#109: The 5 Things I Did To Become a Better Investor

Hey folks, Tim here. My bestselling card game Coyote, which I made with the amazing team at Exploding Kittens, just won the Pop Insider Best geeky game of 2025 and also best Stocking Filler in the Made for Moms Toy Awards 2025. It is on sale everywhere. It's cheap, it's fast to learn, has 4.8 stars out of five. People are loving it. CoyoteGame.com will take you to all the retailers, but you can find it everywhere. It is a game of thinking fast and laughing faster. Think char meets hot potato meets a bunch of brain fun. It's good for your head. It's perfect for families with kids age 10 plus or adults who are kids at heart or don't take themselves too seriously. A lot of adults love this game and as I said, it's available everywhere. Amazon, Walmart, Target 8,000 plus retail locations, you name it. So please check it out. I loved making it. People are really enjoying it. It has 300 or 400 million plus social views of gameplay online and try it. Enjoy it this holiday season. Check it out coyotegame.com one more time. That's coyote game.com or anywhere you buy your games. Now back to the episode Optimal Minimal at this altitude I can run flat out for a half mile before my hands start shaking. Can I answer your personal question now? It is inappropriate time. What if I did the Alpha? I'm a cybernetic organism, living tissue over metal endoskeleton. Ferris show. Why hello my friendly little Mogwai. This is Tim Ferriss and welcome to another episode of the Tim Ferriss Show. Routinely what I normally do is interview someone and dissect their excellence. In other words, I have a world class performer of some type and I deconstruct the routines, the habits, the influences, the favorite books and so on that have impacted them and help them to perform at the highest level imaginable. Whether that is in entertainment, law, finance, music, chess, you name it. We cover a lot of different fields because you find commonalities. Every once in a while I do an episode like this one which is intended to be very short and I call them in between episodes and that's normally when I riff on a particular topic. And this time I'm going to talk about investing because I've had a lot of people ask me about it. So I'm going to talk about the five or so things might end up being six. I'm not sure. Depends on how you count that I did to become a better investor and some of my thoughts on investing and I should put out a few caveats beforehand and provide a little context. So number one, I make no claims to be the best investor out there. There are many, many thousands of people who are supremely capable and better than myself. I will say, however, that I've been able to develop a skillset in specifically early stage tech investing whereby I have been able to generate about 10x what I have in publishing or more than 10x and I've been able to, very important point, cash out enough positions that I've earned in real dollars in real bank accounts as much as I have in publishing so that I would consider a success. They are still small numbers compared to what many hedge fund icons and so on produce on an annual basis of. But I think there are some lessons that I've been able to adopt and adapt for my own personality, my own weaknesses, my own life that may be helpful for other people out there listening I've also had the opportunity to interact with many different styles of investors. For instance, you have Chris Sacca, who will end up most likely being the most successful venture capitalist in history, at least having the most successful fund in history. He's been on the podcast. You can listen to that episode as well. I've had a chance to interact with a lot of very, very skilled hedge fund managers who by definition are good at hedging. They are good at not only participating in bull markets, but also bear markets and are good at covering their exposure. That I find just as a concept in and of itself very fascinating. And that chess game is very, very interesting. We'll get to that. And then, of course, I've had a chance to interact with people who are buy and hold or, or even index investors and people who are very good at it. And then you have value investors along the lines of, say, Buffett, that I've had a chance. And I've actually also had the chance to ask Buffett a question or two at the Berkshire Hathaway shareholders meeting. There's a blog post on that. If you search Warren Buffett and my name, that'll come up. But let me just try to keep this simple. I'm going to go through the steps that I took and how you can apply them. Hopefully for some increase in competence, confidence, or just the pure realization that you shouldn't play in games you aren't prepared to research and win. First off, a basic concept that I'd like to push out there, and this was shared with me by other people in the hedge fund world, and I think it makes a Lot of sense. How do you invest and win? Well, you have to have an advantage. There may be exceptions, but there are always