S6 E16 | Leverage: What can go wrong?

I think it's time for the stock market. We're going to be discussing how to pick winners. Because you want to win. Me and Brittany love winning, and we love winning in stocks. So will you after this episode.

J. Money Newsome Middle name Money.

Come on.

That is your name for a reason.

Thank you.

Specifically, thank you. Stocks.

Yay.

That's the kind of money you make.

Yeah. I love it.

I mean, you're making more money more ways now, but that's really how you made it.

Yeah.

So if I have the opportunity to sit with one of the top leading experts on how to invest in stocks, I have some questions.

Okay.

All right. So first of all, I want you to start with your investing philosophy. I love learning the logic behind how people make their decisions. I just got to talk about a lot of mine, which is how do I really shift regions by strategically real estate investing, which results in elevating people in places. What is your investing philosophy in stocks and the way you make all of your decisions?

I learned this from. You actually mentioned his name earlier. W.B. orle, Omaha. Warren Buffett. He always says, invest in what you know.

Oh.

And I've always taken that to heart because I've realized that sometimes I don't know that much.

You know, a lot. I actually was in the other room thinking, man, my friend is. He knows a lot.

Know a lot. I do. But I'm also aware of what I don't know.

Secretly, very secretly, very smart. Surprising.

Such a secret. Guys, surprise. Big surprise over here. Thank you for that compliment. I would say this. The truth is I understand certain companies very well. And this will shock you, which I probably won't, the way I phrase it. Now, which company has made the most return? Domino's Pizza or Google?

I was going to say some diaper company after everything I've been through.

Yeah. Which is Johnson Johnson.

We are just crushing diapers, spending money on baby stuff.

Okay, hold on. Pause on that. All right, so baby stuff is made out of what? Like diapers are made out of.

I don't even know, Cotton.

Right. You got a lot of baby wipes?

Bamboo.

Bamboo, yeah. Stock bamboo. Harvested from Bangladesh.

Really? Really.

But do you use a lot of wipes? A lot of baby diet? Baby wipes. Okay, so that's. That's paper of some kind. Kimberly Clark.

Okay.

Ticker symbol? Kmb. They make tons of baby products. They make tons of diapers. They make tons of wipes. They make toilet paper. They make all kinds of paper products. So if you are buying a lot of PA Paper, Kimberly Clark it's probably going to go up. I invest in what I use, I invest in what I know. My wife, not that long ago I walked in the house, I was like, what is this ginormous machine on the counter? She's like, it's my espresso machine. And so she finally bought one of those like super high end. She talked, right? Huge, huge espresso machine. And I was happy for her. But as soon as I saw that, I was like, I need to go buy some Starbucks. Because she's investing in coffee, she's investing in coffee beans. Like this is an obvious thing. So I go pull up Starbucks. Starbucks is like $74 a share. I was like, sweet. So I bought a thousand shares. So I spent 70 grand on Starbucks in the stock. Right. Two and a half months later, stock went up to 90, I sold it. So 20 grand of profit, 30ish percent return. But the point is I invest in what I know. She's investing into coffee. I'm gonna invest into coffee. Nike. I invest in Nike all the time.

Well, why, okay, what made you buy Starbucks? Because she bought a coffee machine at home though.

Well, the simple fact that if for me it's a, it's an awareness piece, like she loves coffee. She isn't, she just invested money into the actual thing. I need to go invest money into the actual thing.

But you didn't buy that coffee machines company.

It's not publicly traded. The exact one. Yeah. No, but no, Great point, great point. And so to that point, we can or should do that. When individuals buy something, please start asking, where is this coming from? We ordered Chipotle the other day when I ordered Chipotle to go eat, I bought 100 shares of Chipotle.

Really?

Yeah. So I'm down 47 on it right now, but I'm gonna sell it at some point for a profit. And when I bought it was at $43 a share. So I'll probably sell it for like $55 a share. So there'll be $10 times 100, which be a thousand bucks, aka Chipotle is down, paid for for the rest of the year.

Nice.

Yeah, so I do that all the time.

Nice.

All the time. So if I'm interacting with a company.

Fun way to think about it.

