How I Lost $217,000 on A Day Trade & How I Trade Now

Summary

• I'm Alex Hormozi, and as someone who has built successful businesses, I want to discuss the importance of long-term versus short-term investing and share a costly mistake I made.
• A study by Fidelity or Charles Schwab revealed that the best investment returns were from people who didn't touch their accounts due to death or forgetting their password, highlighting the flaws in human judgment and the power of compounding.
• I recently made a $200,000 mistake by actively trading within my portfolio. I want to teach you through this error so you can avoid it.
• Most of my wealth (97%) is in stable investments; the remaining three to five percent is where I take calculated risks to satisfy my entrepreneurial drive.
• Actively trading can seem lucrative, but you compete against massive firms with more resources, and when you sell, the gains are taxed as regular income, not capital gains, significantly reducing the net amount you keep.
• An example: turning $100 into $200 through trading would leave you with $155 after taxes, whereas simply holding an investment with the same growth would leave you with $180 due to the lower capital gains tax.
• To match the after-tax amount of a long-term investment with active trading, you'd have to increase your $100 investment to $245 before taxes, demonstrating how inefficient active trading can be.
• By selling a well-performing asset within a year, I realized the tax implications hurt me financially when the asset value returned to its peak. Had I held it, I would've avoided higher taxes and kept more profits.
• We should emulate "smart people" who let their money grow untouched. Allocating a small percentage of your portfolio to speculative plays can help manage the urge to actively trade.
• Successful investors, like my friend who went from managing $5 million to $3.5 billion, often recommend finding a hobby and letting investments grow, mimicking the inadvertent strategy of those who outperform the market by inactivity.
• Take it from me, pretend you're a dead investor: let your money compound and save on taxes. This approach is not only smarter, but it will also save you from costly mistakes like the one I made.

Video

How To Take Action

I would suggest looking at the big picture when it comes to investing. Start by putting most of your money, like 97%, in stable, long-term investments. This is where you let your money grow without touching it. It's like the story of people who did the best—they just left their investments alone, some by accident, because they died or lost their passwords. This lets your money compound and you save on taxes too.

Now, if you get the urge to play with your money and take some risks, go ahead and set aside a small part (like 3 to 5 percent) for that. But remember it's like scratching an itch; it's not the main game plan. Trading can feel exciting, but it's often less profitable after tax. If you trade, you'll compete against big companies with lots of smart people who do this all day. It's tough to win that game.

Here's what you can do instead:

1. Put most of your money in long-term investments and just let it sit. Think of it like you're "dead" to it—no touching.
2. If you want to have fun or take a chance on a big gain, use only a little bit of your money.
3. Find a hobby or something else to do with your time. This way, you're not tempted to mess with your investments.

The math is clear: long-term investing often beats trading after taxes. So be smart, manage that itch to trade with just a small part of your money, and let the rest grow on its own. You'll likely end up with more money and save on taxes, just like the smart investors do. And hey, you might even avoid making a costly mistake like I did.

Quotes by Alex Hormozi

"I think it was fidelity uh did a study it was either fidelity or Charles Schwab did a study on which investor profiles and activity yielded the best returns in terms of total portfolio value"

– Alex Hormozi

"the two categories far outpaced everyone else"

– Alex Hormozi

"shows the power of compounding growth when buying businesses in general"

– Alex Hormozi

"there's huge quantitative firms that have hundreds of analysts who are trying to beat you"

– Alex Hormozi

"maybe get a hobby and just let the money grow and pretend you're a dead person"