exceptions. So I'm not going to cover all of them. The advantages that you could have could be informational. That means you have information other people do not and that gives you a decided advantage. In Silicon Valley, living in San Francisco and participating, as I do in the startup scene, I have an informational advantage that is my primary advantage in picking stocks, as it were, in this case early stage startups. Then you could have, let's say you don't have an informational advantage. You could have an analytical advantage. That means you're better at reading the charts, doing technicals, or even crunching numbers. Maybe you have PhDs, maybe you have algorithms that help you to take data that is available to other people but make better use of it. Renaissance Capital would be a good example of that. And there are many others, some folks at D. Shaw, for instance, blah, blah, blah. Then you have behavioral. Behavioral is a very, very, I think, under discussed element. People are keen to get to the how to and they want the recipe for investing. But just because Warren Buffett can use it doesn't mean you. And by behavioral, just as one example, if you read the Making of an American Capitalist about Buffett, there's a story of his daily routine and how he would go to the office, come home from the office and then walk upstairs to read annual reports. And I'm roughly paraphrasing this, I might be getting a few details wrong. And at one point he came home and I think his son was just splayed out on the stairs, had completely wiped out and was in pain. He stepped over his son, went up to the office and then later came down maybe a few minutes afterward and said, are you okay? All right. He has a hard wiring and an ability to divorce emotion from life, which includes financial decisions, so that he doesn't succumb to what you might call Mr. Market, the manic depressive who will have all the wrong instincts and not do what Buffett says, which is be greedy when others are fearful and fearful when others are greedy. Easier said than done. So behavioral, do you have a particular personality type or temperament that it allows you to make better decisions? That's it. Okay, so those are the basics. Those are the three. So the first step is to read about different styles of investing. And I should also point out defining the term investing can be a little tricky for me. I subjectively define it as allocating resources to improve my quality of life. What that means is for me personally. Again, I could have an investment that returns an incredible annualized compounded interest like 20%, but if it keeps me up every night with insomnia and sweaty palms, it is not necessarily a good investment. And I will oftentimes liquidate those or avoid them altogether. Because if I am sacrificing my present day quality of life, especially if it's for longer periods of time, years and years and years for a speculative future cash out. That is an extremely dangerous proposition and a gamble. So I am investing to improve my quality of life and that is how I think of capital and resource allocation, time, energy, etc. I'll go into that another time. Start reading about different and conflicting styles of investment and this is to in some ways try to spot patterns so you can identify people who embody your strengths or weaknesses. Again, looking through the lens of informational advantage, analytical advantage, behavioral advantage, who could you emulate potentially? Number of books. And if you don't have time to read these books, guess what? You shouldn't play because you're going to get your fucking face ripped off. And that means that you should either. And I'm not a professional financial advisor, so everything in this is my own experience and opinion. Get professional advice before making any financial decisions, blah blah blah. But if you if you can't make the time to do this, then consider putting your cash in a mattress or just putting a bunch of stuff in no load index funds and just forgetting about it. Or using something like Wealthfront, which I'm an investor in, meaning I own equity in Wealthfront itself. But coming back, Buffett. Let's look at Buffett first. There are two ways to read Buffett that I really enjoyed. The first is the Making of an American Capitalist. And some would say, read Snowball. Snowball's also very good. I just enjoyed the perhaps more brutally honest assessment of the unauthorized biography, but they're both very, very good. The Making of an American Capitalist is a very good look at Buffett. Secondly, read his annual letters. If you just search the annual letters of Warren Buffett sent to shareholders of Berkshire Hathaway, you can find a paperback collection that is worth its weight in gold. Next, let's look at a very sharp contrast. There is a fantastic book called More Money Than God and it's about hedge fund managers and the history of hedge funds. And there are some incredible personalities in this book with extremely diverse styles of investing. It is a fantastic