It is, right? Have the company ultimately pay for the thing that you do. I don't really ultimately shop at Walmart that much anymore. So I haven't bought Walmart stock. But Walmart stock is up a poultry 68% this year. What? Whoa, 68% I mean my take is because people are starting to feel the pressures of the economy and they've kind of been seeing and feeling that the prices of things are going up a lot and so people are starting to have to go budget buying more. Right. And so.

Oh, so budget buying stores go up in harsher economies. Interesting.

They absolutely can. Now there are actually two sectors that will do really well in harsh economies. One will surprise you. One is Walmart, Costco, Dollar General, Dollar tree. Companies that are a little bit more discount friendly. Now again, they're not always going to perpetually go up 100% of the time, but their revenues will go up. And we just talked about recently, if their revenues start increasing, eventually the stock price will go up. So always keep that on out for that. Luxury brands very, very rarely do poorly in big and big recessions. You would think they would. Right? Because oh man, people aren't going to be buying luxury. But rich people get richer.

Interesting.

And so brands like middle class, that fake rich. Correct.

That gets slaughtered.

Yeah, they get just annihilated. The really rich. Not rich on paper, but rich, rich rich. They do great.

Real rich.

Yeah. So Ferrari unstoppable stock grief. This thing just keeps going up. No matter what, it just keeps going up. It's $535 a share right now. The biggest correction the Ferrari had was 18%. That was during COVID Like it just keeps going.

Couldn't make the parts.

Yeah, it's amazing. My biggest miss, actually, my biggest miss I think probably in the last three years was Rolls Royce.

Really?

So Rolls Royce stock was going down and when the economy was going great, that stock was going down, revenues were going up. I just didn't pull it up. I just never looked at the chart. Just wasn't on my radar. The Rolls Royce stock got down to 87 cents.

No, hold on.

You don't even know. You don't even know anything about the stock chart. And you went, you don't. You're excited because you know that system.

You know that's wrong.

You know, look at guys. Britney just knew that was incorrect. Like this is not good. There is something massively wrong with this picture. It's at a penny stock. It's at $11 right now. And that took less than a year, less than a year to happen. It's like, can you imagine 10xing and then buying a Rolls Royce? Of course, of course. That's why I don't have one yet. Because I haven't made money on the Rolls Royce stock.

It's just Your fault.

I know.

How did you miss that?

I don't know. But ultimately, the truth is, for me, I want everyone to hear this. My investing thesis absolutely is make money in the products and companies and businesses that you interact with every day and allow those companies and the stock movement to pay for the things that you use in life.

So fun.

Netflix, for example. I'll buy 10 shares. Netflix all the time. It'll pop up, you know, a hundred bucks. I'll sell it. Netflix is paid for now.

You know what? They're not actually related on your books. They're not actually related. But I think what you're really showing is how to adopt a mindset of abundance to be able to afford the things that you really want to have in your life. And something just fun you brought up in between these episodes is you said, you know, I've never heard you say you can't do anything. You've never heard me say that?

Not one time.

It's something I used to say a lot before I really listened to rich dad, poor dad, Rich dad, poor dad said that one of his dads says, there is no can't. It's how can I? Don't get the I can't out of your vocabulary and ask yourself, how can I Now? It might not be worth it to do certain things, but it's not that I can't. It's just that I'm not wanting to. It's still my choice. I'm still in a place of power in my own life. And so it's been really interesting to just see how you've unlocked a whole different way to operate from a space of abundance. Being thinking you actually, you're just thinking, I've got free Chipotle for the rest of the year. Clearly you're not eating enough. So it's just fun to just feel like you're going through life living free because you're a wise investor. I really like that.

Sweet.

But have you always been a wise investor? What kind of mistakes have you made that we haven't already shared? And what are the most common mistakes that you're seeing people make over and over again? And what are those lessons learned so that again, our listeners can take our ceiling and make it that their floor?

Yeah, the big. The big one. And what's cool about stocks is it relates to real estate so great, so perfectly. You mentioned it earlier, always have an exit plan. The vast majority of people do not follow their exit plan on stocks because they have this interesting belief it's going to go Higher.

It's going to go lower.

It's going to go higher.

It's going to go higher. It's going to go lower.