– Alex Hormozi

Full Transcript

what's going on everyone my name's alex from ozzie and i am the host of the show owner of allen prestige labs gym launch 120 million in sales um in 44 45 months what i want to talk about today is something that i think is really important i get a lot of questions about and it's about long-term short-term investing some big pitfalls and i just want to share with you some of the mistakes that i've made in this kind of transition that i've been through going from kind of ceo to kind of investor slash capital allocator right so the first thing is i want to share some some some stats with you that i found really interesting i think it was fidelity uh did a study it was either fidelity or charles schwab did a study on which investor profiles and activity yielded the best returns in terms of total portfolio value right and this was in stocks and they found that there were two categories far outpaced everyone else let me tell you what they were the first and highest performing portfolio activity were people who had purchased stocks and then died and so as a result there was no more activity in their account and their accounts outperformed everyone else the second highest were people who purchased accounts or purchased stocks for the account and then had forgotten their password as a result had not done any trading and so for me i think this is hilarious because it shows credible flaws in human judgment and it also shows the power of compounding growth when buying businesses in general because then you just get exposure because if you think about this from across all of the accounts that they have then across all of the accounts then they have equal exposure to ups and downs etc so across all of those accounts which is just like taking an index of the market the people who do the least amount have the most money in the account now what i want to do is explain to you a mistake that i made probably like two weeks ago that cost me shoot i have to do the math it probably cost me 200 grit yeah it tossed me 200 grand all right so here's a 200 000 mistake that you don't have to make and i'm going to walk you through the math all right so what i was doing um is i have in my quote portfolio i guess it's not a quote portfolio it's my portfolio um i have three to five percent of it uh in investable assets that i candidly i just play around with and it scratches my entrepreneurial itch and just me being a human being 95 it's actually 97 of my uh worth is in really really stable stuff all right but i want to talk to you about the five percent so here's the difference between holding versus trading all right and this is something that is massively underlooked and i'm hoping to at least convince one person who's listening to this that if you look at the math you you see how quickly you shouldn't do you shouldn't try and you shouldn't try and beat the market um by pi by by trading all right and so here's here's the first reality is that there's huge quantitative firms that have hundreds of analysts who are trying to beat you and they they make their money doing that um but the second one is a simple hundred dollar example all right so let's say you have a hundred dollars all right so this is our this is our initial capital all right i'm going to give you two scenarios that we're going to walk through so in scenario number one we're going to have our day trading example and let's say that over x period of time you do really well now i'm just going to ignore the fact that most people just going to lose money all right so that's that's probably like 75 of all of us are going to mess up somehow and think we're going to beat it and end up you know i'm going to quote by the dip and then it just goes down by another 50 right but let's just assume you double your money all right so your 100 becomes 200 all right everyone's cool so let's just say that happens over a five-year timeline whatever all right now the point here is that uh it doesn't really matter because if you're in this as soon as you are doing this through trading then the capital gains treatment gets thrown out the window and it becomes regular income all right so you're taxed differently so this hundred dollar gain right that you have here from 100 to 200 gets taxed at uh 45 you know 43 whatever it is and so you have a uh an additional let's see here so that means that after this whole period of time you're gonna you're gonna be left with a hundred and uh 40 sorry 155 dollars all right sorry about that 155 dollars which are left after tax all right post tax now don't worry i'm going to show you a third scenario in a second the second scenario is you do it and you instead of trading that whole time you just earn the same amount 200 100 turns to 200 and candidly the my all my passive stuff is out has outperformed my active stuff which is hilarious but uh which just confirms this for me which is why i'm making this video all right so let's just say that you still you make the same hundred dollars all right we're good there hundred dollars but now it's capital gains all right so instead of being left with 155 dollars we're now left with 180 wow well that's bigger but let me show you and this is the thing that kind of blew my mind because that's why i love looking at the math so much is well then how much would i have to gain from day trading or trading on shorter terms or swing trades or whatever um for this to be worth it right how how much extra money would i have to make to outpace the fact that i'm i'm getting this regular income tax treatment on my income all right so here's what's crazy so in order for me to get to net eighty dollars right i would have to take that hundred dollar investment and turn it into i did the math earlier it's um uh 245 dollars all right so that means that i would have to my my growth here would have to be 50 you know 45 higher right isn't that crazy in order to yield because that times the regular tax treatment gets me 180 dollars all right so if i'm comparing the two things if i want to be left with 180 option one is i buy something and i forget about it and then later if i you know five years later i'm i sell it for whatever reason and i am left with 180 because i only had to pay capital gains on it in scenario in order for me to to just match that not even beat it i would have to take my hundred dollars and turn it into 245 and then sell it and this is obviously this whole time you're continuing to flip things and buy things and buy things right and then after the regular income tax i'd be left with 180 all right and so when i saw that illustration it became so obvious to me because i had had some decent gains in something um and so i decided to sell it and i actually ended up selling it at a good time uh because it ended up going down cause i felt like i was getting overvalued um and so i thought i felt pretty good about myself right and what ended up happening is uh the thing ended up coming back up to exactly where i had sold it uh again and so if i had literally just done nothing then i would have more money because now i have to pay uh i have to pay taxes on regular income because i sold it within a year and mind you again guys this is on my three to five percent i don't touch anything that's that's not that all right so i'm just being very clear and candid here nor do i recommend you do that so if you need the look if you need the itch then i would say put your put three percent aside um for pure speculation which is just like i'm which is basically just saying i'm a human being and i'm an idiot and this is how i can manage my idiocy um but but when you see the math spelled out like this between this is what smart people do and this is what dumb people who don't make as much money do then it makes me so much more inclined to just do what smart people do and take all of that extra time and just do something else or just make money with my extra time um one of my good friends he uh i've known him for 20 25 years and when i met him he was i think he was he was managing i mean maybe five million dollars like not which in the finance world was not a lot for management um and now 25 years later i think he manages 3.5 billion he's one of the most stable people that i know and when i talk to him about this stuff he's like you need a hobby and so i guess the message that i have for everyone is maybe get a hobby and just let the money grow and pretend you're a dead person and if you can't pretend you're a dead person then throw away your password uh or give it to somebody that you would be ashamed to ask for your password back uh so that you just don't touch your stuff uh because ultimately you'll probably be you'll probably end up getting higher gains a and b you'll get tax less on those gains so i hope that was valuable for you i hope this makes sense i hope you get a laugh out of my 200 000 mistake that i just made in the last two weeks um keep being awesome lots of love like subscribe and leave a comment and i'll try and get back to everybody who does so keeping awesome catch you soon bye