My Investment Thesis Ep 479

Summary Notes


Alex Rosie, owner of and a self-made multimillionaire, shares his evolved investment strategy, which mirrors his business approach: focus on what you know and excel at it over time. He advocates for investing in areas of personal expertise and has shifted from traditional banking to treasuries for safer, higher returns. Rosie outlines his investment phases: initially investing in personal development, then the S&P 500, and now private equity in familiar industries. He stresses the importance of understanding investments deeply, citing Warren Buffett's views on diversification and risk. Rosie's current strategy involves maintaining a cash reserve in treasuries, with significant investments in private deals that align with his business knowledge, aiming for substantial returns by leveraging his expertise.

Summary Notes

Investment Strategy Evolution

  • Alex Hormozi's investment strategy mirrors his business approach: focus on what you know, improve, and persistently apply it for success.
  • The current economic shift necessitates a change in investment methods.
  • Hormozi has redirected his investment from traditional banks to alternatives offering safer and higher returns.

"My investment strategy, after all of this time has gone completely back to my business strategy, which is singular focus." "The entire economy has shifted, and so, too, should your investment."

These quotes highlight the importance of adapting investment strategies to align with changes in the economy, emphasizing a singular focus as the core principle of both business and investment success.

The Changed Economy and Investment Implications

  • The economy's transformation affects asset pricing and investment opportunities.
  • Inflation, real estate volatility, crypto, and stock market crashes have altered the investment landscape.
  • Hormozi encourages a reassessment of where to allocate funds under these new economic conditions.

"Because the economy has changed, things are priced differently. There's inflationary pressures. Real estate is hanging on by a thread. Crypto has crashed. Stocks have crashed."

This quote summarizes the current economic challenges and the need for investors to reconsider traditional investment avenues in light of these changes.

Understanding Cash and Bank Dynamics

  • Depositing cash in a bank effectively means lending money to the bank.
  • Banks use deposited funds to provide loans or to purchase government bonds.
  • Traditional bank interest rates are low, offering minimal returns to depositors.
  • The risk associated with bank deposits includes the potential loss of funds beyond FDIC insurance limits in the event of bank failure.

"When you put cash into a bank, you're actually writing the bank a loan to then loan your money and get something back." "If the bank goes under, you lose all your money outside of the FDIC insured amount."

These quotes explain the relationship between a depositor and the bank, highlighting the risks involved with bank deposits and the limitations of FDIC insurance.

Investment Thesis: Cash Management

  • Interest rates are a measure of risk; higher interest implies higher risk.
  • Hormozi discovered an investment option that seemed uninteresting initially but offers lower risk and higher returns than banks.
  • Investing directly in government treasuries can be more profitable and safer than leaving money in bank accounts, as banks also invest in these treasuries.

"Interest is a function of risk. That's how it works." "What if there were a better alternative that was lower risk and had higher returns."

These quotes delve into the concept of interest as compensation for risk and introduce the idea that there are more secure and profitable alternatives to traditional bank deposits, such as government treasuries.

Immediate Accessibility and Liquidity of Investments

  • Immediate accessibility refers to the ability to quickly access funds from an investment.
  • Liquidity is the ease with which an asset can be converted into cash without affecting its market price.
  • Treasuries and bank accounts are compared for their liquidity and accessibility.

"Interest here is because the money is immediately accessible. It's liquid. So you can go tomorrow and get money out, right? That's how it works there."

"A more liquid thing will pay you less because you can get in and out, right?"

These quotes emphasize the value of liquidity and immediate access to funds in financial assets. The speaker notes that typically, higher liquidity results in lower interest rates due to the convenience of quick access.

Advantages of Treasuries Over Bank Accounts

  • Treasuries are considered highly liquid and can be traded quickly.
  • Loans can be taken against treasuries at a low secured interest rate.
  • Governments and countries frequently trade in U.S. treasuries, ensuring marketability.
  • Treasuries are deemed lower risk compared to banks and offer higher returns.

"Treasuries are just as liquid as a bank account for two reasons. Number one, because you can take a loan against treasuries in real time, you get 80% of your money."

"T bills trade even faster than bitcoin by a fucking mile."

The speaker outlines the benefits of treasuries, highlighting their liquidity and the ability to take out loans against them. The comparison to bitcoin's trading speed underscores the efficiency of treasury trading.

