The Ultimate Cheat Sheet to Investing Part II

The Ultimate Cheat Sheet to Investing Part II

By James Altucher

H) My Friend Has a Business Idea. Should I Invest in It?

Probably not. But if you want a checklist, make sure these four boxes can be checked:

• The CEO has started and sold a business before.

• The business is in a sector with a strong demographic headwind behind it. (Or is that a tailwind?)

• The company has revenues and/or profits.

• You are getting a really good deal. (This is subjective, but you can look at similar companies and what they were valued at.)

I can say this: every time I have invested with this approach, it has worked miracles. And every time I have not invested in this approach it’s been a DISASTER. Like, a CLUSTERF*(*K.

Claudia, my wife, doesn’t let me invest in a private company unless all four items on my checklist apply. It’s good to be able to say, “I love your idea, but my wife won’t let me invest.”

After that, they usually say something like (you can imagine…), but I don’t care. I get to keep the money in my wallet and not give it to them.

Which is important, because I tend to believe in everything people tell me.

I) What Do You Think of Bitcoin?

I think Bitcoin has about a 1 in 1,000 chance of being a survivor. So I have 0.1% of my portfolio in Bitcoin. I can write a lot more on Bitcoin. I soldChoose Yourself in bitcoins before the book was officially released. Bitcoin went up 500% after that.

I can explain everything about Bitcoin, but I can’t explain the future. So we’ll see.

J) What About Metals as a Hedge Against Inflation?

Gold may or may not be a good investment. We’ve all basically agreed that gold, as a story, has some value, so we make it go up and down and up and down.

In the 1500s, the Aztecs used gold to make jewelry. They had a lot of gold lying around.

They didn’t understand why the Spaniards kept talking about gold. They asked Cortez. Cortez said, “We can’t think of anything BUT gold.” And then Cortez killed them all and took the gold.

In Spain, gold meant a lot. In the Aztec empire, it was a toy.

Statistically, it’s not really a hedge against inflation. Money, gold, inflation… they are all examples of stories. They go up or down depending on how many people like that particular story that year.

K) What About Metals Like Gold? Don’t They Have Intrinsic Value?

The only currency in the history of mankind that had actual intrinsic value was when people traded barley in the markets of the ancient city of Ur. Since then, we’ve developed currencies that depended on our faith in their value.

Every currency has faith and hope backing it. When people began to lose faith in US currency (in the Civil War), the words “In God We Trust” were put on the dollar bill to trick people into having faith in it.

But if you’re going to pick a metal, wait until the gold/silver ratio gets higher than its historical average and buy silver.

How come? Because silver is both a precious metal (like gold) and an industrial metal (also like gold, but much, much cheaper). So there actually is some intrinsic value in silver.

I bought some silver bars back in 2005. But then I lost them when I moved. That’s why nobody should listen to me about investing.

L) What About Mutual Funds?

No. Mutual funds and the bank representatives who push them consistently lie about the fees they are charging. I know this from experience.

One time I accompanied a friend of mine who had made some money (she was a model and had a good run for a while) and was looking to invest it. She asked me to go with her to see her bank representative who had some “ideas.” Because she was beautiful, I went with her to the bank.

I didn’t talk at all during the meeting but jotted down every time the bank guy lied. He lied five times.

Afterward I explained each of the lies to her.

What happened? She put all her money with the guy. “He’s practically family.” I can’t argue with a good salesman.

But he lied about the mutual funds’ performance that he was pitching, the fees they were charging, the commissions he was charging, and a few more I can’t remember now. I wrote an article about it in the Financial Times back then.

Fact: Mutual funds don’t outperform the general market, so better to invest in the general market without paying the extra layer of fees.

Use the criteria I describe above, pick 20 companies and invest.

M) What Are Some Good Demographic Trends?

1. The Internet. Yes, it’s still growing.

2. Baby boomers retiring. They need special facilities to live in. They need better cancer diagnostics and treatments.

3. Energy. The more people we have, the more energy we will consume. Go for energy sources that are profitable and don’t need government subsidies. Whenever you depend on the government, you could get in trouble.

4. Temp staffing. Every company is firing people and replacing them with temp staffers.

5. Batteries. If you can figure out how to invest in lithium, then go for it.

6. Chemistry. For 3,000 years we solved all of our problems with chemistry. For the past 50 years we solved our problems with computers. But chemistry will solve the next 3,000 years of problems.

N) Is a House a Good Investment?

Everyone will disagree with me on this, but the answer is an emphatic “NO!”

It has all the qualities of a horrible investment:

1. Constant extra layers of fees and taxes that never go away (maintenance, property taxes, etc. that all rise with inflation).

2. Usually housing is too large a percentage of someone’s portfolio. Even just the down payment ends up being the largest expense of someone’s life.

3. Usually massive debt is involved.

If you can avoid, 1, 2, and 3 and don’t mind the opportunity cost in the time required to maintain your house, then go for it. Else rent and use the money you saved for other investments that will be less stressful and pay off more.