read. It is along the lines of, I would say, Liars Poker and its readability. And I Think Liars Poker is another great book to read. So I'll bring that up next. So more money than God must read. Next. Liar's Poker and Flash Boys, you could really read either one of them. But Liars Poker put Michael Lewis on the map, covers Salomon Brothers, among many other things, bond trading and mortgage backed. I think it covers mortgage backed securities. And then you have Flash Boys, which is about high frequency trading. Both of these make it clear that if you expect to read Barons and then go compete against professionals who do this with nearly infinite resources, that you're on a fool's errand. So you wouldn't necessarily hopefully bet on yourself. If you sat down with, say, the 10 best poker players in the world, you wouldn't bet on yourself. If you were thrown into a golf tournament with the best golf players in the world, you would not bet on yourself. So if you get thrown into the stock market market with sharks and brainiacs and teams of PhDs and computer scientists and so on, with infinite resources, would you bet on yourself? And the answer should be 99,999 times out of 100,000? No. So these are two good reality checks. They're fun reads because Michael Lewis is amazing, but they show you just what happens behind the scenes. For instance, the anecdote that stuck with me in Liar's Poker was at one point there was a guy at Salomon Brothers, the equivalent of, I think his name is Fat Tony, who's the sort of character and caricature that Nassim Taleb uses for sort of street smarts, who would say, put, I'm making this number up. But he would put, say, $10 million into a particular type of bond. And he'd say, it's going up, and it wouldn't go up. And his colleagues would mock him. And then he would put 500 million or billion dollars in, and the entire market would freak out. All the market participants, they would think that he knew something they didn't, and then they would drive it up and he would say, see, I told you it was going up. And this is not an uncommon type of tactic. So those are two good reality checks. So you have a healthy fear of death in you when you step into any of these markets. Okay, next, to give you perhaps some confidence after that one has deflated you, is a very underrated book. And I think it's underrated partially because of the title. And I know how that feels because I wrote a book called the Four Hour Workweek. But this one is, you can be A Stock Market Genius by Joel Greenblatt. Again, I'm not a professional investor, guys, so this could be, excuse me if I misspeak, but it's effectively event based investing. I will let you look into this. It's a surprisingly advanced book. I would say it's probably for intermediate and advanced investors who have some track record or mileage on their investing. But again, the purpose right now is not to immediately jump in and start spending money. It is to read about different styles. Event based meaning a merger or any number a disaster. An event based approach to investing I find just intrinsically fascinating. That is a good one to check out and I'm probably not doing it justice, but you can be a stock market genius. Great book. All right, now let's talk about. I'm going to give one more and then we're going to get to the sort of buy and hold type books that I think have a lot of compelling logic in them for a lot of people. But before that, Money, I think it's Master of the Game or Master of the Game by Tony Robbins is also a compilation. You have people from Pimco, you have people like Ray Dalio, very famous hedge fund manager Carl Icahn, etc. Who are interviewed by Tony, who's extremely good at deconstructing best practices. I found that book very compelling. And whether for the novice or the professional, I think there are gems in this. It's a long book, but there are gems in there. I did an interview with Tony, a two part interview about money and finance. If you want to check that out, just go to fourhourworkweek.com, click on podcast or quite frankly, just search Tim Ferriss Tony Robbins podcast and it'll pop right up now. Next we have one by Daniel Solin. I think it is S O L I n the smartest investment book you'll ever read. You could also read stuff by Bogle or say Random Walk Down Wall street or Through Wall street by Burton Malkiel. These really contain a compelling logic for a very large number of people, a very high percentage. For those of you listening to this, following an index approach to investing, I will leave it at that. It's a very quick read and I think a worthwhile read to offset some of the irrational enthusiasm and optimism and fight that you'll have in you after reading say More Money than God because easier said than done. What these guys do, they're the professional athletes, the Michael Jordans of the finance world. Read the smartest investment book you'll ever Read. The title may not deliver, but it is a smart investment book at the very least. So those are some of the books. Now I'm