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This is part 3 of the 5 episode “Back to the Basics” series from The Investing for Beginners Podcast. Each episode covers the fundamentals of the stock market and investing to provide a solid foundation for those who are looking to compound their wealth over time.
Here are the links to each of the episodes:
Back to the Basics Pt 1: The Anatomy of Stocks and Shares
–Defining what a stock is
–Talk about the big 3: the cash flow statement, balance sheet, and income statement
–Earnings manipulation
Back to the Basics Pt 2: Share Dilution on Wall Street
–What is a stock
–What are stock buybacks and how they affect us
–What are share dilutions
–What happens when we buy or sell a stock
Back to the Basics Pt 3: Stocks vs Other Investments
–Peer to peer lending
–Real Estate
–Gold and other precious metals
–Bitcoin and other cryptocurrencies
–Bonds
Back to the Basics Pt 4: Investing 101 and Compound Interest
–The importance of buy and hold
–Compound interest and how it can make you wealthy
–Using a compound interest calculator
–The power of dollar cost averaging
Back to the Basics Pt 5: Dividend Stocks and Value Investing
–The advantages of buying low and selling high
–Dividends and the power of compounding
Welcome to Investing for Beginners podcasts this is episode 45. Andrew and I are going to continue our conversation about back to basics with stocks and tonight’s topic is going to stock versus other investment options.
So Andrew and I are going to talk a little bit about some crypto maybe a little gold maybe a little real estate we’ll just kind of give a brief overlay of those ideas and then talk about how those could be good or bad investments for you versus stocks so Andrew why don’t you go ahead and take it away, and we’ll just chat away.
- Peer to peer lending
- Real Estate
- Gold and other precious metals
- Bitcoin and other cryptocurrencies
- Bonds
Andrew: Yeah, I feel like with every episode we do we keep saying we’re going back to the basics so now I want to take another step back and let’s go back to the basics again and let’s talk about even before we jump into stock let’s talk about investing in general. And so once you’ve made a decision that you want to invest money and put it to work making these dollars work for you to make more money and to be able to start this compounding that’s going to create hopefully massive wealth for you in the future. Create future income streams before we do all that you have to take a step back and understand that there’s a lot of different places that you can put your money.
A lot of different ways you can make it work for you, some of them are going to be good and some of them will do better than others. Certain time periods will be better for a certain type of individual and so on.
So it all depends, and it’s a subjective I think it’s a great place to start and you want to know what all the options are because if you’re going to jump into the finance world and it doesn’t matter if you’re going to become a complete DIY.
You know live and breathe the markets type of investor or if you’re going to be somebody who’s just going to be completely passive either of those approaches will work well. But you’re going to want to have this understanding of these type of basics. These are what the options are, and then from there you can focus your energy towards a specific strategy and find one that fits your personality. Maybe fits not only how you understand what maybe stuff that interests you and just fits into your whole philosophy and kind of the values you have behind your money and behind how you want to see that money put to work.
So we talked about stocks obviously the first two episodes of this back to the basics series. Let’s look at some of the other options that you have when it comes to investing your money. I think at the core of investments, and this isn’t any historical fact or anything, but I want to bet that if you go back to the beginning of time when people were bartering and before money became a thing. Oh, I believe that maybe that first step of getting money and making it into a sort of investment vehicle was probably like a personal loan and so that’s a really simple and easy way to think about investing your money.
obviously, the banks do that right where we’ll put our money, or we’ll borrow money from the bank they will charge us interest they will use that interest as profit and they can compound that for themselves to make more profits loan out more money collect more interest as investors we have that option today.
There are more options than there was maybe ten years ago. They have what’s called like p2p lending there are a couple of different websites you can go on I think Lending Tree or I think its LendingTree. Obviously, I don’t use it it’s tough because it’s going to be hard to do individual research and there’s a high risk for you losing for example if you loan out some money and the person good defaults on loan and then you’re out of that money. It’s there’s a reason why banks are what they are and why they have you know credit checks and these requirements for people that take out loans, and so if you want to become like a bank you can do that, and I think there’s probably like a risk/reward premium there.
