Billionaire Recession Advice: Stop Investing in THIS (2023)

Summary

• I've shifted my investment strategy due to changes in the economy, like inflation and market crashes.
• I realized keeping cash in the bank is equivalent to giving a low-interest loan to the bank, which isn't the best use of money.
• Banks usually pay around 0.1-1% interest on your money but can make more by lending it to the government or on mortgages.
• If a bank fails, your money is at risk unless it's FDIC insured, but even the FDIC is currently bankrupt.
• I discovered that U.S. Treasuries are a safer place for cash than banks, with better returns and the option to take loans against them.
• Initially, I invested in personal development, then the S&P 500, following Warren Buffett's example.
• Later, using a barbell strategy, I diversified into stocks and real estate, with my main wealth in private equity of the companies I own.
• I learned from Dave Ramsey and Graham Stephan that your investment should reflect your knowledge.
• I've seen that billionaires don't do many things, but they heavily invest in areas they understand well.
• I understood that most of my investing knowledge is not in real estate, but in service-based businesses, which is where I thrive.
• Warren Buffett's advice on S&P 500 is for those who lack expertise, but real gains are made when you have an unfair advantage in a particular field.
• Ultimately, I've gone back to focusing on what I know best, investing in private deals within my expertise, as it's "only risky if you don't know what you're doing."
• My final takeaway: Invest in yourself first, then in broad indexes, and when you're ready, heavily invest in your particular area of expertise to allow for wealth compounding.

Video

How To Take Action

I would suggest first focusing on self-improvement. Spend money and time on learning new skills, finding coaching, and attending workshops. This gives you the highest return because you're investing in your ability to earn more in the future.

After that, put your money into things like the S&P 500 index. This is a good move if you're still learning about investing. It's what smart people like Warren Buffett recommend for those who aren't investment pros yet.

But don't stop there. As you get smarter in your chosen field, start moving your money into areas where you have lots of knowledge. Like, if you know lots about houses, you might invest more in real estate. This is because you can make smarter choices when you understand your investments well.

Remember, don't keep too much cash in a regular bank. Banks use your money and pay you tiny interest. Instead, look into U.S. Treasuries. They are safer than banks and can pay you more. Plus, you can even get loans against them if you need to.

So, one step at a time: build your knowledge, start with broad investments like index funds, and when you're ready, invest big in the things you really know well. That's when you'll see your wealth start to grow a lot more. Keep focused on what you know best, and don't take big risks on stuff you don't understand. That way, investing isn't scary, it's just a smart way to use your money.

Quotes by Alex Hormozi

"It's only risky if you don't know what you're doing"

– Alex Hormozi

"The way you put your money has to shift because the economy has changed"

– Alex Hormozi

"If you've ever heard Warren Buffett or you heard people in the news say he has x billion dollars in cash or cash equivalents, he doesn't actually have it sitting in cash, he has it sitting in something else that's better"

– Alex Hormozi

"Invest in you"

– Alex Hormozi

"What I am good at is we're very good at service based businesses, that is where I thrive"

