Normally I turn to Steve Chou and Bill D’Alessandro for advice on what to do in business.
Instead, we’re chatting about the biggest mistakes we’ve made investing in the markets and real estate.
- The investing event that scarred Steve and has affected his stock investing ever since
- Thoughts on if renting is actually a better deal than buying a house
- Our luck with timing the market over the years and picking individual stocks
Andrew: Hey, guys, Andrew here. A quick intro before you hear that funky music that I usually kick things off with. I just want to make a note that today’s episode had a couple of audio issues with Bill’s line, and I was thinking about not airing it, but it was a discussion I enjoyed enough, and it was hopefully, enough value for you guys that I’m gonna go ahead and air that. I apologize for some of the audio issues there, thanks for sticking with us despite those.
Also before I jumped into it, wanted to thank our sponsors who make the show possible. First, Liquid Web. If you’ve got a WooCommerce store and it’s not running on Liquid Web‘s managed WooCommerce hosting, your store is almost certainly not running as well as it could be.
The WooCommerce offering is headed up by Chris Lemmon, who’s very well known in the WooCommerce and the WordPress space, if you’re in those spaces. It’s highly elastic, it’s optimized completely for Woo to make it run as quickly as possible, and has an entire suite of tools to both stress test your store, and also be able to test out the changes you make before you push it live. So if you’re looking for a rock solid platform for your ecommerce store on WooCommerce, check them out at ecommercefuel.com/liquidweb .
Secondly, I wanna thank friends over at Klaviyo, who make email automation powerful and easy. Klaviyo is really built for ecommerce from the ground up. There’s a lot of email service providers, but the majority of them are just built for general email, not for ecommerce. And what it allows you to do is really deliver email flows to your customers, to the right customers at the right time, by be able to pull in pretty much every aspect of data you can imagine, from your products, to what your customers have purchased, how much that they’ve purchased.
You could set up flows, automate them, and have them run in the background, and more or less make you money once you get them set up in perpetuity. So if you’re not using them, you’re leaving money on the table. You can check them out and kind of test drive their offering for free at klaviyo.com.
So thanks, guys, for making the show possible. And with that being said, I’m gonna go ahead and play that funky music, and get us into the show.
Welcome to the “eCommerceFuel Podcast,” the show dedicated to helping high six and seven-figure entrepreneurs build amazing online companies, and incredible lives. I’m your host, and fellow ecommerce entrepreneur, Andrew Youderian.
Hey, guys. It’s Andrew here. Welcome to the “eCommerceFuel Podcast.” Thanks so much for tuning in today. Today on the show, joined by a couple of my favorite people, Steve Chou from mywifequitherjob.com, and Bill D’Alessandro from Elements Brands. Important to make sure you get those two S’s on their dot com, to talk about investing mistakes.
I thought it’d be fun to come on, and kind of share some of our big snafus in terms of investing, specifically in the markets, trying to put your excess money to work outside your ecommerce business. And I have, man, I got just the whole portfolio of mistakes, and I figured to at least, you know, have a couple of people on to make me seem like less a dummy would be a good idea. So Bill, Steve, welcome, guys.
Bill: Yeah, glad to be here.
Steve: Yeah, glad to be here. I got tons of mistakes to share, myself.
The Cold War Ends
Andrew: This feels like this is something that we’ve been talking about, like just the last couple of years with interest rates so low, just investing in general. So it will be a fun one to dive into. And Steve, you have, this is good, man. Like Bill, you’ve been on, we kind of have a back and forth, but Steve you haven’t. I feel bad, I haven’t had you on, and it’s been…like you were the first guest on the podcast back in 2013, right?
Steve: Actually, yeah. You were my number two guest on my podcast. And I haven’t had you back either, actually. Come to think of it.
1. Trying to Time The Markets
Andrew: I think it’s like a Cold War stalemate. We’re just secretly offended, and we haven’t done it. Anyway man, awesome to have you back on the show. We’ve got a lot to go through, so I’m gonna just jump right in here. So maybe, guys, we can go through and do a, kind of a round robin, all share mistake, and then each of us can go through and then cycle back. So we’ll start with that format.
My biggest mistake, mistake number one, at least, for me in trying to invest money, is trying to time the markets. Like you always hear this, right? Like you hear this from financial advisors and, you know, from “Wall Street Journal” articles and stuff, people saying not to do it. But it’s so hard not to do, and I have done it so frequently. If I could go back and tell little 22-year-old Andrew to just take your money every year, stick it in an S&P index fund, don’t touch it. Don’t try to think you’re smarter than the market. I would be significantly better off.
