3313: How Not to Invest $100,000 by Chris Reining on Investing & Building Wealth

[00:00:00] [SPEAKER_00]: This is Optimal Living Daily. How Not to Invest $100,000 by Chris Reining of ChrisReining.com

[00:00:08] [SPEAKER_00]: and I'm Justin Malik. Welcome back. This is the Sunday bonus episode where I share an extra

[00:00:14] [SPEAKER_00]: episode from the OLD Network and today's comes from Optimal Finance Daily. Please do subscribe

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[00:00:25] [SPEAKER_00]: really helps a lot. But for now, let's get right to the bonus episode and Diana's commentary as we

[00:00:31] [SPEAKER_01]: optimize your life. How Not to Invest $100,000 by Chris Reining of ChrisReining.com

[00:00:45] [SPEAKER_01]: A friend called me up scared. They've spent the last 20 years working to pay off student loans,

[00:00:52] [SPEAKER_01]: buy a house, raise a family and so saving for retirement wasn't a priority. Where do I start?

[00:01:00] [SPEAKER_01]: It was a good reminder. It's easy to forget how confusing and daunting investing is when you're

[00:01:07] [SPEAKER_01]: getting started, which reminds me of a story about a guy who had $100,000 to invest. The first thing

[00:01:16] [SPEAKER_01]: he did was buy 20 stocks, putting $5,000 into each. But then he thought he should be making more

[00:01:23] [SPEAKER_01]: money and sold those shares to buy Chinese companies. As he learned more about the market,

[00:01:29] [SPEAKER_01]: he discovered options and started buying calls, putting $5,000 in and making double that in a day.

[00:01:37] [SPEAKER_01]: His gains eventually evaporated. Easy money never lasts. Then he decided to put a concentrated

[00:01:44] [SPEAKER_01]: portfolio of growth stocks and put his entire hundred grand into square at $75. The stock price

[00:01:52] [SPEAKER_01]: quickly soared to $100 and he was daydreaming about early retirement. But it wasn't long before

[00:01:59] [SPEAKER_01]: it fell back to $75. Next, he read the best way to make money in the current market was to trade the

[00:02:06] [SPEAKER_01]: volatility. And so he started day trading his $100,000. He spent hours glued to his laptop

[00:02:13] [SPEAKER_01]: screen sitting there refreshing trades for the millionth time. After all this time and effort,

[00:02:20] [SPEAKER_01]: can you guess his return? Down $8,000, including $3,000 in fees. The point is, you can make more

[00:02:29] [SPEAKER_01]: money investing and work less at it if you simply buy and hold. That's one of the biggest keys to

[00:02:36] [SPEAKER_01]: investing. And here's two more. Number one, don't buy prices, buy companies.

[00:02:44] [SPEAKER_01]: New investors don't think this way. They pull up a stock chart, buy a price and hope their

[00:02:49] [SPEAKER_01]: price goes up. When the reality is stocks are a piece of a business. Even when you're indexing,

[00:02:55] [SPEAKER_01]: that's what your fund is pieces of businesses. For instance, burrito chain Chipotle had a rough 2017.

[00:03:04] [SPEAKER_01]: They faced a string of virus outbreaks. Their new queso was called a crime against cheese,

[00:03:11] [SPEAKER_01]: and rats were allegedly falling from the ceilings. The best companies in the world

[00:03:16] [SPEAKER_01]: aren't immune to problems. The stock price fell from $750 to $250. And if you were investing in

[00:03:25] [SPEAKER_01]: prices, you'd probably sell. But a seasoned investor thinks like a business owner. After all,

[00:03:32] [SPEAKER_01]: that's what shareholders are part owner of the business. They ask themselves, are these short

[00:03:38] [SPEAKER_01]: term fixable problems? Do I have confidence in management? Is my money invested the best way

[00:03:44] [SPEAKER_01]: it can be going forward? Maybe it's time to sell the stock, maybe not. Some investors sold Chipotle

[00:03:52] [SPEAKER_01]: at $250. But on the other side of that trade were buyers who saw an opportunity to own a wonderful

[00:04:00] [SPEAKER_01]: business at a fair price. Within six months, Chipotle shares had doubled to $500, a 100% gain.

