Have you ever taken some big swings, and lost? How about small swings that ended up being bigger than you had expected? If you are an entrepreneur and investor, the answer to both of those questions is likely, yes. So, how can we take risks, and make big runs, when our deepest desire is to build indestructible wealth?
In this episode, Jack Gibson shares a personal story about a recent experience with the crypto market, and as always, shares it with decades of investing experience to back it up. Listen in.
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How I Lost 100k Overnight And Why I Didn’t Care
In order to create more wealth and be able to hang onto it, you must first work on yourself. Specifically, you must stretch your capacity. Your capacity is your ability to be able to handle the emotional ups and downs of investing and not let it get the best of you. It’s your ability to be able to handle when things go massively for the good on the upside, and your ego doesn’t get out of control, your heart doesn’t get greedy and twisted.
On the other side of that, you are certainly going to have times over the next several decades of you’re investing life where some of your assets will see some gut-wrenching steep drops in value. This type of event happened to me and I had the single largest drop in a 24-hour period than I’ve ever had prior. What I’m most proud of is that it didn’t affect my mood, my joy, or my spirit, nor did I do anything stupid or hasty, like sell out. I simply accepted that this volatility is what I signed up for and it’s the price I have to pay for incredible gains.
In this episode, I walk you through what happened in how to prepare yourself. Ultimately, my goal is for my portfolio to swing by millions and not hundreds of thousands. I’d like to someday see my portfolio drop $1 million overnight and wake up and live a joyful purpose-filled day. I want to do everything I can to avoid that event, but the absolute certainty is that if you grow a large enough portfolio, that will inevitably happen. I don’t think this episode is one that you want to miss. Let’s get it going.
Welcome back to the show. I had to exercise some personal development because I just did this episode and let a rip and I got this professional lighting hitting me right now and it’s hot. We haven’t turned the AC on. It’s 73 degrees outside, a beautiful day. We’re not going to fire up the AC yet because it’s Michigan. It could drop down to 40 degrees and it probably will. I think it is on the weather report.
Anyways, I lay it all out. I give you guys an awesome episode and then I go to log out and I never hit the record button. I thought I hit it. I swear I hit it. Now here we are. I’m doing it all over again. I’m going to look at that as a practice round because now I’m going to deliver you guys 2 or 3 times. You know what, let’s 10X it. I’ll give you guys ten times more value on this run than I did on the practice run that didn’t record.
Losing 100k Overnight
This episode is all about how I lost $100,000 overnight. Some people say overnight, and that could mean over the course of 1, 2, 3, 4 months, or a year. When I use the term overnight, I mean over the night. Essentially, I go to bed and I wake up the next morning and I got breakfast on my mind, but outside $100,000 loss on my mind.
Let’s talk to you about what happened and why I’m okay with it. You could probably guess, too, what happened and what asset class this was in because it’s very volatile. That’s cryptocurrency. If you guessed it, you’re right. It was significant. For crypto, 20% or 25% correction in a short period of time is not actually significant. Significant would probably be 40%, 50%, or more. In fact, crypto went down like 80% in the last bull-bear market cycle. It had an insane run-up.
Coinbase, the exchange where you can go purchase your cryptocurrency and sell them, it’s a public exchange now. They had their IPO or initial public offering. Essentially, they took the company, which was private and generating boat tons of cash and they took it to the marketplace and they listed it, and then went public. What happened was that caused a lot more eyes on cryptocurrency and almost created it to be more of a mainstream acceptance.
It’s still probably considered a pretty alternative asset class, although the amount of news media coverage is exponentially increasing, especially with Bitcoin and its parabolic run-up. We had this cool run-up insane that just has a correction and this is what we call par for the course in cryptocurrency. In other words, it’s to be expected.
In the past, I probably would’ve cared a lot and it may have ruined my day, my week, my month, or maybe longer, right? To be honest, I didn’t care that much. I cared a bit. It’s not that pleasant to have $100,000 of your net worth disappear in a 24-hour period of time. However, I’ve set myself up mentally and emotionally that I’m embracing it and expecting it. That is the price you have to pay to get this huge run-up. You have to be prepared that they’re going to equally go down just as fast.
Now, there are very few investments that are out there that are going to experience these huge swings in price in short periods of time. Early-stage technology companies do have some price swings similar to this, but not quite this drastic, especially not across the entire market. All of the cryptocurrency, the entire market, maybe there were like two coins that were unscathed throughout this draw. I don’t even think any got away from a drop in price.
Small-size technology stocks can swing quite like this. This is why I love investing in small-cap stocks because I can get incredible run-up or bet what we call asymmetric. We’ve talked about this concept before where the downside is significantly less than the upside. Let’s put it another way. The upside is significantly greater than the potential downside or loss that you can experience. Crypto is an extremely volatile asset class, primarily because it’s still in its infancy and there’s a generally huge lack of understanding of the underlying blockchain technology that supports the cryptocurrency. The underlying blockchain projects, their usage, and their value right now are hard to determine.
