Things To Do Before Making Any Investment To Protect Yourself

Things to do before making an investment

This post is a reminder that we can and will lose money if we invest in risk assets for a long enough period of time. The only way to never lose money again is if we never make any investments. Let's discuss some things to do before making any investment. We keep our money in a money market fund or Treasury bills, which incidentally, are paying 5%+ now thanks to aggressive Fed rate hikes!

To build great wealth over time, it's important to take calculated risks and continuously invest for the long term. Over time, stocks, real estate, and bonds have shown to beat inflation and provide a real rate of return. With the power of compounding, it's only a matter of time before investors build a healthy nest egg.

Things To Do Before Making An Investment: A Cautionary Tale

To show the dangers of investing and getting caught up in the hype, let's take a look at the rise and fall of cryptocurrencies. Even though Bitcoin is back close to all-time highs, it went through a deep downward spiral in 2017.

There is this one guy who boasted making minimum wage a year ago and is now a cryptocurrency millionaire. He shows his electronic wallet on social media for all to see in order to create FOMO in his followers. Many do follow along.

Then, he began aggressively promoting Bitconnect in 2H2017, a bitcoin based lending platform where they take your cash or Bitcoin and give you a GUARANTEED interest of between 0.25% – 1% a DAY with Bitconnect currency. They said they have a “proprietary bitcoin trading bot” that produces such returns.

In other words, if you invested $1,000, after 3 years of 1% daily compounding interest, you would have something like $53,000,000! Come on! Check out this chart from Bitconnect highlighting their promised returns and capital back time table.

Bitconnect promised returns
Bitconnect's false promises

Scammers And Grifters Coming Out

When the Bitconnect platform realized they were running out of money to pay their new users, they decided to shut down their exchange, leaving all those who gave them cash or Bitcoin stranded. Their Bitconnect currency proceeded to plummet 90% overnight and its fate remains to be seen. Where did all the cash and Bitcoin they collected go? Who knows!

Bitconnect price chart
Bitconnect investors lost 90% of their money in one day

Once I saw the price plunge and learned about the promoters and how Bitconnect worked, I thought to myself there's no way anybody could have been so gullible and fall for this scam. Here's a comment after the plunge that parodies an Eminem song.

People Losing Lots Of Money

Bitconnect lost money comment joke

OK, people must be joking. Nobody could have given Bitconnect money right? Then I saw more serious comments from people who claim to have lost a lot of money in Bitconnect. Here's one from a guy who supposedly invested $500,000 in Bitconnect and wants to take out a $5,000,000 loan to invest more in cryptocurrency!

Lost life savings in Bitconnect

Still unconvinced about the seriousness of these comments, I kept on reading the feedback and stumbled across this Youtube video of a guy who lost $30,000 in loans in Bitconnect. After watching this video, I'm now convinced there were actually people who did fall for Bitconnect's wild promises. It does not look like he's acting.

Seeing all the carnage, I couldn't help but feel it's my duty as a personal finance blogger to make sure more people don't lose a ton of money investing in scams. I've gotten scammed before and so have some of my loved ones and I hate it! Here's a list of potential crypto ponzi schemes to watch out for created on Reddit.

Let me share some exercises I go through before making ANY investment. Hopefully these exercises will help keep you grounded as you seek to build your fortune.

Related: How Does Geopolitical Risk Affect Stock Prices?

Things To Do Before Making Any Investment

1) Calculate how many hours, days, weeks, or months you need to work to make up for a loss.

Let's say you make a $10,000 investment in anything that has risk. You earn $20/hour. If you lose all your money, you will have to work at least 500 hours to get all your money back. Since you have to pay taxes, you have to work more like 650 hours. Given

you're only making $20/hour, the job probably isn't something you love to do. Knowing the “pain of recovery period” will help keep your FOMO in check and help you make more risk appropriate investment decisions.

I've come up with FS-SEER, the way to quantify your risk tolerance using time as a key variable. Once you quantify your losses in terms of how much time you need to spend working to make up for your losses, it puts your risk tolerance to the test.

History of stock market corrections

2) Look for keywords such as “can't lose,” “guarantee,” and “get rich quick” in the marketing material.

If you find any of these keywords, run the other way. There is NO GUARANTEE to any investment except for an FDIC insured savings account up to $250,000 per person or holding a US Treasury bond until maturity. Even then, the US economy could blow up.

3) Ask yourself whether you truly understand the business model.

If you cannot easily explain the business model with a straight face to a loved one, you do not understand what you are investing in. If you don't understand what you are investing in, you should not invest in the product.

For example, I had one guy ask me why he hadn't received any returns three months after making a $25,000 equity investment in a three year real estate crowdfunding deal. He'd confused an equity investment with a debt investment and obviously hadn't understood the literature about the deal discussing their strategy of selling the property in three years for a target profit.

4) Calculate your net worth composition to understand risk.

You must understand your net worth composition in order to understand how much risk exposure you have or are comfortably able to take. Losing $30,000 in Bitconnect is survivable if you're worth at least $300,000 and have a steady job making at least $60,000.

But it doesn't sound like the guy in the video has much more than $30,000 to his name since he said he “lost his life's savings.” There's a reason why professional money managers diversify client holdings.

Related: Recommended Net Worth Allocation By Age

5) Limit all alternative and speculative investments to no more than 20% of your net worth.

I define alternative investments as any investment other than publicly traded stocks, bonds, CDs, and physical real estate. Investing in stocks, bonds, and physical real estate is good enough to build enough wealth for financial independence. There is NO NEED to invest in anything else. 

Alternative investments do have the ability to generate higher returns or diversified returns than non-alternative investments, but they are often illiquid, more difficult to understand, carry higher fees, and may carry much higher risk.

You are not the ~$35B Yale endowment with ~70% of their fund in alternative investments because you don't have the same amount of access, power, and team of investment professionals tracking the fund full-time.

6) For goodness sake, please don't take out a loan to invest in alternative investments. 

The people who get into real trouble during a correction are those who not only invest too much of their net worth in the investment, but also take out a loan. Yes, margin investing in the stock market is at all-time highs, which is scary because the stock market is also at all time highs. Yes, taking out a mortgage you can't afford when real estate prices are at all-time highs is also a terrible idea as we saw in the 2008-2010 financial crisis.

If you lose 100% of 10% of your net worth, you will be pissed off, but survive. If you lose 100% of 100% of your net worth, you will be devastated and perpetually depressed, but will likely survive if you have a job. But if you lose 100% of 200% of your net worth due to debt, you will be ruined and likely stay poor forever.

Related: Only A Petulant Fool Borrows From Their 401k

Margin Debt In The S&P 500

7) Please understand the background and history of the person trying to sell you something. 

If the person is a broke fella who was packing boxes for minimum wage a year ago and is now telling you how to get rich, be wary.When a person is a high school student teaching you about the fundamentals of investing, be wary. If the person only highlights his wins and never his losses, be wary.

The person should have a multi-year track record before you listen to their advice. And even still, be wary. There's a reason why institutions wait until a fund has at least a 3-year investment track record before investing any money. There's a reason why funds that have a 10-year or longer track record tend to have the most assets under management.

“Hey, hey, heyyyyyy!” Long live Carlos Matta and his Bitconnect promotional video! It's no longer available, but was such a classic.

8) Get feedback from at least three people before making an investment. 

