Transcription
Diversification is why you're so broke. You own 11 funds across four different accounts, and you still feel behind. The "save and invest in index funds" path, it was never designed to make you wealthy. It was designed to keep you average. The wealthiest people on Earth, they do the exact opposite. They concentrate everything into a handful [music] of things they can actually control, and the math on that gap will permanently change how you invest forever. So, let's go. All right.
Now, let's start with first breaking down the myth that most people invest with, which is you need to own, you know, this whole basket, 17 different things of uncorrelated things that you all need to own at the exact same time. So, why is that wrong or broken? And then, more specifically, what number does that achieve for you?
Well, first of all, why does it fail? Well, it fails for a lot of reasons. Number one, you don't know about 17 different things. In order to have success in any area of life, I don't care if it's sports, I don't care if it's business, you have to have an edge, some sort of information asymmetry. What do you know? What do you have that gives you an edge against somebody else?
I'm not very tall. If I was going to play basketball against somebody taller than me, I can't try to go over their head. I have to have an edge; maybe I'm faster, I'm quicker, I can get under them, right? For example, and so in investing or in business, I need to have an edge. I need to have some sort of information. Now, if you don't know what your edge is, that means you don't have one. But I can't have an edge in 17 different uncorrelated assets. There's one or two or three things that I know.
Now, if you don't know what that edge is, pick something. What do you have interest in? What do you know? What do you follow? What do you watch?
Now, for me, it started with real estate. It's a great way to build wealth because it's very easy. It's like elementary. Anybody can figure out real estate, and so you can start there. You can get to know real estate very well. Sure, you can get into other types of assets. Bitcoin is another asset that I love. Very easy to understand. As a matter of fact, if there's any financial asset in the world, Bitcoin's probably the easiest to understand.
Then we can get into things like Nvidia, but like how much do I really know about microchips? And if you're honest with yourself, how much do you know about microchips? So, where do you already have knowledge? Or if you don't already have knowledge, where do you have interest? What are the things that you want to watch? What are the things that you want to invest into that you're happy to pay attention to and to focus on?
It's why that Warren Buffett said that diversification is basically just admitting that you don't know what you're doing. So, it's a scatter, it's a throw stuff against the wall, it's a hope and it's a pray strategy, and ultimately what you do is you achieve the average.
Now, I don't know if you're like me, but I don't really want to be average. I want to get to my goals faster. I want to set bigger goals, and I want to achieve them, unlike the average that never does. And so, we don't want to be average; we want to be better than that, and we want to focus on concentration in order to grow.
Now, if that is true, which I believe it to be, then why does the financial industry sell you on diversification? Well, there's a couple reasons. First of all, their goals are not aligned with your goals. Their goals are aligned on their goals. Their goals are aligned on them making money. How do they make money?
They make money by number one, managing your money over long periods of time. It doesn't help them for you to achieve your goals in a short period of time, 5 or 10 years. They want your money for 30 or 40 years.
Number two, they make money by selling you their products. You see, most of your financial advisors aren't really financial advisors; they're sales people that get paid very handsome bonuses by selling you their company's products. And so, if they get you to buy 17 of their products, it's much better than two or three. If they can slow your returns down, they can keep your money there for long periods of time, they can sell you their products. If they can sell you on the complexity of understanding 17 different uncorrelated things, then they can sell you on their products.
Now, real quick, before I keep going, everything I just laid out, why spread is surrender, why control is the real filter, almost nobody pulls their own statement and asks how much of it they actually control. So, here's what I do. My team runs a free strategy session where we look at what you're holding, how much of it you can actually influence, and what concentrating into a few things that you understand would actually do for you.
Now, it's not for everybody, but if you're sitting on a pile of positions that you don't control and you're ready to change that, book a time. I'll put a link in the description down below, grab a slot, then come back and let's finish this breakdown in the video.
All right, so if you got this far, you're probably thinking, "Well, Mark, that makes sense, but what are the two or three that I should choose?" Or more specifically, "Mark, what are the two or three that you should choose?" Well, let's talk about what I choose.
So, for me, it's pretty simple. I started my career in real estate, like literally right out of high school. I'm buying bank-owned repos from the houses from the bank. I was fixing them up and flipping them. I literally went right into business in real estate, and so real estate has been a big piece of my wealth portfolio for a long period of time. I still like real estate for many reasons, not just appreciation, but taxes and income and things like that. Now, I have sold most of my rental properties. I don't own apartment buildings or three-bedroom, two-bath rental properties anymore. I've moved most of that into Bitcoin, but I still own a lot of real estate, and I love it. It's part of my wealth strategy.
