WEBVTT

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I think the economy is going to go up over the long term and so I want you to just preserve

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my capital and not have to think about it so I can immediately allocate the cash.

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This is something that people don't talk about.

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The wealthiest people in the world see business as a game.

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This podcast, the game, is my attempt at documenting the lessons I've learned on my way to

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building acquisition.com into a billion dollar portfolio.

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My hope is that you use the lessons to bring your business and maybe someday soon partner

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with us to get $200 million in beyond.

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I hope you share and enjoy.

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My mentor sold his company for $3 billion and I asked him,

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how should I set up my wealth?

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And this one I talked about is one of the many components that he broke down for me

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in terms of how I should set up my wealth and my investment as an entrepreneur.

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All right.

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And so everything I'm going to break down is based on what that conversation was and what he explained to me.

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All right.

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So right off the top, he was like, listen, there's only two things that you can do with your money.

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You can either buy stuff with it or you can lend it to people and get interest on it.

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That's it.

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All right.

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And so once you understand that those are the only two things you can do,

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then you can start analyzing your decisions appropriately.

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He's like, from a risk perspective, all right.

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These are the ways that we decrease risk for the investments, especially if you're lending.

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The first is that we make sure that you are the top of the cap stack.

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All right.

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Cap stack just means the stack of capital.

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So if you have multiple people who are lending or own something,

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who gets preferential treatment?

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All right.

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So a preferred creditor or somebody has preferred stock,

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means that if something goes bad, that person gets paid out first, right?

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You can have liquidation preferences.

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I don't even get into that stuff.

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But if you're top of the cap stack, so for example,

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if you lose your job and you can't pay your mortgage anymore,

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the bank is the one who gets your house because they are the preferred creditor.

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So you don't get your house, your bank gets your house.

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Even though you put money into it, the bank put money into it too,

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and they are the preferred creditor.

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So they get your house even though you lost the money, right?

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And so that is the first element of risk.

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The second one is like, you want to be able to see at all times what's going on.

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And so that's called transparency, all right?

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So that's what kind of reporting do you have?

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What kind of relation do you have?

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How clearly do you have access to the books?

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This is why publicly traded companies, for example,

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you have lots of transparency, right?

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So the second way you decrease risk is through transparency.

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The third is through liquidity, all right?

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So this is speed to money, or money transferring from money to money, right?

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Is liquidity.

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And that means that you can get in and out of position very easily,

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very quickly, or you can translate one asset into money

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and back into it very quickly.

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And that also is an element that decreases risk.

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If you have to hold on to something and you want to get rid of it and you can't,

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that means it's not that liquid, which means you're at higher risk, right?

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And so you're like, so this is what I'm thinking about when we're lending money.

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Now, the second thing is what are we going to look at for the investment, right?

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There's four pieces to what you need to look at for all your investments.

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The first is what is the yield, right?

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Is this thing going to pay me month over month or month?

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So for example, if I bought crypto, that's not going to pay me anything, right?

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What that's going to do is increase in value, or our hope is that it's going to increase in value.

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That is one of those, the greater full theory, which is you buy,

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and then you hope that there's somebody else in the future who's going to buy it for more money, right?

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And that's appreciation.

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So you have equity growth.

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The next is the yield, which I mentioned earlier, which is do I get cash flow?

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So if I had a real estate property that would give me cash flow,

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if I owned a business that would give me cash flow,

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whereas if I'm buying an asset and hoping it appreciates like crypto,

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or like gold, or whatever, those would be things that we're hoping that increase in value.

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The next is it tax-advantaged, right?

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And what I mean by that is if you have two different investments and one of them has a better

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tax structure based on laws, then that would be a better investment.

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So this is why it's a variable, because if you can have two things and one of them has its

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characteristic, then it would make it a better investment, right?

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And it's their ways that we can structure our investments so that we get a better tax treatment.

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And the answer is yes, right?

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And then finally, is a preservation of capital, right?

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Which is how likely am I to lose my money, right?

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And what I can tell you is of all the guys that I know who are worth half a billion, a billion,

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this individual who saw his for three billion, or more is that they are far more far more.

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And they just repeat it over and over and over again.

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So if this is repetitive, then take it in because I've been dealing with it,

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you know, on their side too, is that it's way more about return of capital than return on capital.

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They are far more concerned with making sure that they keep their money than that they grow the money.

