Stop Day Trading [Do This Instead] Ep 302

Alex Hormozi, host of the Gym Secrets podcast and owner of Alan Prestige Labs, discusses the merits of long-term investing over active trading, highlighting the power of compounding growth and the pitfalls of human judgment. He references a study showing that inactive accounts due to owners' death or forgotten passwords outperformed others, illustrating the flaws of frequent trading. Hormozi shares a personal anecdote about a $200,000 mistake that reinforces the benefits of holding investments over trading, emphasizing the impact of taxation on returns and advocating for a simpler, more patient approach to investing.

• Host Alex Ramosi introduces the Gym Secrets podcast, focusing on customer acquisition, revenue maximization, and customer retention.
• The podcast also discusses failures and lessons learned in the business journey.

Welcome to the Gym Secrets podcast, where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons that we have learned along the way. I hope you enjoy and subscribe.

The quote introduces the podcast's themes and objectives, emphasizing practical business strategies and learning from past mistakes.

• Alex Ramosi is the host of the show and owner of Alan Prestige Labs.
• He mentions significant business success with Jim launch, achieving $120 million in sales in approximately 44 to 45 months.

My name is Alex Ramosi, and I am the host of the show, owner of Alan Prestige Labs. Jim launch done 120,000,000 in sales in 44, 45 months.

This quote provides context for Alex Ramosi's expertise and credibility in discussing business and investment strategies.

• Alex Ramosi addresses the topic of long-term versus short-term investing.
• He acknowledges the common questions he receives about investment and shares his personal mistakes and learning experiences transitioning from CEO to investor.

So what I want to talk about today is something that I think is really important. I get a lot of questions about, and it's about long term, short term investing and some big pitfalls.

The quote sets the stage for the discussion on investment strategies, highlighting the importance of understanding both long-term and short-term perspectives.

• A study by Fidelity or Charles Schwab analyzed investor profiles and activities that yielded the best portfolio returns.
• The study focused on stock investments and identified two top-performing investor behaviors.

The first thing is I want to share some stats with you that I found really interesting. I think it was, fidelity did a study, it was either fidelity or Charles Schwab did a study on which investor profiles and activity yielded the best returns in terms of total portfolio value.

Alex Ramosi introduces a study that provides empirical data on effective investment behaviors, setting the groundwork for the insights that follow.

• The study found that the best-performing portfolios belonged to people who had purchased stocks and then died, resulting in no further account activity.
• The second highest performing group was people who bought stocks and forgot their passwords, preventing them from trading.

The first and highest performing portfolio activity were people who had purchased stocks and then died. And so as a result, there was no more activity in their account, and their accounts outperformed everyone else. The second highest were people who purchased stocks for the account and then had forgotten their passwords, and as a result, had not done any trading.

These quotes reveal surprising findings that suggest less active management and the benefits of a passive investment strategy can lead to superior returns, emphasizing the flaws in human judgment and the power of compounding growth.

• The study's findings highlight the flaws in human judgment when it comes to active trading.
• It also demonstrates the power of compounding growth when investing in businesses, suggesting that less intervention can be beneficial.

And this was in stocks. And they found that there were two categories that far outpaced everyone else. Let me tell you what they were. [...] it shows the incredible flaws in human judgment, and it also shows the power of compounding growth when buying businesses in general, because then you just get exposure.

The quote explains the implications of the study's results, providing a critique of active trading and endorsing the concept of compounding as a key to investment success.

• Alex Ramosi shares a personal mistake in investing that occurred two weeks prior.
• The error resulted in a financial loss of approximately $200,000.

Now, what I want to do is explain to you a mistake that I made probably like two weeks ago that cost me. Shoot. I have to do the math. It probably cost me 200 grand.

By sharing a specific financial mistake, Alex Ramosi offers a real-life example of the potential consequences of investment decisions, underscoring the importance of the lessons discussed earlier.

• Alex Ramosi discusses a costly mistake related to investment strategies.
• He emphasizes the importance of understanding the difference between holding and trading investments.
• Alex explains his personal investment portfolio allocation, with a majority in stable investments and a small portion for more speculative ventures.
• The conversation aims to convince listeners of the potential pitfalls of attempting to beat the market through trading.

"All right, so here's a $200,000 mistake that you don't have to make, and I'm going to walk you through the math."

This quote introduces the topic of the conversation, which is about a significant financial mistake that can be avoided by understanding the math behind investment strategies.

• Alex Ramosi shares his portfolio allocation, revealing a conservative strategy with the majority in stable assets.
• He allocates a small percentage (3-5%) of his portfolio to investable assets for entrepreneurial and personal satisfaction.
• This demonstrates a balanced approach to investing, with a focus on stability and a small allowance for higher-risk, higher-reward opportunities.

"I have three to 5% of it in investable assets that I candidly, I just play around with, and it scratches my entrepreneur itch. And just me being a human being, 95%, it's actually 97% of my worth is in really, really stable stuff."

Alex explains his personal investment strategy, highlighting his preference for stability while allowing a small portion of his portfolio for more speculative investments.

• The key difference between holding and trading investments is discussed.
• Alex argues that trading is often not worth the effort due to the competitive nature of the market and the taxation implications.
• He points out that most individual traders are likely to lose money or underperform the market.

"But I want to talk to you about the 5%. So here's the difference between holding versus trading, all right? And this is something that is massively underlooked."

Alex introduces the critical distinction between holding investments long-term and actively trading them, suggesting that many investors do not give this enough consideration.

• Alex mentions the presence of large quantitative firms with extensive resources aimed at beating individual traders.
• These firms employ hundreds of analysts, suggesting that individual traders are at a significant disadvantage.
• The implication is that individual traders are unlikely to outperform these firms consistently.