It is easy for us to get excited about an investment that could make us rich. We start fantasizing about what we would buy with our profits, where we would travel, or how we would quit our jobs. Yes, money makes us go crazy. Therefore, you must share your investment thesis with at least three people: a parent, a sibling or best friend, and the smartest person you know. Listen to all their criticism.

I get someone telling me I'm an idiot every week for my investment decisions, and I appreciate it because there is no guarantee! It's when everybody agrees with what I'm doing when I start getting worried. If you have truly listened and still believe in your investment thesis, then go ahead and take a risk with no more than 10% of your net worth.

Invest Responsibly Please

Please review all the things to do before making any investment if you want to save money. One of the reasons why I'm so much happier just being a personal finance blogger than working in investment banking is because I'm not calling or e-mailing anybody to buy anything.

If people want to read my writing by bookmarking this site, subscribing to my e-mail feed or private newsletter, or listening to my podcast on Apple, Google, or join the FS Forum for free. You're not going to get your face ripped off by learning about one guy's perspective on money.

Please invest responsibly folks. Don't ever give your money to someone you don't know or invest in something you don't thoroughly understand. Be wary of folks who are saying you just can't lose. Please try and tame your desire for getting rich quickly. If you can avoid stepping on financial land mines, you will be able to reach financial independence more easily.

What I'm Doing With My Money In 2024

As for me, I'm back to building up a large cash hoard. I see plenty of opportunities in the real estate market given prices are down and competition is low due to high mortgage rates. Therefore, I'm dollar-cost averaging into private real estate funds like Fundrise and looking for individual invest deals on CrowdStreet. I'm also buying a new San Francisco dream home.

If you think about it, every investment except for hard assets like real estate or your 1952 Mickey Mantle rookie card are just digital numbers on the screen. Your screen might show a fortune one day and a big fat ZERO the next. It's the reason why I'm so much more comfortable investing in physical real estate than any other investment.

I'm also diversifying into private growth companies through the Innovation Fund by Fundrise. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

The Innovation Fund invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum.

Finally, I leave you with this final investing thought. You can never lose if you lock in a gain. Yes, you might sell something too soon and kick yourself for not holding on for more gains. But selling early is much better than selling too late. The floor drops out from under you when everybody starts to panic. I experienced this firsthand when I tried to sell my house in 2012.

84 thoughts on “Things To Do Before Making Any Investment To Protect Yourself”

  1. Great stuff, after reading this post of your I expect more people will take your opinion and start investing. Nowadays many of them start investing without having a better understanding of the market.

  2. Worked in the Medical field for most of my adult life, grew to be an expert and worked as hard as I could. Friend of mine introduced me to IQ options worst mistake of my life, My Broker Mr Graham absolutely cunning to say the least I lost all my life savings to this crooks. To make matters worst a certain wealth recovery website offered to get me my funds, lost more money to them too. I only wanted to get what was owed to me the right way and was put in contact with ( From the beginning of my dealings with them I felt so reassuring till finally getting most of my funds back thanks again guys couldn’t help but share to others.

  3. This is a great post with good nuggets of advice, and it foreshadowed the larger bitcoin bubble bursting that we have now witnessed since Q1 2018. Many people just got an extremely painful lesson in the risks of speculation and following the herd. It is tough to sit on the sidelines when you hear of people making thousands of dollars overnight, but the moment you get the urge to jump in because of those stories is the exact moment that you should hit the pause button and reevaluate your decision making process. You must resist the urge to jump into an “investment” simply because you don’t want to miss out on the “opportunity” that is making everyone else rich. There is a reason that successful investors like Warren Buffett and his mentor, Benjamin Graham, stress the distinction between speculating and investing so much – many people think they are investing, but really they are 100% speculating, and that is when there is blood in the streets when the markets turn and bubbles burst. Everyone should pick up a copy of the Intelligent Investor by Benjamin Graham and study the chapters on investing vs. speculation. At a minimum, take to heart the 8 points noted by Sam in the post above, as those points echo a lot of the sentiments in the Intelligent Investor.

  4. FS – great post. Sound advice for people navigating investments with their disposable income. You have the heart of Yoda. Except you’re not 2 feet tall and green. I think.

    Having made ignorant financial decisions and financing crap that only loses value, I never lost my life savings thankfully. Not that I didn’t give it a quality effort.

    I know of people recently who were trying to liquidate their 457 accounts to speculate in bitcoin. Fear of missing out overwhelmed them. People lose their minds reading about alleged overnight millionaires. People disregard logic when they see supposed easy money.

    Inevitable corrections are coming. Don’t panic. If you believe in the long term economy of the US and the economies of the world, invest consistently, over time, and in multiple market sectors. Building wealth takes time, just like making a quality smoked green Chile Pork.

    Pay off all debt, live on a budget, live below your means, invest the difference. Rinse and repeat. Don’t get sucked in by the most effective marketing in history for credit cards, new phones, financing new cars, etc etc etc.

    These are money skills everyone can implement. They work. That doesn’t mean it occurs quickly. Short deliberate steps get you there. There is/are no vodoo magic shortcuts. If you don’t start your own business that accelerates wealth building, you have to adhere to proven princples to achieve financial independence over time. Then pass this knowledge to your children.

    FS you are having a positive impact on a plethora of humans. I think plethora means a lot but I’m not sure.

    Regardless, keep doing what you do FS, it makes a difference. I still love ROTH accounts.

  5. I can’t remember if you recommended “The Great Depression: A Diary,” which is simply the journal of a small business owner, an attorney, during and after the depression. It really helped to remind me that investments should be understandable to you and having the cash on hand to carry you and your business through a long lean time is great security. He noted all of the folks who bought “investments” on margin and how quickly that destroyed so many people. That so many businesses/banks were never actually profitable and were thus terrible investments. That you need to understand who is profiting off of the sale and what their vested interests are. They may not align with your own.

  6. Eeeek That’s one crazy price crash. I haven’t touched cryptocurrencies and have no desire to, not my thing.

    Great reminder steps regarding investment decisions. Limiting alternative investments to no more than 10% of your net worth is an important one!

  7. Hey Sam,
    The Podcasts are great. they work better for me than the blog and you have a good voice for it. Please keep it up. It helps those of us that don’t get on the blog much.

  8. Knowing that the percentage of the population that is addicted to gambling is not trivial, I’m not surprised at how people invest a significant potion of their wealth in speculative investments they don’t understand — just like people who don’t understand basic probability keep spending night after night at the casino.

    I wonder where can these losses be entered on a tax return? Capital loss? Casualty and theft? Or gambling losses?

    In general,

    I think that successful people tend to self select to comment on the blogosphere. One has a lot more energy time and enthusiasm to post their successes rather than their failures. There are a lot of failures out there that have little motivation to relive their downfalls by describing them on the web. The overall picture out there is not as rosy for those who have sought FI and failed. Most failure stays silent.

    That being said, in the end, overall gains do dominate overall losses, the difference accounting for economic growth — which seems to be irreversibly accelerating (long term) due to the tremendous and exponentially increasing leverage of technology.

  9. How the hell do you take out a $500k loan to invest in the most obvious ponzi scheme of all time… dear lord! Ponzi schemes aren’t even new!

    Just look at the one of first lines in the Wikipedia article for High-yield investment program:

    “A high-yield investment program (HYIP) is a type of Ponzi scheme


    Operators generally set up a website offering an “investment program” which promises very high returns, such as 1% per day”

    “1% return per day” is literally exactly what Bitconnect promised. I couldn’t even believe it when I read that a few days ago.

