July 21, 2022

JF2879: Speculating vs. Investing | 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.

In this episode, Travis explains the difference between being a speculator and being an investor and which strategy is more sustainable in the long term. 

 

1. Speculating vs. Investing

According to Travis, many people mistakenly think they’re investing when in reality, they’re actually speculating. An investor, he says, is a person or organization that puts money into financial plans, property, etc., with the expectation of receiving profit. Conversely, a speculator is a person who forms a theory or conjecture about a subject without firm evidence.

 

2. Collecting Firm Evidence

While all forms of investing entail an element of risk, an investor collects firm evidence to support their decisions. They can do this by researching the fundamentals of a company, reviewing price-to-earnings ratios, and examining cash flow statements to determine the health of the business they are considering investing in. When it comes to real estate, collecting firm evidence might involve looking at the cash flow the property is producing and its track record. 

As we head toward a recession, Travis notes that speculators aren’t faring well in the stock market. He predicts that real estate investors who have been aggressively underwriting without factoring in rising rates and higher exit cap rates will soon begin losing control — and possibly even properties. 

 

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3. Finding a Strategy that Works

It’s important to find your own investing strategy that works in the long term. “If you’re going to put in the time, energy, and effort to learn something at a professional level, you don’t want to have to be recreating the wheel every 5–10 years as assets go in market cycles,” Travis says. If you don’t adopt a strategy that works in up-trending, stagnant, and declining markets, you will inevitably end up losing money and having to pivot every time your strategy stops working.

Buy-and-hold, cash-flowing real estate is the one strategy that has worked well consistently for more than 100 years, Travis says. “If you’re investing for cash flow, you’re conservatively underwriting, and you’re in this for the long term and as a professional, you can withstand market volatility.” 

 

 

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