Investments to AVOID | What Makes a Good Investment?

if you're like me you probably grew up with very little guidance about finances money what to invest in it seems like paul in america uh i i i i recount uh a lot of times where i was learning my third year of spanish uh art history um things that seemed impertinent at the time but balancing a checkbook i know that they've integrated this into schools a little bit not this is a checkbook anymore well nobody but that's your grandmother might no one ever taught me that but the other thing is like boy i had another conversation this morning with a very normal person paul i love getting feedback from all people because i bring your questions to two wealthy guys paul and it was just no one ever told me you know we we have inter we've had young interns on our show they've been honest enough to say that they don't talk to their parents very often about finances money it just doesn't happen now my young son geo is here in the studio today my 11 year old and at this point in his life well it's very obvious of some moves that he can make to further his investments and because we've instilled it in him for now years since he was a small kid but in general paul what are some investments that we can in your opinion which you'll get slammed below i'm sure in the comments is what are some investments you would avoid or the best investors in the world have avoided in the past so the one thing i hear a lot of as time goes on i will always hear things like real estate is the best investment you're going to make yeah stock's the best investment you're going to make investing in blah blah blah is the best investment you're going to make and what is my response to people when they say that it depends thank you so guys in full disclosure we put this title out there because we knew you would click on it and for those who have never watched this before i'm glad you're clicking on it because i want you to understand that anytime somebody writes these are the best investments to make they're usually full of um bs okay because what i'm trying to teach here is a process to determine what the best investment is right so if you look at for example the s p 500 i'm just gonna go to a history of the s p 500. overall it's looked like this right yeah correct okay but what you don't see is along the way it looks like this right yes what typically happens is at these points people say the stock market's the best investment to make at these points people say stock market's the worst investment to make coincidence no no because remember prices go up when people feel euphoric and good about something prices go down when they don't but we've always learned the buy low sell high same with real estate in 0.50607 i literally had people tell me that real estate was the best investment you can make by 2009 and 10 i had a blog and that blog i would put on there a questionnaire for all the people got in there what's the best investment to make last was always real estate and what was the best time to buy real estate actually 9 10 and 11. now for our new viewers paul you might have to tell them what happened in that day to make it the best time ever okay so when prices fell dramatically it's just a fact guys the more you pay for something the less your return is going to be yeah if you're going to get a cash flow of a thousand dollars next ten years and you pay a thousand for it you make zero dollars if you pay a hundred dollars a hundred dollars for it you make a ton if you pay ten dollars for it you make even more right yeah it's just but we investments are the only thing in the world in which people for some reason like paying more money for it makes them feel good when they see the price going up they want to invest more at it so what i'm trying to ask you to do is when you determine what a great investment is you have to understand these two things price versus value price is what you pay value is what you get right yes okay the example i always give to the high school class is this here's my iphone this thing is worth let's say 800 bucks i always ask them would you pay 10 000 for it of course not no it's worth 800 okay would you pay 100 for it of course all day same iphone same thing same asset two different prices one's a good investment one's a bad investment so the first things first what would i what's what's the best what's the worst investments to make ones where price are greater than value oh wow okay this is interesting that's it now is it as simple as this no you understand how to determine value price is very easy to determine why it's just whatever the market's saying whether it's a piece of real estate or stock it's whatever the market says the price is the question you have to decide is what's the real value behind it now keep in mind when times you fork and prices go like this value tends to not go like this value tends to go like this so over time when you see that chart and this is what the stock is this is what the stock value is this is what price is doing yeah this is where price is greater than value you want to avoid buy avoid buy avoid buy that's the idea here sounds very simplistic and it's overly simplistic in this chart but the reality is understanding how to determine value is the most important part that's part of the process right so i always get really upset when people say location location location when it comes to real estate yeah so what that tells people is it doesn't matter how much you pay just get the best location that's true well it does matter how much you pay because if it doesn't matter how much you pay any price you pay be like why not pay more right the price goes higher you'd still keep buying more look at crypto look at bitcoin bitcoin's gone to 64 