Like in 2011, I thought the markets were overbought, and so I sold everything, cleared everything out of the IRA for cash. And they went down like 1,000 points, I felt like a genius, then they shot up 3,000 points, and I felt like an idiot. Even recently, like I thought the Dow was expensive at 17,000 right? And it didn’t knock.
Andrew: Yeah, oops, big time. And of course we’re up, you know, like 35%, 40% from there. So that’s my mistake number one, and I think it’s a good lesson to learn it.
Steve: So you’re saying you haven’t learned anything from this mistake?
Andrew: Well, pretty much. I mean, yeah, it’s so hard. Like even now with the Dow at where it is, I know that I shouldn’t do this. I shouldn’t try to time it, but I’m still hesitant to put money in the markets. So I don’t know, do you guys have this problem?
Bill: I don’t, really. Mostly because we go to one of my mistakes, which is investing in the market. But we’ll open that can of worms later. I mean, I put a little in every so often, but I view it as flushing money down the toilet. I put money in the stock it, I’m not gonna sit still till I’m 60 years old, don’t even look at it.
Andrew: Steve, what about you?
Steve: My mistake, or the answer to your question?
Andrew: If you make that mistake too of like trying to turn the …
Steve: Yeah. I mean, we’ve chatted about this a lot of times. Like we got a lot of money on the sidelines ourselves, so yeah, definitely.
Andrew: All right, Steve, do you wanna lead us off here with one of yours?
2. Too Confident in Successful Stocks
Steve: Yeah, I mean, I’ve been investing for a long time in stocks. I remember back when I first graduated from college, it was early 2000s, I thought I was invincible. So post college, I spent all my salary on stocks. Everything was going up, I thought I was God, basically.
So I put all my money in, but then when the stuff started dropping, like during the downturn, whenever it went down, I bought more, I doubled down without kind of taking account the market trends, and I ended up losing a significant amount. I guess my biggest mistake there was just being too cocky.
Bill: And then trash falling knives on the rebound?
Steve: Yes, absolutely. Now I have the opposite problem. I have PTSD, so it’s hard for me to invest now.
Andrew: Oh, man. Runs with my mom, who in the financial crisis…I love you, mom. I hope you don’t mind my sharing the story. In the middle of financial crisis, Washington Mutual, she was like, “Oh, it’s just oversold. It’ll bounce back,” and she rode that thing, cost averaged it all the way to zero, and it just…Yeah, did you do anything like that in the middle of that crash?
Steve: I did, for a couple of stocks. I don’t know if you guys remember the search engine called Lycos. I had made a ton of money on that, and then when it started dropping, I was like, “Oh, don’t worry. It will come back.” Because every time before when I bought on a dip, it would come back, but it never came back.
Andrew: So is there a take away, or a lesson, something you do differently now? Or, what did you take away from that?
Steve: Yes. So what I started doing after that was after buying a stock, after it went up a certain amount, I would take a little bit off the table, or I put a stop loss on like half of it. So like I can sleep better at night doing that now.
3. Investing in Digital Spirits
Andrew: Bill, let’s go to you, man. What’s your first mistake here?
Bill: Yes, so as I kind of alluded to earlier, I think the primary mistake that I have made in the past, and I think a lot of people make, is investing in individual’s digital spirit. And, the reason I view this as such a mistake is not only because I’ve lost my *** like multiple times, trying to pick stocks. You know, it sounds like Steve, you have as well. But also, I have, you know, in my time in banking, and I have a lot of friends that work at hedge funds and, you know, work in and around the financial markets.
I had a friend that worked at a multibillion dollar hedge fund, and the stocks they covered, you know, he would take the CEO…they fly out there, they meet with the CEO like two weeks before earnings, and ostensibly, you know, not talk about anything nonpublic.
But they would go out to dinner and they’ve put an auto line in the CEO and then they’d be like, “How are you feel about the next?” and the CEO, like without winking an eye go, “Oh, I’m sleeping pretty well at night.” Or something that wasn’t just straight up telling them, but might as well have been. And that’s who you’re trading against, when you try to pick stocks.
