2945: Taking Big Dumb Risks by Chris Reining on Financial Independence and Stock Market Investing

[00:00:00] [SPEAKER_02]: Kundenservice kontaktieren? Für viele Menschen ist das der beste Weg, einen schönen Tag zu ruinieren. Aber bei Zendesk sorgen wir für eine bessere Customer Experience. Besser für die Großmutter, besser für die Floristin, besser für den jungen Mann in Hausnummer 3a, besser für sie, besser für alle. Denn während einige behaupten, dass der Kunde immer Recht hat, sagen wir, dass KundInnen immer Menschen sind. Und da wir auch Menschen sind, wollen wir etwas Gutes für uns alle tun. Zendesk – Customer Experience mit KI für Menschen gemacht.

[00:00:30] [SPEAKER_00]: Brauchen wir wirklich noch einen Computer? Alle wahrscheinlich nicht. Aber wenn du Musik mit der Power eines Neuralprozessors neu erfindest oder unterwegs Migrationsmuster mit einem ganztägigen Akku analysierst oder deine Ideen mit dem KI-gesteuerten Co-Creator zum Leben erwächst, dann kann ein Co-Pilot-Plus-PC einen Unterschied machen. Nicht alle brauchen einen leistungsstärkeren KI-Computer. Aber wenn du versuchst, die Welt zu verändern, auch wenn es nur deine eigene ist, haben wir einen für dich entwickelt. Microsoft Co-Pilot-Plus-PC mit Snapdragon – die bisher schnellsten und intelligentesten Windows-PCs. Die Akkulaufzeit variiert hier nach Nutzung und Einstellungen.

[00:01:00] [SPEAKER_01]: Das ist Optimal Finance Daily. Taking Big Dumb Risks. By Chris Reining of ChrisReining.com.

[00:01:09] [SPEAKER_01]: When you're young, you often take big dumb risks. You just don't know it at the time. Most times, you don't get hurt. Hopefully, as you get older, you realize this.

[00:01:20] [SPEAKER_01]: That just because you didn't get hurt doing something dumb doesn't mean you didn't take a big risk and get away with it.

[00:01:26] [SPEAKER_01]: When I was 28 years old, I flew to Ghana. It's a small West African country. I traveled the country by bus.

[00:01:35] [SPEAKER_01]: One day, I came across a guy working near a small pond. He asked me if I want to ride a crocodile for a small fee.

[00:01:43] [SPEAKER_01]: Uh, okay.

[00:01:44] [SPEAKER_01]: So he walks over to a little shack and comes back holding a few live chickens.

[00:01:50] [SPEAKER_01]: Then we go to the edge of the pond.

[00:01:52] [SPEAKER_01]: Sure enough, the squawking chickens lure a few massive crocodiles onto shore.

[00:01:58] [SPEAKER_01]: The guy flips a bird into each crocodile's mouth.

[00:02:01] [SPEAKER_01]: Then he tells me to go sit on the back of whatever crocodile I want.

[00:02:05] [SPEAKER_01]: So I go sit on a crocodile. The biggest one, of course, for the picture.

[00:02:10] [SPEAKER_01]: Just because you didn't get hurt doing something dumb doesn't mean you didn't take a big risk.

[00:02:16] [SPEAKER_01]: You see this in the stock market all the time.

[00:02:18] [SPEAKER_01]: Do you remember the frenzy with the retail stock GameStop?

[00:02:23] [SPEAKER_01]: For months, the shares traded around $10 to $20.

[00:02:26] [SPEAKER_01]: Then in early 2021, the price shot up to $483.

[00:02:32] [SPEAKER_01]: It's natural to celebrate the people who bought shares at $20 and sold at $400.

[00:02:37] [SPEAKER_01]: That's an enormous gain.

[00:02:39] [SPEAKER_01]: A 1900% return.

[00:02:42] [SPEAKER_01]: But you never hear about the people on the other side of that trade.

[00:02:45] [SPEAKER_01]: The ones who bought when the price was $400, hoping to sell even higher.

[00:02:50] [SPEAKER_01]: Instead, the price plunged to $40.

[00:02:54] [SPEAKER_01]: These are the people who got hurt.

[00:02:56] [SPEAKER_01]: As luck would have it, I owned GameStop.

[00:02:58] [SPEAKER_01]: I purchased shares for $12.50 in 2018 and happily sold at $38.47 during that climb to $483.