Investing in Bank Bonds Instead of Bank Savings

  • Bank bonds can offer significantly higher interest rates compared to savings accounts.
  • Investing in a bank bond is essentially betting on the bank's continued operation.
  • The general public is often unaware of these investment opportunities.

"Instead of putting the money in the bank and then betting the bank's going to stay alive and paid a little bit, you could do an identical transaction and just buy a bond from bank of America and get 5% or 4.7% from bank of America."

The speaker suggests that purchasing bank bonds can be a smarter financial decision than keeping money in savings accounts, due to the higher interest rates offered by bonds.

Evolution of Personal Investment Strategy

  • The speaker's investment strategy has evolved over the years, influenced by personal growth and market changes.
  • Initially, investments were focused on self-improvement and learning.
  • The strategy shifted to index funds following Warren Buffett's advice.
  • Post company sales, the strategy incorporated a "Barbell strategy" with a focus on stocks, real estate, and private equity.

"So my entire structure of investments has changed over the last five years. Really? Last ten years, the first chunk of my life was SME 500."

"I have stocks over here. I've got real estate over here, very little in between. And then I just have my private equities of the companies that I own personally."

These quotes reflect the speaker's journey in refining their investment strategy, from prioritizing self-education to diversifying into different asset classes following significant financial events, such as selling companies.

Investment Knowledge and Allocation

  • Investment decisions should reflect one's knowledge and expertise in the area.
  • Dave Ramsey's advice to Graham Stefan highlights the importance of investing in areas one is knowledgeable about.
  • The speaker advocates for aligning investment distribution with personal expertise.

"Well, if you put a big circle on the table, and I'm loosely paraphrasing, and we had to say what percentage of your knowledge is real estate versus stocks and bonds and other stuff, what would you say it is?"

"So where you invest is what you know."

The speaker shares a critical insight from Dave Ramsey about the relationship between knowledge and investment choices, suggesting that one's portfolio should mirror their areas of expertise for optimal investment decisions.

Investment Strategy and Understanding

  • Alex Hormozi emphasizes the importance of investing in what you understand.
  • He took inspiration from successful investors who focus on a few areas they know well and invest heavily in them.
  • Hormozi shifted his own investment strategy to focus on private deals within his expertise.
  • He advises against diversifying into areas outside of one's knowledge.

"We've learned many things, but two things from investing. He said, they don't do many things, and the things they pick are things they understand, and they do a lot of them."

This quote highlights the lesson Alex Hormozi learned about successful investors' strategies: concentrating on a few well-understood investments rather than a broad array.

"So as soon as I heard that, I one took all my money and put it into treasuries, because I understood that the banks weren't going to give me anything for it."

Hormozi explains his decision to invest in treasuries due to better understanding and yield compared to banks, highlighting the importance of understanding one's investments.

Private Deals and Risk Assessment

  • Hormozi shifted to investing solely in private deals within industries he knows.
  • He discusses a significant deal he made in a familiar industry with experienced operators.
  • Recognizing the high risk and high reward potential, he felt comfortable due to his industry knowledge.
  • Hormozi underscores Warren Buffett's view on diversification and risk.

"And the reason that this became real for me is that I had the biggest deal that I will have done, which I'll tell you about later, maybe a few years from now, financially, that normally I wouldn't write a check one 10th of that size to a real estate deal or an apartment complex or some other thing that I don't understand."

Hormozi's quote expresses his investment philosophy of committing to large deals only within his realm of expertise, avoiding industries he doesn't understand like real estate.

"This investment will probably get somewhere in the neighborhood of 100% to 500% a year. You're like, how is that possible? It's only possible because it's an incredibly high risk investment, but it's high risk for somebody who doesn't know what they're doing."

He acknowledges the potential for high returns on his investment, attributing the success to his understanding of the industry, which reduces the perceived risk.

Warren Buffett's Investment Philosophy

  • Hormozi cites Warren Buffett's views on diversification as a protection against ignorance.
  • Buffett suggests that the average person should invest in broad market indexes like the S&P 500.
  • Understanding the variables of an investment can mitigate its risk.

"Diversification is a hedge against ignorance. It's a hedge against not knowing the reason that he tells most people to do the sp 500s, because he realizes the vast majority of people don't know what they're doing."

This quote reflects Buffett's advice for the average investor to diversify due to a lack of deep investment knowledge.

"It's only risky when you don't know what you're doing."

Buffett's quote, as referenced by Hormozi, suggests that knowledge and understanding of an investment significantly reduce its risk.

