Have you ever taken some big swings, and lost? How about small swings that ended up being bigger than you 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 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.

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 #13 – How I Lost 100K Overnight and Why I Didn’t Care

Transcription:

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 the indestructible wealth show. I had to really exercise in personal development because I just did this episode and recorded it and like let it rip. And I got this lighting, professional lighting, like hitting me right now and it’s kind of hot.

We haven’t turned the AC on. It’s like 73 degrees outside, a beautiful day, we’re not going to fire up the AC yet. Because it’s Michigan. I mean, it could drop down to 40 degrees. Like it probably will actually, I think it is on the weather report. So anyways, I lay it all out and I give you guys an awesome episode and then I go to log out and I never hit the record button.

WTF! I thought I hit it. I swear I hit it. And now here we are, I’m doing it all over again. I got it. That was a good practice round. I’m going to look at that as a practice round, because now I’m going to deliver you guys 2 times, 3 times more value. Let’s 10 X that I’ll give you guys 10 times more value on this run. 

So this episode is all about how I lost $100,000 overnight last week. Now some people say overnight and that could mean like over the course of a month, 2 months, 3 months, 4 months, a year. But when I use the term overnight, I mean overnight, like essentially I go to bed and I wake up the next morning and I have breakfast on my mind. Okay. But outside of a $100,000 loss on my mind. So let’s talk to you guys about what happened and why I’m okay with it. And here was the title I was going to go with, but I thought that  how I lost a $100,000 overnight, it was just a little more attractive like you’re going to be like, what the heck happened. I got to tune into this episode right? So my title I was going to go with was “volatility is the price you pay for outsized gains”. Now, if you had to vote between the 2, which one would you like? I want to tune in. My guess is like the one that I went with.

So you could probably guess what happened and what asset class this was in, because it’s very volatile so that’s cryptocurrency, if you guessed it you’re right. It had a very significant, I wouldn’t say very for crypto, but a 20, 25% correction in a short period of time is not actually significant. Would probably be, 40, 50% or more. And that’s definitely happened and in fact, crypto went down like 80% in the last bull bear market cycle. So it had a really insane run up, Coinbase the exchange that you can go purchase your cryptocurrency and sell them. It’s a public exchange now with them, they had their IPO or initial public offering.

So that’s essentially, they took the company which was private in generating boats, tons, shit, tons of cash. And they took it to the marketplace and they listed it and then went public. Well, what happened was that it 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. So we had this really cool run up.   insane. I mean, I was up quite a bit. And so then it just has a correction in this part of, what we call par for the course in cryptocurrency. In other words, as is to be expected now in the past, I probably would’ve cared a lot and it may have ruined my day or my week or my month or maybe longer. But to be honest, I didn’t really care that much.  I mean, 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, but okay. I’ve set myself up mentally and emotionally that I’m embracing it and expecting it because my friends, the price you have to pay to get these huge run-ups is that you have to be prepared that they’re going to equally go down just as fast.

Now there’s very few investments that are out there that are going to experience this kind of 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 and especially not across the entire market like all of cryptocurrency the entire market. I don’t think there was a coin, maybe there were like 2 coins that were ok throughout this drop in price.   small size technology stocks can swing quite like this. This is why I love investing into small cap stocks because I can get incredible run-ups.

What we call asymmetric we’ve talked about this concept before where the downside is significantly less than the upside, or let’s put it in another way. The upside is significantly greater than the potential downside or loss that you can experience. And crypto is an extremely volatile asset class primarily because it’s still in its infancy and there’s a general very huge lack of understanding of the underlying block chain technology that supports the cryptocurrency.   the underlying block chain projects are the usage of those and the value of those right now are very very hard to determine. And so translation people are speculating and they’re speculating big time.

So this volatility it’s what ‘s painful and also what makes it so amazing.  The only way to make fast parabolic gains in an asset class is that it really has to be risky. Now there’s some people that may or may disagree with them and be like, well, you know, I can make big gains and I know what I’m doing, and I’m an expert in making these types of picks and it’s not risky for me. And that’s very true for some.  some people that are extreme experts, but even they can’t escape the volatility and they just think there’s nobody smart enough to be able to time in and out on investments perfectly so they’re going to, everybody’s going to have it. They’re not going to be able to escape it. So, for example, as a general rule, the lower the return, the safer, more stable the investment.  For example, put your money in the bank and see what kind of return you get. Now that’s considered very safe, right?

