The Game with Alex Hormozi - 24 Rules in Investing | Ep 486

Episode Date: January 17, 2023

The moment you feel unsure, don’t do it. Today, Alex (@AlexHormozi) shares with us the 24 rules of investing he has come up with in order to help you make easier & better decisions, and use any of these principles as a guide whenever you need to make choices.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(1:17) - Investment Rules #1-6(4:23) - Investment Rules #7-12(9:52) - Investment Rules #13-18(16:16) - Investment Rules #19-24Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

If you're unsure or you're uneasy, you get one of these, like, tiny, like, I'm just not sure if I'm going to do it. Don't do it. I'm telling you, like, there are so many reasons you should not do a deal. You'd be saying no way more than you should be saying yes. The wealthiest people in the world see business as a game. This podcast, the game, is my attempt at documenting the lessons I've learned on my way to building acquisition.com into a billion dollar portfolio.

My hope is that you use the lessons to grow your business and maybe someday soon, partner with us to get to $100 million and beyond. I hope you share and enjoy. I'm going to talk about the 24 rules of investing. and these are all structured as if-than statements. And the reason they're structured that way is that we make many decisions, countless decisions every single day. And the idea is that if we learn a principle,

then we can continue to use that winning principle over and over again. And we don't look at the principle in the micro, which means like you could not make an investment and it could blow up. But the question is, if I had made that same decision-making process over and over and over again, would I, over the longer term, have made more money? And so the reason some of the greatest investors published books about their principles is because they know if people make the right decisions, they get the right outcomes over a long enough time horizon.

And so these are the 24 rules of investing that I have gathered over my career. If you don't know, I am, my name's Oxymuzzi, across $100 million net worth at 33, and I make these because I hope that if you have a $3 million to a $100 million company, you'll ask us to invest in it, and we can hop and grow up. Other than that, the stuff's free, enjoy it.

Okay, if you can't buy it twice, don't buy it once. And so this is a principle around sizing how much you're going to put into something. And so if you can't buy it twice and realistically probably three, four, five, six times, don't buy it once because it means you're probably taking too big of a chunk out. When I got into investing in general, I used to think like, oh, I'm going to put like a third into this. They're like, dude, no. Like your biggest allocation might be 10%. I was like, oh.

So it takes a totally different frame of mind. So the principle is if you can't buy twice, don't buy it once. Two, if you're worried about it, you can buy insurance for it. So there is unlimited insurance products. There are so many insurance products under the sun. you'd be amazed at what you can buy insurance for. And so, for example, people are like, I'm afraid of running out of money. You can literally buy money for the rest of your life.

You can literally give money, and they will have a guaranteed income until you die. Like, there are things that people don't know exist. Those are called annuities, right? If you are afraid that certain person's going to die, you can get insurance on that person. Like any type of scenario, like, what if I lose my arm? Like, surgeons can get insurance on their hands because if they get an accident, they get you surgery. Like, you can get insurance on anything. And so if you have a specific concern,

you don't have to get crazy about it, just buy insurance for it and know that it's covered. If a deal feels like a grand slam, get a second opinion. And so whenever I'm looking at something and something looks amazing or whatever, I automatically send it to other people because it means like, I must not be seeing something like, I need someone else's eyes on this. And so it's a good, easy decision-making rule for yourself for investing. If you don't know how you can lose money, don't do it until you do. So you have to figure out how you're going to lose money. Like there's always a way to lose money in the deal. And you not only want to find a way to lose money, but you want to find all the

ways you can lose money in the deal. And so if you don't know any, you definitely shouldn't do the deal until you know most of them and or all of the ones you possibly think you can know. Right, we're always controlling for the unknown or the unknowable, but we want to minimize that to the highest degree possible. So if you don't know how you can lose money, don't do the deal until you do. If it feels rushed, don't do it. And this is one of the biggest ones that have served me in my life. Because what happens, a lot of people will try and apply pressure to you. They're trying to say like, hey, do this deal with me. Hey, give me this money. Hey, can you let me? thing, blah, blah, blah, right? And the more money you have, I promise you it doesn't stop and

