The Game with Alex Hormozi - Stop Day Trading [Do This Instead] | Ep 301

Episode Date: May 20, 2021

Is it worth the money? Today, Alex (@AlexHormozi) shares his thoughts about Day Trading, long-term vs. short-term investing, and why it’s better to just find a different hobby instead.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: (2:28) - Alex shares the mistake he made that cost him $200k(4:39) - The capital gains treatment gets thrown out the window(8:04) - “I have to pay taxes on regular income because I sold it within a year”Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The first and highest performing portfolio activity were people who had purchased stocks and then died. Welcome to the Jim Secrets podcast where you 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. What's going on everyone? My name's Alex Formosie and I am the host of the show owner of Allen Prestige Labs, Jim Launch, done $120,000. in 44, 45 months. 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. And I just want to share with you some of the mistakes that I've made in this kind of transition that I've been through going from kind of CEO to kind of investor slash capital allocator, right? And so the first thing is I want to share some stats with you that I've 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, right? And this was in stocks. And they found that there were two categories

that far out-faced everyone else. Let me tell you what they were. 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 through the account and then had forgotten their passwords. And as a result, had not done any trading. And so for me, I think this is hilarious because 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. Because if you think about this from across all of the accounts that they have, then across all of the accounts,

then they have equal exposure to ups and downs, et cetera. So across all of those accounts, which is just like taking an index of the market, the people who do the least amount have the most money in the account. 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. Yeah, it costs me $200,000. All right? So here's a $200,000 on mistake that you don't have to make it. I'm going to walk you through the math.

All right. So what I was doing is I have in my quote portfolio, I guess it's not a quote portfolio, it's my portfolio. I have three to five percent of it in investable assets that I, candidly, I just play around with. And it scratches my entrepreneurial itch and just me being a human being. 95%, it's actually 97% of my worth is in really, really stable stuff. But I want to talk to you about the 5%. So here's the difference between holding versus trading. And this is something that is massively overlooked.

And I'm hoping to at least convince one person who's listening to this that if you look at the math, you see how quickly you shouldn't do, you shouldn't try and beat the market by trading. All right. And so here's 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. But the second one is a simple $100 example. All right. So let's say you have $100. All right. So this is our initial capital. All right.

And I'm going to give you two scenarios that we're going to walk through. So in scenario number one, we're going to have our day trading example. And let's say that over X period of time, you do really well. Now, I'm just going to ignore the fact that most people are just going to lose money. All right? So that's probably like 75% of all of us are going to mess up somehow and think we're going to beat it. I'm going to, you know, I'm going to quote, buy the dip and then it just goes down by another 50%. right but let's just assume you double your money all right so your $100 becomes $200 all right

everyone's cool so let's just say that happens over a five-year timeline whatever all right now the point here is that it doesn't really matter because if you're in this as soon as you are doing this through trading then the capital gains treatment gets thrown out the window and it becomes regular income all right so you're taxed differently so this $100 gain right that you have here from 100 to 200 gets taxed at 45 you know 43% whatever it is and so you have a an additional let's see here so then that means that after this whole period of time you're going to you're going to be left with a hundred and 40 shit sorry 155 dollars all right sorry about that 155 dollars which are left after tax all right pose

tax. Moza Nation real quick if you are a business owner that has a big old business and wants to get to a much bigger business going to 50 hundred million plus we would love to talk to you and if you like that we would like to hear more about it go to acquisition.com you can play anywhere on the page and talk to one of our team and see if we can help you get there. Don't worry I'm gonna show you a third scenario at a second. The second scenario is you do it and you instead of trading that whole time you just earn the same amount $200 your hundred turns to $200. And candidly, all my passive stuff has outperformed my active stuff, which is hilarious.

But which just confirms this for me, which is why I'm making this video. All right. So let's just say that you still, you make the same $100. All right, we're good there. $100. But now it's capital gains, all right? So instead of being left with $155, we're now left with $180. Wow. Well, that's bigger. But let me show you, and this is the thing that kind of blew my mind, because that's why I love looking at the math so much is, well, then, how much would I have to gain from day trading or trading on shorter terms or swing trades or whatever for this to be worth it, right? How much extra money would I have to make to outpace the fact that I'm getting this regular

income tax treatment on my income? All right? So here's what's crazy. 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 all right so that means that I would have to my my growth here would have to be 50 you know 45% higher right isn't that crazy in order to yield because that times the regular tax treatment gets me to $180 all right

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. In scenario, in order for me to just match that, not even beat it, I would have to take my $100 and turn it into $245 and then sell it. And this is obviously this whole time, you're continuing to flip things and buy things and buy things, right? And then after the regular income tax, I'd be left with $180. All right.

And so when I saw that illustration, it became so obvious to me because I had had some decent gains in something. And so I decided to sell it. And I actually ended up selling it at a good time because it ended up going down because I felt like it was getting overvalued. And so I thought I felt pretty good about myself, right? and what ended up happening is the thing ended up coming back up to exactly where I had sold it again 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 and mind you again guys this is on my three to five percent I don't touch anything that's that's not that all right

so I'm just being very clear and candid here nor do I recommend you do that so if you need the look if you need the itch then I would say put your put three percent aside for pure speculation which is just like I'm which is basically just saying I'm a human being and I'm an idiot and this is how I can manage my idiocy but but when you see the math spelled out like this between this is what smart people do and this is what dumb people who don't make us much money do then it makes me so much more inclined to just do what smart people do and take all of that extra time and just do something else or just make money with my extra time.

One of my good friends, I've known him for 20, 25 years. And when I met him, I think he was managing, I mean, maybe $5 million, like not, which in the finance world is not a lot for management. And now 25 years later, I think he manages $3.5 billion. So he's very good at what he does. and he's one of the most stable people that I know. And when I talk to him about this stuff, he's like, you need a hobby. And so I guess the message that I have for everyone is maybe get a hobby. And just let the money grow and pretend you're a dead person.

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, A, and B, you'll get taxed less on those gains. So I hope that was valuable for you. I hope this makes sense. I hope you get a laugh out of my $200,000 mistake that I just made in the last two weeks. Keep being awesome, lots of love.