But that’s it’s kind of like a different thing kind of the one I wanted to talk about which is similar to loaning your money out to somebody is buying bonds so basically when a corporation a public corporation wants to borrow money one of the first ways that they’ll do is issue bonds and so what that is and even you know even the government the US government does this and they have their Treasury bonds and all those vehicles.
Basically you when you buy a bond you’re giving them cash and then they’re going to pay you a coupon and what that coupon is interest and so in the same way that alone somebody would pay your loan payments and pay that back with interest you get that as a bondholder and depending on the type of bond some of them you’ll see they’ll return all your money to you at the end of the duration and they’ll add the interest onto the end.
So while you don’t get the money in these increments as time goes on you just get it as a lump sum at the end some of them do pay I think like a coupon, and it works like a dividend and end too.
What’s cool about bonds is it’s very similar the stocks has and if it’s kind of harder as far as getting in as an individual investor, but it’s a great way to take advantage of being part of what these big companies and corporations are doing while not necessarily having as much risk or volatility as a stock.
The thing to understand about bonds is in the very worst case scenario if a company goes bankrupt the bondholders always get paid first and then the shareholders will get any leftovers if there are any leftovers from a company liquidating and selling their assets.
So bonds bondholders get the priority in that sense and a bond isn’t subject to what the crowd thinks of stock, so you know if all of a sudden people hate some stock like for example BP. When they had the oil spill in 2010 everybody hated it you know obviously environmentalists and everybody like that jumped on the bandwagon and that this is not good for the perception of that company, so a lot of stockholders ended up selling while there was some adverse effect to the business.
It wasn’t as great in the long term and so what was nice about being a bondholder during that time is that you didn’t see the price go down like the stock would because it doesn’t matter as long as the company is solvent you’re going to get your bond payments as a bondholder.
Another option, and Dave’s actually the resident expert over here on bonds compared to me, but it’s a cool option to have as an investor and a lot of especially as you get closer to retirement. Bonds are a great way to lower your risk, give yourself more you know nothing’s guaranteed obviously, but give yourself more of a guaranteed type of return and a lower chance of losing your capital and bonds are really great way to do that.
Dave: I agree and you know one of the cool things about bonds is there are you know Andrew, and I are not necessarily always the biggest fans of ETFs, but there are index funds or ETFs out there that you can get some bond exposure if you’re nervous about the market.
you know one of the things that you notice when and this is again with the different assets that we’re talking about today when the stock market is in freefall you’ll see a lot of people invest in bonds because of the nature of how they work and the lower much more volatility that you’ll see in them then you will see in stocks no it doesn’t mean that the prices of bonds don’t move.
It does, but you’re not going to see the wild, dramatic swings or the huge blowouts that you can see in the stock market just because as a general rule they are not something that the individual will invest in as you will in stock. You know you won’t see people doing a mad dash out to buy the debt of IBM as you will for somebody to go out and buy Facebook it’s just it’s not the same kind of thing. And it’s also is not quite as sexy you know the amount of money that you can make with bonds is less then you can with stocks.
There’s not as great there’s not as much upside I guess the best way putting it the invest ability of them as far as the range of money you can make in loss is much more narrow than it will be with a stock.
So you know there’s a lot of great advantages to them there is much less volatility they’re safe and secure. You can buy all ranges of bonds there are you know bonds that are rated you know triple-a which there believe there are only two companies right now out there that are of that quality and one is Microsoft and your other one as Johnson & Johnson.
But you can all go all the way to you know the junk bond range which is going to be extremely volatile extremely risky you know those are companies that you know right now Tesla frankly is junk bond worthy. They are trying to raise some money, and they issued some bonds and they are rated as a junk bond which means that there’s a lot of volatility isn’t a very large chance of bankruptcy, and that’s how the credit ratings work with bonds but you know they’re a great asset class if you’re closer to retirement.