  10. I hope more people will take your advice on investing. It’s so easy for some people to fall into the hype of something and invest in it without having lots of knowledge. Hopefully more people will read up on something like bitcoin then take action to their best interest.

  11. I’m getting a ruler. I’m going to measure this mattress and see how many bills it can hold…

  12. Honestly im still waiting to get scammed or just flat out lose a ton of money. I do a lot of real estate investing and try to do it as smart as I can with always having clear exit strategies but it seem inevitable that at some point there will be failure.

    I have yet to hit any of those failures or lose a ton of money but I do think about it a lot. Its crazy some of those people lost so much money to bitconnect.

  13. Ms. Frugal Asian Finance

    No one wants the government’s involvement in their wealth/money until they lose money to some crook. Sigh.

  14. The bitconnect scam and crypto mania look a lot like how a ringing bell would sound. Same with a Stockmarket posting higher highs and a fear index which seems limp.

    Notwithstanding, as I mentioned in a previous post, a (very small) allocation to bitcoin would be great! I would have loved to have some skin in the game during the tulip days of Amsterdam. Cheap lesson and lots of fun during the ride. Oh the memories we could have (or fabulous wealth if this time really is different!)

    I’ve done some dough on individual stock picks and then made some to compensate. Currently I am investing like yourself Sam, keeping roughly what I’ve got and prepping for the next downturn by adding to my cash balance.

  15. I think I’d rephrase your second sentence — “one way to guarantee losing out in the long run is by never making any investments.” Risk-free returns are below the inflation rate so what feels safe today will slowly erode over time. Over decades this slow erosion will compound into major losses.

    The time-tested investment approach is to dollar cost average into a highly diversified mutual fund or ETF, ideally in a tax deferred account such as a 401k, and to annually rebalance according to your target date asset allocation. It doesn’t matter whether the market indexes, consumer confidence, or geopolitical news flow seems good or bad, you just keep on keeping on with every paycheck.

    As for research, there’s no point digging into the individual names held in your mutual funds– there are too many of them and and not enough hours in the day. Major investment losses typically come from trying to outsmart the market whether by picking just one name or market timing. With widely diversified funds all you need to look at is the expense ratio, and choose the lowest one (hint Vanguard usually wins).

    Finally understand that this approach does not carry a “never lose” guarantee. Chronic losses are much less likely here than from a get-rich-quick scheme, but they can happen, so you need a cash emergency fund separate from your investments.

  16. After researching for many months, I finally took the crypto plunge. I only plan to buy etherium. I believe it has value. All these ICO’s that are popping up are based on Etherium. I don’t plan to buy any of the ICO’s based on Etherium only Ether. If in the future I ever want to use services like rentberry or musiccoin, I’ll already have the ether needed.

    The only other ICO that I’m looking forward to is Telegram. I plan to try and get in on that one. I don’t intend to own any bitcoin or litecoin.

  17. quantakiran

    Sam, thank you, thank you for this comprehensive post. This post is golden for a financial dummy like me who’s trying to get into the stock market by researching online, and trying make sound financial decisions. I read your site before I invested in my first two stocks and stuck to numbers 4 and 5. I can’t wait to try out the others. (I already knew numbers 2 & 6.)

    I really think people lost money in Bitconnect because their mentality is the same as gamblers, always expecting the next big one on the next roll. I feel so sorry for them. They truly are trapped.

    By the way, the comments are also really, really helpful.

  18. Wow, I assumed there were some pretty nasty scams going on in the crypto market because it is a market that is valued fully on belief. I figured there would be some people who would be sold a dream and a stack of lies. I didn’t know there was anything as blatantly fraudulent as Bitconnect going on.

    Thanks for laying it out honestly and openly for anyone willing to try and learn. Hopefully some people looking at scams like this read your post and take heed.

    Another gut check for an investment is would it make it to the lobby and potentially it fit in a large pension plan’s asset allocation. CPP investment boards allocation in roughly 25% high quality bonds, 25% Real Estate and Infrastructure (ports and pipelines) and 50% public and private equity (mostly public). Those are all pretty un-exotic asset classes but pretty easy to understand.

    I like your rule about no more than 10% to alts. I currently have less than 1% in alts but i think the 10% rule is something i will follow through my investing career. if i can find some alts that are interesting enough. I was actually thinking of buying a dozen cows for my alt allocation, also for laughs cause why not.

  19. Great post Sam! I do own some cryptocurrencies on a few platforms like Coinbase. I have less than 5% of my money in this; my wife wouldn’t let me go in with any more (too risky she says). I have spread my bets and bought a little bit of everything. In a way I believe this is the only way to be able to get some gains; diversifying for cryptos. Investing very little so that there is little downside is key. The upside could be very big given the technology behind the cryptos. Many have compared this crypto frenzy to the internet boom of the late 90’s. Interesting thing is that Google and Amazon came out of that boom and bust. This crypto boom is surely going to bust but hard to call the Googles and Amazons from this. Hence, I have decided to spread my bets and diversify with the money I am comfortable losing.

  20. I think unless you’ve gone through a downturn or two you’d think the market only goes up. I’m close to 45 now and should be in more bonds to reduce some risk, but then see rates rising and considering not adding any more as I’m at about 10% along with my muni bonds. Kind of feel like i’m in a pickle with this market. Not sure if I should keep adding to my positions as I get that eerie feeling I’ve seen this before… I don’t have a target # to achieve, but at this point in the cycle I’m beginning to build up more cash than normal.

    Instead of being on the side lines completly, I want to take some any extra cash and invest in me. Starting some side hustles for more passive income. I have enough risk in the markets, so its time to bet more on myself. I think for long term growth I still need to be in stocks and ride the market up and down along the way.

    I’ll add too, that I wouldn’t have considered sites like Prosper and Fundrise until I started reading your blog. So it’s opened me up to new ideas, so thank you. I consider managing my money as a part time job and I make sure I’m informed as much as possible.

  21. I certainly learned from the Dotcom crash. Just starting out in my early 20’s and piled into only tech stocks with the can’t lose mentality. When it the fan I piled on more money because I didn’t think it would keep going down. Furthering my losses when I eventually bailed and lost 35k in the market. It took me about 7 years to get back to even before the next downturn happened.

    However during 2008 I had learned and had a better allocation, so I didn’t get burned as bad. I also learned that just like 2000 it will bounce back, so I wasn’t afraid to get back in. Now with the market at great heights again, I’m putting trailing stops on a lot of my positions. In the past I wouldn’t do that and would ride a stock down because I kept thinking I would bounce back. Or was afraid to take a profit because of taxes. So, i’d rather pay taxes and make a little.

    Today have a mix of stock, reits, bonds, CD’s and some money in sites like Prosper and Fundrise along with a rental property. Hope that’s enough to be diversified and thinking of building more cash at this point.

    1. The good thing about losing $35,000 in your 20s is that you were only in your 20s with $35,000! It sounds bad, but it’s great that you didn’t have a lot more money or work close to retirement. You used your experienced a better position yourself and better control your risk. Managing risk is so key, and is probably being ignored by many investors who have less than 10 years experience.

      When do you anticipate calling it a day am totally dialing down your risk? Do you have a target Number to achieve?