"And so the first reality is that there's huge quantitative firms that have hundreds of analysts who are trying to beat you and they make their money doing that."

This quote highlights the competitive nature of the market and the challenges individual traders face when going up against well-resourced quantitative firms.

• Alex provides a hypothetical scenario of successful day trading, doubling initial capital.
• He notes that most day traders are likely to lose money, but uses the example of a successful trade for illustration.
• The example demonstrates the tax implications of trading, with capital gains being taxed as regular income at a higher rate.

"So your $100 becomes $200... So this $100 gain that you have here from 100 to 200 gets taxed at 43%, whatever it is."

Alex uses a simple example to illustrate how a successful trade can result in significant tax liabilities, reducing the effective return on investment due to higher taxation rates on short-term capital gains.

• Discusses the difference in net income after tax when earning through active versus passive investment strategies.
• Highlights the impact of regular income tax versus capital gains tax on investment returns.
• Emphasizes the need for higher returns in active trading to match the net income from passive investments due to tax treatment differences.

"period of time, you're going to be left with 140. Shit, sorry. $155. All right, sorry about that. $155, which are left after tax. All right, post tax." "So instead of being left with $155, we're now left with $180. Wow. Well, that's bigger." "So in order for me to get to net $80, right, I would have to take that $100 investment and turn it into, I did the math earlier. It's $245."

The first quote clarifies the net amount one is left with after tax from an active investment strategy. The second quote compares it to the net amount retained after capital gains tax from a passive investment strategy. The third quote calculates the necessary return on active trading to match the net income from passive investments after tax.

• A call to action for business owners with substantial businesses looking to grow.
• Provides a platform, acquisition.com, for business owners to seek assistance in scaling their businesses.
• Encourages business owners to apply and discuss potential growth strategies with the team.

"If you are a business owner that." "Has a big old business and wants to get to a much bigger business, going to 5100 million dollars." "Plus, we would love to talk to." "You can apply anywhere on the page." "And talk to one of our team and see if we can help you get there."

These quotes are a direct invitation to business owners who are looking to scale their businesses to substantial figures. It offers a resource (acquisition.com) for owners to apply and consult with a team that could help in achieving their growth objectives.

• Alex Ramosi presents different investment scenarios to illustrate the effect of taxes on returns.
• Compares the outcome of passive investment with capital gains tax versus active trading with regular income tax.
• Demonstrates that a significantly higher return is required from active trading to match the after-tax income from passive investments.

"Now, don't worry, I'm going to show you a third scenario in a second. The second scenario is you do it, and instead of trading that whole time, you just earn the same amount, $200." "All my passive stuff has outperformed my active stuff, which is hilarious, which just confirms this for me, which is why I'm making this video." "So if I'm comparing the two things, if I want to be left with $180, option one is I buy something and I forget about it. And then later, five years later, I sell it for whatever reason, and I am left with 180 because I only had to pay capital gains on it."

The first quote introduces the idea of comparing investment scenarios. The second quote shares personal experience where passive investments outperformed active ones, reinforcing the message of the video. The third quote contrasts the two investment approaches, highlighting that passive investments with capital gains tax can result in higher net income than active investments when considering the tax impact.

• Alex Ramosi shares a personal anecdote about the tax implications of selling an investment within a year.
• He explains that by selling an asset within a year, it is taxed as regular income, which can significantly reduce the net gains.
• Alex highlights the importance of understanding the tax benefits of holding investments longer to qualify for capital gains tax rates instead of income tax rates.
• He emphasizes the value of patience and long-term thinking in investment strategies.

And so if I had literally just done nothing, then I would have more money, because now I have to pay taxes on regular income because I sold it within a year.

This quote explains the financial consequence Alex Ramosi faced by selling an investment within a year, leading to a higher tax liability than if he had held the investment longer.

• Alex advises allocating a small percentage, such as 3% to 5%, for speculative investments to manage the urge to trade frequently.
• He suggests that by acknowledging the tendency for impulsive decisions, one can better control their speculative behavior and focus on a more stable investment approach.
• Alex recommends following the practices of financially successful individuals to optimize investment returns and time management.

So if you need the itch, then I would say put 3% aside for pure speculation, which is basically just saying, I'm a human being and I'm an idiot, and this is how I can manage my idiocy.

Alex is providing a strategy for managing the natural human impulse to speculate, recommending setting aside a small, designated portion of one's portfolio for this purpose.

• Alex Ramosi reflects on the advice of a successful friend who manages a significant amount of money, emphasizing stability and inactivity in investment management.
• He suggests that investors should "pretend you're a dead person" to avoid the temptation of frequent trading, which can lead to lower gains and higher taxes.
• Alex proposes practical strategies to prevent impulsive access to investment accounts, such as disposing of passwords or entrusting them to someone trustworthy.

And if you can't pretend you're a dead person, then throw away your password or give it to somebody that you would be ashamed to ask for your password back so that you just don't touch your stuff, because ultimately, you'll probably end up getting higher gains.

Alex is offering a metaphorical and literal tip to avoid tampering with investments, which could lead to better financial outcomes and tax advantages.

• Alex shares his recent financial mistake to illustrate the importance of learning from such experiences.
• He acknowledges the value of these lessons and encourages his audience to embrace their mistakes and grow from them.
• Alex conveys his hope that sharing his experience will help others avoid similar errors and improve their financial decision-making.

I hope you get a laugh out of my $200,000 mistake that I just made in the last two weeks.

By mentioning his own costly mistake, Alex aims to humanize the learning process and foster an environment where sharing and learning from financial missteps is encouraged.