There are much more stable than stocks are, and they’re a great way to make some additional income with a dividend or the coupon that Andrew was referring to. You know that’s a that’s a great way for you to kind of segue into from maybe a dividend paying stock is a segue into buying some bonds.
Now when you go out to try to buy bonds they can be a little more challenging to try to buy. most of your brokers including how I invest you can buy them through there but they’re a little bit harder to do research on and some of those suggestions I’ve gotten from people I’ve talked to or read about online is looking at index funds or ETFs of bonds because then you get a basket of them, and you don’t have to worry about doing the individual research on them generally people when they’re investing in bonds will have us it’ll be a much smaller portion of their portfolio.
the theory behind how bonds can help you as you get closer to retirement is you may have more of your portfolio let’s say that you’re young like Andrew you could have a portfolio of you know I don’t know say 85% stocks and 15% bonds just as an example and as you get closer to retirement you could slide that over to being maybe 60% bonds and 40% stock markets.
so you know you can do all these different things with all these different asset classes and you don’t have to go a hundred percent in on one particular thing it really kind of depends on your risk profile and really what you’re trying to do with your portfolio and that’s going to apply to all the difference you know asset classes that we’re going to talk about tonight.
Andrew: yeah and if you want to see as a quick example of that just pull up any bond fund and look at the ETF ticker and look back maybe ten years on the history I can’t remember which bond when I was looking up and I remember it was like from 19 to 21 was arranged.
So we’re not you know with it it’s not a 10 percent yeah 10 percent difference over ten years it’s you’re investing for that yield and then not for any capital appreciation.
Dave: yeah exactly you know a thing about the yield that just to kind of quickly mention when you’re talking about the yield that’s really you know the amount of money that you’re going to make from the bond and the greater the volatility or the greater the risk of the bond generally the higher the yield is going to be so you know the safest most you know conservative bonds you can look at are going to be US Treasury bonds and those are going to be you know very very small you know half a percent 1% 2% on the great end.
But you know if you look at a junk bond it could be 10, 15 % that you can make from that from that bond but again you’re also you know how much stomach can you take of the volatility of it. So that’s the kind of the key to that Atlas.
Andrew: look at what the mortgage-backed securities and all that fun stuff when we had the crisis me see what happens with junk bonds and the market collapses. It’s pretty not at all so like I said we got bonds that’s a great option you could look into peer to peer if that’s more your deal. That’s the idea of lending money to somebody to make profits and make interest and grow your money in that way invest some money that way.
Another way to do it another type of asset class is real estate this is an obviously good one obviously because for one there’s only so much land to go around. So you can think about the money when you have something that’s constant such as how much lands around money can inflate-deflate and I don’t want to get too complicated with the whole inflation-deflation thing. But it is something that can say especially when you’re talking about any asset really and it’s a big reason why crypto and some precious metals and things like that can be favorable investments.
Real estate, historically, has been a way for people to grow their wealth. A lot of investors, institutional and regular investors, have grown their wealth in that way the only thing I’ll really say because I’m obviously not an expert on it is I would be wary if it’s a path you want to take. is a be weary of the guys who pound the table about using the leverage and you know leverage is a great thing when it comes to science you can use leverage to make yourself much stronger than you would be without leverage because you can use a tool and leverage it and that’s something that feels like a free thing right.
like a free lunch from the world that you can use leverage so a lot of real estate gurus will kind of talk about leverage and talk about making money by borrowing it from other people, and it’s really a dangerous path to go down because it works great when you have tenants if you’re doing the whole cash flow thing. it works great when the economy is booming it works great when the real estate market is cruising up, and it works great when interest rates stay low but that that’s talking about when it works great when things don’t work great that’s when you can get into big problems, and you could potentially go into bankruptcy.