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And I think that having this defensive first strategy has been something that I've seen over and over

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and over and over again, and you listen to Charlie Munger and you listen to Warren Buffett,

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it's always never lose money, right?

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It's always never lose money.

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And that's always the first and second thing that they're thinking about,

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because any number, no matter how big it is, multiplied by zero is still zero.

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So you can erase an entire lifetime of excellent decisions by one very

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poor decision, which is why mitigating downside is so important.

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And this preservation of capital kind of relates to these three things that I mentioned earlier.

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All right.

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So now that you've laid this as the foundation, you're an entrepreneur.

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All right.

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And so you're going to have buckets of wealth.

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And this is how we're going to set it up for you.

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All right.

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So the first is I have acquisition.com, which is our portfolio company.

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That's where all of our companies sit in.

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All right.

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And what happens is that cash, then cash flow is generated.

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Every day, every week, there's positive cash that's been generated from these businesses,

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because those are the types of businesses that we like to work with.

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So we're not, there are businesses that generate losses for long periods of time.

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And then they try and sell later like software companies tend to being that we own one software company.

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But the vast majority of our portfolios is asset light, high cash flow generating businesses.

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All right.

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Now, there are three buckets that this cash goes into.

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All right.

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The first and simplest bucket is indexes.

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All right.

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And the reason we do this for us specifically is that they are passive.

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All right.

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And they are truly passive.

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All right.

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I don't have to worry about Coca-Cola and how it's going to run.

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I don't think about it.

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I'm not on their board meetings.

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I'm not giving them insight.

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Right.

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I let uncle Warren do that for me.

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But indexes are the first probably first and 50 percent bucket for us

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in terms of where all wealth is.

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And there's some advantages to indexes that I'm going to share in a second

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that you get that most people don't know about.

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All right.

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Especially people who don't have as much money yet.

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All right.

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And that's what we're trying to solve with this channel.

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All right.

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So indexes.

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And the reason we do this is because a super passive and b is because I'm bullish

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on the long run that I think the economy is going to go up over the long term.

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And so I want to just preserve my capital and not have to think about it.

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So I can immediately allocate the cash.

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And this is something that people don't talk about.

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So if I can allocate all my money almost immediately every single month,

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then I get so much more growth over my portfolio over my entire career.

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Because if every, if let's say I only did real estate, for example,

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well, there's a time, there's a time delay to allocate cash flow in real estate.

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You have to go find deals.

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You have to review the deals.

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And then you have to, you know, make your offers.

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Secure the deal and negotiate.

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And then you have to fund the deal.

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And then there's the whole escrow period.

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There's all this, there's time delay, right?

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And so during that period of time is when that money could have been growing,

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but it's not, right?

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And so just from a from a context of perspective for you,

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like the speed of allocating capital also can increase the return.

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So I'm not saying do things in a rush because one of our money rules is

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a mistakes lover rush decision.

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All right, so we don't want to do that.

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But it's just that there is a mathematical component to allocating capital quickly, all right?

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Real quick guys, if you can think about how you found this podcast,

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somebody probably tweeted it, told you about it,

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shared it on Instagram or something like that.

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The only way this grows is through word of mouth.

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And so I don't run ads.

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I don't do sponsorships.

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I don't sell anything.

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My only ask is that you continue to pay it forward.

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Do whoever showed you or however you found out about this podcast that you do the exact same thing.

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So if it was a review, if it was a post, if you do that,

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it would mean the world to me and you'll throw some good karma out there for another entrepreneur.

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So indexes is our first big bucket.

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The second big bucket is multi-family real estate, all right?

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And the reason we do this,

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multi-specifically, people are like, why don't you do single-family home?

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Because I have to buy like two houses a day if I was going to do single-family homes,

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like just from the amount of cash that we generate and I'm not saying that

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to posture, I'm just saying realistically, like it would become an entire business.

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And we could do that.

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But then it would become a business, but that's not my main business.

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This is my main business or here, running our portfolio company.

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So that's what I need, depending on my time doing,

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not trying to buy homes and bird dogging and things like that.

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That's just not my thing.

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So I'd rather buy 300 units at a time and an allocator capital in that way.

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Now, here's the specific reason for us, why we use multi.

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Is that if you can designate yourself as a real estate professional,

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which is 750 hours or more per year,

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then you're able to take your depreciation of your assets,

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like buying a big real estate thing and depreciating its your regular income.