Fact: Housing has returned 0.2% per year in the past 100 years.

O) If No Housing and Only 30% of My Portfolio in Stocks, Then What Should I Do with the Rest of My Money?

Why are you in such a rush to put all of your money to work? Relax! Don’t do it!

The saying “cash is king” exists for a reason. I will even say “cash is queen,” because on the chessboard the king is just a figurehead, and the queen is the most valuable piece.

Cash is a beautiful thing to have. You can pay for all of your basic needs with it.

You can sleep at night knowing there is cash in the bank.

I love a stress-free life. When I look back at the past 15 years, the times when I’ve been most stressed is when I’ve been heavily invested, and the times when I’ve been least stressed is when I had cash in the bank.

With cash in the bank, you can also invest in yourself.

P) What Does That Mean, “Invest in Myself?”

1. It costs almost nothing to start a business. Find something people want and start posting information about it on a blog and then upsell your services on the blog. Or write 1,000 small books about different topics and publish them on Amazon. You can do this on the side while you learn and have a full-time job and then when you are ready, you can jump to your other passive streams of income. I have a podcast coming up soon with a guy who makes $25,000 a month doing this. Note: It takes a lot of work to find “passive” income, but when it happens, it’s worth it.
These are some ideas. There are many others.

2. Invest in experiences rather than possessions. Figure out interesting and unique experiences you can have or places you can go to (but they don’t always have to be places). Experiences pay much higher dividends than an extra TV or a nicer car.

3. Books. Reading is the best return on investment. You have to live your entire life in order to know one life. But with reading, you can know thousands of people’s lives for almost no cost. What a great return!

Q) Should I Save Money with Each Paycheck?

No. Just try to make more money. That is easier than saving money. I find that whenever I try to save money, I end up spending more. I don’t know why that is. I’m a horrible spender, which is probably why I’ve gone broke so many times.

Better to just make more with many streams of income so you don’t have to worry about going broke. And then saving will come naturally as you make more money.

Don’t forget that a salary will never make you money. After taxes and the daily grind and your exhaustion and the feelings of “I hate my job,” and then inflation and then new expenses (kids), you will never be able to save. Avoiding Starbucks every day won’t make you a millionaire, that’s a fact.

I say it glibly, “try to make more money.” I know it’s not that easy. But in the long run, if you have a constant focus on alternative ways to make more money, then you will.

R) What Else Should I Do with My Money?

Forget about it.

Money is just a side effect of health.

I talk a lot about the daily practice I started doing when I was at my lowest point.

I know now after years of doing it that it has worked. I’ve done very well with it, and I started doing it when I was dead broke, lonely, angry, depressed, and suicidal.

I didn’t start it from a position of privilege.

And you don’t have to buy my book. I’m not selling anything.

Here’s the whole thing: stay physically healthy in whatever way you know how (sleep well, eat well, exercise). Be around good people who love you and respect you and whom you love and respect, and be grateful every day.

Think of new things each day (or all day) to be grateful for. “Gratitude” is another word for “abundance,” because the things you are most grateful for become abundant in your life.

And finally, write down 10-20 bad ideas a day. Or good ideas. It doesn’t matter. After exercising my idea muscle for six months, I felt like an idea machine. It was like a superpower that just wouldn’t stop. More on this in another post.

Money and abundance in your life is a natural side effect of the above. I know this for myself, but now since writing about it for almost four years, I can tell you from the letters I get that it works for others.

S) What’s in It for You?

I don’t know. I used to write about money stuff because I wanted investors, or I wanted to sell books or to get speaking engagements. Now I want none of that.

But I get worried that in a world of increasing economic uncertainty, more and more people are getting “stuck” and getting lied to and are scared about what is happening.

Most people will think I am giving bad advice. That’s fine. I probably am. I am just trying to avoid the BS, and I hope you do also.

Too many people I know are nervous and depressed.

There’s nothing else to know about investing your money. If your bank tries to give you any advice, just say, “Thanks, but I’m okay.”

If they want you to put your money in a savings account, even “so you can get the interest” I would politely decline. There’s a reason they are asking you to do this, and I have no idea what it is, but it’s not good for you.

You won’t get rich investing your money, but you can do very well. And if you combine that with investing in yourself, you will get wealthy.

But only if you remember that financial wealth is a side effect of real inner wealth.

This is the most powerful investment you can make with your time and your life.

You can always make money back when you’ve lost it.

But one single split moment of stress and anxiety you will NEVER make back again.

Investing in the future will never bring back the past.

To be able to sit and not have a million stressful thoughts racing through your head. To be able to appreciate everything around you for the abundance that it is.

But the world is constantly saying “thank you” to you for being alive, for creating new things, new energies, new experiences.

Every day, give the world at least one more reason to whisper “thank you” to you.

That’s the best investment.

Source: James Altucher

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