      1. I think unless you’ve gone through a downturn or two you’d think the market only goes up. I’m close to 45 now and should be in more bonds to reduce some risk, but then see rates rising and considering not adding any more as I’m at about 10% along with my muni bonds. Kind of feel like i’m in a pickle with this market. Not sure if I should keep adding to my positions as I get that eerie feeling I’ve seen this before… I don’t have a target # to achieve, but at this point in the cycle I’m beginning to build up more cash than normal.

        Instead of being on the side lines completly, I want to take some any extra cash and invest in me. Starting some side hustles for more passive income. I have enough risk in the markets, so its time to bet more on myself. I think for long term growth I still need to be in stocks and ride the market up and down along the way.

        I’ll add too, that I wouldn’t have considered sites like Prosper and Fundrise until I started reading your blog. So it’s opened me up to new ideas, so thank you. I consider managing my money as a part time job and I make sure I’m informed as much as possible.

  22. Unfortunately it’s human nature to be greedy. When it looks like a win-win situation and easy money to be made, people jump in without doing much research or evaluation. I have no idea there’s such lending platform for Bitcoin. Boy that “daily” interest makes absolutely no sense at all.

  23. So about that wife who left her spouse when her spouse lost $40,000 in bitconnect. Is she right for leaving someone of low enough character that they would lose ‘a hell of a lot’ of money in a gamble? Or is she wrong because of the whole for richer or poorer thing? Could it be that the spouse’s investment paid off HUGE despite going to 0 since now the spouse knows her word is so fickle that she can be bought and sold for $40,000? Or should he go after her because two people can make up the 7881.77 hours quicker than one person can?

    Ugh you have blown my mind. I no longer feel the need to find a date for the upcoming Valentine’s Day.

  24. That is a great post, no question about it.

    But the thing is… I would guess most Financial Samurai readers would not make those “mistakes”.

    So… to make this post even more useful, we have to share it… to spread the word… and maybe reach the people who need this most…

    1. Funny, I had exactly the same thought initially – this might be true for the scams that offer ‘guarantees’ and the ability to ‘get rich quick’, but I think absolutely anyone is potentially vulnerable to making these mistakes. It’s hard to know what could potentially tip you over the edge, or when you might be blinded to risk. Even the smartest people can become over-confident in their own abilities.

      A bit like ‘responsible’ people who drink and believe they could never become alcoholics… the people who slip up never seem to expect it to happen to them. All the more reason to be vigilant…

  25. To those who haven’t bought bitcoin and look with sadness at these stories but say “not me!” because they have everything in safe low leveraged real estate, and equities, let me point out the fallacy of this thinking. I personally have watched good quality low leverage real estate decline 75% in value, 90% decline in vacant land, when it became apparent most everyone was speculating and the true demand was almost zero absent the speculators. This decline took about 2 years.

    I also personally experienced and will never forget feeling so smart about my holdings one day while going to lunch as an engineer in Silicon Valley. I went in to a pizza joint on El Camino Real and checked a quote from the pay phone in front before going in. Everything was quiescent. When I walked out I went to the same pay phone (there were no cell phones) just to check. I just about had a heart attack. During my pizza lunch I had lost two years’ gross salary. For days I walked around like a zombie unsure of what had happened to me. I had felt so great, I knew so much, I was in such control. A master of the universe, only to be shown that I had been an idiot gambler. It took literally over a decade of savings and sacrifice to get back. Further timing decisions caused me to miss easier recovery paths, but that is human nature. After a massive grievous loss, a life changing loss, one does not have any appetite to do the exact thing he should do, go back in. Fear replaces greed.

    Many maxims apply. Take no more risk than you need to reach your goal. When you have reached it, make certain no matter what you will never ever lose it. And that means you will have the anxiety associated with missing out, you will feel it every day.

    Today a generation of new masters of the universe exists. Few of them is interested in hearing anything that would burst their bubble.

      1. I don’t have the exact date but I remember the job I worked in so mid 1980’s, might have been 1986. This was not the 1987 crash but I think was well before it. A friend I know was a fellow master of the universe who had discovered the joys of easy money writing naked (uncovered) options on stocks and indexes which always expired worthless too. Until they didn’t. In his story, he went out to lunch and saw what had happened in only a couple of hours. He raced to the Charles Schwab office to cover his exposure before the market closed. Already he had lost the entire value in his account plus much more. There was not enough cash there to buy back the short put positions. Doing so, going 100% to cash, would leave the account with a -$30K cash balance and nothing else. The clerks argued whether they could accept a trade to close the position, but in the end they did minutes before the close, with his agreement to come later and write a personal check to make the shortfall good. His hands trembled as he wrote a check later that day for $30K, almost all the money he had in his life, to zero out the negative balance. The closing trade was made only minutes before the market closed. The next morning the market opened down with such a gap, had he not closed the position he would have lost hundreds of $1000’s more and would have been bankrupt. Even the equity in his house, and all the money he had in the world, would not have covered the loss.

        We also knew of others who did file BK after having been masters of the universe. Others who fought court cases arguing that their losses should be absorbed by the brokers, because they as masters of the universe didn’t know what they were doing, and the broker should have known they were idiots and had a duty to protect them from themselves. Experts were flow in at great expense to testify in the court, security experts from the CBOE, to say that indeed they were idiots and the risks were so great the broker had violated their obligation to know their client and see that what he’s doing is appropriate for him. They had mixed results, in the best case the accounts were zeroed out and the broker had to absorb the rest of the loss but no further pursuit of their other assets was allowed.

        Brokerage rules were changed shortly after to limit ability to use such high leverage. But that limited profits at the brokerage. When stability returned, greed overtook prudence and the rules were relaxed again to draw in the gamblers.

        By the way, the guy who wrote the $30K check with his hands trembling was referred to a securities lawyer in SFO, to try to sue the broker Schwab who really didn’t provide any advice to this master of the universe, just took his money and allowed him to open the account. He went to SFO with a stack of statements and documents. The lawyer looked at it all and said you have an excellent case, honestly, this was insanity. You would have a good chance of recovering, blaming someone else for letting you do this. But I don’t accept any case under $500K, and I have all the work I need for months. Perhaps you could go to the local law school and find some legal aid type help, someone who would take your case to help with your training. He left the office dejected, totally despondent, carrying his heavy bundle of documents and statements. He remembers to this day vividly passing one of those wire trash baskets they had along the pavement in SFO at that time, walking up to it, and throwing all his documents into the bin with disgust. He was giving up. Time to go back to work and earn it all back over years.

        And the saddest thing is despite all this, he never learned. Today he is in his 70’s. His cumulative life total return is negative on all investments. Let me make sure you understand that. If he had placed 100% of his money over his lifetime in checking accounts which earned zero interest, and never bought a bond or stock, he would be miles ahead of where he is today. He has lost money in most years, made great gains in some to keep his interest, trades vigorously and loves the emotional highs and lows it provides. But over his life he has lost net over $1M from his securities activities. Net total return negative. And so what is he doing today? Options. Charts. Watching and loving the game. And his justification is he is learning, still learning, reading, analyzing, refining his trading technique. Changing it up based on what he sees in the tea leaves. He will do this until the day he dies. The bets have gotten smaller as the capital has eroded. All that is left is an IRA account, a shadow of its former value. I think I can safely say if you made a pie chart of his cumulative life expenditures by category, food, shelter, vacations, cars, etc the largest pie slice would be net investment losses. Perhaps it should be better labeled ‘entertainment.’