The predictable rate of return it’s probably one of the safest that you can get because your money and your bank is guaranteed and insured by the United States government. So mine got a 0.01% interest rate. So I was so excited last week when the 57 cent interest payment the other day hit my bank account. That was awesome. It was so exhilarating, I’m kidding. It was awful. Like, that’s crazy. And to think that there’s other countries where they’re in a negative interest rate environment that means that they are the savers. The scene was they’re putting their money in the bank and there they have to pay the bank to hold their money.

Is that crazy? Never before in the history of humanity has this ever happened ever in the 10,000 year history of humanity as a saver put money into any sort of holding type of tank and  they had to pay somebody else to hold their money. That’s not ever the way it’s worked and that’s where we’re at.

So the savers are being punished. The borrowers are actually the ones who are coming out on the better side of this equation. That’s why I talked to you guys about good quality debt. Responsible debt is so important right now 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. So you just got to know how to play the game. The rules are different now. You got to know how to play the game. 

My incredibly safe and stable whole life cash value insurance policy provides me with 4%, 5%. It’s very boring, it’s very predictable. I’m even bored, just talking about it right now like it’s what I want to like, it makes me fall asleep thinking about a safe, stable 4 or 5% rate of return. God help me, but it’s proven itself for over a 100 years and counting they don’t go out of business. They’ve got so much cash these insurance companies are just freaking cash cows. 

So for that safe, stable return on investment, I don’t have much volatility, but I don’t really earn that much on it, but it’s the foundation of my plan. It protects me from myself and it gives me liquid funds that I need to tap for any emergency or for a credible opportunity to invest into 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 at great, great quality assets at great prices. 

Real estate rentals. Those can get you a solid 10, even 20% returns however for that increased the yield you also carry the risk of several events happening the roof can collapse. Your foundation can start to buckle the tenant not paying and having to be evicted. 3 years ago we had a deep freeze winter. It was crazy insane 30 degrees below zero pipes were bursting all over the place in Indianapolis. I think we had, like I don’t know. I felt like 30 or 40. I think it was like 10 burst pipes in our properties because it just was too prolonged in terms of the freeze. 

So that was expensive on some properties, right? The floods. And then look at COVID look at what happened last year. March COVID hits lockdowns and the government starts putting mandates in case you can’t evict people during the pandemic. And so people took advantage of that. And then the CDC comes along. I don’t know how the fuck 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’s several judges that sided against the CDC on properties in Indianapolis. 

So we’ve seen it happen in play out where they overstepped their bounds.  But that can happen, the government can get all crazy and so we couldn’t evict people that weren’t paying. So our income on that investment was disrupted. I mean you could get a hailstorm, you could have insurance to cover it, but you still got deductibles. So there’s a lot of things that can happen. And including real estate is not a liquid asset so you can’t sell it immediately on the open market like you could stocks or bonds or crypto. I mean, you want to sell crypto right now, you can log on at midnight and you can sell it on the open market. You can liquidate it fast. So there is a risk of the asset in real estate not being liquid that does carry some level of risk to 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. So you have to remember that generally speaking the more risk that you take on the higher the expected return that’s you’re going to get out you want to be able to put yourself in the position to get. There’s crypto projects that have hit insane returns. Bitcoin was trading at, Get this  3,425 in 2018. And two months ago hit over 63,000. Now, as I record this, it’s down to like low 50,000. Right. So it dropped 20% in a few days but that’s still moving up 20 times or 2000% in less than 3 years. If you trace Bitcoin back from 7 years ago, I mean it’s multiple thousands of that.

So there are projects that have hit even higher returns than that. Ethereum, one of my favorite crypto projects by far, was trading at $9 in April 2016 as I write this hit a new all-time high of 2535.  that’s a 28000% gain. And it’s funny. Okay. So I wrote this morning I don’t know, 8:00 AM and here we are and I’m recording this at 3:00 PM and it’s up another $100  per coin. So that means, it’s like 2635. So that means you’re at like I don’t know, 30000% gain if you bought in at 9 crazy, right. That would turn every $1000 into $280,000 in 5 years. 