The second thing that I hold is, of course, Bitcoin. As I just said, I sold a lot of my rental properties for Bitcoin. There's no maintenance, there's no property taxes, I can move it around wherever I want, and the CAGR, the compound annual growth rate, is three to five times what you can expect in real estate without any of the hassles. And of course, I talk about Bitcoin all the time, so I know it very well. I'm in the weeds. I'm watching Bitcoin's price. I'm watching the Bitcoin news every single day. My edge is certainly in Bitcoin.
And the third area is my businesses. I focus on my businesses, so I have a lot of money in my businesses. I'm working to build up the equity valuations of my businesses. I'm constantly reinvesting into my businesses because the return in my own business is really good.
And then finally, I put some money into stocks. I do like to get into the Nasdaq specifically because I'm extremely bullish on AI, but I don't believe that I can pick and choose the winners of AI. And so I believe that NASDAQ represents that way to get the AI exposure I need and still get a lot of that upside without having to pick and choose winners and trade in and out of positions.
So, when I focus on those three things—those are four things—those are things that I'm in every day. I'm building with AI every single day. What am I building? I'm building my businesses. What do I do with my money? I put it into my real estate and my Bitcoin, and it allows me to stay focused on what I need. I don't need to chase 17 uncorrelated assets. I don't need to be buying and selling stuff daily, weekly, or monthly, or any of that, and I can just hold, and I can focus on growing my wealth.
Now, those are assets, but how do I own them, or more importantly, do I have control over them? So, one thing we have to understand is that all of the assets we buy are sort of like tools in a toolbox. They're all meant for a very specific purpose to help me achieve a very specific thing.
So, the first thing I like to do is something I call the balance sheet x-ray, and I want to look through my balance sheet at all the assets that I own, and I want to understand them in terms of what they are, how much control over them, and what they're doing for me specifically. Let me give you an example.
So, I like to break them down sort of in a matrix. So, what I have is I have value, and over here I have control. And so, what I want is I want assets that are high value and high control, and I don't want assets that are necessarily low value and low control. What am I talking about?
So, for example, Bitcoin for me is high value. It's the best performing asset in the last, you know, 15 years. It's compounding at somewhere between 30 to 50% a year. So, it's extremely high value. Now, if I have that Bitcoin in self-custody, [clears throat] I have perfect control. So, now it's extremely high value, and it's extremely high control. The Bitcoin is mine. It's in my self-custody. I can do whatever I want. I can pledge it. I can issue credit against it. I can sell it. I can transfer it. Whatever I want to do.
Now, I could also take Bitcoin, which is still high value, but then I could move it into a Bitcoin IRA. And so now that Bitcoin is still high value, yes, but I have very low control over it because it's locked inside of a vehicle that I can't access. I won't get access to that without paying major penalties until I retire. I can't issue credit against it or any of that. So, I want to understand all of the assets that I have and how they rank in this type of a strategy so I can figure out how I can use them to build the wealth that I need to build. Okay?
So, that was Bitcoin. What about real estate? I mentioned real estate. Well, real estate is probably a little bit lower value, right? It's not going to compound at 30 to 50% CAGR like Bitcoin is. So, maybe it sits in this value layer here. But what about in control? Well, it depends on how I hold it. So, for example, if I've bought real estate in a REIT, I have no control over that. It's going to sit here. If I buy real estate in a syndication, it's going to sit here. If I have a three-bedroom, two-bath house or an apartment that I own on my own, then it's going to sit over here. So, now I have a middle-tier value. I mean, I still have a high-value asset, but the control depends on how I own it.
Now, I could also divide this into other structures. So, for example, do I own it in a trust or an LLC? If I have it in an irrevocable trust, it's going to be lower control. If I have it in a revocable trust, it's going to be higher control. So, that's how I think about it. How much value will it provide to me? Like, what's the potential return I see from that? And how much control over the asset do I have when it comes time to get liquidity against it, issue credit against it, buy it, sell it, move it, things like that?
So, the step that I would take is I would go through your balance sheet, which is all the assets that you own, and I would rank them in a matrix like this, and I would figure out where they sit in this and divide by value and control. Because what we want to do is we want to be treasurers. We want to focus on our equity. We want to know our return on our equity, whereas most people are tracking return on investments, we want to know what the return on our equity is. But, we can only get our return on equity to go up if we have high value and high control. So, we want to focus on getting as many of our assets from low control over to high control as possible. And of course, the first step is knowing exactly what you own and where it ranks.
Now, the balance sheet x-ray and understanding value and control is just one piece of it. I also want to know other things about the assets that I have. For example, what type of assets are they? Dead weight assets, productive assets, collateral assets, etc.
If you want to know more about how you can grow your return on equity by understanding the assets that you have and how you can use them all differently, then you might want to come check out this video that we do right here where I break down the entire wealth operating system starting with understanding what you have so you can figure out what your growth plan is. I have the whole video right here. Go check it out, and I'll see you over there.