        1. I enjoy trades /have an active interest in the market.

          I’m amature, small fry and have recovered my losses via other gains.

          I would love to put a thousand bucks in active crypto investing and keep a diary of hand drawn candle charts and notes. Will do so once my current project is done.

          I love bear markets and crashes. Far more interesting than a rising market, lots more to learn, lots of upside, value around.

  26. Great post as always! I would say the key point is linked to your third point above. Just make sure you understand what you are investing in. Can you explain it easily? Also, never invest in something just because it has gone up in price. This will help you avoid fads. I’d say focus on the underlying asset and the cash it will produce for you. That way, you’ll stick to stocks, property, and bonds.

  27. Thank you for this post. It would be really easy for people to make irrational decisions based upon FOMO. With all the talk about how everyone is getting so rich in the stock market and bitcoin and whatever else, it sometimes feels like you are the only one being left behind. But just like you stated, I think about how many years i would have to work to replace the money I may lose in a risky investment. I stick to a solid reputable fund and the rest…. I take my 2.2% interest in a cd and a 3.5-4% interest in an annuity and thank God for my blessings.

  28. Good post Sam but I’m going to disagree with you on one part.

    “You can never lose if you lock in a gain”

    This is just bad advice and I’ll tell you why.

    It’s been proven that when it comes to money and investing people are rarely rational and that most people have a healthy dose of loss aversion meaning the pain of a loss far outweighs the joy of a gain.

    So what this leads to is when people buy a stock or make an investment and it goes against them it tends to get out of control and they end up losing a large amount.

    So then when they have a gain they often take a quick gain but this will not offset a rather large loss that so often happens.

    This isn’t true of everyone but it takes discipline which most novice investors/traders don’t have.

    How often have you heard of people holding on to loser stocks and selling the good ones because they’re following the similar advice of “it’s not a loss until you sell it.” Try telling that to your brokerage when they’re calling you for margin.

    Bottom line is you generally need to let your winners run longer to far outweigh the losers you have (mostly applicable in a trading portfolio but concept is the same.)

    Think about this if you sell your winners for 2% gains but let your losers run to 5% losses then you need to have a winning percentage above 70% to break even or make money. The best traders in the world win about 30-40% of the time but their winners far outstrip their losers.

    So can you go broke if you take quick gains? Yes, if you’re letting your losing investments/trades get out of control.

    The solution? Have some sort of trailing stop that you stick to to get you out. You’ll never sell the top nor buy the bottom but you’ll keep your wealth intact and give yourself the best chance at compounding wealth.

    Keep up the great articles.

    1. Thanks for your advice. Can you highlighy how you constructed your portfolio? Where are you in your financial journey and how old are you? I’m always looking to optimize my investments. Do you work in the investment industry?

      One of the things I’m trying to figure out is exactly how much to spend in retirement. If you are also retired, I’d love to hear how you spend your wealth, especially if it is over the estate tax limits.

      One of the best things I’ve learned about publishing investment related articles is that nobody seems to ever lose money. So this makes me quite Sanguin that people are much wealthier than the media makes them out to be.



      1. 38 years old
        Commodity Trader

        Have spent 16+ years in the trading industry and the advice I put up there is really 101 stuff that I think gets glossed over and is often misunderstood.

        My comments are really more applicable to a trading portfolio of liquid securities. Could apply to cryptocurrencies but as you noted pretty dicey there.

        In sum though my point is you really need a plan when it comes to putting on these “trades.” How that applies to investing in say real estate is not my specialty (I’m 0-2 on real estate with 1 TBD) but I will say which house would you rather hold onto to, the one that has good rental income and is relatively maintenance free in an appreciating area or the one you keep having to dump money into? Too often people do the latter and hold onto failing investments in order to not sell at a loss and try to get back to breakeven. Bad idea. Afterall if an investment drops by 50% you need it to go up 100% to get back to a breakeven. Unlikely.

        I like to say do more of which is working and less of which is not.

        Perhaps the concept of winners being larger than losers is more applicable to a portfolio of say 20 stocks. If the stocks you choose have a 50/50 chance of going up (which is prob generous depending on your entry strategy) then you’ll need to make more on the ones going up then you lose on the ones going down which rarely happens with novices.

        Anyone who says they don’t lose money is lying. If you put money at risk and you do it enough times you will have losses. How you manages those loses determines how well you do. It’s just not feasible to say avoid losses (like Warren Buffet says) because it will happen.

        1. Sounds good. After 16 years of investing, do you plan to leave your industry anytime soon? Sounds like you’ve done a good job for yourself. At some point, a lot of people I know just manage their own money and make returns that way since they have a large enough nut.

          What are some of your top investments for this year?

          Do you think in the explanation in my last paragraph I should elaborate with multiple examples to make things clear about the absolute truth, “you could never lose if you like in a gain”? My advice is directed towards greed. Because it’s always about balancing fear and greed when investing.

          1. Unfortunately I’m not in a position to leave my industry and manage my own money although it is a goal of mine. A combination of bad timing and poor trading on my part means I’m still grinding it out.

            I would love to leave the industry to focus on other things like blogging and creating online business but for now it will just be a side hustle.

            As for top investments I recommend investing in things that are going up and avoiding ones that are going down. Sounds super pretentious but if you think about it that is ultimately what you’re trying to do.

            I own approximately 25 stocks in an actively managed portfolio that I trade and I couldn’t tell you what any of them do as a business but I can tell you they generally go up and I have strict stop loss measures in place if they don’t (35% return in 2017). All of this with about 1 hour of work a week (if that.)

            A lot of people think trading means sitting behind a computer all day firing off size trades (I do plenty of that in my day job) but really successful trading should be boring. You can expand your time frame by going from say minute or hourly bars to daily or weekly bars and do just as well without spending as much time and probably sleeping better.

            Keep up the great work Sam. I really enjoy reading your stuff and appreciate your attention to detail as one finance nerd to another.

            1. “As for top investments I recommend investing in things that are going up and avoiding ones that are going down. ”

              If only you could share which ones those investments are! Sounds like you are a momentum trader/investors, which is fine.

              Hopefully your advice and investments work out so you can find the freedom you seek.

            2. Oh but I can share!

              Yes momentum is one of the things I seek to take advantage of although I was trained as an options trader but at one point in my career I took a step back and thought how can I gain an edge without being the smartest or having the best technology and the answer seemed to be having discipline and a system.

              Obviously the things that are moving up are stocks so I focus on the Russell 3000 Index and look for individual names under $10 in price that are making new highs on a weekly basis.

              My trailing stop is based on a percentage move from the highest high since I’ve been in the trade.

              Lastly I use a market filter that turns the signals on and off as well as tighten the stops when the market (SP 500) is below a 10 week moving average. I don’t want to be buying new stocks if the overall market is trending lower and if I’m long I want to be tightening up my stops.

              That’s about it. I could give you individual names but I don’t think it would be of much use to anyone.

  29. Loved the post Sam.

    Pretty much the two sectors I was heavily in, Cryptos and Weedstocks.

    I “locked” in a gain buying a house (Mortgage free), but I still have a really large position in Weestocks. Up 200% to date this year, I think the total gain has been 1600% from early 2016.