There’s a lot of documented cases of even public guys who’ve gone through bankruptcy because of real estate investing. And even though they might be successful today you know it’s not all bad sheets now something they recommend that for the average person to go through a bankruptcy.
So something to keep in mind and any debt that you own that’s going to be you’re going to have to pay that back regardless of if your real estate values all crash by 50% 75%. You’re still going to know what that initial part was even though it’s not worth nearly as much as today.
So keep that in mind the second thing I’ll say about real estate investing is it’s not it is not a passive sort of investment. so a lot of the investments well every investment we’re talking about in this episode today is going to be a very passive in the sense that the most manual labor kind of work that you’ll have to do is maybe log into a broker maybe call a bank drive to a bank, and you know move some money around, and it’s all relatively painless.
when it comes to real estate you have to keep in mind that you’re going to have to figure out maintenance of your properties and if that means hiring like a managing team that’s great but keep in mind that now they’re a big part and the big responsibility of your money and so either you’re going to have to do a lot of work to make sure you’re vetting for the right team, or you’re going to have to do a lot of supervising to make sure they’re doing their job.
so I think it’s it for the type of person that likes to gravitate towards it can be really great and obviously there’s a lot of money to be made there, but there’s a couple of things to keep in mind, and I think those are the big ones that can maybe save you heartache if real estate investing is something you want to shoot for.
Dave: I agree and it’s you know the thing about real estate is there is much more effort into it than there is if you want to buy bonds for example or buy a stock there just there just is and depending on what type of real estate investment you have whether it’s you know like Andrew was saying you have rental properties. Those are going to be you know very intensive as far as you know your effort that is going to be and if you have land, you’re going to have to you know work with somebody to try to help develop it and that way you can gather rents from that.
so there are there are different things that are going to be involved in it and for some people that is the way to go and they love it and they you know they’re into the whole renting you know having places that they can rent and flipping houses and all the different aspects of it you know there’s just there’s a whole world out there in the real estate world, and it’s just something that I just have chosen not to delve into because it falls out outside of my circle of competence.
it’s just find it frankly does and you know if this is something that you’re interested in but you don’t really want to go that full route you also have the opportunity looking at REITs which is something that we discussed in a previous episode and those are another asset class that you could explore if you wanted to have some exposure to real estate without having maybe some of the headaches that Andrew and I were talking about.
Andrew: obviously – if you know anything about buying and selling a property it’s not going to be as liquid as you know liquidity that’s a huge thing and it’s a big buzzword when you talk about real estate versus other investments.
With a stock, you are completely liquid assuming the broker doesn’t close for the day which they have done before but it’s pretty rare when it comes to real estate you have to find a buyer, and you know find a realtor, and that can take weeks or months.
So that’s another potential downsize you don’t have that the quid don’t expect to see that money for a while and hopefully, you can live without it. The last thing I’ll say if you want to do some real like basic or elementary research on real estate and kind of how that market works. There’s a database which I like to use for a lot of different economic indicators. It’s called Fred it’s a government website where they have just all this really valuable data about the economy and all these sorts of things so you can go on there and for example, I like in the past I’ve liked to look at different markets and see how their real estate prices have moved. And so for example if you look at Austin Texas where it’s funny to look at theirs compared to you can look at the whole US market.
So obviously we had the recession in the crash for the US, but for Austin, it just continued even through 2008-2009 it’s like this is a straight line up, so you know that they have this same in real estate that real estate always rises right. Well I mean it’s quick to look at a chart look at the US chart and look at how prices have been in the last with the years you can see that’s not the case.
You can pull up a chart like Detroit, and you can see that where the prices are today it’s clearly not always going up and that’s been a terrible place to invest in and recently. So these are some basic things that you can use to get started, and I would just say that to tread very carefully because there’s a lot of charlatans and a lot of people who are going to tell you that you can make a lot of money and I think really with any investment.
