Logical Lies: Why Typical Investing Advice Might be Wrong for You with Ryan Deiss

And it's really funny what you just said, because that to me is the key, is that you have to be comfortable looking foolish in the short run to really succeed in the long run, in almost everything. How much more successful would you be.

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Hey, everybody, you've got Ryan Dice and.

Roland Frazier here with the Business Lunch podcast. Today. Today we were thinking we would talk a little bit about advice and in particular, maybe advice that, like, sounds good or is well intentioned, but that isn't perhaps the best. So, Ryan, what do you think about that? Do you have any things that come.

We got a word for this. Yeah, they're called logical lies.

Logical lies. I like it, I like it.

Tell us more about that advice. Yeah, so, I mean, it is, it's advice, it's suggestions that on the outside, you know, from the outside looking in, it sounds so smart. It's accepted as kind of just. Yeah. This is obviously something that everybody knows to be true, and so we accept it offhand. And maybe it isn't always true or maybe it's frequently, you know, untrue. So the conversation that we were having before was just the oft given, especially at like college graduations and things like that, which is to follow your passion. Right. And anytime I hear something where it's like, always do this, it's like really always. That was like the sign when I took a test in school that, like, you know, anytime is always like, you know, that one's not it. And so always follow your passion is something that we were talking about, something that comes up a lot.

It's seductive, though.

Yeah, it Sounds right, Right.

Because you know, hey, you, do you want to work in a job that you hate? You know, do you want to be in a business that you're not passionate about? So what is your take on that? Why is it good or not good advice?

Yeah. Well, I think the reason that it's a logical, like with all of this advice that sounds good but isn't, or logical, lies, it's because there's always an aspect of it. There I go, using the a word again. There's generally, typically, almost always an aspect that is true. It could be 75, 80% true. And I think in this case there does need to be something if you're going to start a business that you are passionate about. But a lot of times we say that we need to be passionate about the product or service that we're delivering. Right. And I think there's lots of things you can be passionate about. Right. So you can be passionate about the market that you're serving. I just really want to say, and that's what comes up a lot like, you know, I really want to serve this market. I'm passionate about serving this market. You can be passionate about the particular product or service that you've made, but you can also be passionate just about the process itself. So lots of people, I think, you and I included, we love business in all its forms and we're passionate about business. And so we can go and start a company that we're not necessarily passionate about the product or the mission behind it, or the customers or anything like that, but we love the business and the puzzle behind it. Now what I would say is there should be somebody hanging around who is passionate about the product and the customer and can be that voice. But this idea that you should always go into a business that you're passionate about, my thing would be. What do we mean by that when we say passionate? You know, what do we mean? So that's. I've been in plenty of businesses successfully that I was not passionate at all about. You know, the products, I believed in them, I thought they were good, but it's not like I was an enthusiast. What about you?

Yeah, I mean, I think that it is, it is nice if you can be passionate about the thing that you are doing that makes you money. But it is absolutely horrible advice to have your passion dictate the business without first saying what is the likelihood that this pursuit of my passion will result in me attaining the goals that I've set for myself first, financially, professionally, fulfillment wise, or because it only goes to fulfillment. It's a bit indulgent. Right. So I think like I love creating music, I love to perform, you know, out in bands, as I did for years and years and years. But I also am very passionate about being able to eat, being able to, you know, have some wealth making the thing that I eat, not be dog food. Those are all things that are equal passions for me. And so what I think that you can do is you can say, I think that a good filter is will if I pursue my passion in the form of a job or business, will it be able to meet my desires that are outside of just wanting to pursue that passion? Because for me it was, well, I love music and performing, but. And maybe I could have been an amazing songwriter and, you know, quite crazy successful or maybe not, I don't know. But I played the odds and said I can do that as a hobby. Like, why not have something that you do, if you hate it, don't do it. But I don't think you necessarily have to be passionate about. And like you said, I'm passionate about deals, I'm passionate about business. Find the thing that is not maybe subject matter specific, that is maybe process specific or something like that, or that overlays on top of, you know, a passion that overlays on top of maybe a otherwise boring thing that you wouldn't be that excited about that then you can get excited about the process even though you're not excited about the thing. But I think that initial filter of, you know, can I do this thing? And also, like, I love collecting. I don't know, I don't. But I love collecting butterflies. You know, what are the chances that that's going to lead to me being able to do what I want with my life? And so I think that's a, that's an important filter.

