Knowing which of these archetypes you are in any given financial situation is key to uncovering your motivation, and more meaningfully understanding the potential outcomes of the risks you take.
About Indestructible Wealth: I’m Jack Gibson. I’m your wealth strategist and I’m here to help you make some money. The Indestructible Wealth Podcast is for young entrepreneurs who want to make, keep and grow wealth to enjoy now, and for years to come.
Episode #16 – Are you an Investor, a Speculator, or a Gambler?
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Welcome to the Indestructible Wealth Podcast. This is the place where we help young entrepreneurs to make, keep, and grow wealth that you can enjoy now, and for years to come. I’m your host Jack Gibson, a serial entrepreneur, founder of multiple seven and eight figure businesses, and wealth building strategist. Each week I’m going to share my tips, resources and secrets, to help you create a plan and build the life you’ve dreamed of.
All right. Welcome back to indestructible wealth. A couple of days ago, my childhood best friend, and we’ve been friends since we were like 5. We met in nursery school and we started our first kind of acquaintance where we would meet up and butt heads and just stare at each other. We knew that we were fighting for the leadership of the class as a 5-year-old, that’s how we intelligently and emotionally handle that rivalry, but we are really good friends. We don’t talk much on the phone. I don’t know. Maybe that’s a guy thing. Is that a guy thing? I think it’s a guy thing. He called me and so I couldn’t send it to voicemail. Was it really a great time, like you can send them to voicemail, but you’re like, oh man, if he’s calling me, he never calls me it’s got to be something right? So I answered and he says, hey bro how you doing. I’m like yeah, you got to get to the point. Why did you call me? You never call me. So it’s okay, I’m coming to your mom’s 50th and your mom and dad’s 50th wedding anniversary in a couple of weeks. And he’s coming in from Puerto Rico. And I’m bringing this girl that I have been dating for a year. And I’m like well did he say, did you know that I was dating a girl from here? Kind a mentioned it a little bit in one of the text chats we have with all the high school buddies, but you didn’t really say anything other than that. So I have no idea and know nothing about her, so well, yeah, he said, that’s the problem. I need you to play along. I need you to act like I’ve been talking her up for the last year. So she feels like that, I’m really into her. All right, dude. Tell me your name. What does she do? How many siblings, give me all the all the stuff, right? So I agree. I’m going to play along and we’re gonna, we’re gonna make her feel like he’s been talking about her every day for the last year, right?
I would probably go that far. So then he goes, Hey, and what about Etherium? You told me to buy it back, when it was $1000, I wanted to get your take on it. Cause I don’t like what’s happened lately and I’m like, dude, okay. First off, it’s almost tripled even with the correction compared to where I told you to buy in. Okay. So you just need to calm the fuck down. And then I was like, look, it’s not going to go up all the time, and volatility is the price that you have to pay for outsize gains. So you want it to go up super-fast, but you don’t ever want it to drop and you just yeah, I loved it when it just kept going up and up. I’m like, of course we all do. So he kinda inspired me for today’s podcast because I want to talk to you guys about the difference between an investor, a speculator and a gambler. And I’ve been all 3. And there’s parts of me even now, today that are all 3. Just understanding what the difference is between the three and knowing like, where do you mostly predominantly fit in?
And look, this isn’t like a criticism. It’s not negative, there’s not right, there’s not wrong. If we strive to be builders of long-term, sustainable wealth, we need to have a big majority of our percentage of us in the investor quadrant. So this is a post I recently read on a social media network. I wanted to read this to you. Okay. This is a gal that her main focus is on promoting stocks. So here’s what she says. Don’t let them fool you investing in the stock market is easier than you think. All you need is a brokerage account. That’s the kind of account you use to buy stocks and bonds. There are 4 steps to invest.
1, choose an online brokerage platform. 2, open a brokerage account and link your bank account. 3, move money from your bank to your brokerage account. 4, buy stocks, bonds, and funds. Step 3 and 4 rinse and repeat. Boom! You’re an investor. Okay. So that’s the end of her post. I call total and complete BS. This is such bullshit! And this is the type of stuff that you guys are fed all the time and it’s just the stuff that just gets me riled up. Cause it’s so bad. I don’t even know what else to say. I’m going to tell you what I think. Okay. Why I think that. In this scenario that she just described, you are not a fucking investor. You’re a speculator. Okay. No, that isn’t bad by any means. Is that nothing negative? It’s just, it’s not accurate to say you’re an investor. Okay. So let me explain the difference between an investor, a speculator and a gambler. I think you guys have a pretty good idea what a gambler is, but we’ll really dive in. So an investor, gets in on the early stages typically they’re the first to own the asset and they put the time, the thought and the energy into understanding what they’re buying and that they’re getting in at a price below market value and investor almost always holds for the long-term and get this, if the price should drop below what the market value is they don’t sell. They don’t panic sell. They typically actually will buy more because they understand that the price is just a short term indication of market volatility and doesn’t necessarily represent what the actual value of the asset is. Okay. Now speculators they come in later and they only buy what’s when something’s typically moving up. They have no idea what they’re buying. They haven’t done any homework and are simply betting that someone will pay them more than what they bought it for down the road. Now, speculators, the primary difference between speculators and gamblers is that speculators do actually play in the financial markets. Like they’ve bought financial assets before. And they typically only play if there is a positive, expected outcome. Okay. Now in other words, what’s a positive expected outcome? That just simply means that there is a greater chance that what they’re buying is going to go up than it is going to go down.