But especially with real estate I would go with like a time-tested, proven source of information somebody who’s maybe more of a boring type of source of information. But with somebody who-who can show you how to do it over the long run and keep sustainability and consistency as more important than greed and I think that’s probably the best way to do it.
Dave: I agree that’s their very good points. So moving on from real estate let’s talk a little bit about precious metals. Precious metals would be something like gold, silver copper and uranium. any of those kinds of things would be considered precious metals and this is an asset class that’s been around you know for since time began and you know people have found gold as something of value, and they’ve used it to barter they used it to trade it was at one point you know the actual money of different civilizations.
so you know it’s always had a place in our society and you know there’s all different kinds of realms so in ways you can go at looking at gold the value of it you know I’ve heard different conversations about gold about whether it’s actually an asset or whether it’s you know an investable thing or not.
you know I’ll admit I am NOT an expert in gold and I obviously know what it is but I don’t personally have any of my own, and I’ve worked with people in the bank that were big investors in gold, and they would have gold bars brought to them, and then they would you know hoard them in different places, and that’s how they held their gold. And then I’ve also heard of you know though they would tell me about different the companies that you could buy gold from you never actually had it was not a physical thing that you had you just had the rights to gold that somebody else held for you.
I always found that a little bit shady whether or not that’s really not or not but I guess the whole point about gold from what I’ve been told about it’s a hedge against you know the currency of the day collapsing and you know if the government ever went out of business and we needed money. Gold would always be there and whenever there’s fear in the market that’s always one of the places that people flock to is gold or silver as you know a hedge against you know they have some security.
The prices do fluctuate fairly widely, and it can be very volatile a lot of people I’ve read about it refer to it more as like currency as opposed to a hard asset. So it depends on which route you want to go I’d be curious to hear what Andrews thoughts are of precious metals.
Andrew: yeah well I mean you talk about being an asset right and some if you think about its pure sense it’s just rock it’s just a mineral that’s on the surface right. So why is it have value well it has value because it’s we’ve all agreed that it has value and so somedays we think it’s worth more some days we think it’s worthless that’s why you see the gold price fluctuate.
So where real estate gets its value because people are always going to need land always going to need food always going to be water gold is different it’s just no we don’t need it I mean you can put it in electronics and things like that we wear it for jewelry obviously. But the primary its utility is the fact that everybody accepts it as some currency. really the true value and the reason why everybody flocks to it during crisis is because it is a safeguard against governments inflating their money so what happens during a crisis and in a recession is basically the economy contracts and what you have is a lot less money flowing around then what was then what previously happened so the way that the government will try to combat that is that they will what they call like turn on the printing presses but basically they’ll print more money and it’s not always printing money but they also play with the federal funds rate and the interest rates and basically throw new money into the economy, and that’s a way to stir up the economy and that’s the way to get the economy going again and get that flow money more companies if they’re lower interest rates companies are going to borrow more which means there have more money to hire more people which means that more people are going to have money because now they have jobs to spend and it kind of spirals up spirals down, and you have these cycles.
the problem when the government inflates the government the problem when the government prints money is that the more the higher the money supply is the higher the price goes and so that’s where we get inflation so if the government were to say you know forget about any sort of common knowledge tomorrow and let’s just print like five times more money than we have now you would essentially see the price of everything kind of 5x if that makes sense because I know it’s kind of hard to conceptualize but basically in response to everything that’s going on the companies are forced to raise their prices because you know these things don’t happen in the vacuum at all. It’s all interconnected and so if the price of let’s take a hamburger if the price of beef going to go up if the price of bread is going to go up and the price of tomatoes is going to go up.
