus on the fundamentals, this is the point I want to drive home. You've got Warren Buffett, Carl Icahn, Benjamin Graham, Peter Lynch, and George Soros, so many names, I could go on and on. All of these are fundamental investors, it doesn't matter if they invest in private business, the stock market, real estate, whatever it is, they are fundamental investors. The takeaway here is to invest and not speculate, and obviously, pay attention to the fundamentals, that's the most important part and the key element to invest in.
All right, key tip number two is that you can't be good at everything. I'm being flooded right now in my head with all these quotes and sayings. You can have anything you want but you can't have everything you want, or if you try to be good at everything then you'll be good at nothing. Simply put, you really can't be good at everything. I talk about this also, as an investor when I'm looking to partner with firms and the particular firm is all over the place. "Hey, we do a little bit of self-storage, a little bit of mobile home park, a little bit of multifamily, a little bit of development."
The fact is they're probably not very good at any of that stuff and they're making pivots trying to find their niche and trying to figure out what does work because obviously, something's not working, or why make the pivot in the first place? You really need to double down and specialize in what you know and understand. This is why I allocate 80% of my personal investment portfolio to the things that I know and understand the best. I allocate about 20% to what I call experimental, which are things that I'm still learning and grasping. I definitely want the diversification piece to the puzzle, but I also don't want to be a one-trick pony.
For example, let's say I was a house flipper. I don't want to just know how to flip houses but know nothing else about investing, or eventually, I'm going to get crushed, as I mentioned, in a down cycle. My favorite quote of all time was from my mentor. I already mentioned it here on this episode, but it's "Double down on what's working." This is the key component. Everybody's different by the way, but you really want to understand your strengths, your interests, your passions, and all these things. You just want to double down on what makes common sense to you, common sense is not common to everybody. Double down what's working for you with what I mentioned in the first step, focused on the fundamentals as well.
Break: [00:10:17] - [00:12:13]
Travis Watts: Key step number three is learn, learn, learn some more, you got to self-educate. I already mentioned that I'm an avid learner, I'm an avid reader. You don't have to be as hardcore and extreme as I am but hopefully that's why you're tuned in to an episode like this that helps just consolidate it.
If you guys remember, it may still be around, when I was going to college there was something called Sparknotes. If you had the task of "Hey, go read this 500-page book," it was a bit daunting and overwhelming. You could get the Sparknotes from Barnes and Noble which was like 50 pages and it just basically gave you the key points and the highlights to the book so that you could save hours and hours, potentially weeks of your time. That's what I tried to be for people basically, that's my methodology.
The quote here that comes to mind is that the more you learn the more you earn. Continuing education is always the key to success. Again, I like to talk a lot about successful people. If you look at Warren Buffett, he reads between 500 to 1000 pages per day, this is what he's doing with the majority of his time in his later years, really throughout his career. He probably read a little bit less when he was younger and more active in the business of Berkshire Hathaway. But Bill Gates reads 50 books a year, which was crazy. That was basically one of my most aggressive goals.
Only in one year of my life I said, "I'm going to read 52 books a year," and I did it. That's intense. I don't know how this guy does it but he's obviously an avid educator and reader. Mark Zuckerberg has been quoted as saying that he reads one book every two weeks, so 24 books a year. I think the average CEO reads about 12 books a year. The point is, you just have to educate, whether it's books, podcasts, YouTube, whatever, seminars, mentors, you've just got to keep the ball rolling and moving to be successful long-term.
Key tip number four is that not all your investments are going to be amazing. This has a lot to do with just perspective and not being delusional that markets have cycles. You know [bleep 00:14:16] happens sometimes, quite frankly. You're not always going to hit it big with every single investment you make. Just because you made 15% last year on your investments doesn't mean you're going to make 15% this year. There are going to be great opportunities that slip through your hands, you're not going to be able to capture every single opportunity, and you're not going to be able to ride the wave on every single trend that pops up.
Again, to go back to kind of some successful investors. Warren Buffett talks about missing out on Google and Amazon in their early days. He didn't see it and those were mega, mega, mega-companies as we know, those could have been, quite frankly, two of the best investments he ever made in his portfolio, but he missed out on those for whatever reason. You're going to miss out on a lot of opportunities throughout your life and you're occasionally going to lose money, more than likely.