However, speculators are simply buying something primarily based on price movement. And speculators oftentimes can be very short-term in nature. So if an asset drops in price not understanding what they own not always, but oftentimes they’re going to panic sell. So we saw this big time in the crypto markets last month. There was, a post, a tweet or whatever it was by Elon Musk and he set off a massive speculatory panic sell. Okay. So everybody who had just bought in because it was going up they didn’t understand crypto. they didn’t understand the game they were playing, they didn’t understand what the underlying value or usage was when the price started dropping dropping dropping. Oh my God, the sky is falling. I got to sell I got to sell. So the investors that did understand. They started buying more as the price dropped. That was me. I have several coins that when the price started tanking I was in there scooping them up and lower prices and getting a better value for my money.
Now gamblers, they’ll show up typically late in the cycle and they buy extremely risky assets that over the course of a multi-year period have almost no chance of increasing in price. So they have what’s called a negative expected outcome. Now that’s the difference between speculators and gamblers. Primarily the difference. The only way to win and gambling is if you win early, A.K.A. get lucky and then stop. Now, how often do gamblers actually stop once they won? Come on. That doesn’t happen. This is why gamblers typically at some point always go bust. If you want to see a movie about a complete and total degenerate gambler. I can’t say how much I don’t know if I really liked it. It’s called Uncut Gems. It was on Netflix. It starred Adam Sandler. And so he’s this guy. He has a jewelry store and he got this gem and I don’t want to ruin the plot or ruin the whole movie for you if you haven’t seen it. I don’t know if you really should see it. You might not be that happy that you saw it. So he’s just, he does one move after another, you think you’d learn his lesson and just. Settle in and just do business, right? He’s got to put a bigger and bigger wager on and you’ll see as the movie unwinds how that certainly doesn’t ever end that story does not ever go the way it’s you really a gambler hopes it’s going to go. So they rarely if ever have played in financial markets. So this was very much the case when during the COVID lockdowns, there’s a lot of the people that came in and started up buying stocks and buying crypto, they were the ones driving up the prices in AMC, in game stop. That caused a huge run-up in those stock prices. They’re buying doge coin left and right. They got their stimulus checks in and they’re like, man, I want to go play. I want to go gamble with it. I’m going to go buy some stocks. I’m going to go buy some crypto, very little underlying value that is actually supporting these deals. These are based on hype, on means. And in 5 years, honestly, if we were to really ask the question, what will they be worth?
It’s going to be very hard pressed for anybody to legitimately convince me that they’re going to be that much above 0. All right now, like I said, I’ve been all 3 of these. I’ve been an investor, I’ve been a speculator and I’ve been a gambler.
So let me give you some examples of when I’ve been an investor and when I’m not.
When I buy houses for below market, I fixed them up and then I rent them out to a tenant and then I hold them long-term with bank finance money. I’m an investor.
So about 5 years ago, I listened to a podcast by a financial guru. He had a great podcast really short and concise. I think his podcasts every one of them was like 7 minutes tops. It was pretty cool and he was selling properties as part of his platform. I think that’s one of the ways that he generated income from doing his platform, his podcast.