Well, that means the price of a hamburger is going to go up and so it that’s kind of the general the general result of companies inflating the currency so the way that gold canna ties into the whole thing are that governments and different countries won’t always inflate their currency in the same you know. you see currency move just like every other thing in the market right so sometimes the dollars strong sometimes it’s weak and if you have something like we saw with during the global financial crisis where a ton of different countries are all inflating their currency it’s like okay well wire can I put money where I know it’s not becoming less valuable because that’s what’s happening when you’re when the currency is being inflated when prices are rising your dollar is becoming worthless instead of being able to buy two hamburgers. Now you can only buy like a half right so it’s like where can I put my money where it’s not going to lose value as the days go on the answer to that has been gold because it’s a glow it’s globally recognized, and it’s a store of value.
so that’s why people panic because I think oh man like all this inflation thing is going crazy cost of living is going crazy the CPI is going crazy I need to store money and things just don’t look good, and the government’s really good enough to print even more and there’s just someone so many deficits and all these sorts of things so they put their money in gold and they okay obviously if a little ton of people are flooding integral that’s going to raise the price up, and we saw have really long bull market for quite a while and kind of like the way that real estate played out in the past ten years.
gold kind of did something similar and so it was another thing where people saw is a sure thing investment and they saw okay well this is what it’s done for ten years I expected to do this for another ten years and sure enough just like anything when it comes to investments it wasn’t reliable, and it didn’t happen like that forever, and so we saw that, and it’s one of the risks in buying gold.
obviously, another thing is it’s not whereas putting money into a stock or putting money into a bond you are investing in a company, and that company is creating it’s creating earnings and profits right. Well this piece of gold it’s not doing anything it’s just sitting there, so you have to be aware that that’s what you’re doing and if you want to call that investment or not I think everybody knows where I stand on that but it is an option. It is a way to like a lot of investment professionals like to say it’s a way the hedge to hedge against inflation to hedge again you know hedge against currency risks no matter what country you’re in.
it’s definitely a good option for that, and it’s really a big reason behind its attractiveness and why a lot of people have gone towards it and whether you want to take that to the next step and try to be a gold trader or gold hoarder or whatever the case may be thought that’s kind of the basics that would get you started towards pushing yourself in that direction.
Dave: all right so we’ve talked about some of the more I guess standard common assets out there now we’re going to talk about something that’s taken the world by storm recently and that’s crypto.
So my thoughts on that are I guess the easiest way to think of it is there are arguments out there about whether it’s a currency whether it’s an asset you know I’m of the ilk of first of all I will tell you that I do not know a whole lot about it personally and when I’m talking about crypto we’re referring to Bitcoin Etherium any of the digital currencies that are out there right now and everybody in the world is talking about this. I mean I even have dishwashers at the restaurant that I work at that could barely speak English asking me my opinion on Bitcoin.
so it’s obviously become a craze you know a lot of people argue that it’s become a bubble and you know I think that’s probably a legitimate thing to think about and you know whether it’s an investable asset or not I guess is really kind of a it really kind of comes down to what you think about it you know it my personal opinion is that it is not an asset it is simply a speculation that you can buy or not buy.
to me, it’s a little bit like investing in a dollar bill, and it’s just not an asset because it’s there’s nothing behind it. And I guess you know maybe I’m old school but if you can’t use it at the grocery store and you can’t use it at McDonald’s is it a currency? And you know at this point you don’t hear anybody talking about actual use to buy anything. they’re all just trying to get in on the greed of it and our favorite buddy Warren Buffett always says be fearful when people are greedy and be greedy when people are fearful. and so you know everybody and her brother wants to get on a train of crypto right now because it’s the hottest thing out there and everybody’s talking about it, and it’s gone through the roof.
But as somebody is I was reading earlier said you know if you got in on it when it was a dollar or fifty cents that’s a Hall of Fame trade when you’re getting it in on it when it’s in twenty-four thousand dollars a share yeah maybe not so much. And so I agree with them so you know I’m not on that train I’d be curious to hear what Andrew has to say about it.
