What Crypto and Real Estate Taught Me About Investing | Ep 710

This episode focuses on Alex Hormozi's personal investment experiences in cryptocurrency and real estate, emphasizing the lessons learned from both successes and setbacks.

1. Stay within your sphere of competence to minimize risk and maximize returns.
2. Recognize and manage the influence of FOMO (fear of missing out) in investment decisions.
3. The allure of quick gains can lead to substantial losses; real wealth is built through steady, knowledgeable investment.
4. Lessons in investing often come at a high cost, teaching the importance of due diligence and skepticism.
5. Partner with experienced individuals in investment ventures to share risks and insights.

1: Introduction to Investment Lessons

Alex Hormozi discusses his approach to investments and how experiences with cryptocurrency and real estate have shaped his strategies. Alex Hormozi: "Whenever I feel that little tickle in my stomach or the back of my neck where I'm like, ooh, I feel like I'm missing out, I literally just stop and I say, wait."

2: Crypto Investment Failures

Hormozi recounts a significant loss in crypto investment, emphasizing the impact of timing and market volatility. Alex Hormozi: "And I called my buddy up. Not the same guy, different buddy. And I was like, hey man, I'm going to get in on this."

3: Real Estate Investment Disaster

Detailing his first real estate investment, Hormozi shares a cautionary tale about trusting misleading deals and the importance of local knowledge. Alex Hormozi: "Once the papers transferred, it turned out that the house was not, in fact, a three bedroom, it was actually a two bedroom house."

1. Assess your sphere of competence: Only invest in fields where you have or can gain expert knowledge.
2. Beware of FOMO: Learn to recognize and control emotional impulses that can lead to risky investments.
3. Conduct thorough due diligence: Always verify information and claims about investment opportunities.
4. Start small when unsure: Make smaller investments to test the waters before committing significant funds.
5. Seek experienced partners: Collaborate with knowledgeable individuals who have a proven track record in the investment area.

“The further away I get from my core, the more money I lose.” Today, Alex (@AlexHormozi) shares insights from his experiences with cryptocurrency and real estate investments, emphasizing the importance of operating within your sphere of competence. Highlighting lessons learned from financial losses, the episode underscores the value of skepticism towards enticing deals, the need for due diligence, and the benefits of leveraging personal expertise in investment strategies for wealth creation and preservation.

Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.

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Alex Hormozi
Whenever I feel that little tickle in my stomach or the back of my neck where I'm like, ooh, I feel like I'm missing out, I literally just stop and I say, wait. And this takes practice. Cause unfortunately, you just have to get your ass beat over and over again to really learn this lesson. But now I recognize what FOMO feels like. And FOMO means, slow down.

This isn't where you're gonna make your money.

Welcome to the game where we talk about how to sell more stuff to more people in more ways and build businesses worth owning. I'm trying to build a billion dollar thing with acquisition.com dot. I always wished Bezos, Musk, and Buffett had documented their journey. So I'm doing it for the rest of us. Please share and enjoy.

Alex Hormozi
So a lot of you guys know there was a big crypto craze that happened in 2020, I think. And there's been lots of little mini peaks and valleys, but probably the craziest one happened during COVID ish time period. And at that time, I was like, well, shoot, I missed out in 2017 because I had a guy who's like, hey, man, you should buy this stuff called Ethereum. And at the time, it was $100. And I set up the account.

I put a million dollars in, and, like, right before I'm about to click purchase at $100. It, like, went down to, like, 93. And I was like, ah, I don't know about this. And so I decided not to pull the trigger. Long story short, it then 30 x from there, or whatever it was, and this next time around, a few years later, so it had been going like this, and then right here, bitcoin was at $60,000.

Ethereum was really high, too. And I was like, I called my buddy up. Not the same guy, different buddy. And I was like, hey, man, I'm going to get in on this. And he was like, I'll put a million bucks in if you do.

And I was like, fine. So he put a million bucks in and then lost 500 grand in a matter of weeks. And so you might be like, wow, Alex, that was retarded. And the answer is, yes, it was retarded. But there's two things that I think were good reminders for me from this whole experience.

The first is that me making a million dollar bet at the time was not a huge percentage of my income or my net worth. And I made more than that every month anyways. And so it sounds big, and it makes it more dramatic for this, but it wasn't. For me at the time, and the only reason I was able to do that is because I had a foundational way of actually making money. I didn't plan on having this be how I made money.