I mean, the people that I know that work at hedge funds are almost across the board, completely brilliant, and spend all day thinking about this stuff, thinking about nothing else, and are going to smoke you. There is no way that you can have informational advantage, especially on are they gonna BP these, or what’s gonna happen in the next months?
I mean, maybe you’ll have advantage if you try to think about, you know, a five to 10-year time horizon, but when you’re picking stocks, that’s not usually what you’re thinking about. So I think trying to pick individual stocks at all, it’s like trying to play in the NFL, you know, with no pads. Like you’re just gonna get killed.
So I’ve lost tons of money. I’ve bet on mergers. I’ve bet on, “Oh, I think that this quarter is gonna be really good,” and just gotten killed. So now I basically invest in index, I invest in ama stock, and I invest in that basically like an index, I just put more in every month, and then I keep the rest in…I invest in assets that I can control like either, you know, real estate deals with friends, or, you know, friends’ businesses, or, you know, things that I feel like I can control and actually have an informational advantage on, because you never have an informational advantage in the stock market.
Andrew: Yeah, interesting. Steve, are you still investing in individual stocks?
Steve: I am, actually. But I only invest in stuff that I’m gonna keep for a very long time, or companies that I have faith in, in the long term.
Bill: Yeah, I think that’s the difference. Like, you’ve got to be convinced that you’re gonna hold this stock a while years.
Steve: But isn’t it true, Bill, that you picked Amazon whereas Andrew picked Alibaba in a recent…?
Bill: That’s Andrew’s mistake number two, never bet against Bill.
4. Not Leveraging The eCommerce Advantage
Andrew: We’re editing this part out, just so you guys know. Actually, it does actually tie into my second mistake here, is a good segue, which is not leveraging my unfair advantage. And Bill, like to your point with the people that are at hedge funds, and the people that you’re playing against, you know, like some of these guys they literally have computer firms that are as close as they can get to the trading floors in, you know, like the “Flash Boys” book, in New York so that they…because some of the trades are trying to do it, they’re trying to arbitrage away, or.
How long it takes for stuff to go across the wire electronically makes a difference. You’re playing in such sophisticated people.
And so I think I have very few advantages, and I would say to your point, I would agree on 99% of that in terms of just investing in indexing and buying the, you know, trying to have the market. Because the market, most people, most stock, most mutual funds or advisors, something like 80% after fees failed to beat the market.
But for me, my mistake number two is not leveraging that unfair advantage of ecommerce. Like the big two which you so, you know, delicately pointed out, Steve, thank you. It was Amazon. Totally missed on that boat, and also Shopify. Those two companies in the ecommerce space, all of us here and most people listening, knew that those, you know, at least at some level, were gonna blow up over the next five or 10 years.
I got overly caught up with the valuation on both of those companies, Shopify and Amazon. So I think mistake number two is I didn’t leverage the one little area that I had a really good insight into.
5. Getting Caught Up With Fundamentals
And maybe mistake number three, to just hang on to that was on the technology side, I got overly caught up with the fundamentals, like price to earnings with technology stocks, which is a terrible way to look at it. Zach Cantor has a great heuristic I use now, which is just smart people that he knows are starting to use the technology a lot, where I know what technology is great regardless of the fundamentals if it’s growing well.
Bill: Yeah, and I think that makes a lot of sense.
Steve: You know, Bill, you mentioned that you do a lot of real estate investing with friends. I actually did a, I bought a house with a friend, probably when real estate was at the high point. I guess we didn’t put everything down on paper, like the liquidation strategy, and it got really messy. They needed the money, and so they kind of forced us to sell at the same time. So, like one of my mistakes is actually buying a house with a friend, because it kind of interfered with the friendship a little bit. Do you have that problem with your deals?
Bill: So I have always had a very healthy, or maybe paranoid, level fear about going into business with friends for exactly that reason, Steve. Just because interest can diverge and then, you know, not only has investment gone poorly, our friendship has soured as well, which is often a higher price than the investment.
So if I do, do business with friends, we form an LC, so I own rental house with a buddy. We form an LLC, the LLC owns the house. There is an operating agreement the LLC.
Steve: Yes, what about your liquidation? Like how does it work if someone wants to sell?
Bill: It’s all in black and white up front, is like the only way to do it, or you’re gonna get burnt. Which it sounds like you learned that lesson.
Steve: Bill, is this the house that you bought once we all decided that having friends in the neighborhood was an amazing asset, and the house next door came up for sale and you bought it? Is this the same one?