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So let's say I buy a building for $10 million.

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All right.

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And let's say I make $10 million this year.

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I'm just using simple math numbers, okay?

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Now, I might be able to take an accelerated depreciation of about 40% on this against my income.

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So this, now I only get taxed on $6 million.

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All right, here's why this is cool.

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Because the four million that I'm saving

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is probably going to save me about $1.1 million, $1.8 million in taxes.

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And that goes straight to my net worth.

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There's $1.8 million that I can now put into indexes or I can put into building,

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you know, whatever it is, right?

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And so because of that, I actually am able to grow my wealth at even fast rate.

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Because this is tax advantage if you remember this guy, right?

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And so that is why we like multi-family.

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Now, here's something cool that you may or may not have known about.

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But when you're looking at indexes, for example,

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one of the things that's awesome about indexes is that you can actually loan

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money or get loans on your indexes at about one and a half percent.

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All right, that's crazy low interest rates.

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And the reason is because it's a secured loan.

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And typically you can take about 50 to 60% of your indexes.

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So let's say I had $10 million here.

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I'm just using simple math.

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All right, then it means that I would be able to take $5 to $6 million of this

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and only pay one and a half percent on that.

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And I could buy real estate.

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I could buy whatever I felt like doing using that money and basically paying nothing on it.

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And so for context, you know, one percent of $5 million is 50 grand.

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All right, so you have $5 million.

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Why can't I make $50,000 a year or $75,000 a year if it's one and a half percent

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on that money in a year then I probably suck at investing and that's okay.

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But like you get the idea, right?

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Like if I can make even 10% on my $5 million then I would make $500,000 and it would cost me

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50 to $75,000 per year to carry that money, right?

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It's a great deal for me.

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And that is why I like indexes a lot too is because it actually allows us to still reinvest

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in the other things with super, super low cost low risk money.

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All right, now the third bucket is cash slash spec.

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All right, and technically cash and spec are different things,

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but I'm just going to put it for sake of explanation.

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And the reason he told me to put this here is like there's always going to be things.

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He's like, you're always going to have little deals that come up and you want to have some

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dry powder which is the term they use on the sidelines so that you can deploy that opportunistically,

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right?

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And like for example, I think I recently told you guys about $2.5 million debt note that we wrote

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that will probably make $300,000 dollars on in about 90 days, right?

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So I'm going to give $2.5 million and then they're going to hold it for 90 days and then I'm going

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to get $300,000 dollars back plus my original money.

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And it only that I only get those types of deals because I always have cash on me.

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And so people know that I always have decent amounts of cash.

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And so they will hit me up and be like, hey, can you fund this deal?

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Can you underwrite this note or whatever it is?

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And because they know that I have a lot of capital on hand,

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I have these opportunities that come towards me, right?

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And so with that, I can generate pretty good returns on having this stuff.

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And I just like having me personally for my peace of mind having a certain amount of cash

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on the sidelines, right?

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And so this was the investment strategy that he outlined for us.

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This is kind of our wealth strategy in terms of big picture of how we allocate our money.

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So the money gets generated, boom, we basically split it between indexes and multi-family.

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We can always use our indexes to generate more.

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We can usually take loans against that if we want to deploy stuff and get even better returns or whatever.

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And then finally, we have our cash and speculative stuff.

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And I tend to have a little bit more cash because I am an entrepreneur.

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And because I am an entrepreneur, I like to have that liquidity available to me at all times.

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And you'll notice that this is not a very high risk portfolio.

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And the reason for that is because all my net worth is being generated in this bucket, right?

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This is where the vast majority of my net worth has been created in that.

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And that is where all my risk lies.

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Now, you could make the argument and this is what he made to me.

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He's like, it's not that high risk because you know what you're doing, right?

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He's like, and that's the easiest way to decrease your risk is to know is

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like diversification is the hedge against ignorance as Uncle Warren says.

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And so he's like, you know what you're doing here.

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And so it's not actually low risk, but it's still the vast majority of your net worth,

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which is why we can quote, beat the market by big, by big amount because we're actively

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involved in these companies.

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We have niche expertise in these industries and we know how to grow them out of much,

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much faster rate than what the market does.

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But this is much more a preservation of wealth strategy than a, especially these three buckets,

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than a true, true growth strategy.

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But this is how we set it up for me because I'm an entrepreneur.

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And this is kind of how my risk looks in my life.