I made money doing stuff that are fundamental business things. And then I basically made a bet or a gamble, which, realistically, it was just gambling. The second big point was that Warren Buffet and Charlie Munger talk about your sphere of competence. Now, for me, business is very much within that. And then within their marketing, sales, acquisition, pricing, product, those are the things that I'm very good at.

Now, outside of this, is probably real estate and crypto and a bunch of other things that other people do and have spent lots of time developing their skillset. And so those people should do those things, I have no idea. And so this is way less about, is crypto good or bad? Is real estate good or bad? Is business good or bad?

But are the things that you're making the bets within your very narrow competence? And I have just noticed the further away I get from my core, the more money I lose. And the closer I am to the core of what I'm good at, the more money I make. And the thing is, the things that seem easy to you feel. Feel like they're not fair, and so they're boring.

And so you try and look for this excitement because in the beginning, the things that you do are exciting. Cause you don't know anything about it. Cause it's uncertain. But the more you understand a game, the better you get at it. But it also becomes less interesting in terms of, like, risk, because I know that if I have a machine where I put a dollar in, I get $10 out in a month, which in most of the businesses we have, that's what we do all the time.

But the idea of being able to put a million bucks in and getting $10 million out with no work sounded exciting. But if I work, I know I can do that all the time, and I can do that on a month rather than trying to hope for five years or ten years. Right. And so I will give you a little tidbit that a mentor gave me, really, really, really high up person at a big bank, commercial bank, that you would know of. Top three in the US.

He said, if you know how to create wealth, just create wealth. He said, don't fuck with investing if you know how to make money. And he gave that to me as advice. And I try to remember that as, like, what am I good at now, I've tried to basically make my investing, really, just me doing business. I'm not trying to pick stocks.

I'm buying companies I understand, and then I just use business skills to grow them. But that has been very valuable to me. Even as I study Charlie Munger and Warren Buffett, they have different skillsets than me. And so for me to try and play the game the same way as them would be silly, because I didn't buy my first stock when I was seven. So for the many people who want to model Warren Buffett, Trevor says this.

He's like, you can't model Warren Buffett because you didn't buy your first stock when you were seven. Because if you were Warren Buffett, you'd be Warren Buffett. So play the game your way where you have your unique advantages. And I think that's my big TlDR on this little experience. So that was big loss number one, or one of my smaller losses.

We're going to get bigger ones. Believe me, it gets worse. But this was me getting out of my sphere of competence, which might be a recurring theme into crypto. And so I think it's important to think about what are the themes that are going to be around these mistakes, because you're hopefully not going to repeat the mistake. I'd rather you just get the lesson without the scar.

Right. And so, number one, out of my sphere of competence, number two, I latched onto fomo. I saw other people making money at something, and I was like, I'm not immune to it, either. I'm human. I saw these people like, man, I would like to make quick, fast, easy money, too.

Interestingly, what I've now learned is that when everyone thinks something is a good idea, it's usually a bad idea. Basically, by the time you're really, really certain about the opportunity, the opportunity has already closed. It's only when it appears really risky, and not a lot of people are doing it. Where the big arbitrage happens, it's when, in 2017, I could have made that bet before a lot of people had done it, where I would have made that 20 x or that 30 x thing. Now, either way, I was out of my sphere of confidence, and that would have been truly luck.

It's not my skillset. Whenever you feel that fomo, I've now learned. Pause and second. Just because someone else is going to make money with it doesn't mean you are. Because the buddies that I did have were making crazy money in that stuff.

All they did was eat, sleeping, shit, crypto, all day long, 20 hours a day. They were taking heavy stimulants so they could wake up when China was coming online, so they could trade in those markets. Like, I wasn't doing any of that stuff. I was making money with my normal day job and was like, well, shoot, this sounds fun. And that's a perfect way to lose your ass.

So the second big mistake I had was in real estate. And you'll notice there's multiple big mistakes that I will make in real estate over my career, and hopefully I stopped making them. This one was actually my first ever real estate investment. So Leila and I have been making a ton of money and gym launch for a few years now. I think at the time, we probably had, I wanna say, like, $20 million in cash just saved in our bank account.

And so we were like, well, shit, we should do something with this, right? And so a buddy of mine, you'll notice how this common theme happens, right? So buddy of mine's like, hey, I've got this guy, right? And he sells houses in Ohio, because houses in Ohio are actually really cheap. And so you can buy these houses in cash for, like, 50 grand, and each house can make you, like, six grand a year in cash flow.