Bill: Yeah, I bought the house across the street, yeah.
Andrew: That’s awesome.
Bill: I wanna be able to control who lives there.
Andrew: Bill, working towards being a landlord for his entire neighborhood.
Bill: I know, seriously.
6. Buying Stuff With Friends
Andrew: So Steve, maybe let’s move on to you for your second mistake. I mean, you kind of allude to it on the real estate side, but do you wanna keep going on those?
Steve: I mean, that was actually my second mistake, buying stuff with friends. Here’s the thing, I’m always just squeamish with working with anybody in general, actually. There has to be a high level of trust. Yeah, so I just stay away from investing with other people now actually, all together, for the most part.
Bill: And friends at all, Steve. So even if it was somebody you knew very well and, you know, you were sure that they had an opportunity that was really compelling, would you just not do it completely out of principle?
Steve: Well, unless it was in black and white, I guess, what the liquidation was. But I don’t have any friends either, Bill. So it’s all good.
Bill: You’re stealing all my raps on you, then.
Steve: No, fine if you…
Bill: I know, man. I’m putting it out there ahead of time, so you can’t say them.
Andrew: Bill, your next mistake.
7. Not Buying a House Sooner
Bill: So this is an interesting one. I wanted to do this one on the air because I think it will rub feathers. I firmly believe one of the biggest wealth destroying mistakes I’ve made in my life is not buying a house until I was 30. I went back and I calculated how much money I had spent on rent, and it was…I mean, it’s over $100 grand.
You know, like over…I mean, I’m sure everybody else can do that calculation too, you know, if you’ve been renting. But I had spent six figures or more on rent. And not only do you not get that back, that’s not even tax deductible.
And then I’m oust and I was flabbergasted at the different financial picture of renting versus owning. I’m not even talking about appreciation, I’m just talking about if you assume that the house, you can buy it for what you sold it for, or sell it for what you bought it for in 10 years and you don’t get any appreciation at all, it is still a complete landslide for owning a house because it’s tax advantaged, and because, you know, a third to a half of your rent is principal pay down. It’s essentially, a discount that you’re gonna get back at the end.
So if you’re paying the same amount in mortgage payment, or the same in rent, your mortgage payment is roughly one third per one third interest, one third… So two thirds of it is tax deductible, and one third of it is savings. So it’s effectively, you know, if you apply tax shield, it’s roughly half the cost when you talk about real dollars. I was shocked at the amount of wealth that I built by not renting, because you’ve got to live somewhere so you’re gonna be paying that money anyway.
And like yeah, there are some incremental costs that come in owning a house, you know, the air conditional breaks, or, you know, you got to keep up the yard, or whatever. But these things are minor compared to 50% of your rent every month that you’re getting back by owning. So to this day, it makes me cringe the amount of money that washed away renting.
Steve: I think it depends on where you live, Bill. And if there’s a downturn, you could be screwed. Like for example here, every house is like two and a half million dollars for a shack, right? Everyone puts down a significant amount of their money, and they’re highly, highly, leveraged for the most part, and if there is any sort of downturn, it’s amplified, right? So you could lose everything, which is kind of what happened back in 2009.
Bill: That is true. I think the caveat would be, “Don’t borrow 90% of your house’s value.” You know, that’s by itself, a scary thing to do, right? To speculate on real estate, which is basically what you’re doing. And it does depend on where you live. Likely, I live in a place where homes are a little bit more affordable, but I’m where I can balance out, you know, you put down a certain amount where the interest rates are that it’s roughly awash.
I just think people get really scared of buying a house, or like insist on living in the best part town. I’m just saying people underestimate the amount of wealth you can create by owning a house, owning in a house. It doesn’t make as much sense as owning a house because you’re not, you know, that economic incentive of not renting.
But when you can swap renting for owning, even if you’ve got to live in the worst part town, or, you know, a house that’s not quite as nice, of course, I know it’s a matter of priorities, but man, it’s just a huge difference, financially.
Andrew: Bill, it’s interesting. Because I’ve looked at this too as kind of a gypsy at heart who likes the idea of being able to just up and leave in a moment’s notice and having no kind of physical thing tying me down. I’ve looked at this, you know, run the numbers and a couple of things, I’d be curious if you can affect into that.
Like you look at the tax reduction, and that works if you itemize, right? Like, if you itemize your taxes, which a lot of people don’t. If you take the standard deduction that, you know, that tax saving is much less, you know, material.