it gets bigger. And so if someone tries to pressure you, pause, right? And if anything, if someone tries to pressure you, just don't do the deal altogether. So if you feel rushed, don't do it. It's one of the easiest things that save me so many mistakes in my life. If you only have one deal on the table, don't do the deal. Always have backup deals. And the reason for that is like, imagine you're dating, right? And there's only one girl on the planet. Well, you're going to find a way to think that that girl and if, you know, your gender's reverse, flip it, right? Or your preferences, well, fuck, whatever. You know what I'm saying, right? If you want to bang somebody, if there's only one person on the planet, then you're going to find a way to make

that work, right? And so it's kind of the same thing with deals. Like, if you only have one deal on the table, you're going to keep telling yourself, like, man, maybe this is a good deal because you have nothing else to compare it to. And so the idea is you always want to have a plethora of options to choose from. And until you get those many options to choose from, don't move forward because what happens is you artificially make that girl look a lot better or that person or that deal looks a lot better when there's nothing else to compare it to. If you buy with the intention of selling, you're not investing, you're trading. And so a big thing that everyone like, I hear people, especially in the younger community, they're like, I'm an investor. It's like, well, if you're buying with the intention of selling,

you're trading, you're transacting. You're really just running a business, not investing. Investing is about very, very long time rises, so sometimes it's harder when you're younger to even imagine a longer time horizon. But it's also the reason that there's not like many legendary investors who are in their 20s. And so part of that is because it takes time, time. And so the idea, though, is this a mindset shift in terms of decision making, which is if you're going into something with the intention of selling it, you're not investing, you're trading, you're transacting. And it's just a different shift. And then it's a whole different set of rules. Where you get in trouble is where you're trying to apply business stuff to investing versus investing stuff or investing stuff to business.

Like they are different skills, which is why investors aren't necessarily good at business. And a lot of business people aren't necessarily good at investing because they're completely different skill sets. Now, there is crossover. There is time where there are benefits of principles, but overall, they are different skills to master. So this comes into play with you have a partnership. If we don't agree, we don't do it. So this has saved me so many mistakes. I'm usually the yes man in my partnership. So I'm always, I tend to be more optimistic. I tend to see more upside and less downside. And most entrepreneurial people are that way because we have to be. Because we have because if we actually focused on the likelihood of success, which is usually low for most entrepreneurial

things, you would never get started. And so you have to have some proclivity for being a little bit overly optimistic, right? And so it's good, A, to have a partner who balances that. But B, if you have that partner who balances it, they actually have to balance it. If they're just a yes, man and they always, like, bend to your will, then they're not actually providing value. Like, there's a reason yin and yang are equally weighted in the symbol, right? And so if you don't agree, don't move forward. This has been something that's been really valuable for my life and for business partnerships in general. Like, I don't strong arm anyone even if I have decision-making authority,

I still won't move forward until we agree. And as a tangent into marriage stuff, we get asked this all the time. They're like, well, if push comes to shove and you both don't, you know, like somebody has the upper hand. Honestly, no, we keep talking about until we agree. Like, we just keep, we don't make the decision until we both agree. And it's been one of the earliest pieces of advice we've gotten, and it's been one of the ones that paid us the most evidence.

If it's complicated, pass. If it feels above your head, it probably. is. And so one of the things is that people want to feel fancy. They want to get into the room. They want to do these deals. They want to get into the complex stuff. But if you don't get it, you're going to get fucked. And if you pretend like you do, you're double going to get fucked. And so the idea is, if you don't get it and it's not simple to you, it's probably because you don't understand it well enough. But if you don't understand it well enough, it's very high risk. If you have complete understanding of something, the risk goes down because you understand the variables. And so if you're

barely catching on, you might as well be gambling, right? Which is not the way to invest. best. FOMO means slow down. All right. So if you feel that emotion, like, I'm going to miss out on something, slow down. All right, this is a decision-making variable. When you feel that emotion, slow down. Again, these are principles. If you just, you start flexing these like muscles, you do it. And if this, then that, if this, then that, and then it preserves your ability to make better decisions over time. And if you apply all of these things to all the decisions you make, you will have outsized returns over a longer time horizon. No diligence, no deal. All right. So if someone's like, oh, I don't have a lot of diligence.