Andrew: yeah I mean obviously the big thing of it right now is the potential right the potential that it can replace everything and become like a one currency that we can all use the potential that it can take away a lot of the government’s problems and again back to that discussion about the inflation and all those things Bitcoin has a way it’s designed it would naturally combat that.
there’s a lot of you know out the middleman and with the blockchain and everything like that there’s a lot of positives to it problem is its speculation at this point and what I know I like what you said Dave is that if you bought it at a dollar then you know you’d have a Hall of Fame trade.
problem but thinking about that is you bother the dollar would you sell it three would you sell at five do you sell at ten you sell it twenty you know when it went from a dollar to even let’s say you were in when it was a like a hundred from a dollar it had like three years where it crashed 50% and then it stayed flat for a while and obviously through I think it picked up again 2016-2017 these are all I mean I would be shocked too of a group of investors who were either consistently able to time when they were buying and selling to always be in Bitcoin when I was going up or to would have had the patience and the fortitude to with a toe hold to hold it through the whole way and especially the higher you buy that right I mean you know just think about the psychology of buying a hundred seem to drop to 50 and then being flat for like two three years.
Imagine having a losing trade like that with a significant amount of your money to see it break even again. I’m betting you’d sell because you’re just happy to get your money back after toiling for years right and so yeah exactly that’s what can happen not only not only with bitcoin not only with gold not only even with real estate. that’s what can happen with any investment and why I believe that when you’re thinking of investments and when you’re trying to create a general theme for yourself and the reason why i like stocks so much other than the fact that you’re actually putting your money and that money is actually going to work in the real world and it’s not just based on a price that’s on a ticker on the screen.
it’s also the idea that when you’re truly investing and your money is truly going to work you’re getting paid interest whether that’s in a dividend a coupon a yield that means that the longer you are in the longer you win and with stocks it’s historically proven to work out really well.
some quick stats before we sign out obviously the logic behind stocks is a big reason why I like to invest in them. but also if you look if you look at historical returns you have stocks you know close to ten percent over a hundred years bonds are around the five to six percentage range and gold has over a hundred years has been a couple percentage points below what bonds were.
and so while each different asset class has had time periods words outperformed the other asset classes this is something with stocks that it’s had a better long-run performance and funny enough a significant portion of returns from stocks have come from dividends that have reinvested.
so maybe funny enough or not funny enough because I would you know it’s a big theme for me that’s something I shoot for so I’m not really that surprised but it’s just this idea that investing is not a game it’s not something that you’re going to throw money in and double your money tomorrow or quadruple your money in a week.
if yeah you can do that but that’s not sustainable in the slightest because again if you want to learn how the how to invest no matter what asset class you’re doing look through history look at how markets have worked in the past and even though yes we’ve never seen something like Bitcoin before we have seen prices move and different things be called assets different things become investments it’s all market markets have always been there and we just always call them different things.
So I like to I like to invest in businesses I believe businesses will be there tomorrow 10 years 30 years 50years down the line. that’s why I that’s why I put my money in business because I believe in business and to me that that’s what makes stocks superior.
Dave: I agree with you hundred percent and I think you know investing in stocks investing in a business that is bringing value to you the consumer as well as other parts of the world. I think that’s what makes it attractive to me in in addition there are the opportunities for you to do investigation and you learn more about what it is you’re investing in and some of the other assets that we were talking about.
yes you can learn as much about real estate as you can and you can learn as much as you want about gold but you know the problem with gold you know it’s like Andrew said it’s a lump of rock and we’ve all decided that it’s worth something but it’s not something we actually need. yes it is used in some you know and wiring for computers and things of that nature but as a general rule you know if gold went away the economy would still function and so you know that to me takes away some of the attractiveness of it and you know we were talking when Andrew was talking about crypto I was thinking about something kind of you know Warren Buffett said when he was thinking about investing in something he will excited as you know he’s obviously a long-term investor and when he’s considering buying a company he likes to think of it as it what happens if I bought this company and the stock market shut down for ten years and they opened up again in ten years I still be happy to own that company.