    I don’t really have that much to fear, there’s a lot of potential upside. I’ve locked in some gains, and even if it went down to 0, I’m still a decent way ahead of above average tracker by 10-15 years now. As I’ve moved more into traditional savings.

    I love the herd psychology, and FOMO topics. However once, I bleed the unicorn dry, I’m definitely moving it back to the index tracker, and dividend paying blue chips. I’m still on two minds of rentals.

    The whole bubble is crazy, I like how Bill compares BTC to heroine, euphoria to crushing lows. That’s how it is, great gains of 8%/yr just seems so… “pathetic” after conjuring £50k in 4 days… It’s so strange.

    Lucky I have no desire to buy a new Lambo thanks to my parents teaching me frugal habits, and discipline. I enjoy the freedom the new money gets me, but honestly, all I want to do is go to medical school now. Unless I can use my new found Scrooge Mcduck money to buy my way in. But then again, I can’t even relate to the money problems my friends or co-workers have now. I just play dumb, and keep this hidden.

    1. Great returns man! Hope you had a significant amount of money invested. If you keep up those returns for several years, you’ll be financially free to do whatever you want.

      I’m not sure if going to medical school is a good idea though. Once you taste the freedom that Wealth buys, grinding it out in school for years and years will become less satisfying.

      1. Thanks Sam, right now I’m a tiny bit off a comfortable FI. I managed to push a high 5 figures into the gamble, which has grew into a huge 6/7 figure. (Depending on volatility )

        On a good day, it was crazy to see ten’s of thousands a day.

        As fod going to school, I’ve always had the mantra of never stop learning. I would rather use my time to help patients then have a hospital wing named after me. I’ve already got a fair amount experience working with the NHS, the pay is poor, with long hours, but the satisfaction of it outweighs the cons. This year’s gains alone outpaced a consultant’s salary.

        I have friends that already hate being a doctor, but I’m already used to a demanding schedule, lack of sleep etc. But because of sunk cost and lack of money cannot divert paths. Therefore, they go the same route of using their money to escape work via materialism and holidays.

        I would say it might be fun to have a look at the US and CDN cannabis companies. The evaluations are crazy, with lots of lessons to learn about FOMO, and shifty accounting practice. For example, Aurora is now valued at a 7BN market cap with approximately 60 tonnes production per year, and despite huge dilution, seems to defy all logic by boosting its share prices. Many companies are greasinf their quarterly results using GOB too.

        It’s crazy fun, and it’s been a wild ride. Seeing ±£50k swings in a day has been fun. For me, I treat it as one big experiment, seeing how far I can push it before getting burned.

        All this has undeniably been luck, just wondering when it will run out. At least I can safely know, that I can pursue whatever I want without financial hardship. It’s damn tough for young people now.

        However, the sudden riches makes me so out of touch with reality. I guess it’s how trust fund kids feel.

        Anyway, the money doesn’t really make me slough and I haven’t even “earned” the money; like you mentioned, it’s free funny money.
        I’m also pretty damn competitive, and have always had a bit of a maverick streak. At 23, I might as well put that energy to good use, before it goes in my 30-40’s!

        Appreciate the whole blogging community as a whole, helping this one kid making good, long term decisions with all the sound knowledge you guys have!

  30. Hello Sam

    I guess you are talking about Crypto Nick or Trevon James. Both of them were promoting Bitconnect heavily on youtube. I got interested in crypto currencies last year and bought some bitcoins in June last year. I am definitely convinced about the block chain technology. It is HUGE DEAL. It is as big or bigger than internet and will fundamentally change the way business is done. It took me 6 months to do my research (I actually read those white papers). The possibilities are mind boggling. I would suggest anyone who is curious to read the white papers and decide for themselves. Having said all of that, bitconnect was a ponzi scheme trying to piggyback on the crypto craze. It actually had nothing to with the crypto currencies. It is unfortunate that people are actually associating the two. Bitconnect is to crypto world what Quixtar was to ecommerce… Quixstar!! Anyone remember that? It was Amways rebranding into ecommerce world back in 1999. Quixstar was simply the same ponzi scheme with ecommerce packaging. Bitconnect was far worse because there was literally nothing behind it. And the result was expected. The amazing thing is there are still other ponzi schemes out there. For example Davor coin. They are paying even more interest than Bitconnect! And the worst thing is people who lost money in Bitconnect are now putting money in Davor coin!!!
    The problem with ICOs (initial coin offering) is the same as the dot com boom of 90s. Did it fundamentally change the way business is done? Absolutely! Were there and along with Amazon and Ebay? Absolutely. BTW I did invest in amd back in the day and lost good chunk of money back then :). The challenge is the same this time also… How do you spot the next “Amazon” from over 2000 different coins? I have chosen a few and invested in them. But it is money I can afford to lose…

    1. I agree with your thought process. Block chain is a potentially huge game changer. Now, digital currency is ballooning like the stock market. The key is to pick the right one. Perhaps easier said than done.

  31. Damn Millennial

    Hey Sam,

    What are your thoughts on an investment policy statement for yourself?

    I always found this pretty funny that individuals would do this as if they were an institutional money management fund. Then I decided to move past my naive thoughts and give it a shot.

    It has helped me to remember why I am doing what I am doing and stick to a plan. I revisit once a year and make adjustments as necessary.

    I think it has helped me tune out the noise and stick to my plan. Maybe you have already tried this in the past.

    I enjoyed the read and agree that it feels as though people are getting more and more aggressive as you mentioned. Get rich quick has tempted so many…and rewarded so few.

    I will stick to slow and steady.

    1. Sounds like a good idea. I’ve always had a return target and a financial nut target. Once I reach those targets in 2012, I didn’t delay and left the work force for good.

      Everybody needs to have their Why, otherwise there’s no point making money beyond the basic level.

      1. Damn Millennial

        Agreed must have the why.

        You hit your goal then and have had massive success since then…as I have followed!

        So maybe you need a IPS for this new phase of life.

  32. What’s your stance on cryptos, Sam? Your friend WSP is heavily bullish on it (as am I) – just curious what your thoughts are on it.

    1. So much potential, yet so much unknown From regulatory risk, to scams, to cyber theft, and so forth. Because I don’t know how to properly value each currency, any investment now is a gamble. But I gamble all the time with about 10% of my net worth.

      What digital currency do you own, how much if you can share, and why? I really want to know how Investors/gamblers value each individual currency.

      1. Yes, right now there are very few valuation methods/tools and even those are speculative. Chris Burniske has the most in-depth analysis out there currently:

        The truth is, though, we’re in an environment where fundamental valuations do not actually matter that much. Instead, factors like hype, news, price of the coin, future potential, and memes – believe it or not – largely contribute to token prices. There’s no other way to justify the billion dollar valuations some tokens have when they’re literally just a whitepaper at this point. I’m sure as the industry matures and the “get-rich-quick” investors get burned one too many times this will change, but that’s generally the state of things right now.

        In terms of my portfolio, I employ a barbell strategy of investing. The majority of my tokens are in “blue-chip” tokens like bitcoin, ethereum, and NEO. The rest are spread among a number of different altcoins such as BNB, ADA, XLM, REQ, OMG, and another bucket is for ICOs. I’m holding the blue-chip ones for the long-term (5+ years), the alts for 1-2 years and reevaluating, and the ICOs short-term.

