The Capitalist Investor - Episode 68

Nate Fisher and Luke Lloyd join me in this episode of The Capitalist Investor to talk about the golden rule of investing: Don’t be dumb. Don’t do things you shouldn’t be doing. It seems simple, right? So what are some dumb decisions we seen people make? What should you do instead? Listen to learn more!

Outline of This Episode

  • [0:28] The Golden Rule of Investing
  • [2:06] Don’t be left holding the bag
  • [4:16] Are you investing—or gambling?
  • [6:42] Are you shooting for a home-run?
  • [9:49] Be wary of the knuckleball
  • [13:45] Do your homework

Money over message boards

People have the mentality that they have “diamond hands,” when they’re holding stock—but don’t think about the fact that they’re holding failing businesses. That is not a long-term strategy. If you make money, you sell. No one goes broke taking profit. So know when you’re going to buy and when you’re going to sell, whatever it is. There has to be a clear distinction between being a smart investor and being loyal to a group on social media. We want to make money. You’re the fool if you can’t find someone willing to pay a higher price for the stock that you bought. The people that do sell will make money, the others left holding the bag will lose a ton.

Are you investing—or gambling?

Nate points out that amateur investors don’t distinguish between investing and gambling. You can go to a casino and put all of your money on red and pray to God it will go your way. Or, you can do your homework, calculate a risk-return, and invest your money. You need to know what could go wrong and how to get out if things do go south.

No one goes to Vegas with a $1,000 bankroll and says “I expect to lose it all. Let’s go!” (even though they should). But you have to approach investing this way. You have to be willing to lose all of your money. You can’t put a second mortgage on your house and put your family at risk to be in GameStop options. You have to take calculated risks and put your money into something that should grow.

Why you don’t want to hit a home-run

One of the biggest blunders I see novice investors do is take their stimulus checks—the $3,200 over the last year—and try to hit a home run. They jump on Robinhood and buy stocks or take options calls. If you’re just starting and investing the money that just fell in your lap, don’t try and swing for the fences.

If I was playing baseball as an 8-year-old and struck out all season, I’d never play again. That’s enough of a beatdown. If I step up and hit a home-run, I’ll play forever. Neither is realistic. What if 8-year-old me got a decent batting average with some hits along the way? I’m going to continue to play the game.

If you take that $1,400 and buy call options and go to zero, you may walk away and never come back. It’ll beat you up mentally and emotionally. On the flip side, there’s no secret that Microsoft, Apple, and Amazon are good companies. They won’t 10x—but they can be your single or double

Be wary of the knuckleball

Luke threw knuckleballs when he played baseball—and the knuckleball can do anything. It can move down, right, left, up, etc. If you go into stock trading blindly, a lot of things can happen. If you’re over-leveraged or have call options and a knuckleball is thrown your way, you can lose a lot of money.

A knuckleball is all over the place when there’s wind—and there’s a lot of wind right now. GameStop is over $200 a share when it shouldn’t be. The market can stay more irrational than you can stay solvent. If you want to be in speculative stocks, size it appropriately in your portfolio.

But if you lose it all, you’re retired. You’re out of the game. You can’t complain about it. If you make stupid decisions, you’re going to get stupid results. What do we do differently that gives us an edge? Listen to find out!

Resources and People Mentioned

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Keep Listening to The Capitalist Investor:
Episode 16:
Bull Market or Bear Market? with Nate Fischer, Ep #16
Episode 32:
Why You Need A Financial Backup Plan, Ep #32
Episode 48:
Asset Allocation Dilemma: Why the 60/40 Portfolio is Dead, Ep #48
Episode 64:
Cannabis Stocks Lighting Up—How to Play the Trend, Ep #64
Episode 80:
Americans Postponing Retirement Due to COVID?!?, Ep #80
Episode 96:
4 Big Risks That Could Trip up the Stock Market Soon, Ep #96
Episode 1:
Capitalism vs Socialism
Episode 17:
The Psychological Impact Of This Recession, Ep #17