– Alex Hormozi

Full Transcript

it really changed my life and I hope it changes yours it's been a massive shift in the economy in 2022 and my investment thesis has changed I've taken all my cash out of Banks and I've put it somewhere else that's both safer and gets me a higher return the way you put your money has to shift because the economy has changed and at the very end of this video I'll tell you my entire investment strategy and what I have shifted towards now I'm 33 years old and I crossed 100 million dollars in net worth last year and much to my dismay there was no parade I'm still 2 000 times poorer than the richest man in the world no songs written about me let's talk most I have talked to many billionaires to try and figure out what my investment strategy was going to be to get from 100 million to a billion because the economy has changed things are priced differently there's inflationary pressures real estate is a is hanging on by a thread crypto is crashed stocks have crashed so before we can get into the investing part you have to understand what to actually do with the cash itself while you wait to make your moves what do you do with your cash if you've ever heard Warren Buffett or you heard people in the news say he has x billion dollars in cash or cash equivalents he doesn't actually have it sitting in cash he has it sitting in something else that's better and I'll explain what that is in a second I'm going to rewind and explain what actually putting cash into bank account means and why it's important in today's environment so when you put cash into a bank you're actually writing the bank alone to then loan your money and get something back people don't know this but you actually are a creditor of the bank so if a bank goes out of business they owe you money now what happens is the bank will do one of two things they will either loan money to the government by buying bonds now why do they do that because the likelihood risk that the government is going to be able to pay them back extremely high why because they can print the damn money and give it back to them or they will loan it out to people on mortgages and things like that they loan the money out again and they make more than they pay you and so right now if you look at your account they'll pay you between point one and one percent annually on your money boo that sucks they take your money for 0.1 percent a year and then they give it to the government and the government gives them four percent a year so they get 40 times what they pay you by giving the US government money now here's what's most important about debt when you loan people money there are two factors one is what are you going to get back which is the interest rate and the second is How likely are you going to get it the interest rate is if you've loan someone of money for a house and it's five percent or whatever then if you put 100 Grand and you get five thousand back and you get paid that for taking on risk now this is what's crazy and I didn't understand this when I was putting my money in the bank if the bank goes under you lose all your money outside of the FDIC insured amount the FDIC right now is completely bankrupt anyways and on top of that if it exceeds that amount you get stuck in the bankrupt company whoop-dee-doo what if there were a better alternative that was lower risk and had higher returns I just learned about this and the reason I always ignored it was because it looked boring and ugly what we decided to do before I tell you the big investment strategy that we've invested like the big money into we decided to take that money and buy U.S treasuries and you're like why would they do that because I'm not seeing treasuries as an investment vehicle I'm seeing it as a bank account who is more likely to go under Bank of America United States government Bank of America more likely to going who pays me more Bank of America U.S government U.S government on top of that you can take loans against treasuries for up to 80 percent of the value so if you get a hundred thousand dollars in treasuries and you get four thousand dollars a year in interest I could take a loan for up to eighty thousand dollars keep earning my interest and then put it somewhere else you're like why don't they talk about this they are happy to take your money and go make five percent on it and pay you point one that's the business why would they tell people my entire structure of Investments has changed over the last five years really last ten years the first chunk of my life was SME 500 I put all my excess cash into learning skills getting access to people coaching mentorships workshops Etc highest return investment I still have ever made today number two once I had more money than I could possibly reinvest in courses and coaching and whatnot I started applying it into the S P 500 because that's what Uncle Warren told me to do I figured if it worked for him would work for me the third phase came post sale all right so we sold three companies last year I talked to a bunch of different friends who were very very wealthy and one of them is a very good investor he outlined a strategy for me they called a barbell strategy which is I have stocks over here real estate over here very little between and then I just have my private equities of the companies that I own so I'd make money here and plowed into these two right with basically nothing in between here's the thing that you don't know in the last two years I've maybe made five Investments and those Investments represent in total maybe 10 of the cash that I have I didn't realize what the problem was until I saw a video from Dave Ramsey and before you cast judgment you really need to hear this out because it really changed my life and I hope it changes yours so I was watching a video where Graham Stefan was having Dave Ramsey analyze his Investment Portfolio and he said hey Dave don't you feel like I'm over indexed on real estate 80 plus percent of my net worth is in real estate deals Dave Ramsey gave one of the wisest responses that I've ever heard in investing and it changed my life he said well Graham if you put a big circle on the table and I'm Loosely paraphrasing and we had to say what percentage of your knowledge is real estate versus stocks and bonds and other stuff what would you say it is he said oh well I don't know 80 85 of what I know is really about real estate and he looked at him he was like well then that's a perfect distribution for you because it reflects your knowledge if we were going to put a portfolio together of your knowledge base it would be 80 real estate 20 stocks maybe so where you invest is what you know and so then he went on to say I have talked to many many billionaires probably far more than I have he said I've learned two things from them they don't do many things and the things they pick are things they understand and they do a lot of them they find something that they like and that they understand and that they're good at and they do it a lot and for whatever reason the combination of understanding that in the circle this is the slice of the pie that he knew and that the people were the richest in the world just pick one game or two games they know really well and they do a ton of those games is what changed my perspective my takeaway was not oh I should go have 85 percent of my portfolio be real estate because 85 of my knowledge on investing is not real estate and the reason I wasn't able to write checks for two years despite having this theoretical barbell strategy you know we had laid out with a friend of mine who's awesome investing is that that was his investment strategy was it Alex's investment strategy what are the things that I actually know it turns out not a lot what I am good at is we're very good at service based businesses that is where I thrive if I just write my money into deals there I could do that with my eyes closed and so I had a deal that came to me recently way bigger than any real estate deal that I've ever even thought about participating in I just looked at the guy and I was like I will write you an unlimited check how much do you want I understand that business this is something that I've spent my entire life doing and this is a Warren Buffett quote it's only risky if you don't know what you're doing and so if you don't know what you're doing the reason he gives the S P 500 advice is that you don't know what you're doing so just put it into 500 companies and you'll be okay but where you get the outsized returns is playing in a game where you have an unfair Advantage where you know more than everybody else does now I'm at a point where I feel pretty comfortable writing sizable checks into actual private deals I'm actually pretty risk-averse but in this world I know the risks and so I can name them and I can know where to look for them and I'm like oh this is appropriate risky if you don't know what you're doing step one invest in you step two invest access in indexes and then when you feel like you're good enough at your main game then you have the stockpile and you can deploy it and then that starts the compounding machine my investment strategy after all of this time has gone completely back to my business strategy which is singular Focus do the things you know do more do it better and keep doing that for an extended period of time and it would be unreasonable that you don't win