going to point out one in particular. So this is the next step, which is what I Learned losing a million dollars. And I think it's very important to offset all of these success stories. And there are some tragedies and failures in the books that I just mentioned. But to read a book about losing money, specifically what I Learned Losing a Million dollars was introduced to me by Nassim Taleb in his books. We've also discussed it in person. The Black Swan. Amazing book. Antifragile. Great book. Both of them, I think, have enormous implications for life, but also finance. Of course, since Taleb was in a former life, they might still have some participation in derivatives trading, which is a whole separate subject. So what I learned losing a million dollars gets into the psychological, gets into the practical, and it gets into cognitive biases and fallacies in particular when you start attributing failure to bad luck and success to skill. And it underscores, I think, a number of issues that are inherent in investing and that are common failure points when you're working with financial advisors. So I'm sure many of you listening have been asked, what is your risk tolerance? Would you be comfortable in a quarterly decrease of 5% in your portfolio, 10% in your portfolio, 25% in your portfolio, and you pretty much just cover your eyes and throw a dart and make a guess and check a box? I have yet to meet anyone who has accurately been able to predict that. I would say 99 plus percent people vastly overestimate it. I've spoken with some very high level wealth managers. I've asked them what the average was. They say, well, most people say 15%. I said, when their portfolio starts dropping, when do they actually freak out? These are high net worth people, but 5 to 10%. I think that it pays in some cases to take a very conservative approach to assessing your risk tolerance. Chances are you're going to freak out a lot sooner than you expect you will. That has to be factored into a lot of your decisions. Okay, so you've read about the different styles, you've read about losing money. Now it's time to pick an area, pick a timeline, and pick tentative rules. What I mean by that is you've read about many different people investing in many different ways based on your personality, based on the amount of capital you have to play with, and based on what timeline you think best suits. All of those things are you going to hold for a day as a day trader? Are you going to hold for two months, three months? Are you going to hold for three years, 30 years? What is the time frame? Then you have tentative rules. What I mean by that is simply criteria, criteria for investment and also criteria and triggers for buying and selling. Because a fundamental, I think, error that I certainly have made many times is thinking that that choosing the stock and buying it is game over. Meaning you've done your job and now you can just sit back and enjoy the spoils. But the reality is, and of course you can use all sorts of weird instruments to make this much more complicated, but you haven't made your ROI until you sell, until you liquidate in some fashion. And of course you could use it as collateral for other things like revolving lines of credit, blah, blah, blah, blah. But we're not going to get into that. So knowing when to sell and having a plan for selling is just as important as buying in the first place. So people might say, well, you know, you make your money in real estate or in stocks when you buy. That's why it pays to be a value investor, because you're buying below book value, right? So even in a worst case scenario, you can do pretty well. And I would agree with that. But you can still make massive mistakes if you haven't decided, like a good poker player, when you're going to walk with your chips. Right? And so that's it. All right, so you're picking an area, one or two maybe, then you are picking time frames and then you're picking tentative rules like I did in the world of startups. What's next? Are you going to go out and spend a bunch of money, make a bunch of bets? Well, yes and no. So I would suggest one of two approaches. You could do both. And that is number one, I highly, highly, highly encourage you to paper trade. What does this mean? This means you're virtually trading. You're not going out and putting real money into bets. Yet. You can approach this two different ways. You can either say I have a hypothetical portfolio over two years. I like to think of it kind of as an mba. And we'll come back to that. Let's just say an MBA costs $120,000 over two years. You decide to take $120,000 of your hypothetical portfolio and invest it over two years. Well, you could do that for two years. If you're investing for life, what's the rush? But in that case, you would pick stocks, decide how frequently you're going to Invest, for instance, if you've chosen stocks and see how well your criteria works, let's say that you have a two year hold period, that's your time that you're planning on holding investments. You