Same thing as a lot of times on those mortgage payments. If you get a 30-year fixed mortgage and you put down 10% or 20%, a lot of times I don’t think it’s a third principle. When I’ve seen it, it’s been much more like in those early amortization schedules, it’s like 5% to 10% principle. So yeah, you are paying principle, but the majority of it is interest.
And then the other thing that kind of scares me too is the risk side that you don’t look at, like Steve kind of mentioned. It’s been such a good…granted, we, at least the last five, six years in terms of housing appreciation. I wonder if, you know, how those numbers look if you take a, you know, a 10% to 15% drop on your house. That, pretty much is gonna remove, you know, an entire down payment potentially, how big it is. Do you think through all those things too?
Bill: Well, I think at least in previous episodes, Andrew, we’ve established that our risk tolerances are wildly different. So yeah, I’m probably much more comfortable taking a little bit of risk like that, and probably not appropriately discounting that risk. The thing on the tax reduction, if you have a mortgage, you’re gonna itemize. Typically, they deduct such that as soon as you have a mortgage, you’re gonna start itemizing because of the magnitude of the mortgage interest deduction.
Andrew: Well, let me, quick on that point, let me play devil’s advocate a little bit. Let’s say you, because a standard deduction for a married couple is what, $10,000, something like that?
Bill: Oh, I guess that’s true. I’m not married, so.
Andrew: Yeah, I’m guessing it’s that. Steve, do you know what it is?
Steve: Is it $12,000?
Bill: It’s roughly that. Yeah, I think it’s like five point something per person.
Andrew: We’ll call it $10,000 just to make it easy. So let’s say normally, you take $10,000 standard reduction. Even if you do itemize with your house, like let’s say your interest payments, unless you have a, let’s just call it $12,000 to make it easy. That’s an average payment, maybe a little bit more in other places because everywhere’s gonna expensive.
But the majority of that, or the majority is gonna be covered by that standard reduction, so even flipping from, you know, unless you have a lot of other things to itemize, then it starts making sense but only incrementally, because a lot of times, people don’t have anything else to itemize they’re just gonna be flipping the standard reduction for their interest section, which is kind of a wash.
Bill: Well, sort of. Who’s our audience here though? Mostly ecommerce entrepreneurs?
Andrew: Fair enough. Fair point, yeah.
Steve: Everyone’s probably itemizing. One thing I will say is like, I like it as an inflation hedge. Because rents are always going up, and once you get that 30-year fixed, you know, your payment stays the same forever, so.
Bill: That’s true. That’s… you’re gonna get scale there, anyway.
Do The Math Before You Buy!
Bill: I guess what I’m saying is I think people just dismiss it out of hand, and they think, “I can never afford to own,” or, “That’s too scary.” Or a lot of people also dismiss out of hand, “Oh…,” you know, I’ve read a lot of articles…Ramit Sethi, “I Will Teach You to Be Rich,” is super anti homeownership. And so I think a lot of people are like, “Oh, renting is just better for now,” and never actually do the math. I’m just saying people should do the math.
My mistake was I never even did math. I just assumed that I wasn’t at a place out in my life where I could own a house. And then when I kind of felt like I was at a place in my life to own a house, I bought a house, and then in kind of retrospect, I went, “Holy ***, I would have made a lot of money versus renting.” I kind of would like to have figured that out earlier.
Andrew: I’ll jump into my next mistake here, and that is not stocking away more money in tax sheltered accounts. So, I’ve always been pretty good about, you know, since I sort of working and maxing out my Roth IRA every year. So that’s got a, you know, a limit on there of $5,000, $5,500 or so.
I didn’t realize for a while that you could do a Roth or, you know, some kind of IRA, plus a 401(k) as well which you can go up to, you know, $17,000, $18,000, and you can do a SEP IRA, which I mean, depending on how much you take, it’s like 25% of your salary with a max of like, you know, $40,000, $50,000.
And there’s a lot of other options there which I didn’t explore as much. So for me, that was something that I wish I would have realized and looked into a lot earlier. I don’t know about you guys, but that was a big mistake I made.
Bill: I’m currently making that mistake.
Andrew: I’m guessing, Steve, you probably are wiser and older than us.
Steve: Am I the oldest one? I am, right, here among the group. The reason why I had a Roth early on is because my parents made one for me. They handled all that stuff for me, and I was actually contributing to it for a while until you couldn’t contribute anymore. What I wasn’t doing, however, was investing that money in the Roth that well, so it was actually just kind of sitting there. So that was one of my mistakes.