[00:04:09] [SPEAKER_01]: Jeff Bezos once said about Amazon, quote, The stock is not the company and the company is not

[00:04:16] [SPEAKER_01]: the stock, end quote. What he's saying is in the short term, the price of a stock is often

[00:04:22] [SPEAKER_01]: disconnected from the company. But in the long term, it always connects, it has to. And number

[00:04:30] [SPEAKER_01]: two, great wealth is built with patience. It's very hard to think long term, but thinking long

[00:04:38] [SPEAKER_01]: term will make you a better investor to have better returns. And that's how you build great wealth.

[00:04:45] [SPEAKER_01]: Jeremy Siegel calculated the returns of various assets since the 1800s. $1 in stocks,

[00:04:53] [SPEAKER_01]: $1.4 million. A dollar in bonds, $1,599. $1 in gold, $3.09. $1 in cash, $0.48.

[00:05:10] [SPEAKER_01]: So investing in stocks is one of those things where you can't afford not to do it. But you

[00:05:16] [SPEAKER_01]: also can't afford to make big mistakes. And the biggest mistake I see new investors making

[00:05:22] [SPEAKER_01]: is thinking day to day, constantly tinkering and tweaking their investments.

[00:05:28] [SPEAKER_01]: All the research shows being an active investor is what makes you poor. Therefore,

[00:05:35] [SPEAKER_01]: the cosmic secret to building wealth is patience. Warren Buffett said it best, quote,

[00:05:41] [SPEAKER_01]: only buy something that you'd be perfectly happy to hold if the market shut down for 10 years,

[00:05:47] [SPEAKER_01]: end quote. Sure, I'm not immune from wasting time dissecting financial minutiae. But when

[00:05:54] [SPEAKER_01]: you remind yourself to ignore all the nonsense, forecasts, market chatter, price targets,

[00:06:01] [SPEAKER_01]: investing becomes simple, almost easy. And isn't that what you want? To make the most

[00:06:08] [SPEAKER_01]: money investing in order to support you and your family without doing any work.

[00:06:12] [SPEAKER_01]: It's unfortunate when new investors don't have a good experience. You see them pull their money

[00:06:18] [SPEAKER_01]: from the market vowing to never invest again. Yeah, Wall Street is just a casino. The truth is

[00:06:25] [SPEAKER_01]: the market is one of the best ways to build wealth, but only if you buy companies and have tremendous

[00:06:32] [SPEAKER_01]: patience. You just listened to the post titled How Not to Invest $100,000 by Chris Reining of

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[00:08:00] [SPEAKER_01]: Chris's story about the man playing around with $100,000

[00:08:04] [SPEAKER_01]: reminds me why I'm a long-term passive investor. Picking individual stocks, day trading,

[00:08:12] [SPEAKER_01]: and spending that much time and energy on an investment portfolio sounds a lot like a job to me

[00:08:18] [SPEAKER_01]: and an unnecessary job at that as more often than not all that work doesn't amount to better

[00:08:24] [SPEAKER_01]: returns for most people. I'm investing to put my money to work, not for me to take on another job.

[00:08:32] [SPEAKER_01]: Active investing and day trading is what many people think of when they think about investing.

[00:08:37] [SPEAKER_01]: I know I once did. While the life of an active investor might look sexy and glamorous,

[00:08:43] [SPEAKER_01]: this is not what it looks like for most of us who are investing for retirement.

[00:08:48] [SPEAKER_01]: Investing has always intimidated me. It seemed complicated and risky and most of all daunting

[00:08:55] [SPEAKER_01]: to learn how to do it. Luckily, I came across resources like the book The Simple Path to Wealth

[00:09:02] [SPEAKER_01]: by JL Collins and learned about passive long-term investing in total market low fee index funds.

[00:09:11] [SPEAKER_01]: And it finally clicked. Now I know that I don't need to try to beat the market to reach my

[00:09:16] [SPEAKER_01]: financial goals. I just need to match the market. Now I don't stress about the stock market's natural

[00:09:23] [SPEAKER_01]: pattern of rising and falling because my money is going to be riding that roller coaster for a long

[00:09:30] [SPEAKER_01]: time. I don't need to watch it constantly. And because I don't invest money that I'll need to

[00:09:36] [SPEAKER_01]: use anytime soon, I don't miss it. I can leave it alone to go do its job making more money.

[00:09:43] [SPEAKER_01]: That should do it for another edition of Optimal Finance Daily. I'll be back tomorrow as usual,

[00:09:49] [SPEAKER_01]: so I'll see you there on the Wednesday show where your optimal life awaits.