Investment Execution and Strategy

  • Hormozi's investment execution involves recycling capital from treasuries into private deals and back.
  • He emphasizes the importance of investing in familiar territory, especially in a risky economy.
  • Hormozi aligns his investment strategy with his business strategy, focusing on a singular area of expertise.

"War chest goes back up, plowed in another deal, repay back the war chest, plowed into another deal. That is the investment strategy that I am following."

Hormozi describes his cyclical approach to investing, where he builds up a reserve (war chest), invests it, and then replenishes it for future investments.

"Do the things you know, do more, do it better, and keep doing that for an extended period of time, and it would be unreasonable that you don't win."

He advises focusing on what you know and consistently improving and investing in it, drawing a parallel to his business approach for assured success.

Practical Investment Advice

  • Hormozi offers practical advice for investing in stocks and treasuries through apps like Robinhood.
  • He emphasizes the simplicity of starting in investments for those unfamiliar with the process.

"You can go to Robinhood or whatever exchange you invest on. And if you don't know where to do that, just say like, 'How do I invest in stocks?' And you'll be able to download an app that does it."

This quote provides a straightforward suggestion for beginners on how to start investing using accessible platforms.

"And you can search treasury or bonds and you will be able to go and buy a bond. It is not complicated."

Hormozi demystifies the process of investing in treasuries or bonds, highlighting the ease of access for individual investors.

Bond Investment Strategy

  • Alex Hormozi discusses a strategy for investing in bonds that involves buying bonds with staggered maturity dates.
  • The strategy aims to create a cash recycling machine by receiving cash plus interest every six months and reinvesting it for another 24 months.
  • This method provides liquidity and avoids the need to trade bonds frequently.
  • Bonds are considered a safer investment than a bank account and offer a guaranteed return unless the issuing government fails.

"So one strategy is to buy them all at a certain maturity date. And then wait, what we have opted to do is buy 612 1824 month bonds. Basically go one quarter, one quarter, one quarter, one quarter."

The quote explains the staggered approach to buying bonds with different maturity dates to ensure a continuous cash flow.

"You can still take loans against it. And if you're worried about value of bonds going up and down, don't. Because if you do that strategy, you're just banking on the fact that you are going to get the money back."

Here, Alex Hormozi emphasizes that the strategy allows for stability and predictability in bond investment, mitigating concerns about market fluctuations.

Investing in Dental Practices

  • Alex Hormozi suggests that dentists with surplus funds should consider investing in another dental office for higher returns than the stock market.
  • He outlines a scenario where a dentist can purchase an office with seller financing and quickly recoup the investment.
  • The strategy can significantly increase net worth and equity value tax-free, especially if the dentist can improve the business.

"So if you're a dentist, right, at a certain point you will have enough money, if you're good at being a dentist and don't do this until you are good enough at being a dentist, that you have a lot of extra money that you could go and buy another dental office."

Alex Hormozi advises dentists to consider investing in additional dental practices once they have mastered their profession and accumulated excess funds.

"You doubled your money on a cash basis, but now you own your dental practice plus their dental practice. And the combined value of those things is even higher than either of those individually, and you still own those."

This quote highlights the financial benefits of acquiring another dental practice, including doubling cash investment and increasing the combined equity value of both practices.

Three-Phase Investment Strategy

  • Alex Hormozi outlines a three-phase investment strategy for personal and financial growth.
  • Phase one involves investing in oneself to increase skill sets.
  • Phase two is about investing excess earnings in indexes like the S&P to diversify risk while still learning.
  • Phase three focuses on investing in one's primary field of expertise to build wealth once a significant amount of money is being made.

"So the first one was investing in you, right? Investing and increasing your skill set, which is later going to be compounded because we talk about leverage all the time."

The quote introduces the first phase of the investment strategy, which prioritizes personal development and skill acquisition.

"The third phase is, okay, I'm making so much money from the game I'm in that it makes more sense. And it's less risky for me to do more of this game than the stock market."

Here, Alex Hormozi explains the third phase, where the focus shifts to investing heavily in one's main area of expertise rather than traditional markets like the stock market, as it becomes less risky and more profitable.

"Right now, you're learning this shit so that later you can lever the crap out of it in conjunction with capital, and then you'll blow up."

This quote emphasizes the importance of learning and building skills in the initial phase, which sets the foundation for leveraging those skills with capital for significant financial growth in the future.

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