Andrew: Steve, you wanna do your next one?
7. Long Wait Times
Steve: Yes. So I mean, my biggest mistake right now, and I’m not sure if it’s a mistake just yet, but remember when you alluded to just kind of waiting on the sidelines? Because of my PTSD, I feel like now I wanna wait for a down turn before investing anything. It’s worked in terms of my stock strategy. So I waited until the downturn of 2009 before I bought stuff, and all those stocks are now doing well.
So I feel like you make money on the buy side, not necessarily the sell side. Same with my house. We bought our house in 2009, and it’s gone up almost double in the past seven years. And so I’m sitting on all this cash right now, but I’m missing out on all these gains that we’ve had in like the last five years, or however long the bull market has been, and I’m not sure what to do, actually. I don’t know, what’s your take?
It’s interesting, because Bill is a lot more risky, and Andrew, you’re a lot more risk averse, right? I think I’m more along the lines of you, so I’m just curious what you guys have to say about that.
Bill: I really haven’t changed my strategy. You know, I’m kind of investing roughly the same amount every month as the market goes up, mostly because I don’t wanna be sitting there and going, “God, I missed the whole thing.” I’m actually doing, and I won’t make it through this episode without somebody mentioning Bitcoin.
But same with Bitcoin. I mean, it’s at bonkers number. I just put a little in every so often. And yeah, it’s really high, but if you wait, I mean, like all of the investor psychology of all time, as you said, Andrew, shows that people are awful at timing the market, and that what everyone does is buy at the top and sell at the bottom, right? Everybody. So you just got to keep chugging it in and forget about it.
Steve: Yeah, here’s the thing. We’re all business owners here, right? And we work hard for our money. At this point, I feel pretty financially secure, I just don’t wanna risk, like my loss aversion, or my risk aversion is higher. I’d rather just put all that money back into my business rather than put it in something that I have very little control over.
Bill: You think hankies are pretty non-typical?
Steve: Everyone gets married, everyone cries so, you know.
Andrew: Yeah, I’m probably between the two of you guys. The first one I mentioned was timing the market, but the thing that catches me up right now is that we’re in this kind of weird environment that hasn’t happened in a long time. We have interest rates almost zero, and so everything else is getting run up. I think what I’m gonna end up doing is start investing slowly into the markets on like a cost average basis over the next, you know, two to three years.
Because I do, on some sense, you know, I think that this could…I mean, something like this, asset prices going up on the stocks, on houses, could continue for, I mean theoretically, it could continue for another five years, or longer. Which is crazy to think about, but I mean, if there’s no better alternative to put your money, I mean, who knows?
So I think I’m gonna start waiting a bit, but I’m with you, Steve. Like, just dumping everything into the stock market right now sounds like, I mean, if it took a 40% hit, I would much rather love to see a 40% drop off and then dump everything. It’s a lot easier to say now.
Steve: I don’t know about a 40% drop off. Even like a mini downturn, like something that’s like 20% or 10% to 20%, I feel a little bit more comfortable. But I do think you should buy a house in So Cal. That’s definitely…
Bill: Those are pretty noncyclical, yeah.
Andrew: Oh yes, super noncyclical.
Bill: But I mean, it depends on your time horizon, right? I mean, if you had bought at the top in 2007, it’s, you’re still in the black.
Andrew: You’re up by more than 50%.
Bill: So like you had a harrowing time, but if you’re not gonna sell, just keep investing.
Andrew: Yeah, it’s a good perspective. I just keep thinking, and again, I realize I’m just harping on mistake number one, I haven’t learned. But man, it’d just be so much nicer if I invested 18, or 17, versus 25. I’m just…
Steve: I feel like what you’re saying, Bill, is the right thing, because that’s what all the books say too, right? It’s just I just have all this PTSD. Like, I just wanna make sure I have the buy side, at least, in the general vicinity of when the right time is, you know?
Andrew: It’s funny, one of the things that I think helps a lot is thinking through something at a fixed point in time. There’s a book, and it wasn’t a crazy great book, have you guys read “How to Lose A Million Dollars”?