It's going to go. It's going to go higher. And so they never, they never sell. Now, again, I'm not saying that buy and hold is incorrect thing at all.

What if it's like Bitcoin, though?

Right? Right. And so there's always this crazy FOMO that will kick in, oftentimes where individuals simply will not sell.

Yeah.

And it might be because, oh, I don't want to pay taxes. Or might be, what if it keeps going up? And you help me solve that, by the way, in a nice way. So ultimately, the thing is, the biggest mistake is people do not follow their plan.

Make a plan. People, People don't even make a plan.

Why even make what. They're just writing things down. They're going to, I'm going to buy this here and get out here for a profit or get out here for a smaller loss. Right. I'm going to lose 2000 or make 5000.

And then versus just getting in hope, hope and hope and hope.

And then one of those two things will play out. You get in, you're the down 2000, you're up 5000. And then they just don't pull the trigger. They just don't exit because, like, well, I don't want to lose two grand though, because I'm locking in a loss if I exit and I don't want to do that because then I have less money. Well, your plan says so. If you keep writing rules down and you keep saying, I'm going to do this, and you continue lying to yourself, guess what? You're not building trust with yourself. If you don't build trust with yourself, you don't build discipline, you don't build integrity with yourself. Who the heck do you trust then?

Right?

Right. If you can't trust yourself to do things, you're going to live a pretty infamished life because you're not going to really trust anyone deeply because you don't trust yourself. That's a big awareness. Big awareness. So the whole stock game, we talked about this earlier in a different way, but the stock market is also an amazing revealer of what you need heal internally.

Why would the stock market be a revealer of where you need healing?

Why? Because it's so fast and so accessible and everyone can touch it. Everyone can interact with it now. So in real estate, okay, if you want to sell your me and you got emotional, we Got into a fight and you're like this Jeremy guy. What a lame. Oh, I need to sell this house. I don't know why this is going to happen. I need to sell this house now.

You're so white.

If you. You're a lame o. And I'm mad at you. Listen, Brittany. And you sell this house. What's the fastest you can sell a house, man?

Depends on what you're selling it for. Obviously.

If you give it away, your discount, huge discount. You have house worth a million, you need to sell for 700,000.

Yeah. Yeah.

Can you sell in a day, though? Like, is it the transaction gonna be fully complete?

It's gonna take about 30 days.

Right. That's even the cash close. Like, it's gonna be pretty. Pretty slow. Realistically, the stock market, it's a second.

That's nice.

So you have the idea, you have the belief, you have the feeling. And I'm out.

Yeah.

And a lot of people are doing this all day. Right. They're on their phone worrying and panicking, and they're looking all the time at what the stock market is doing. They can't detach themselves. They have this. This veracity of I don't know what's going to happen. And so now you're not in control of anything. You're in control of your emotions. The stock market's tractor beamed you, and now you're an addict.

I watched somebody at the abundance summit who was losing money.

Yeah.

In the stock market. And they could not look away.

And it sucks. I get it.

Look at the sunset. They couldn't look at. And they just looked at their phone until. Until we did some exercises. And then they actually left their phone in their room. It was powerful. It was because they knew they could rise above whatever was going on in their portfolio that day, and they decided they were a winner no matter what's going on in the market.

Right. What a big decision to make.

That's such a powerful realization to wake back up to.

And. And I think that's ultimately the. The real reason that it is a revealer is because it has so much speed. So we talked in this season of broke to awoke about plant medicine. The reason that plant medicine is a revealer is because there's speed there. There is certainty. If you take psilocybin strap in in two hours, stuff's happening. Right. Same thing with ayahuasca or same thing with whatever. Like, you're going to have some type of reaction that's going to occur. Most likely, stock market is the same way you enter the stock market, you're going to get feedback when immediately it's going to start happening. Very, very quick. And most people, weird analogy, but it's true. It's very fast, it's very, it's very quick, it's very effective. So when you're getting into the market, you're going to get feedback instantly.

And the feedback is on your psychological.

State, your emotional state, your decision making capacities. Right.

Okay.