And so I was like, okay, well, that's not going to be a lie. He's like, yeah, but you can buy, like, five or ten at a time. And there's a guy who. All he does is he specializes in finding these particular houses, and then he'll basically give them to you, and he'll set you up with a property manager. I was like, okay, that sounds cool.

And when I got on the phone with the guy, he only did this was he would find these houses, and he said, yeah, I buy them for 30. I fix them for ten grand. So I have 40,000, and then I flip it to you for 50. So I make ten on the spread. He's like, that's my business model.

I just sell a lot of them. I was like, okay, that's cool. He's like, well, do you want to buy five? Do you want to buy ten? What do you want to buy?

And I was like, and this is from a lesson that I had learned earlier on, less money. I was like, why don't I dip my toe in? Let's not lose a shitload of money if this doesn't work. But I said, why don't I just buy one of these houses and see what happens? Hey, Mozhan, quick break, just to let you know that we've been starting to post on LinkedIn and want to connect with you.

All right, so send me a connection request and note letting me know that you listen to the show and I will accept it. If there's anyone you think that we should be connected with, tag them in one of my or Layla's posts and I will give you all the love in the world. All right, so let's get back to the show.

Alex Hormozi
So I bought one house. Once the papers transferred, it turned out that the house was not, in fact, a three bedroom, it was actually a two bedroom house. And the third bedroom was actually in a closet that they had put a mattress into. The house did not actually have electricity. They were running it from the neighbor's house illegally.

The driveway was so in shambles that the people couldn't actually park on it, so tenants couldn't park there. And so fixing the driveway on its own was like $7,000. Now, for a house that costs 50, that's a huge chunk of what you put into as an investment. Now, remember, I'm trying to get like 6000 a year at this house. I put 7000 into it up front to fix that.

A friend of mine who is in real estate, different friend, looked up the county records or whatever, and found out that the guy who had sold it to me actually bought the house for $19,000 and had put no money into the house. And so his business model was buy it for 19, flip it to 50 to people who don't know any better. That was me. And so I then, of course, was like, more and more pissed off about this. And then the property management group that they set me up with because I only had one unit.

And by the way, the idea of like, oh, property manager will take care of it for you. They take care of it for you based on how important you are to them as an investor. If you have 100 houses, they're going to treat you really well. If you've got one, they don't give a shit about you because they get a percentage of the earnings that you're making. And so if you make $6,000 in a house, they're getting ten or 20% of that, and so they're making $600 a year, $1,000 a year.

They can give a fuck. And so they stopped responding to me altogether, and then they actually dropped me overall and said, we're just not going to represent you anymore. So then we got a second property manager to come in. They found a tenant, and the tenant's paying dollar 700 a month now. All right?

So that was what we were able to rent this place for now. Dollar 700 a month doesn't cover the driveway that I had to repair. It doesn't cover the electricity that I had to actually run from scratch into this thing to make it livable. And because they were like, hey. And honestly, really kind tenants, they were like, hey, we think, you know, it'd be nice if we could have our own electricity.

And like, of course they fucking should. I didn't know I was buying it out of state. And so what did I have to do? Because it was unlivable. I had to put them up in a hotel while we had to basically make this place livable up to code.

And so that took like, 30 days. And so this family is in a hotel that I'm paying for this whole time as the landlord now. You're like, wow, Alex, shit show. The thing is, like, I lost whatever. I ended up selling the house with the tenant in it, I think, for $20,000 because I was like, just get rid of this fucking thing.

But the thing that I lost beyond just the 30 or 40 or $50,000 I lost in the deal was the amount of time, effort and energy and emails and phone calls that went back and forth about this bullshit thing. And for context, at the time, I'm making 50,000 a day in profit. I was like, just fucking get this out of my life. What a mistake. So anyways, I called a guy up who sold me the house, and I was like, dude, what the fuck?

And basically he stopped responding to my attempts to reach out to him because it was apparent what he had done. And he did say this. And I basically was like, I just want to let you know I'm really grateful that you taught me this lesson for so cheap. And he, being the scumbag that he was, said, you're welcome. He very much was aware of the fact that he was totally running a scam, 100%.