The Importance of a Fixed Plan
Andrew: There’s a guy who goes through and talks about how he just blew a bunch of money. And really, the thing I took away from it is the importance of having a plan in a fixed point in time, because like if you think you’re gonna do something and you just kind of, you know, “Here’s my rough plan,” and then as time happens and market conditions change, you aren’t objectively viewing it from that previous point in time, you’re updating it based on new information.
And so what he, there’s this kind of point is that the most successful investors sit down, they really have a concrete plan. They write it out, and they follow it no matter what. I did that for Bitcoin investing a little bit further on in the game. It helped out a lot, and I even on that plan, bailed out. If I would have stuck to it, I would have made more money. That’s not silly. That’s super anecdotal and anyone would make money in Bitcoin.
But I think that the point stands that having a written plan in time that you can stick to, no matter what, over a fixed period of time is much easier to get the emotion out of it than if you’re trying to update your plan, you know, month by month.
Steve: But you don’t stick to it, right?
Andrew: I didn’t stick to it. I stuck to it for two thirds of it, and then I bailed out.
Steve: I guess the question is, how can you force yourself to stick to it? That’s really hard, right? I mean, when stuff gets bad, it’s really hard.
Andrew: Yeah. So who are we on for the next mistake here?
Steve: I think we’re on Bill, right?
Bill: Let’s keep it moving around the horn. I only had a few, so you guys sounds like you guys have more mistakes, let’s hear them.
8. Selling An Asset Too Soon
Andrew: I’ll go next here. I’d say my next mistake is selling an asset too soon. So there are two things I think, that come to mind. One is our house. We recently moved to Bozeman in the last couple of years. And it kind of goes to your point of owning a house. I’m kind of arguing your point here a little bit, Bill.
I knew it wasn’t in a great part of town. I thought there was a lot of potential for it appreciation wise, and I sold it even though we moved. It would made an incredible rental, but I sold it because didn’t wanna deal with the hassle, and it just had skyrocketed the last two years beyond what I would have imagined. Part of that is market conditions, but I think I sold that too soon.
And also, I sold my business too. I mean, I don’t have any big regrets. I’ve talked a little bit about this on the podcast. But I think I sold that and, you know, I could have held on to it for a lot longer, it would have penciled out. So I think the biggest mistake for me is just selling assets that I felt had a lot of value too early.
Bill: You really feel like you sold the business too soon?
Andrew: A little bit, yeah. I mean, from a cash flow financial perspective, I think it was getting returns other places. Relative to the time I put in, there’s nowhere else I could probably get those kind of returns. So not a major regret in life or anything, but yeah, I think going back again, I would strongly consider holding on to it.
Steve: Yeah. And just kind of supporting your point, remember when I was talking about putting stop losses on stocks? I started doing that, and then all of a sudden, these stocks would dip just a little bit just to hit my stop loss, and then they would shoot up for like the next four or five years, which really annoyed the crap out of me.
So now I actually take a much longer term strategy. I think about, like whenever I have to sell something, I decide what I wanna do with that money ahead of time, and if there’s nothing for me to do with that money, then I tend to keep things. I don’t know.
Andrew: Yeah. Steve, what percentage do you do individual stocks? What percentage of like the little that you… most of your cash?
Steve: We talked about this earlier. I’m about 30% in individual stocks.
Andrew: Thirty percent? I’m sorry, I missed that.
Steve: Yeah. But I’ve been buying a lot of the safer stuff, you know, like Facebook, Google.
Andrew: You know it’s 2017 when you’re looking at a lot of the bellwethers that are safe… Steve, do you have any anyone mistakes on your side?
9. Getting Past PTS(tock)D
Steve: I mean, it sounds like we have similar mistakes. Most of mine are just like psychological, I’m trying to get over. I’ve been trying to train myself to take action when it’s really, really painful to do so, and then when things get a little bit too happy, to cut back a little bit. So one thing about these automated investment systems, I’m always a little hesitant because I feel like everyone is doing the automated investing thing, you know what I’m saying? So it just makes me a little bit nervous.
Andrew: Are you talking about a Wealthfront and Betterment?
Steve: I’m talking about Wealthfront, Betterment. Yeah, those services like that, right? If everyone is doing the exact same thing, it just makes me a little nervous.
Andrew: I can see if the exact same thing is trying to…like it’s the same exact same type of product or strategy on Amazon, but if the exact same thing is just trying to own the whole market and not try to pick winners, do you think that’s as risky? Because you’re really, you could almost make sure, I mean, everyone’s just trying to diversify, if that’s what they’re doing.