[00:03:09] [SPEAKER_01]: Why was I happy to sell for so little?

[00:03:12] [SPEAKER_01]: Firstly, a stock that goes from $12 to $38 is a 208% return.

[00:03:19] [SPEAKER_01]: That's a higher return than I expected.

[00:03:21] [SPEAKER_01]: More than I wanted, really.

[00:03:23] [SPEAKER_01]: Never risk what you have for what you don't need.

[00:03:27] [SPEAKER_01]: Secondly, if the market offers you a generous price, feel free to take it.

[00:03:32] [SPEAKER_01]: I didn't think GameStop as a business was worth more than $38 per share.

[00:03:37] [SPEAKER_01]: So I sold.

[00:03:39] [SPEAKER_01]: The thing to know about investing is that price and value are different things.

[00:03:44] [SPEAKER_01]: There's an old saying you might have heard.

[00:03:46] [SPEAKER_01]: Price is what you pay.

[00:03:47] [SPEAKER_01]: Value is what you get.

[00:03:49] [SPEAKER_01]: Maybe an example would help.

[00:03:51] [SPEAKER_01]: Okay, take Microsoft.

[00:03:54] [SPEAKER_01]: In the 1990s, Microsoft was growing incredibly fast.

[00:03:58] [SPEAKER_01]: They were selling software.

[00:03:59] [SPEAKER_01]: And software didn't require you to build expensive factories and buy lots of machinery and source

[00:04:05] [SPEAKER_01]: raw materials and so on.

[00:04:07] [SPEAKER_01]: Instead, you paid developers to code something one time and then sold as many free copies as

[00:04:13] [SPEAKER_01]: possible.

[00:04:13] [SPEAKER_01]: By late 1999, investors had bid up Microsoft stock to $61.09.

[00:04:21] [SPEAKER_01]: Then the stock price plunged and went sideways.

[00:04:25] [SPEAKER_01]: It took 16 years to get back to $61.09.

[00:04:30] [SPEAKER_01]: Why?

[00:04:31] [SPEAKER_01]: The price went up too much, too fast.

[00:04:34] [SPEAKER_01]: When you steal too much price from the future, it can take years for the value of the business

[00:04:40] [SPEAKER_01]: to catch up, for it to grow into its price.

[00:04:44] [SPEAKER_01]: Which reminds me of this old Wall Street joke.

[00:04:48] [SPEAKER_01]: Have you heard it?

[00:04:49] [SPEAKER_01]: Customer.

[00:04:50] [SPEAKER_01]: Thanks for putting me in XYZ stock at 5.

[00:04:54] [SPEAKER_01]: I hear it's up to 18.

[00:04:56] [SPEAKER_01]: Broker.

[00:04:57] [SPEAKER_01]: Yes, and that's just the beginning.

[00:04:59] [SPEAKER_01]: In fact, the company is doing so well now that it's an even better buy at 18 than it

[00:05:05] [SPEAKER_01]: was when you made your purchase.

[00:05:08] [SPEAKER_01]: Customer.

[00:05:09] [SPEAKER_01]: I knew I should have waited.

[00:05:12] [SPEAKER_01]: Joking aside, sometimes a stock really is a better buy at a higher price.

[00:05:17] [SPEAKER_01]: It took me a long time to understand this.

[00:05:19] [SPEAKER_01]: That investing has little to do with price and everything to do with value.

[00:05:24] [SPEAKER_01]: Here's a specific example from my own portfolio.

[00:05:27] [SPEAKER_01]: In 2012, I purchased Apple at $20.50 per share.

[00:05:32] [SPEAKER_01]: At that time, Apple was earning $1.58.

[00:05:36] [SPEAKER_01]: That means the price-to-earnings ratio was 13.

[00:05:40] [SPEAKER_01]: Price-to-earning ratio is a simple method to value stock.

[00:05:45] [SPEAKER_01]: In 2016, I purchased Apple again.

[00:05:48] [SPEAKER_01]: This time, I paid $23.04 per share.

[00:05:52] [SPEAKER_01]: Apple was now earning $2.25 per share.

[00:05:56] [SPEAKER_01]: That makes the price-to-earning ratio about 10.

[00:06:00] [SPEAKER_01]: The stock price was higher, but it was a better value because the price-to-earning ratio was lower.