I lost a ton of money early on in a Ponzi scheme. It was a private equity deal, it was non-real estate related, but it was through this investment group I was in. We thought we were doing something really cool, creative, and unique, and it turns out, it was a big bust. Just lost tens of thousands of dollars, we still don't even know how much we lost because it's still ongoing litigation and it’s pending. It's pretty nuts, but it happens, you guys, it happens. Be prepared for some losses. Just be a realist when you're an investor. Nobody's perfect, nobody makes money 100% of the time.
I stole a quote that goes along with this, it's from Marcus Aurelius. He says, "You have the power over your mind, not outside events. Realize this and you will find strength." Again, we can't control political risks in government and the Fed and natural disasters. We're just going to have to make our best decisions and we're going to have to mentally deal with that as we go along. Here's the way I see it, kind of final thoughts on this topic. When it comes to investing, don't have FOMO, which is fear of missing out. Don't look back and regret things. You don't need to win every single time, as I mentioned, you just need to have the majority win, and that's an overall positive return. That's the way I look at it in its simplest form.
The fifth investor tip is don't unlearn old tricks. Don't forget the old-school principles that got you to where you are today. Focus on the fundamentals. Michael Jordan's a great example of this. During Michael Jordan's prime, he was, quite frankly, the best basketball player that there was when he was playing with the Chicago Bulls. He was notoriously known at practices for only focusing on the fundamentals. He would sit there and dribble, he would sit there and pass, he would sit there and just do some easy layup shots, and things like that. But why is he so focused on just the simple things that he's already the best at? Well, there's a lesson there to be learned.
He could have taken all this time before a game to try a new trick and to try a new skill. But he didn't, he always went back to the fundamentals. If the best of the best, quite frankly, is focused on fundamentals and doubling down on what's working, why shouldn't you and I consider that as well? It's okay, of course, to learn new things. As I mentioned the 80/20 principle that I've adopted, it doesn't have to be that percentage for you, you do want to be a self-educator, you do want to keep growing, you do want to learn new things. But you don't want to forfeit what's already gotten you success and make a big pivot into something new, and then potentially lose everything by doing that.
Funny story on this. My wife and I, years ago, bought a house in Florida. Man, real estate has been my bread and butter for years and years. I knew that we got a great deal on this house, we bought an awesome house, it was newer-built within an awesome location. The fundamentals of the market were solid, we paid less for this house than the previous owner had paid from the builder. We were buying probably just under replacement costs at the time. I knew all of this because I had studied and done real estate so many times, this was like my 30th property or whatever it was. I knew the game and I knew what I was doing.
But this is an example of where I made this mistake and why I'm sharing it with you. After about six months of living in that home, I convinced my wife that it's too much house, it's just too nice of a place, we really don't need it, why are we paying all these bills, etc., etc. I said, "What we ought to do is move," this is six months into living in this home, "let's rent instead, and then let's take that home equity, that down payment that we had locked up in the house, and let's go invest it. Let's go do all these diversified investments."
We got on board together, we made that decision. I'll tell you, that home, in just the last two years has increased to about $225,000. If you look at that from the down payment that I had in that home, what I was trying to free up to use for investments, was about 175,000 as a down payment. What is that? A 128% return I think is what it was, over two years, or it was at 64% annualized return. Suffice it to say the investments I had made with that money have not done 64% annualized, I can tell you that with solid facts there. Lesson learned, I knew the fundamentals but I tried to pivot and do something different. I should have just stuck to my guns because I made the decision in the first place and knew what I was doing. I second-guessed myself.
On that note, I want to leave you guys with this final thought. If you have something that you want to do or accomplish in life, don't put it off until you're 90 years old. I'm an advocate for time freedom, I'm an advocate for building a lifestyle that you want to live on your terms by using passive income. That's been my approach, that's been my story. Most people wait their whole lives and it's always good intentions that, yeah, one day I'll do that trip and one day I'll vacation. But if there's really a goal or a mission that you want to accomplish, I encourage you to start on that now and not later, even if it's in small form. If you want to travel the world, for example, don't keep putting it off until "retirement", start taking an international trip once a year now, today, so at least you're getting some of that fulfillment along the way. It's never too early but it can sometimes be too late, so put your plan into action today.
Thank you, guys, for tuning in to today's Actively Passive Investing Show. I appreciate you guys so much. As always reach out on social media, LinkedIn, Facebook, Instagram, and joefairless.com, I'm always happy to be a resource for you. I will see you again in the next episode. Have a Best Ever week everybody.
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