Steve: Yeah, I mean it’s unclear. And I don’t know if there’s any logic behind it, it just makes me nervous when I see a lot of people doing a similar strategy with their money that’s just almost automated, if that makes any sense.
Andrew: Yeah, I hear you.
Bill: It’s interesting if you say, Steve, and hear all of our mistakes. Almost all mistakes are psychological mistakes, not actually, “This is what I thought. I made a rational decision and I was wrong,” almost 100% falling victim to cognitive biases, which is kind of revealing when you think about it.
Steve: Oh yeah, for sure. Like all the ways I invest now, it all has to do with that, it all stems from that crash back in 2000 man. I’m still recovering from it.
Andrew: Yeah. I think the way I invest is just having too many podcasts with Bill where I’m scared away from risk, and I end up super conservative.
Bill: Do I make you more scared? I’m the one who gets you over the hump.
Books To Read Now
Andrew: No, I’m just teasing, man. Well guys, I’m gonna wrap this up here. In closing, any favorite books on, books or resources on investing that you guys have come across, or read, in the last couple of years you like?
Bill: Yeah. This is like the most boring one of all time, read Warren Buffett’s letters. I mean, it’s just classic investing advice. Everybody should read if you’re gonna invest in stocks.
Steve: I don’t read a lot of investing books these days, actually. I read more about marketing, and sales, and ecommerce, actually, so I don’t have anything to contribute.
Andrew: There’s probably actually the time spent is probably you’re putting a better ROI there than getting, you know, and you can learn a little bit extra return on your money. For me, a couple that come to mind are, the “Little Book of Common Sense Investing,” by I think Bogle, he’s the guy who started Vanguard. It talks about just kind of, you know, indexing. “The Black Swan,” by Taleb. That’s something that when you talk about not wanting to invest right now, that one will scare the bejesus out of you.
And then two kind of more fun books, “Investment Biker,” and “Street Smarts,” both by John Rogers, or Jim Rogers rather. They’re kind of more fun traveling/investment books, but they’re interesting, if you like both of those, so.
Well guys, this has been fun. I’m glad you guys came on to help dilute some of my mistakes as well. It’s nice to have some company in my investing misery.
Steve: I don’t know, man. It seems like both you and I were sharing all our mistakes. Bill is sitting there quiet, he didn’t have any mistakes.
Andrew: That’s because he’s secretly running a hedge fund. Element’s Brands is actually a huge cover and he’s just trying to get a read on all the suckers in the market.
Bill: Well, honestly, it’s because I was so close to market in my early career. You know, I saw how good so many of the people that you’re trading against were. And I also, you know, you hear that all the cognitive biases. I’ve kind of just tried to stay out of it. You know, I focus mostly on indexing on Amazon stocks, because you just completely convinced, and then things I can control, and just plot ahead.
So I probably have missed, you know, a bunch of…I’m sure Steve, you had some great ones too that I all messed on. It’s just I’ve just not been a real stock picker a lot in the past.
Andrew: I think if I had to guess, I guess it would serve to do well, man.
Bill: Yeah. No, totally.
Steve: And I agree. I mean, you invest your money back into your businesses, right Bill? And so I think that’s the right way to put it, I mean, the best place to put it.
Bill: Yeah. I mean, what’s the point of taking money out of the business and sticking it in the stock market? Even at a bonkers 20% return like we’ve had, you know, the business should be better anyway.
Steve: Yeah. I mean, I’d rather buy out my entire neighborhood instead.
Andrew: Oh, guys, this has been a lot of fun. Steve, if you’re not following his stuff, mywifequitherjob.com, he’s got a great podcast and blog over there. And Bill d’Alessandro at elementsbrands.com. Gentleman, it’s always fun. Thanks, guys.
That’s gonna do it for this week’s episode, but if you enjoyed what you heard and are interested in plugged into a dynamic community of experienced store owners, check us out at ecommercefuel.com.
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What Was Mentioned
- Andrew Youderian: Blog | Twitter | Facebook | LinkedIn
- Steve Chou: Website | Blog | Podcast
- Bill D’Alessandro: Website | Twitter | LinkedIn
- The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle
- Investment Biker: Around the World with Jim Rogers by Jim Rogers
- Street Smarts: Adventures on the Road and in the Markets by Jim Rogers
- The Black Swan: The Impact of the Highly Improbable (Incerto) by Nassim Nicholas Taleb