place a bunch of bets in the first quarter or two of this hypothetical mba. Again, it's not real money, this is on paper. And then you track those investments and you should note when you are inclined to sell or think you would have sold or bought more, for instance, had you been allowed to. And then after two years you can look at the results and assess in fact how you would have done over that period of time. Now, of course, if you have a 30 year time horizon, this is very difficult. There are ways to get around that and for instance, you can back test. You could also do Monte Carlo simulations, but we're not going to get into that. So I guess they kind of overlap. But if you're looking at startup investing, for instance, because these time horizons tend to be pretty fast, you can have subsequent rounds of funding that indicate at least on paper, and this is dangerous, but indicate on paper that the value has gone up. For instance, if you're interested in startup investing, you've read all these various books and you would add another book to that, which is Venture Deals by Brad Feld and Jason Mendelsohn. So you understand deal structure super important. And then you could go to AngelList and full disclosure, I'm an advisor to AngelList. I also have a massive syndicate on AngelList. But you go to AngelList and you could look at the startups that are being syndicated and again you have this $120,000 over two years. You could place bets, see how much self control you have, see if you spend it all too quickly and then track that over the subsequent months, year, et cetera, and note down how many die, in other words, how many shut down or how many get acqui hires larger companies, acquire the smaller companies, but they're really just soft landings. You as the investor might not get anything back, especially if you don't have preferences or favorable preferences. Angellist very helpful for that. If you want to see the deals that I've picked, you can check them out. It's just angel co, Tim. I think I have 40 to 50 deals total since 2007. You can check nearly all of them out in my criteria and whatnot. If you just want another kind of data point. Right, Another data set rather. So that's angel co, Tim. And there are lots of very good angel investors on this list or on AngelList. I should say, okay, how would you backtest? How would you backtest if you're like, you know what, I want to get started sooner though. I don't want to wait two years, I don't want to wait a year. What do you do? Well, you could for instance, go back and look at and you can just Google this TechCrunch 50 or TechCrunch Disrupt finalists, winners and runners up from like 2009, 2010, 2011 and just look at the article that lists them, the five or six companies and watch the pitches as they were given that year and then place your bets if you had to place a bet on one of them. Or you could even take a more conservative approach and look at two different TechCrunch like 2009, 2010, look at the four to six finalists in both cases and say, if you had to invest in one to three companies, who would you invest in? And because startups tend to live fast, die fast, you will be able to probably figure out which are dead, which are kind of the walking dead, like zombies who are probably not going to exit well, but they're kind of limping along and then which ones did really well. So you could try to back test that way and do it pretty quickly the other way that you could do this. So there's paper trading the way that I approached it and this is why I introduced the concept of a real world mba. If you want very specific details on how I did this, you can just Google real world mba. Tim Ferriss and I go into great detail in like a 2000 word post on this is I pined after going to Stanford Business School, decided instead that I would take the money, I would have spent $120,000 and spend it over two years on startups. Very important assumption that I had was that I would lose all of that money, but that the skills and relationships that I developed over that two year period of time, just like in an MBA program, would more than compensate for that cost. So I viewed it as tuition. I did not expect to make an immediate return on investment over that two year period. I was viewing it just like an alumni network and skill sets from classes in an MBA program. But I was playing with my own money and that is how I got started in 2007. And big thanks to Mike Maples Jr. For helping me with that and the many people who have helped me along the way in my education like Chris Sacca and Naval Ravikant who is the CEO of AngelList. As a side note, but that's how I got started. I made very small bets in the early stages, made some massive mistakes, and in that way cut my teeth in the real world. Because the way you respond playing Mike Tyson punch out is very different from how you respond when you have Mike Tyson actually punch you in the face. That is how I have developed my skillset, but I expected to lose that money. It is extremely