I’m currently 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 to their investors was 10%. That’s the worst they’ve ever done. And that was only because they bought something and then sold it really quick 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. Now, future past performance does not guarantee future returns. I know that the market can shift things can happen but I’m banking on the fact that they’d done 110 deals like this before successfully that they’re going to be able to replicate it again and that would double my money in 5 years from now and I’m extremely excited about those kinds of returns and that’s over a 100% return on investment in 5 year period.

And then crypto got a 28000% gain. That’s crazy right now, any of those insane gains.  I bought ethereum when it was at like $500 per coin I think my buying price was like 569. So my return on investment is just a poultry 500% in 4 months. Now I’m kidding about the paltry part, right?

That’s incredible. And I’m more than ecstatic about that. Am I kicking myself for not buying it back at $9? When I listened to the Mike Dillard podcast, one of my favorite podcasts on entrepreneurship and investing is 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 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 kinds of outsized returns. I think that only happens for everybody else with people that are just super duper lucky gamblers. 

But there’s nothing I can do to change the past. I can only change my mindset. I could only change my beliefs about what’s possible. I could only position myself for the future right now. And with that, I’ve got to be willing to take on the risk and the volatility to hit the big gains. And 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. Now, I don’t mean, all your portfolio.  No, I’m not saying that. I just mean lose it all as in Whatever you put in these riskier asymmetric bets and you got to be prepared for that and be okay with that. 

Now chances of it going to zero if you spread out your funds into different coins especially if you’ve got Bitcoin and Ethereum I mean, I think it’s almost impossible at this point at this stage of the game with the mass adoption and the amount of institutions that are in companies that are now buying into Bitcoin and Ethereum. I don’t think it’s possible for it to go to zero. I do think it’s very possible that it will correct. Certainly we’ll do that and correct when I mean correct I mean correct. Like it’s going to drop big. 

So that’s why I want to urge you to make sure that you do this responsibly. I know a few guys who have all their money or like most of their money in crypto and they’re like talking about this big game they’re expecting multimillion dollar gains in portfolios and look I mean that’s entirely possible that they do that personally. I think they’re really fucking 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 5 years and predicting when they will happen is next to impossible.

The key to building indestructible wealth, you guys 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 a big jumps in wealth but if they don’t work out your life and your happiness are not disrupted. Guys , the key to investing is that you’d never want to risk your current lifestyle for a better one. It’s not worth it. Seldom  does it work out in one’s favor to approach investing like that. What did we talk about the wealthy do? They think safety first, right? They invest their money into safe, secure, conservative investments that create rents, dividends and royalties and passive cash flow income. They take that portion of that cash flow that’s coming in and they take a percentage not all of it generally. They take a percentage of that and they put that into higher risk asymmetric bets asymmetric things that have huge upside and not as much downside as they do the upside. 

So I want to encourage you guys to get some exposure to the cryptocurrency game and 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 2. They’re going to be around bitcoin is a store of value that starting to rival that of gold and ethereum is the leader in the decentralized finance movement and so many projects are built on top of the Ethereum network that it’s got usage.  it’s got extreme usage and it’s going to see mass adoption as we move forward over the next few years. So those 2 projects are in my view where you would want to start and have a higher percentage of your total portfolio in crypto into those 2. And then if you want to take some swings for the fences on some of the smaller alt coins 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.

So guys just stick to the plan, stay disciplined and follow the 7 step strategic process that I’ve already taught you. And things are going to work out well for you, things are going to work out very well and you’re going to be able to create what we call indestructible wealth.

That’s a wrap for this episode on the Indestructible wealth podcast. Before we part ways, I want to help you to take advantage of 2 incredible tax saving strategies that could help you save a lot of money.  All you have to do is leave me a 5 star review – if I’ve earned it – and comment in iTunes, Stitcher, Spotify, or wherever you tune in. After you’ve done that simple step, just email me a screenshot to [email protected] and I’ll send you everything you need to save money on your taxes for years to come.  If you’d like to dive deeper into your own wealth building strategy, check us out at myindestructiblewealth.com and follow along on social media. Also, please share this podcast with anyone who’s looking for guidance on their own wealth building journey. Until next time, remember our mission here is to help you make, keep, and grow wealth you can enjoy now, and for years to come.

 

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