Because imagine you go in and you do something. The second you do it, you punch in the face with a big red number because you were wrong. Now what's amazing is I've never bought like, I mean on a thousand purchases, six times will I be right instantly and never see red. Six out of a thousand. So 994 times out of a thousand I will get into a position and I will see some red, meaning I will see a negative. Even if I'm long or short, irrelevant. The position will be going against me for some short period of time. Minute, an hour, a day, a week. Right. A month maybe, usually not. But generally, ultimately the piece is getting immediate feedback instantly that you are wrong. Well, we've been wired our whole life not to be wrong.

Oh, no, you can't mess up in class.

Right. You can't mess up in school. If you mess up, you're not good enough, you're not smart enough. If you do the math wrong. Right. You get made fun of, you get a big red whatever on your piece of paper. And so you're taught and judged essentially based on your intelligence most of your life. Being right is good, being wrong is bad. And if you're judged on that, and that is really this, we're going to base all of our decisions on who you are as a person, on your decision making capacity. And when you start getting into the stock market, you make decisions and those decisions are wrong. Instantly triggers everything in your brain. So the greatest winners are the best losers in all aspects of life.

Very interesting.

Yeah.

What other mistakes do you see people make and lessons learned?

Other mistakes other than not following their plan, not getting emotional, not being disciplined over leverage, they want it too fast. So that's, I've asked tons of people, like, how'd you go broke in 2008? Like it's real estate. Like, how do you mess that up? And what I've learned is it's over leverage. Right?

Yeah.

They borrow, borrow, borrow. Like you can borrow money in the stock market. When I tell people money grows on trees, they're like, what are you talking about? You can get 20 times your money in the stock market. Whoa, 20 times. Right. So if you have a hundred thousand.

Seems so, like it should be illegal.

Right. You got $100,000. Well, welcome to the party. Now you have 2 million. Let's have a good time. Well, if you have 2 million, but you only have 100,000, but the 2 million is borrowed money. So you have. Right. $1.9 million of other people's money that's not yours. $100,000. It is yours. And you can get into a market that moves 10% in a day. Oh, right. You put $2 million and it moves 10%. That's $200,000. You have to pay it back, of course.

What happens if you don't pay it back?

They'll take your house. Yeah, they call them brokers because that's what happens to your bones.

So you put all this 2 million in, you lose it all.

Yeah, it's game over, dude. Like, they're going to come after you don't have anything. You go to jail.

Really?

Yeah. They're going to get that money and they can't get the money. They're going to find you and they're going to put you in jail.

Okay.

I mean, that's. We're talking worse, worse, worse. Worst case scenario. But very similar to like tax evasion. If you don't pay your taxes and just dip out of the US and you're like, bye, I'm out of here, you can't come back and you can get extradited and people will track you down and they'll bring you back and they'll throw you in prison. So they take it very seriously, ultimately. But the point is, people don't realize that you have access. Like, if you have a million dollars, you have $20 million of potential buying power that you can use in the stock market. You can get four times buying power for day trading. You can get two times buying power for swing trading. They just give it to you. And there's margin, there's interest rates, and there's things associated with it. But it is so easy to get loads of money in the market. It's unimaginable how easy it is to get millions. Wow. Yeah. But to that point, that's the biggest mistake people make. And that's how, as you remember, I lost all my money and other people's money as I went and borrowed it and started doing instruments of things I didn't understand, things that were leveraged and things that can eventually go to zero. I was taking very calculated bets with very large sums of money. It wasn't mine and thankfully I was 21. Right. That's when you want to make the biggest mistakes.

It all figured out at 21 though, bro.

I know so much and you know.

Everything when you're 21. You know what? I was a smart 21 year old.

I was so smart.

You were smart too. But doesn't mean you're not going to make mistakes.

Right? That was the best. So for, for me, that's the big, big, big one is they, they just go too fast because they. Everyone wants money because they think, Brittany, that money will solve all the problems.

Yes, of course it will.

But money will only solve your money problems. Oh, snap.

Jay Money newsome.

Yes, ma'.

Am. Just dropping some fire on you guys. In this next episode, we're gonna talk about what other problems money cannot solve. And we're also gonna be sharing the common real estate investor mistakes and lessons that that I have seen people make and how to avoid them. See you in the next episode.

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