[00:06:07] [SPEAKER_01]: You're getting more earnings power for your money.

[00:06:09] [SPEAKER_01]: But remember, stocks aren't only about past earnings.

[00:06:13] [SPEAKER_01]: They're about the future.

[00:06:15] [SPEAKER_01]: After I started thinking about investing in terms of value, I realized price is mostly irrelevant.

[00:06:21] [SPEAKER_01]: It's just what you pay.

[00:06:23] [SPEAKER_01]: Value is what you get.

[00:06:25] [SPEAKER_01]: That's the key to investing safely.

[00:06:27] [SPEAKER_01]: Anyways, I know it's easy to feel jealous when you see other investors getting rich fast.

[00:06:32] [SPEAKER_01]: There will always be people swinging for the fences, throwing Hail Marys.

[00:06:37] [SPEAKER_01]: You read headlines about the ones who survive.

[00:06:41] [SPEAKER_01]: How this 27-year-old made $378,000 option trading in one month.

[00:06:48] [SPEAKER_01]: But remember, just because someone didn't get hurt doesn't mean they didn't take a big,

[00:06:53] [SPEAKER_01]: dumb risk and get away with it.

[00:06:55] [SPEAKER_01]: Like riding a crocodile.

[00:07:00] [SPEAKER_01]: You just listened to the post titled,

[00:07:03] [SPEAKER_01]: Taking Big Dumb Risks by Chris Reining of chrisreining.com.

[00:07:08] [SPEAKER_01]: And I'll be right back with my commentary.

[00:07:10] [SPEAKER_01]: I kind of miss being young and naive sometimes.

[00:07:14] [SPEAKER_01]: Because when you don't know any better, you're more likely to be bold.

[00:07:18] [SPEAKER_01]: Let me give you an example.

[00:07:20] [SPEAKER_01]: During my senior year of college, I wanted to work full-time during the day and go to school

[00:07:25] [SPEAKER_01]: full-time at night.

[00:07:25] [SPEAKER_01]: I saw on my university job board a really old job posting for a sales role at an agency that

[00:07:32] [SPEAKER_01]: was actually right around the block from where I was living.

[00:07:35] [SPEAKER_01]: So I threw on a suit and just walked in the front door with my resume.

[00:07:39] [SPEAKER_01]: They were so impressed by my initiative that they gave me an interview on the spot and I

[00:07:45] [SPEAKER_01]: did well.

[00:07:45] [SPEAKER_01]: I was told by the hiring manager that the next step would be a second interview with the

[00:07:50] [SPEAKER_01]: president of the company.

[00:07:52] [SPEAKER_01]: But that person was traveling to China the next day.

[00:07:55] [SPEAKER_01]: And I would have to come back in two weeks.

[00:07:59] [SPEAKER_01]: This is where my young and clueless mindset chimed in.

[00:08:03] [SPEAKER_01]: At this point in my life, the concept of a second interview was foreign to me.

[00:08:08] [SPEAKER_01]: I'd always worked in restaurants or other positions where I was hired the same day.

[00:08:12] [SPEAKER_01]: So I pointed out to them that if they waited two weeks, I would have another job by then.

[00:08:17] [SPEAKER_01]: And I genuinely believed this was true.

[00:08:20] [SPEAKER_01]: That resulted in me speaking with the president and securing a job that same day.

[00:08:26] [SPEAKER_01]: While being young and dumb worked out well for me in that moment, that isn't always the case.

[00:08:32] [SPEAKER_01]: Young, inexperienced investors who bet all their money on a single stock or options trade in an

[00:08:38] [SPEAKER_01]: attempt to get rich quick might face much more negative consequences.

[00:08:42] [SPEAKER_01]: But they also have the wonderful benefit of time.

[00:08:47] [SPEAKER_01]: Take risks when you're young, because then you have plenty of time to fix those mistakes.

[00:08:52] [SPEAKER_01]: We all make poor decisions around money in our youth.

[00:08:55] [SPEAKER_01]: But it's not the end of the world.

[00:08:57] [SPEAKER_01]: This is how we learn.

[00:08:59] [SPEAKER_01]: But that'll do it for today.

[00:09:00] [SPEAKER_01]: Have a great day and weekend.

[00:09:02] [SPEAKER_01]: And I'll be back here tomorrow where optimal life awaits.

[00:09:05] [SPEAKER_01]: Let's...