and think about something like Bitcoin which you know right now you can argue whether it has a value or not I don’t want to get into that discussion but the you know if you buy it right now where do you think it’ll be in ten years will it have value to it and I you know we don’t know and to me that it’s such a risky proposition and I think that’s to me where I come back to where stocks can be you know a large portion of my portfolio that makes me comfortable.
it helps me sleep at night and that’s really where it comes down to for me is I feel like I have more control over what I’m deciding to buy and it’s not so much of the vagaries of the wind and whoever decides that hey this is going to be more valuable today than that and I think that’s where with some of these other assets that we’ve talked about today that’s where I find me personally not being comfortable with those and I think that’s where stocks to me have a much greater return.
And as Andrew just pointed out they over the last hundred years it’s hard to argue with ten percent versus five percent versus three percent and those are just those particular three assets. you know you talk about other things in it it could change from there and yes you can make more money in a short term but you know as Warren Buffett said in one of his letters.
I’m always riches when I sell my stock so when people talk about how rich the from Bitcoin that’s only if they sell it and that’s one if they sell it at the right time or gold at the right time or a real estate investment at the right time and so you’re only as valuable as when you sell it. and you know when you’re looking at stocks you know you have the ability to look at when the market is going to be falling because of other economic factors which can help you decide whether you want to sell or hold at that time.
so you know with something else like a crypto right now there’s really no it’s just the vagaries of whatever the markets deciding it’s not it’s not an asset such that you know people decided oh it’s not worth anything now well anyway. so I could go on and on about that they don’t bore everybody to death so I’ll stop I’ll get off my soapbox now.
Andrew: I’ll say one last thing this is from Joshua Kenan.com he looked at basically a hundred and ninety-six years if you were to put $10,000 into the following asset classes how much would that ten thousand become after a hundred and ninety six years.
If you put a ten thousand into gold that would become twenty six thousand dollars that’s not a great return put it into bonds that would have been eight million put it into stocks it would have been five point six billion.
so it seems to be that the long you know the short term is never reliable but the longer you go with these time periods the more that stocks tend to outperform everything else we’ll see what happens with Bitcoin and crypto. honestly I’m rooting for it the market cap is still low enough where it could 10x from here and just to keep up with gold. so I think there’s still a lot of potential price movement in Bitcoin the problem is even if even if you do sell and you know you may the 10x your investment or 100x it’s like now what right you go back in a Bitcoin or what do you do with your money than your money is always going to be needing to be put to work somewhere right.
You always the goal here isn’t to make a big lump of cash the goal is to have an income stream and have income streams that some of the income streams can support you and some of they can go make more money that’s how you’re going to have sustainable long term financial freedom.
so something to keep in mind definitely great place to start if you’re looking into getting into the investment world definitely try to understand maybe some of the big picture things here and then from there really dive in and get yourself educated. history can teach us so many valuable lessons because markets have been around as long as money’s been around and that’s a really longtime and there’s plenty of data out there especially with the internet so don’t be afraid to get your hands dirty and learn about these things.
So that when the time comes you don’t have to learn from the school of hard knocks. You can learn and be confident when things go poorly and have the which will give you the fortitude to be able to stick it out and really let your money kind of cruise through as the markets go up and down and that’s how you’ll go well.
Dave: yep I agree and you know a great quote that I read a while back about history is you know those who fail to learn from history are doomed to repeat it and I think that’s a great way to think about making sure that you do your research and understand what it is you’re getting involved in because like Andrew said it’s not a game and the money that you’re investing you worked hard to earn that and you should make it work hard for you and that’s what we’re trying to help people learn how to do.
So without any further ado we’re going to go ahead and take a night and we appreciate you guys taking the time to listen to us. Hope you enjoyed our conversation on back to the basics and a little bit about different asset classes and without any further ado you guys go out there and invest with a margin of safety find some great intrinsic value and you guys have a great week we’ll talk to you later.