And I called my buddy up who made the intro, and he had bought five houses and he had five times the headache that I had. And so let me walk you through some of the lessons that I got from this. So, number one is that if it's too good to be true, it usually is. Now, he was telling me about 25% plus cash on cash returns. And so I was, like, really excited about that.

And my. I caught a buddy of mine who owns a billion dollar fund, and I was like, hey, what do you think about this thing? He was like, this doesn't make sense. He's like, because if he really was doing that, he should just own all the houses. Why would he sell these houses?

And I was like, nah, man, you're just not a believer. And so, anyways, if it's too good to be true, it usually is. All right? So that's too good to be true. It usually is.

And the thing is, the hard part about this one, this one's really deceptive, is that if you're in early on something, sometimes it is really good. But the thing that makes it the to be true part is that if no one else is aware of it, there's this double edged sword of like, am I seeing some opportunity that's gonna close in the marketplace, or am I just about to get fucking robbed blind? And it's tough to know the difference. Now, I should have just recognized the big sign the guy had on his forehead that said scam that was just blinking, like Vegas lights. But I just chose to overlook that just based on his social media.

He looked exactly like you would think. Just imagine what a fucking scam artist would look like. The fucking rolls, the flashy watches, talking about his hustle game and how he started all of that. Just imagine it. It was him.

That's him. So too good to be true. It usually is. The second thing is you'll see this lovely recurring friend we have here is that I saw my friend making money, and I was like, oh, man, I should do it. And he was a business guy, and I was like, oh, if he's a business guy, he could do it.

I'm a business guy. I could do it. And guess what? He lost his ass too. Which leads me to number three, which is now, if someone tells me about an opportunity that they're doing for investing, which for me is now a much longer time horizon, I say, how long you been in this deal for?

If someone says they've been doing it for less than two or three years, I don't care. I just say, cool, let me know how it goes in a few years. Now, if you're like, well, Alex, what about the opportunity closing? What is my objective? If I want to make money, I go make money.

If I'm trying to invest money, I'm trying to keep and maintain the money and then slowly grow it. And so one of the big isms that I like is that you take a lot of risk with a little bit of money in order to make a fortune, but you maintain a fortune by taking a little amount of risk with a lot of money. And so once you have the money, you're not trying to ten x that professional gamblers don't actually go to the casino with ten grand, hoping to make 100. They go into the casino with ten grand, hoping to make twelve, because they know that they're just playing a very small spread. That's the point.

And so I didn't understand how the game was played. And so, .3, is that what's the hold period? If I'm hearing about something from somebody, they better be doing it for multiple years before I'm going to even consider it. And so what I would say I do now with these types of things is that, one, I'll do it with somebody, but I want to do it with the guy, which means that I partner with them. So that guy who was on the phone with me, selling me the property, what I would do now is to say, I'll buy a property that you buy.

I'll just go in. And if they don't want to go in with me, great, then I'm not doing a deal. So number one is that I'll partner with them. The second thing is that this decreases a huge amount of risk because they're putting skin in the game and they have all the knowledge. And this guy had been clearly scamming people for a very long time, and so he's got ten years of experience.

I'm like, fantastic. Now, obviously, I wouldn't get into business with a scam artist, but the idea is that if somebody approached me with an opportunity, and they've been doing it for a long time, which is what he was basically touting, then I'd say, great, I'm happy to give you some of the upside, because in the beginning, I was really greedy. I was like, no, I don't want anybody to have the upside. Now I'm happy to give partners the upset, because the more money they make, the more they want to make it with me, and we'll do it together. And I'd rather have a very sure 20% than a really risky 40, because, again, I make my money making money.

I invest my money to not lose it. And whenever I feel that little tickle in my stomach or the back of my neck or I'm like, ooh, I feel like I'm missing out. I literally just stop. And I say, wait. And this takes practice, because, unfortunately, you just have to get your ass beat over and over again to really learn this lesson.

But now I recognize what FOMO feels like, and FOMO means slow down. And that has now been my internal translation for FOMO. It's like, slow down, slow down. This isn't where you're going to make your money. Because every huge amount of money that I've made has never been from any investment.

It's been from me seeing an arbitrage opportunity in marketing and sales and seeing that I can acquire a customer for $10 that's worth a thousand and then saying, great, let's jam as much cash as humanly possible into that. But that takes lots of iterations to get there, and I was there every single step of the way. It doesn't just appear on some spreadsheet showing how rich I'm going to get.