People are speculating big time. This volatility is painful and also what makes it so amazing is that the only way to make fast parabolic gains in an asset class is that has to be risky. There are some people that may disagree with that and be like, “I can make big gains and I know what I’m doing. I’m an expert in making these types of picks and it’s not risky for me.” That’s very true for some people that are extreme experts, but even they can’t escape the volatility. There’s nobody smart enough to be able to time in and out on investments perfectly. Everybody’s going to have it. They’re not going to be able to escape it. As a general rule, the lower the ROI, the safer and more stable the investment.
For example, put your money in the bank and see what return you get. That’s considered a very safe and predictable rate of return. It’s probably the safest that you can get because your money and your bank are guaranteed and insured by the United States government. Mine got a 0.01% interest rate. I was so excited when the $0.50 interest payment hit my bank account. That was awesome.
I’m kidding. It was awful. That’s crazy. To think that there are other countries where they’re in a negative interest rate environment. That means that the savers are putting their money in the bank and they have to pay the bank to hold their money. Isn’t that crazy? Never before in the 10,000-year history of humanity has a saver put money into any holding type of bank and had to pay somebody else to hold their money.
Know How To Play The Game
That’s not ever the way it’s worked and that’s where we’re at. The savers are being punished. The borrowers are the ones who are coming out on the better side of this equation. That’s why I talked to you about good-quality debt. Responsible debt is so important because you’re able to take out debt at extremely low levels of interest and leverage it into much higher rates of return. It’s incredible. You just got to know how to play the game. The rules are different now.You have to know how to play the game because the rules are different now. Click To Tweet
My incredibly safe and stable whole life in cash value insurance policy provides me with 4% or 5%. It’s very boring and predictable. I’m even bored just talking about it right now. It makes me fall asleep thinking about a safe, stable, 4% or 5% rate of return. God, help me. It’s proven itself for over 100 years and counting. They don’t go out of business. They got so much cash. These insurance companies are just cash cows.
For that safe, stable return on investment, I don’t have much volatility, but I don’t earn that much on it. It’s the foundation of my plan. It protects me from myself and it gives me liquid funds if I need to tap for any emergency or for an incredible opportunity to invest in something that’s gone on sale. For example, maybe prices have dropped and I can grab that money quickly and I can buy and strike quickly and buy things at discounts. That’s how you create wealth. You buy things like great quality assets at great prices.
Real estate rentals can get you a solid 10%, even 20% returns. However, for that increased yield, you also carry the risk of several events happening. The roof can collapse, your foundation can start to buckle, and the tenant is not paying and have to be evicted. Years ago, we had a deep-freeze winter. It was crazy insane. Thirty degrees below zero, pipes were bursting all over the place in Indianapolis.
And Then, COVID
We had ten burst pipes in our properties because it just was too prolonged in terms of the freeze. That was expensive on some properties, the floods. Look at COVID. Look what happened. In March 2020, COVID hits, lockdowns hit, and the government starts putting mandates in. You can’t evict people during the pandemic and so people took advantage of that.
The CDC comes along. I don’t know how the Centers for Disease Control have the authority or jurisdiction to tell a landlord that they cannot evict somebody. I don’t understand how they feel that they have the right to do that. That doesn’t make any sense. That’s overstepping their bounds. In fact, there are several judges that cited against the CDC on properties in Indianapolis. We’ve seen it happen and play out where they overstep their bounds.
That can happen. The government can get all crazy. We couldn’t evict people that weren’t paying. Our income on that investment was disrupted. You could get a hail storm. You could have insurance to cover it, but you still got deductibles. There are a lot of things that can happen. Real estate is not a liquid asset. You can’t sell it immediately on the open market like you could stocks, bonds, or crypto.
If you want to sell crypto right now, you could log on at midnight and you can sell it on the open market. You can liquidate it fast. There is a risk of the asset in real estate not being liquid too. That does carry some level of risk. It could take you a few months to get your money out of a specific property if you want to get it sold at the right price. Expect a return that you’re going to you want to get out. You want to be able to put yourself in the position to get.
There are crypto projects that hit insane returns. Bitcoin was trading at $3,425 in 2018 and it hit over $63,000. As I record this, it’s down to a low $50,000. It dropped 20% in a short time, but that’s moving up 20 times or 2,000% in less than three years. If you trace Bitcoin back years ago, it’s multiple thousands of that. There are projects that have hit even higher returns than that. Ethereum, my favorite crypto project by far, was trading at $9 in April 2016. As I write this, it hit a new all-time high of $2,535. That’s a 28,000% gain.