So they don't send you the Packer. They don't send you enough information on the thing. And they still expect you to invest in something. And when I say invest, doesn't have to be formal investing. Like, it can be like buying into something. It can be buying, like you can buying anything. It's really a purchasing decision. If you don't get the information you need to make the decision, you don't make the decision.

And I know this sounds ridiculous, but many of you do this, right? You just go off the hype. You go off an email or phone call or whatever. Like, get the information you need. All right. And if there's no diligence, no deal. Right. that's the way it works. And if you miss out on something because you didn't do diligence,

remember that there was nine other things that you also didn't do that you would have lost your ass on. All right, it's using these principles over many decisions over a long period of time, which yields a return. No model, no deal. And so what that means is if someone doesn't send me like their proposal for how something's going to grow or how something's going to approve or how they're going to add value, then there's no deal. Right. I don't want to hear a story of it. I want to see the math behind it. I want to see the projections. And then when I look at those things, I can make the decision like, is this reasonable? What assumptions are this based on? Do I think those assumptions are reasonable or probable? And what information can I bring to this decision? What are the

things I need to believe that have to be true for this to occur? Right. And so then you can actually be more objective about the decision rather than just like, yes, if I multiply 100 by a thousand, it's a million, or you know, whatever, 100,000. You get the idea, right? Is that like, if there's no model, no deal. If someone's non-responsive in the deal process or slow to respond, no deal. reason for that. Communication is one of the most important things when you're doing any kind of business in general. And I judge someone very quickly on how meticulous they are in their responses and how quick they are to respond in general. Now, if someone says, hey, I received your email, I'll get back to you in two days, and then they get back to me in two days, that's fine. It's about expectation setting and expectation meeting, right?

What's not good is either of these scenarios. Either the person doesn't respond, right, or takes a long time to respond, or they say, I'll get back to you tomorrow and then they get back to me two days later, right? I expect, especially in this process where I'm just getting to know you, that what you say is going to happen is going to happen. And it's one of the easiest ways to build a reputation is do what you're going to say and say what you're going to do. And if someone's not doing that with you, don't do the deal. If it costs peace of mind, don't buy it. So if anything costs me my sleep or something that I'm worried about as a result of me making an investment or a purchasing decision, I don't buy it because the cost is too high. Right.

And so you think about this over a long time horizon, like you can absolutely. sell your piece of mind, but it's probably not worth selling. Right? So don't, don't buy something that causes you to sell your piece of mind. Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything. And so the only ask that I can ever have of you guys is that you help me spread the words so we can out more entrepreneurs, make more money, feed their families, make better

products, and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I ask to do is you can just leave a review. but take you 10 seconds or one type of the thumb, it would mean the absolute world to me. And more importantly, it may change the world with someone else. If it doesn't build your reputation, don't do it. No neutral moves.

So this is one that I've adopted more recently. But the idea is your brand personally, your reputation is the one thing that you take with you forever. And you absolutely can lose it, and it can be irreparably damaged, whereas your money you can recover from. And so the idea is, I made this rule for myself also because it makes it even easier for me.

Because it's not, I don't want to hurt my reputation. It's only do it if it builds my reputation. No neutral moves. And so what happens is when we do that, we continue to reinvest in our reputation, in our personal brand, which gives us compounding returns over our entire lifespan in terms of relationships,

in terms of literally financial returns, and all other aspects of life. But no neutral moves, only invest if it builds your reputation. If it doesn't build, don't do it. No track record, no deal. Pick performance over charisma. All right.

And so a lot of times people are, you know, trying to get their start, whatever. The thing is just like, they're probably going to get somebody to say yes. It just doesn't necessarily have to be you, right? And so big track record over performance. And this comes also for like hiring people. It comes for investing in deals, doing transacting with people in business, like for vendors, whatever it is. The best predictor of future performance is past performance.

As much as people want to be all hand-waving, they want to show you some crazy graphs and whatever, like, sure, they have a model. Fantastic. Oh, they're allowing us to do diligence. Great. Oh, they're being very responsive. Phenomenal. But if they have no track record, might they be successful?