        I’m in my 20s and nearly my entire portfolio is in the crypto markets now. This is largely a result of the massive bull run the crypto market has been on. I have a very high risk tolerance though and view this as a once-in-a-lifetime opportunity, so I’m trying to make the most of it before the window closes. Obviously this runs counter to all the personal finance advice out there, but I’ve made my decision and am going with it.

  33. It’s difficult to understand the mentality of folks who fall for the schemes but I really think it has to do with ego. I know people who have perfectly good brains and are capable of making lots of money with those brains and a bit of effort. But rather than working for it (or taking the time to really learn how to invest), which they feel is beneath them, they move from one get rich quick scheme to another. Sure there are some who really, truly make a mistake by investing in something they don’t understand. And I feel sorry for them. But I can’t help thinking that plenty others know the risks, they just think they’re special and are going to beat the odds.

    We have a hunk of change in an individual lithium stock But it’s around 2% of our portfolio and we’re fully prepared to lose it all.

  34. Sam, great post. First time I’ve listened to podcast. I really enjoyed it. Well done. I agree with you on physical real estate vs. crowdfunding. Some can confuse both as being the same type of investment. However, crowdfunding has yet to be stress tested as an investment. I have done well with Realtyshares, Peerstreet, and Fundrise but we will see in the future when the stress comes their way. I agree also with investing a majority of your funds in physical real estate, stocks, bonds, CD’s and cash. Any asset that produces income on its own without the need for speculation is key.

    1. Indeed. The same can be said for robo advisors and other investment crowdfunding platforms. It’s easier to succeed in a bowl market. It’s when it one or two your downturn occurs where we will see who the strongest players are.

      I am certain there is going to be a shake out in the real estate crowdfunding industry. And just a heads up, please be wary of Peerstreet. I’m not going beyond RS and Fundrise for now.

      1. Sam. Thanks for the heads up. I’m keeping a close eye on all of these. As you If they went to zero it would suck but not change my life. My goal with these is to slowly build up and hopefully they contribute to one of my many streams of income in the future. I have chosen Realty Shares as my main, Fundrise second, and Peerstreet third. I’ve looked at others but I’m limiting to these. Thanks for the forwarding post as well.

  35. It feels like people are definitely being greedy and per Warren Buffett, be fearful when others are greedy. I’ve been putting funds into low-cost index funds instead. To be honest, I do have a very small stake in bitcoin less than .01% of net worth. Although I’m fearful, I am still continuing to put funds away in retirement since I am so far away from it anyway.

    I have lost big in the past on solar and it was for the same reason….greed

  36. For me, that’s something really sad to see, that people are still investing in all the scams.
    A friend of mine asked me if I could build as a programmer a bot that can do 1% a day… and I was like what? It didn’t make any financial sense, but he was firmly convinced that others were doing it because he got some payments… which acted more like a luring point.

    I’m really glad you made this post, I want to make other people think for themselves when it comes to financial investments.

  37. I wonder if the whole crypto currency craze will tip the scale for the stock market. It is obviously a mania that will crash at some point. Everyone is hoping to get some profit and pull out before it does. The stock market is starting to feel like 2007 for sure. I’m planning to pull some money out after about 6 months. That’s really hard to do with the market hitting new high every few days…

  38. Wow, some of these people…on one hand I feel bad for them, but on the other it’s your responsibility to know what you’re investing in.

    Honestly all this bitcoin madness is a bit alarming. When people who can’t even tell you what a stock is or what a 401(k) is used for are telling you ‘DUDE, YOU’VE GOT TO BUY BITCOIN ITS INSANE RIGHT NOW’ there is something wrong.

    And yes, I’ve had that happen. It’s nuts.

    I think if you are going to put money into speculative investments then taking your #5 advice to limit the amount to ~10% is definitely good advice. Even if you know what you’re investing in, understand it completely, etc.

  39. I try to follow Warren Buffet advice and only invest in what I understand (most of the time) but even with good investments I still feel I may have too much in the market right now. Good thing I also have rental properties (even if I don’t always enjoy being a landlord) for diversification.
    My worst time for holding on to a stock too long was Nortel!

  40. Charleston.C

    Can one even consider cryptocurrency an investment? Your point #3 says it all. Understand the business model. What exactly is the business model of a cryptocurrency?

    I have a hard enough time placing a value on securities, and instead choose to invest primarily in index funds. How would I ever determine if bitcoin or any other cryptocurrency is undervalued or overpriced? Perhaps those are who put money in cryptocurrencies know something I don’t.

    Or perhaps ignorance is bliss.

  41. Sam, timely reminder. Hard to believe folks are that naive to invest those types of sums (and, worse, the high %’s of their net worths) in something so speculative.

    And yet, with CAPE ratios where they’re at, and interest rate increases flashing warnings for bonds, it’s hard to know what to do with your investments right now.

    Dry Powder. Good move, Sam. Think I’m going to pull some gains from the market and dry it off. I think there’s rain on the horizon….. #ManageYourRisk

  42. I lost big in the dotcom bust by buying into the hype. No I didn’t buy I bought a search company that was later acquired for peanuts. I long ago added a requirement that if I can’t see how they will make money, I don’t invest. Similar to understanding the business model you referenced. I do have one add though, when the masses get enthralled I look for the exits. So if I did have bitcoin or something I’d be gone once every 18 year old shoe shiner started talking about it.

  43. This is great advice. I think there are so many lessons in this post, you could probably break each one of these points into its own post.

    The problem is people that invest in highly speculative investments have a pure gambling instinct. They are not really concerned with the downside risk. They know its there and they probably know what if feels like to lose, but they continue on with the slight chance of striking it big.

  44. I had only seen Bitconnect in the news the other day for the first time. And now it’s a bust (not surprising). Hopefully, not too many “invested” their entire savings like the extremely unfortunate people you highlighted. It’s really, really disheartening.

    On your question, I think everyone has had some type of loss. I’ve not experienced anything this large – whether absolute or relative – but I’ve made plenty of mistakes. Including a $300k loss at work – related:

    Overall, your list captures a number of good points, Sam. Number 6 sticks out. Loans / leverage just seem to usually exacerbate similar situations – especially in dabbling in things one does not fully understand. And good point about locking in a win.

    Finally, I’d reiterate the above point – don’t make assumptions you’re not willing to face if you’re incorrect.

  45. Hi Sam

    You mention you like real estate. I have read the realtyshares web site. Take a look at

    It appears to me, that you are getting shares of an LLC for your investment. Is that correct?

    Do you consider that a paper investment, rather than actual real estate ownership?

    Are you concerned that with direct real estate ownership you have total control over the real estate while owning an LLC you are a passive investor with no control over the real estate?


    1. Real estate crowdfunding is a derivative of owning actual physical real estate. I consider real estate crowdfunding as a type of paper investment as you say, that has a real underlying asset. Same thing with a REIT.

      I personally want to be a passive investor with no control over the real estate and no duties. Hope nobody calls me to fix the plumbing! I’m willing to pay an operator to manage, renovate, sell property for me in order to make a potential return. Managing my own property was too much of a PITA as a new dad, hence one of the reasons why I sold in 2017. Yes, the valuation was attractive at 30X annual gross rent, but it was really the stress of dealing with other people who didn’t respect the lease and all the maintenance (leaky roof etc) that really got to me. It’s harder to have total control and earn a total passive return.