important that you understand that because it gave me a psychological freedom and the ability and confidence to make decisions that I otherwise probably would not have had if I had felt committed to making that money back very, very quickly for all the hits that I've had, the Twitters and the Ubers and whatnot the whole time. Uber, of course, hasn't exited yet. Evernote, you name it, Shopify would be another one. The average hold time for me from my first contact and first paperwork to liquidation is like seven to 10 years. It's not as short as you might think. So that is how that happened. Okay, so those are my two recommendations. Paper trade or consider. If you have the financial cushion to do so, you have to be able to afford losing it. Real world mba and hopefully this is helpful for you guys. This seems kind of wordy to me, but I'm doing my best here. Last but not least, this is a super important step is you need to have regular check ins with yourself and practices so that you don't forget the point and lose the forest for the trees. What I mean by don't forget the point is it is extremely easy to focus purely on the metrics, the compounded interest, the roi. Financial roi, that is the amount of money in the bank account, the valuations on paper and many of those things could be making you utterly fucking miserable. And I have found that in the past and then I've liquidated various positions and you could say I'm losing money because they later went up, but that is very rarely the case if you compare it to the starting point. Although that's been true with options. I suck at options. Maybe somebody can teach me how to be better at that. So there are a number of resources that I find very helpful. So one is the 8020 principle and the book is by, I'm going to say Richard Koch. I'm not sure if that's how you pronounce his last name, but I will choose that version. K O C H Another Is Less Is More, An Anthology of Ancient and Modern Voices. I think it's in Praise of Simplicity. Fantastic anthology and seems very self serving. But the Four Hour Workweek is really a collection of lessons, parables, principles that I collected for precisely this purpose. So that may also be worth a read or revisit. If you guys want to hear more of this kind of thing, let me know. I could have investors on the podcast. I know a lot of good investors and if you want to look at how I was thinking about investing in 2008, 2009, which hasn't changed all that much, quite frankly, you could search Rethinking Investing and then my name Tim Ferriss There are two long blog posts, part one and part two about this Rethinking Investing. I think it's common sense. Investing for uncommon times, something like that. But Rethinking Investing. I appreciate you guys listening. I'm not the best investor in the world, but I've been able to make it work for me. I've been able to generate more of a return than I ever thought imaginable and I have played in some other areas and done decently well, not just startups, so real estate for instance. And for me personally, I decided that I wanted to take and I'm sure I'm going to do this principle, this concept no justice. So maybe I'll have Nassim Taleb on the podcast at some point. But I have decided that for me, I don't have the time or I don't want to dedicate the time to develop an approach like some of these incredible asset allocators like Swensen of Yale for instance. I just don't have the bandwidth and concentration. It's not a good personality fit. However, I can take a barbell strategy approach, which is something Talib talks quite a bit about where I am either being and there's much more nuance to this. So read into it, get the black swan, get antifragile. But I'm taking either hyper hyper conservative approaches, cash cash like instruments, et cetera, that are say 80 to 90% of my portfolio and then a small percentage, 10 to 20% are hyper hyper aggressive early stage startups. For some people that might be options. I do not play moderately conservative or moderately aggressive. That is my choice. It should not necessarily be yours. And for many of you it is the entirely wrong approach. But for me this barbell approach has really allowed me to sleep well at night, especially when there are binary decisions where I am doing a lot of homework than investing in something like startups where I can't change my mind. In other words, I'm not watching a stock ticker wondering should I buy more? Should I sell? Should I buy more? Should I sell every moment of every day, which I know is my masochistic tendency, as in many things, know thyself. That applies to investing as well as everything else. Skill acquisition, learning, happiness in general relationships. But I appreciate you guys listening and if you want more of this stuff, just let me know. Ferriss T F E R R I S S on twitter or facebook.com timferriss2Rs2S's on Facebook and I'll be doing plenty of Q&As on Facebook and might have some investors pop in. So like the page, Check it out. And as always, thank you for listening.