Yes. But if I invest in every deal that doesn't have track record, is that a good way to invest? Probably not. And so, like Napoleon like to say, I'd rather have lucky generals. Someone's going to probably do their deal. It doesn't have to be you. And then if the deal does crush, then they're going to do another deal, and you can get in on that one. If it's the same thing you've always done.

done well with, do more of it. And so this is one of those things where we as humans or entrepreneurs, we like having variety, right? So we like to try new shit. But the thing is, is that a lot of investing, a lot of compounding comes from doing more of the same thing. And so it's like, hey, man, I've done three hard money loans and they've all been awesome.

It's like, well, then you should probably consider doing a fourth rather than starting to get into crypto day trading. You know what I mean? Which is obviously not investing. But like, what happens is you start to build your own track record, right? And so when you have a track record, you have your own performance. And so you can start looking back over your shoulder, be like, okay, let's look at all the things

I've done, these have been the things that have worked well, maybe I'm better at this stuff, or maybe I have more insight into these things that I think I do. Now, mind you, you don't get higher in your own supply and start thinking that you're smarter than you are, which is not a good idea. You might have also gotten lucky. But again, I'd rather have lucky generals. And so if I tend to be a little bit luckier on the side of the board, then I'm going to play on the side of the board, right? And so that's the idea. Once you find something that you start to get good at, do more of it. Because the thing is, is that your luck will improve the more you do. Always under borrow. Because any number, no matter how big it is multiplied by zero,

is still zero. And this is something that I tend to be very risk-converse when it comes to debt, because it's called leverage on the way up and it's called debt on the way down. Right. And so the idea here is that debt introduces risk into any equation, right? And risk, if multiplied over a long enough time horizon, will occur, right? The downside will occur. And so the idea is if that's going to occur over a long enough time horizon, and I am going to get multiplied by zero, that is probably not the best idea. And so if you are going to borrow, then under-borrow. So even though you could juice your return by getting more, remember that there is a likelihood over a long enough time rise in that if you overuse on a consistent basis, you will get zero.

So again, this is a principle in thinking, okay, if I get, for example, a 30% return on my stuff because I juiced it by taking on extra money to get better returns on my initial capital, and I do that on 10 deals, maybe nine of them I do get 30%. But then if I do it on the 10th deal and lose it all, because this is a principle of decision-making, then I go down to zero. And that sucks, right? And so the idea is always underborrow. And if you always under borrow, then you won't make as much money, but you won't lose it. And that will allow you to continue compound over time. So this is an important one. Ask stupid questions, define terms, draw pictures,

see examples. And if you can't draw it back, you don't get it. And so one of the things that I think about a lot is I want to understand everything that's in front of me, as much as I possibly can't. And especially if you're getting into these things, there's probably a lot of stuff that you have no idea what it means. All right. And you know what's crazy? Most people don't even know what they're saying. Most people don't even know how to define the words they use every day. All right. And so having a definition of terms is useful. And if someone else is across the table from you, don't pretend like you know what they're talking about. Because A, they might not know what they're talking about. B, if they do know what they're talking about. And I start every

single call when somebody's going to bring me something. I'll be like, pretend I'm a golden retriever that doesn't speak English. All right? It's like, walk me through this. And if you set that frame at the beginning, usually get a laugh, but you'll also just say, like, this isn't my game. And on the flip side, there is no advantage to somebody thinking you know more than you do. None. But there is advantage to you knowing more than they think you do, right? And so always play the fool because oftentimes you won't be pretending to be posturing and you will learn. Because even if they tell you stuff and 80% of it you already know, the 20% you didn't know, you still get better from the conversation.

And it allows you to ask obvious questions, but oftentimes the obvious questions is where, like, the lies or the bodies are buried underneath. And if they start struggling to explain it to you, it means they also don't understand it well either. This is for my richer friends. So once you have 10, 20, you know, 30 million in investable assets, one of the things that I got for a mentor of mine, he said, if we're not in the GP, we're not in the deal. It's one of the best pieces of advice that I've gotten, which is like, if you're able to write bigger checks, then just say I want a part of the GP or I only do. deals where we're part of the GP. And when you do that, you start getting parts of the GP. And so, like, now, for example, Layla and I only write, like, we're only going to write a check into something that we are a part of the GP for it. If you're like, I don't know what the GP is,