000. now it's falling in half i don't see any crypto people who love the 64 000 buying more i mean i'm sure there are people and i'd want to see their account prove to me you're buying more because we really believe in the value that's the great thing about understanding value when the price falls and the value stays the same what are you doing you're buying more yeah if you understand value if you truly understand value this is very deep paul i mean the understanding of values this is the toughest part and it is tough you know why you ask a guy like warren buffett and charlie munger partners at berkshire hathaway you ask him for a value berkshire hathaway they're gonna be different that's the thing about value but that's the thing about value investing you want to buy at a price where it's so off of value that that that even if you're wrong and you are over on your value you're still going to do well but that is the entire key to investing a bad investment is this so paul why are there so many youtubers out there that show graphs of exploding stocks because they need to make money tell everyone to buy them they need to make money and they know when they put the videos on there that say buy this stock it's all hype people get excited they watch the videos they make more money in advertising for us it's different we have eight or nine businesses upstairs i've got several hundred units of real estate i don't need but i do it because i like it i want to teach people this is what matters and right now this is going on like crazy in the stock market in real estate price is way above value now can somebody out there justify the value for any of course that's the whole point but the idea is is your are your value are your value assumptions reasonable that is the question i can make any business upstairs any piece of real estate i own show a value of double the price double what's currently selling for what the market is i can show it in two seconds but the question becomes is it reasonable to take those assumptions during really exciting and emotional times that are high yes it's very easy to make oh this is because the price is going up don't worry this will happen just like when in 2009 when i heard the term toxic real estate assets but nobody it was just all real estate assets were toxic the banks around the country wouldn't invest wouldn't blend money at high of ltvs in ohio and michigan and pennsylvania why highest foreclosure rate me as a buyer with cash i took full advantage of that one guys i can't buy i can't borrow money i got to pay less money for it so i took other people's stupidity the banker stupidity and by the way the people control the money the bankers are literally the dumbest people at the table i use that stupidity to go make more money and now they all give tons of money to ohio like crazy i use that stupidity now to go borrow all my good assets that i bought in 089 that they called toxic so what quote-unquote investments nowadays are you avoiding with this high price over value it's very difficult to find good value these days i'm investing back in my real estate i'm investing back in my businesses that's how i'm creating value for those you out there buy etfs month in monday month out save for the long run that's what you need to be doing don't worry about where price and value is over long periods of time over decades it'll all work out but there's one other thing i want you to understand for what investments you should avoid there's another attribute this is the first one the second one is if you don't understand it then you do not invest in it what do i mean by that i don't mean that if you don't understand how to program a computer you shouldn't buy apple no do you understand the business of apple do you understand the business of microsoft do you understand if you don't understand it don't invest in it now if you do understand it doesn't mean you invested it if you do understand it then you go back to this one okay i buy it where price is less than value if the answer is yes you buy it the answer is no you don't buy it so it's understanding how they make money because i've always said i've coined this phrase myself if you don't understand how you're going to make money you want to understand how you'll lose money and that's very simple i'm keeping it very simple but it's funny i was just in our patreon having a conversation with somebody and they're saying well no paul it's more complicated that's like no i can i can i can essentially talk about investing this way this is very basic now are there more nuances to it absolutely but if we don't understand these two attributes just stop there's no reason to go forward if you can't understand price versus value and you understand how they're gonna make money in the business itself then you're just wasting your time nowadays mo haven't you seen with like the way the internet is where we can talk ourselves into so many different topics is how dangerous is it you think you're getting an understanding of something blockchain crypto on on youtube but in reality we're just like this echo chamber of people telling each other what they really want to hear yeah how do you tell our viewers to you know kind of make their way through these waters someone's opinion is not information it is but it's not when he's talking about how to find value he's looking at facts we're looking at 10ks we're looking at the business model these are facts that you can find so you can actually go and understand the investment going and reading through different people's opinions of what blockchain is and what bitcoin is nobody's actually defined it before this is a very uh this is very relevant to conversation i just had it's just uh and i'm not trying to pick on everybody