      As a passive real estate investor, you therefore have operator risk along with market risk. Hopefully, my diversified portfolio of 12+ properties will have a positive return as the fund chooses the best operators and best projects. But there are never any guarantees.

      One question investors have to ask themselves is this: are you a better operator or is the professional operator a better operator? For 10 years, I would say I was the better operator. Now, not anymore b/c I don’t have the same amount of energy or time and I don’t have as much fire to make maximum returns after reaching my financial nut.

  46. Bitcoin is a Virtual commodity. People are investing in Nothing! Basically online algorithms. I could see this was trouble from a light year away and to be avoided at all costs. Hell, the gold nuts are better grounded than these guys.
    As for Bitconnect:

    But when it comes to investing, what do I know? Granted, I know how to Save but beyond that it’s a big grey area. The best advice is to diversify. I have a chunk of my money in mutual funds. I let the smarter, big guys do the hard work for me! With today’s interest rates I’m tempted to start stuffing a mattress again…

  47. Wow! I never realized this side of Bitcoin investing exists! It’s crazy that people keep looking at purchasing currency as an investment. It’s not an investment!

    Luckily I have only lost minimal money (when I once entered the wrong stock code and bought obscure mining stocks). I’ll keep in mind that asking three savvy people about investments is likely to get opinions different to my own. Thanks Sam!

      1. The list will probably continue to grow exponentially as more unsuspected people get into cyrptocurrencies.

        Kodak’s stock tripling over a week’s time due to announcement of Kodak coin just showing the insanity of crowds at play.

        FOMO with no gains always beats a big potential of a complete loss, in my opinion.

      2. Readers of your blog talk about a comfortable retirement. I want a glorious retirement. I can have a comfortable retirement buying an index fund for 30 years. By the way that is not investing. It is not investing because it takes no work or financial knowledge. It is a lazy person’s approach.
        You are an investor because you work hard. You study. You think.
        If a ten year old buys an index fund, would you call him an investor?
        There are few investors.

  48. That’s pretty rough.

    I hope the dude in the van doesn’t find Carlos from the second video.

    It just makes me think about how all of our investments are illusory- like the post you did some time ago- Your net worth is an illusion.

    Hope you and the family are doing well.


  49. Seriously love this post Sam! The Reddit screenshot is definitely a jokester. It sounds like classic Reddit humor.

    I think you might be right that a lot of people may have fallen for Bitconnect but those who did lose money certainly will not be coming forward. I mean it’s pretty embarrassing right? To broadcast it on social media for the world to gawk.

    Investments are not about smarts though, it’s an emotional thing. The list you gave us is complete GOLD. It takes the emotions out and try to dicate logic. I wish someone would make a full graphic of all 8 commandments :)

    1. Financial Orchid

      Have to agree with Lily on this one.
      The people in true financial hardship are those who don’t speak up and those crying poor are usually raking it in.

      If a person lost money on speculative ventures like bitcoin they would be too humiliated to put their face forward because that would involve admitting to a huge mistake that they were so sure of before they would sink tens of thousands in

      1. Ten Factorial Rocks

        I complete agree with you Lily and second FO. The post is hilarious and sad at the same time. What I am surprised to learn in this post, though, is why would Sam, for all his financial savvy, put a major chunk of his money in Jan. 2018 in equity markets? If he cannot resist FOMO, what about the rest of us retail investors?

        I am reminded of the story of well-regarded mutual fund manager in late 90’s who resisted buying the dot com companies thinking them (rightly) to be vaporware, but couldn’t resist seeing his colleagues beating his investment returns in 1998 and 1999. Then in Jan. 2000, out of desperation, he put a major chunk of his fund’s money in dot com stocks, only to have his behind handed to him by end of that year. He quit the investment management business afterward.

        Should we get worried, I wonder, if Sam is throwing in the towel and buying US equities at these levels?!

        1. I’m right here. No need to talk about me as if I wasn’t.

          The answer to your first question is: because I lack discipline and I’m pretty dumb for the most part. The wealth I’ve gained is mostly through luck because I’m lucky to be alive during this bull market time period. People need to be aware of this point and NOT listen to me or other people when it comes time to invest their own money. Each person must decide for themselves how much risk they want to take and their PURPOSE for investing. Take ownership of your own finances.

          The answer to your second question is: yes, you should be worried, but also maybe not because I’m a nobody who can’t affect the market. My enthusiasm for the economy has increased probably disproportionately higher than the average person because I’m a small business owner. As a SMO, I feel like we finally have a tailwind behind our backs with less red tape. See: Investment Outlook For 2018

          So now the question is, how are you investing your money and where are you on your financial journey? I’m hoping more people can also share their position. I’d love to learn from you. Thanks.

          1. How many people said the markets were expensive in 12,13,14,15,16 and 17? None of us are smart enough to time the markets. Yes I’m putting in money now just like I’ve done for the last 20 years. The one thing I’ve learned is that over time the markets go up and I’m not smart enough to figure out when it will go up or when it goes down.

            If you have a 5-10 year time horizon you are crazy for not investing at these levels. Are you smarter than Jeff Bezos, Tim Cook, or Sergio Marchionne? They are investing 100’s of billions of dollars at today’s highs. How narcissistic of us to think we know better.

            As far as admitting stupid mistakes. I put 5k into Amazon at $33.00 a share and sold at $14.00.

            Thanks, Bill

          2. Thanks for your reply Sam. I was deferential in referring to you in third person as an icon – if you say you are dumb, then what about rest of us further behind your net worth profile? There’s hardly anything I can teach you Sam, and it’s your modesty that makes you say you’d love to learn from me.

            I moved a major chunk from equities into cash recently because after 5 years of being in 100% equities, I felt I should lighten up a lot. Of course, the market went up after I exited but that doesn’t invalidate my thesis in my view. One factor I used in my analysis is how many months/years of savings from my job would equal a 20% drawdown in my equity portfolio. I chose 20% as a via media between a small correction (5-10%) and a major market collapse like in 2008-09 (40-50%).

            That analysis was a sobering thought and as a mid-40’s professional who may retire in 5-10 years, I didn’t want to have this much exposure in equities at this time.

            That’s not to say I will not get back into 100% equities in the future (perhaps after a correction even if not a real bear market) but the fact there hasn’t even been a 1-2% down day for months seems like the calm before a storm. Nobody can time these things but each one of us can evaluate based on our life goals and multiples of expense coverage available in retirement assets. As some one said, if you’ve won the game, no need to keep playing, at least not at the edge.

        2. 10factorial:
          I don’t know why anyone (individual) would jump in at this point. The major gains have likely been made but I would STAY in because there is no timing the market. If you think you’ll get out at the top you’re wrong.

          If you’re wondering why a hedge fund manager would jump in against his better judgement….
          It’s the same reason every lender was pushing risky loans before 08.
          Because if you didn’t you wouldn’t be a hedge fund manager or a lender much longer.
          You can stick to your guns for a year, or two, or if people really like you three. After that, if you aren’t on board with a bubble you’ll be proven right at some point after your ass is fired for underperformance. It’s a simple decision. Get in and say “whoops” when everyone looks just as dumb as you or look dumber then everyone else and hope things fall apart before you get fired.
          It’s the only advantage individual investors have over the big guys…nobody is going to fire you from managing your own money (maybe your wife but I digress).
          Invest in what meets your return needs. I don’t need 15%, I don’t need 10%. Why would I take more risk than I need to meet my goals?

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