then don't worry about it because that probably doesn't apply to you. All right. And so it's general partner or limited partner. The people with general partners are basically the people who run the thing so they get an extra slice of the pie versus the limited partners who actually invest the money. And so if you're putting the money in only, but if you write a big enough check, you can also negotiate in a slice of the GP. Right. And so you can make that as a rule, which I have, right, which is like, we only do. deals we're a part of the GP because I want to make sure that we have a part of the people who are really running this thing. If it's a bad person, it's a bad deal. I mean, Layla has an

impeccable people picker. It's unbelievable. Like she can, she's never been wrong in my entire relation. She's never been wrong. And it's why I've been wrong all the time. I'm like, this guy's great. You know, um, that's not like, again, I'm a rose collar glasses guy. Layla's never been wrong. And it's freaky, actually. What we have learned is that like, bad partners, doesn't matter what the paper says. because a bad person will always try and find a way to fuck you. And so it doesn't matter what it is, even if everything's great, they will try and find a way to fuck you.

And so if you're unsure or you're uneasy, you get one of these tiny, like, I'm just not sure for me to do it. Don't do it. I'm telling you, like, there are so many reasons you should not do a deal. You'd be saying no way more than you should be saying yes. No contract, no deal. But live in the world as though there were no contract. This is a really important one for me, is that earlier on, in business, you know, in business,

relationships and employee relationships. I used to just be like, I, you know, I heard that if you just have a handshake, that's what matters more. Dude, it's a different time. All right. You've got to have contracts for everything. And the important thing here is that contracts serve the purpose of setting clear expectations. If you're like, I don't want to go through this. It's going to, like, lawyers, it means that you're not willing to confront hard conversations. What happens if you lose all my shit? What happens if you don't do what you said you're going to do? What happens if I don't do what I said I was going to do? What happens? You've got to walk through that. If you can't walk through in the beginning, you're definitely not going to walk through it when it actually happens, right?

So be able to get through the uncomfortable conversations early so that when shit does happen, you actually know what the actual terms are. Like, what are the stakes, right? And anyone who says, I only do handshake deals, I don't, I don't do contracts, run the other way. Run the other way. Every single person who has talked to me that way has been a fucking crook. Like, every one of like not, like not once has someone approached me that way and they not, being unbelievably shady. So like, please, I mean, don't trust me, do whatever you want. But like, if there's anything you get from this, if someone says, like, I don't believe in contracts, be like, I don't believe in dealing deals without contracts. Sorry. Like, clear expectations, good. The contract

is only worth the signature that signs it. Okay. And there's multiple levels to this. One is that if someone's personally guaranteeing something, they have no assets, it's not really a guarantee, right? They're guaranteeing against nothing. But more so, it's the reputation, right, of the person that you're doing business with. And so on the flip side of that, if you were the one people are doing business with, I like to pretend like the contract doesn't exist. So you absolutely want to be clear when you're writing the contracts and when you're talking about the terms and like, what happens that this happens? What happens if this happens? Like you want to be really clear about all that stuff. But I want to exist in a world that I'm not in litigation all day. I want to exist in a world where

I'm always way above my contractual terms. And I exist in a way, like even if someone's committed, for example, to let's say I have a services relationship that's a year long, whatever. I want to mentally think, even though they've committed to a year, because that's where the economics and the business makes sense, that I'm going to pretend like I'm only week to week. Like, they don't have to pay me next month. And so if you go on the defensive when you're contracting, but you go on the offensive when you're in delivery, you kind of get the best of both worlds. And this has been something that has served me in so many parts of my life. It's like, be defensive on the contract and the terms. That's important, right?

Like you want to make sure that the eyes are died of the T's are crossed. But then as soon as that process is over, live as though this doesn't exist. and the person could leave whenever. And that has served me incredibly well in my whole life. Live as though the contract doesn't exist. Negotiated as though it's the only thing that matters. But then after it's done, it's done, put it in a shelf and you never look at it again

because you want to live as though you're doing this only off of goodwill. And if the spirit of the original agreement continues to be maintained, then both of you will continue to transact. The contract is only for when someone doesn't stick to their terms. So live as though it doesn't exist.