I wrote this at 8:00 AM and now at 3:00 PM, it’s up another $100 per coin. It’s like $2,635. That means you’re at like a 30,000% gain if you bought in at $9. Crazy, right? That would turn every $1,000 into $280,000 in five years. I’m invested in a large self-storage project. Based on the past decade and 110 similar projects that this team has done, these guys are good. The worst they ever returned their investors was 10%. That was only because they bought something and then sold it quickly because they found a buyer right away.
Those returns that are expected are about 25% per year. That’s what I’m expecting based on their past performance. Past performance does not guarantee future returns. I know that the market can shift and things can happen, but I’m banking on the fact that they’ve done 110 deals like this before successfully and that they’re going to be able to replicate it again. That would double my money a few years from now.
I’m extremely excited about those returns. That’s over 100% return on investment in a few years. Crypto got a 28,000% gain. That’s crazy. I didn’t catch any of those insane gains. I bought Ethereum when it was at $500 per coin. My buy-in price was like $569. My return on investment is just a paltry 500% in 4 months. I’m kidding about the paltry part. It’s not paltry at all. That’s incredible. I’m more than ecstatic about that.
Am I kicking myself or not buying it back in $9 when I listened to Mike Dillard Podcast, one of my favorite podcasts on entrepreneurship and investing? He and his guest speaker, Teeka Tiwari adamantly told the listeners to buy it. Of course. Why didn’t I listen to them? I don’t know why I didn’t act. I had other things going and I just didn’t take the time to do it. I didn’t believe that it was possible.
I probably didn’t believe it was possible for me to get those outsized returns. I think that only happens for everybody else, people that are just super-duper lucky gamblers. There’s nothing I can do to change the past. I can only change my mindset. I can only change my beliefs about what’s possible. I could only position myself for the future right now.There's nothing you can do to change the past. You can only change your mindset and beliefs about what's possible. Click To Tweet
Be Prepared To Lose
With that, I’ve got to be willing to take on the risk and the volatility to hit the big gains. If you want to take a stab at these big gains, then you need to be mentally and emotionally prepared for what you’re getting into. You need to be prepared to potentially lose it all. I don’t mean all your portfolio. I’m not saying that. I just mean lose it all, whatever you put in these riskier, asymmetric bets. You got to be prepared for that and be okay with that.
Chances of it going to zero if you spread out your funds into different coins, especially if you’ve got Bitcoin and Ethereum. It’s almost impossible at this point, at this stage of the game, with the mass adoption and the number of institutions and companies that are now buying into Bitcoin and Ethereum. I don’t think that it’s possible for it to go to zero and correct like it’s going to drop big. That’s why I want to urge you to make sure that you do this responsibly.
I know a few guys who have most of their money in crypto and they’re talking this big game. They’re expecting multimillion-dollar gains in portfolios. That’s entirely possible that they do that. I think they’re stupid to put this much of their portfolio into a highly speculative asset class like this. It is highly likely that we will see some major crashes over the next few years. Predicting when they will happen is next to impossible.
The key to building indestructible wealth is asset allocation. You want to be invested in a mix of ultra-safe conservative investments with some mid-range risk-taking and then some real volatile asymmetric bets on new technologies that can get you big jumps in wealth. If they don’t work out, your life and your happiness are not disrupted. That is the key to investing. You never want to risk your lifestyle for a better one. It’s not worth it. Seldom does that work out in one’s favor to approach investing like that.
What do we talk about the wealthy doing? They think of safety first. They invest their money into safe, secure, conservative investments that create rents, dividends, royalties, and passive cashflow income. They take a portion of that cashflow that’s coming in and they take a percentage, not all of it. They take a percentage of that and they put that into higher risk asymmetric bets, things that have huge upside and not as much downside as they do the upside.
I want to encourage you to get some exposure to the cryptocurrency game. Get some exposure in this market. If you’re not sure where to start, get Bitcoin and Ethereum. I don’t see how you could go wrong with either of those two. Bitcoin is a store of value that’s starting to rival gold. Ethereum is the leader in the defi, decentralized finance movement. Many projects are built on top of the Ethereum network. It’s got extreme usage and it’s going to see mass adoption as we move forward over the next few years.
Those two projects are, in my view, where you would want to start and have a higher percentage of your total portfolio in crypto into those two. If you want to take some swings for the fences on some of the smaller altcoins, then do that. Just know that those are even riskier. They’re even going to be more volatile, but they could also go parabolic as well. Stick to the plan. Stay disciplined, follow the seven-step strategic process that I’ve already taught you, and things are going to work out well for you. You’re going to be able to create indestructible wealth.
That’s a wrap for this episode. Before we part ways, I want to help you take advantage of two incredible tax-saving strategies that could help you save a lot of money. All you have to do is lead me a five-star review and comment if I’ve earned it in iTunes, Stitcher, or wherever you tune in. After you’ve done that simple step, just email me a screenshot at [email protected] and I’ll send you everything you need to save money on your taxes for years to come.
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