on that topic but i'm not trying to pick on somebody but yeah an opinion is not and by the way what are we doing with the facts we're interpreting them and making assumptions about the future it's still our opinion of course of that in the future we're basing it off of a fact that you cannot argue with like i look at it with real estate back in 0-1809 i was literally buying homes for 8 500 hours on average in cleveland why because it wasn't even easy of cleveland it was suburbs of cleveland why cleveland real estate is toxic great those same houses now we're selling for 100 110 000 i bought them for 8 500 put 30 grand into them i mean for 40 on the high side now they're worth 100. to me i was looking at going but the fact is even in a bad market i'll be able to rent these houses for 859 hundred dollars each how am i losing here i'm gonna get ten thousand in rent spend four or five thousand dollars expenses i make five thousand dollars a year on a forty thousand dollar investment paid off in cash i don't understand how i lose here and now the market goes oh paul you were right but back then i literally heard people going ooh real estate must be tough i'm like yeah it's not tough for me you're back i remember you were wildly quote unquote wrong can i give a really crazy example this gives a lie people think i'm lying about this one december january 1st 2009 i bought a property for 3 million bucks okay since then i'm end up putting a total of seven million into it this was 2009 right i had i had a call with the owner of the property old guy he was unfortunately he was just like listen i'm done with it it was forty percent probably because i'm done the last phone call he said paul i really hope you make money on this property you know i said to him if i can't make can't make money on this property because it was 300 units that's ten thousand dollars per unit i go if i can't make money on this property i need to get out of the money making business yeah we're in this seven million dollar investment we're doing a major rehab this is 2009. do you know what's worth today when this rehab was done come on yeah come on yeah and look at this i'm not bragging about this i'm sitting there saying i bought it at the worst time i put good money into it by the way of the 7 million 2 million was because of a lawsuit because of a fire we had shouldn't even happen that's part of the 2 million and now it's worth 23. we're all setting up with the rehab i look at it going i don't get this people are more excited to pay me this check then they were excited to pay for this check why it's 40 occupied it's scary real estate's toxic blah blah blah it's like wait i made my best investments back in 08 and 9. bankers bankers my bankers and accountants and lawyers telling me i was the only good conversation to have in 089 because i understood value back then the msp was at 666. now it's at 4200 and guess what i think i was gonna go 4200 no chance but at 666 i was loving every second of it everybody else is like oh my god this is the worst thing ever and now everybody thinks this is the best thing ever paul stacks are great paul stocks are awful isn't that weird so how does a normal person change their well i cut you off sorry about that that that's 666 to 4200 that goes through your euphoric highs to unbearable lows but it's it's always somewhere in the middle and i will say something else i'm not just telling you that one deal is my only good deal i've never lost a dollar on a piece of real estate come on never once have i ever am there's not one property i've ever sold or i am into for less than it's worth for more than it's worth not one time and the vast majority of my buying happen to know eight and nine it's not it's not me saying it's me having the discipline i'm not a better investor in the sense of what makes me a better investor is being disciplined and saying but wait the real estate's still going to give me this cash flow even the market says my property's only worth ten thousand i'm still going to make 15 return on my money sitting in cash why would i not do this what steps can our viewers take to be a better investor and to avoid subscribe to this channel listen to us all the time and i'm serious that's all it took it took me brainwashing myself being around the right people to go wait a second it's okay to be it's actually better to be different and think differently and we have 51 000 subscribers and we talked internally everybody's like oh you're gonna have 5 million subscribers i'm like i don't want 5 million people who just want to hear me tell them what they want to hear i know they have half a million people who go yes this is how we want to think of the world and we'll get that that's the whole point of investing the best investors do what's different every great investor in history does what's different that doesn't mean go buy you know like you know a paper factory when we're all going to but if you can buy the right paper factory at the right price because we're still that's the point you'll still see people going papers dead all paper companies should go to zero well wait a second we still use paper even in the digital world we're still gonna use paper so a lot of businesses will go under but there'll be a few who still stick around yeah that's the point i i just don't to me i laugh when i hear people say like avoid this investment no teach price versus value teach how to determine value and then you can avoid the investments in which price is greater than value that's it yeah this philosophy you've been teaching me over the past three years it comes down to like very small things if i'm buying a half and half for my coffee i look at the price and think what it's got me thinking on a daily basis like i used