hi you guys, today i want to talk to you about what investing risk actually is and see if you understand it the way i do 2022.
Is Investing Too Risky?
Stock market
this is a really interesting subject in rule one investing which obviously comes from warren buffett.
we have a very very different uh concept of what risk is when when most people talk about risk in the stock market they're talking about whether um the stock market is the stocks that they own are diversified enough to overcome.
the risk of making a mistake on a specific stock and some people would suggest that when you're younger you can take more risk on those kinds of stocks and you see that a lot right.
now with a lot of people taking a shot on reddit type meme stocks like gamestop or amc just hoping that it goes up based on what they're reading on the internet.
this isn't investing in our view so i want to be real clear what we mean by investing
Investing risks
with investing we mean you shouldn't lose money you shouldn't take you're not taking any risk that will cause you to lose money over the long term.
you're going to make money over the long term if you are investing the way we do it the risks that you take are whether you understand the business or not right how much hubris you're carrying around in your little brain to not understand what it is.
you don't know that's hubris right thinking you know things you don't know and that is a major malady of many many people who are practicing what they call investing.
we try very very hard to make sure we understand the business that we're going to invest in and if we do understand it then we try to pick the businesses which have large moats which allow them to persevere over a long period of time against other competition and deliver to us some percentage.
you know from a lot to a little percentage of the investing results that we expected the last thing we would expect as a rule one investor is over a 10-year period to actually lose money on a company that we put money into.
if we are taking risk more than what we would take normally in a rule one investment we don't consider it investing we consider it trading so what everybody's doing out there on these meme stocks by you know buying call options buying the stock itself.
hoping it runs up even the hedge funds that are shorting those stocks those guys are all trading they they don't have a st a high degree of certainty about where gamestop is going to be in 10 years a high enough degree of certainty that.
if you were to only own one stock ever in your life it would be game stop right the certainty level just isn't there about the future and therefore by our definition rule one investing related to risk that's risk and we don't take risk as an investor.
we do take risk as a trader so i won't say that we would never go in and sell a put on gamestop or buy a call on gamestop um we might just depending on what kind of risk.
we do feel like taking when it comes to the normal financial advice on risk you'll notice that more financial advisors will probably say if you're young let's say in your 20s.
you can take more risk than you can when you're in your 60s we we again going back to investing we think that's ludicrous why would anybody in their 20s not invest with a high degree of certainty right.
just because you have 30 years why would you be a bonehead and buy stuff you don't understand you see what i'm driving at whereas if you're 60 and you've got 10 000 to your name we would strongly suggest contrary to what the financial advisors community would say they would be saying if you're 60 you've got to be very careful and and take no risk is because you're going to retire we would say 10 000 bucks you're 60 years old you better take lots of risk you better you better put the pedal down on trading and absolutely we'll show you how to do that in the lowest at the most risk-averse way we can think of but i had to say it's a pretty counter to the traditional advice to help tell a bunch of 60 year olds you ought to be out there taking risk with your 10 000 bucks but come on you're already broke if you're 60 and you've got ten thousand dollars your real risk is not much right you're gonna run out of money anyway and it's just maybe a few weeks earlier if you lose that ten thousand whereas if you take qualified risk if you take knowledgeable risk in trading you might be able to build that ten thousand dollars into a hundred thousand dollars relatively quickly so you can see rule one has really sort of alice in wonderland down the rabbit hole you know take the blue pill with the matrix view of risk very different than the rest of the market.
Summarizing investing risks
so to summarize if you're 20 to 70 to 100 it doesn't matter warren buffett's taking the same amount of risk when he was 20 years old as he's doing when he's 70 years old 80 90 pushing 100.
now no difference in the level of risk we're going to invest with a high degree of certainty in businesses we understand that have big moats with good management.
we can buy them on sale that's real investing and it doesn't change whatever age you are if you want to take risk because you need to generate a lot of cash in order to build up a portfolio and be able to have a retirement.
then we can show you how to do that with a brain rather than just praying that the thing you're putting money into goes up.
Recap
so with that i'm going to invite you guys to come take a look at rule one investing get over to our website ruleoneinvesting.com.
we can get you over to our our both our toolbox and our classes and start to teach you guys how to really deal with risk.
So this was a detailed guide about Is Investing Too Risky?