So I ended up buying a property from him out in Arizona. I bought it for $60,000 and I put $20,000 and to fix it up. So it wasn’t in that greatest shape. So I’m all in for $80,000. So I went to my local bank and I said, Hey, I want to refinance I want to get all my cash as much as my cash back out as I possibly can and so what they do then is they go in and I say, we’ve got to determine what is the fair market value of this property with an appraisal. So they went in and they appraised it for $90,000. So I was in it for $80,000 in cash and I was worth $90. So I have $10,000 in equity. So they gave me a loan for 75% of the value of the appraised value. So I got about $68,000 cash back out, but I had that then as a note, that’s it was a mortgage payment that I had to make. So now I’m only in it for $12,000 on my own cash. So then I just collect rents for 5 years $900 a month. It started off at like maybe I think it rented out at $800, $850. So I was a little disappointed the rent wasn’t as strong as what I was hoping it would be when I bought it. But the property manager said, just hold it. This area is going to go up. We’re buying don’t sell it. So I held it and sure enough 5 years later I checked the value. I know the market’s pretty hot and the comps are showing anywhere from $150,000 to $220,000. So we’re going to put it on the market in a couple of weeks for $210,000 guys, I made it for $80,000 total. And only $12,000 of that is my cash that’s sitting in there. So that’s being an investor I bought something I was first in it, essentially I fixed it up and I held it long-term and I utilized the bank debt. I collected the rent the whole time so it was positive cash flowing and then the property not only provides the monthly cashflow from the rents it’s also amortizing the loan which means it’s paying down the loan every month through the rents that are coming in. So that’s a further increase in my net worth. And then it appreciates and goes crazy. Now, not all my properties have gone up that much than the last 5 years. Obviously this is a great example but guess what? That was an investor move. What I just did. Okay. I wasn’t buying that with any sort of speculation hoping that the price of the asset would go up. In fact, the last 5 years I’ve had it in my net worth statement is $90,000. I didn’t even check it. I wasn’t even looking at it. All I was looking for was the cash flow that was coming in every month. Now I’m going to sell it because the price of the asset is at a point where I feel that it’s time to cash it out and the rents haven’t caught up yet with the increase in the price. So I need to sell that, liquidate the equity out of that and move that to something else, which I’m not sure what it’s going to get moved to, but it’s going to something else.
When I buy into a fund, which is called syndication that fixes up abandoned Kmarts, converts them to self-storage projects and then eventually sells out to a large fund and usually it’s a 3 to 5-year hold time, I’m an investor. Okay. You guy starting to see the difference? Now, when I buy tech stocks, high growth companies and cryptocurrency like Bitcoin, Ethereum, and the alt coins that actually have underlying usage value. I was a speculator. I am a speculator on those. I’m buying those in the hopes that the price will go up and somebody will pay more, some point in the future when I decide to sell. Now here’s the difference when I buy well-researched pre IPO’s, pre IPO means initial public offering. So I’m getting in the very early stage of the company. I’m one of the first to own the company and own that asset. Guess what I am. I’m not a speculator. I’m not a gambler because I’m first in, I’m buying something that has well below the market price, the value is much higher than the market price, right? I’m an investor in that situation. Okay. So when I go to the casino I play blackjack and I enjoy doing it on occasion with friends. I’m a gambler.
When I play pot limit Omaha poker, it’s a very volatile game. But I play with friends on Friday nights. Frenemies. I should say I’m a gambler.
When I place a sports wager, which I do not do that often. Very rarely in fact, occasionally I’ll put bets on the Browns or the Buckeyes, and occasionally I win. Occasionally I lose probably with the juice, right? The 10% you have to pay when you lose I probably lost more over the course of time. I’ve won some, I’ve lost some, but I would say I’m probably not up overall. where most gamblers are.
If I were to buy AMC or gamestop or doge coin going because other people bought it, and they’re buying it and the price looks like it’s just going up. And I have a fear of missing out, the FOMO, which I have not bought any of those 3. Then I would also be a gambler in that situation. Because over the long haul, I don’t have any chance of winning. When you go to the casino, you know that you do not have any chance of winning over the course of time if you were to stay now, I can go in for an hour or 2 hours, 3 hours, and I can put some big bets down and I can win and I can get lucky. And that certainly happens for a lot of people, but if they keep playing because the odds are negative in their favor, even a negative 2% rate of a win rate because the casino always has the odds over the course of time if you continue playing, you’re going to lose, it’s an inevitability. Okay. So that’s what I want you guys to consider as far as what you are, that’s what this platform is about helping you to develop yourself into an investor. And doing some speculation I’m not totally against speculation. I think there’s parts of your assets and your portfolio that need to be allocated towards speculative bets, but to put all of your money in like wall street says to do, just put all your money into stocks and bonds and hope for them to go up.
That’s just to me that’s not a way to create indestructible wealth that is not a way to build a long-term sustainable strategic plan. That can be part of your plan but it never should be all of it. So you want to have a good percentage mix of the investor side of you, and mix in the speculative nature.
That side of you put that in there as well into your plan at the right stage through my 7 step strategic process I tell you when you want to speculate, and then the gambler can be like the very small percentage. That’s for fun, for entertainment. Okay. I’m not against that. A few percent of your portfolio in the gambling. Okay. I’m not going to judge you if you’re doing it responsibly. A lot of people can’t do it responsibly and they don’t know when to stop, but if you can and you know yourself and your nature and you know that you can discipline yourself to do it right. Then go for it, have some fun and do some gambling. Remember no one is right and no one is wrong here, but which do you desire to be? Do you want to be an investor, a speculator or a gambler?
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