to be the same way seth but i've changed that because i used to look at everything i spent honestly like literally okay if i buy these clothes and i use them like 12 times you know once and then i don't like it anymore it cost me you know four dollars per time i use it now i'm like listen paul that's an extreme you start to enjoy life but when it comes to your to your investing you've got to be smart about it have your money that you're enjoying like now i operate as okay whenever i pay myself in salary i'm going to enjoy if i piss away money doing something stupid i'm fine with that but my investment world my business world i've got to be structured and disciplined we are all emotional with things right yeah i i spend a lot of money on watches i'm very fortunate the watches i bought have gone up in value but do i care no i just use it as a way of like when people say oh you spend too much money on watches i'm like oh yeah uh yeah my watches go up in value so f off but really i don't care i just like the watches you've still got to enjoy life but be very structured on your investment side but on your personal life don't live this life of like oh it's two dollars for for a hallmark you know it's four dollars for a hallmark card versus two i get it but if you're living within your means you don't have credit card debt and you're always able to save then then enjoy life when it comes to your your it's so funny to me this example i always give i will see people spend hours and hours and hours researching the car they're gonna buy and bragging about saving a thousand bucks but when it comes to a stock oh it's just a great stock well then why you owe that car i want you to go pay whatever that car oh because it's not well there's no difference there in mind yeah i think in in in when i have conversations with people the question is if you're watching videos they're telling you to buy certain stocks or or they're buying crypto just ask yourself why and if if they can't prove a nice if they can't prove to you a nice why a bitcoin would go up or why an overpriced stock would go up or down um maybe you start questioning the stuff that you're watching out there and if well they'll tell you by the way and the other thing is they'll tell you why they'll give their opinion of why but they're why yeah but it's still about process and if they sit there and say well analyst projections are like well wait a second what have analysts always been right have they been wrong like that's the thing like even in the world of a why if you don't have a good one if you don't actually good process for it i don't want to hear it like i just it's funny people tell me like well my financial advisor says this and like well your financial advisor is stupid i'm sorry your banker's stupid you i always love that people will say like oh my account approves you i'm like i've literally never met an account where i go that's a good investor ever i remember once on that same no not in this deal a different deal i my lawyer once said to me i wouldn't be buying that right now i'm like oh really a deal that i paid 1.94 put two million into it so i'm in it for 3.9 and it recently prays for around eight and a half million bucks boy really glad i listened to that back in 08 why because he saw all of his clients other clients losing their butts in real estate and filing for bankruptcy so he said avoid this okay well you're an idiot fyi i don't use that firm anymore and the partner at the firm who i did use with i told him like i can't use you guys i'm like i'm sorry your partner is an idiot he's like well paul don't take i'm like no i had to take it seriously this is the guy who's advised me i didn't even ask him for his advice and he tried to give me an investment advice when he's a lawyer f off i don't use him anymore is that extreme you've said to me before he's like paul you're so cause to me the person went out of this way to tell me how i shouldn't be doing something completely out of a sphere of influence yikes yeah dead to me it's okay he's only lost out a hundred thousand dollars a year in legal fees why would he care if this resonates with you it has been resonating with me to listen to these two guys talk about their experiences and learn from them paul you know a lot of the i'm reading a new book of course i mean i can't stop talking about it but they talk about you know get yours get your environment or surround yourself with people who are better than you at some things and i really feel like i've been lucky enough to do that listening to this and learning from you and of course my son's here so um yeah if you want to surround yourself with the sounds of it your son's a better investor than you are probably yes that's our take uh um yeah join the patreon below you can join our community of over 3 600 people talking about this type of stuff and we are the disciplined few out there not chasing the high-flying overpriced stocks and crypto coins and so if this speaks to you join us and you can get on our team as well so that's our take thanks for listening follow the thumbs up on the way out love you guys thanks

Channel: Everything Money

Views: 33,557

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Keywords: everything money, investing, investing101, stock trading for beginners, investing in your 20s, financial education, fundamental stock analysis, investing 101, stock fundamental analysis, fundamentals of a stock, stocks, stock market, day trading, investments to avoid, what makes a good investment, stock, value investing, value investing strategies, real estate, magic the gathering, mtg, investments, do not buy, value investing tutorial, good investments

Id: SDIGfXgjTt8

Length: 20min 7sec (1207 seconds)

Published: Sun Jul 04 2021