You said something I think is really important. Maybe it should just pick something that enables your passion.

Yes, right.

You know, absolutely. And here's where I think it's really dangerous is this advice is given to young people who have no idea what they're passionate about and it's going to freaking change in two weeks.

Right.

And so sometimes there's something to be said for what maybe what you should do is go out there and work in something that is going to give you the most options, which optionality, let's be honest, comes down to money. If I've got money, I've got more options. Not always, but often. And maybe I should optimize for that while I'm figuring out what I'm passionate about. Instead what you have, this advice is given to people and you got folks who leaving college with $200,000 in student loan debt who are now going to say, well, I'm really passionate about know hunger, so I want to go work at a nonprofit. And now they're the ones that are starving to death. Right. So I just think it's really, really dangerous. And like you said, it can be a bit immature and almost selfish. Like I'm going to pursue this even though it doesn't, you know, it's singularly focused. It doesn't enable anything else that I'm.

Going to suffer in life.

So yeah, that is not great advice.

Okay, how about you should get a job because it provides security.

I think it is good advice. If somebody doesn't have any other options, I think it's bad advice to say to an entrepreneur to discourage them from starting their own business. Because in my experience, I have always performed better betting on myself than, you know, I mean, I've known plenty of people who were fired from jobs or got laid off. And so this idea that there's more security here versus there. So where it is often given, again, logical lie. Is it true in the abstract? Oh, of course. Having a job provides more security than living under a bridge. But having a job versus having a side hustle while you're also, you know, or a couple of side hustles while you're starting your business. And now I've got a little bit more diversity in where it's coming from. I don't know, that seems more secure too. So I think you just gotta be careful with the generalization.

Yeah, I think, I mean, to me it's, it's always been kind of a fallacy because. And it, I get it. Because it's like, well then you can depend on a paycheck. Except that maybe that was true a thousand years ago in the, you know, pre depression. I guess maybe, I don't know. But maybe never it's been true because you can't count on a paycheck. You have literally got one client known as your employer and that one customer at any time can fire you. And then you have nothing and you have no security of unemployment insurance. I guess maybe depending on where you live. But like you're 100% dependent on someone else's success and their mood and their ability to run a company correctly. Whereas if you have even in your, in the gig economy and you've got 10 different people that you're working for and they're Equal, then any one of them can let you go and you've only lost 10% of your income. So to me it's just like that, that just never, that argument never made any sense at all to me. But, but I do think that it, it is appealing to think, you know, why risk going out on your own where you could fail, where most businesses aren't successful and you know, and have a job. But I think that job, even, actually, especially now because of having the ability, with all of the upworks and other things like that that are out there, it just seems to me like you're crazy to, to like to be held back from what you want to do because of that security thing.

Yeah. And I think the inverse, by the way, is also untrue. I've known a lot of entrepreneurs who, like people ask me all the time, hey, how do you raise? You know, how are you going to make sure that your kids become entrepreneurs? Like, as though having a job is bad. Right. And it's like, I don't know that I can make sure they become, but I don't know they want to. Right. And so I've seen the pendulum swing so far the other way with, with the entrepreneurial community that, that it's almost as though, you know, you know, ah, having a job is bad, just over broke and all this, like, nah. I know plenty of people who have really great jobs and tremendous freedom and back to our previous thing, it enables their passions and they're happy as a lark. So. Yeah, that neither of those are true. I got one for you. Can I ask you one?

Yeah.

You should always diversify your investments.

Yeah, I guess it depends on the definition of diversify. Right. Should you have all of your eggs in any one basket? I think that's, that's pretty risky because stuff can happen. So I think it's a good idea to be diversified even if it's within the single thing that you've got. Look at a company like Amazon or Google. I mean they own and have acquired so many companies that are outside of their primary thing, but that do help their primary thing that you could easily argue that they're diversified, but you could easily argue that they're not because their primary thing is search, for example, or Amazon's primary thing is, I guess, selling everything online. Because I was going to come along those lines and say, I think that if you're thinking about categories, there may be categories where you say, I'm going to be primarily invested in this category always. You know, it's hard to say you should always diversify your investments, but I don't think it's a bad idea. I do think that it's good to be, to have countercyclical things. So, like, if you're in the restaurant business and you work as a server and you want to open a restaurant and you're doing, you're picking up parties to serve, when a pandemic hits, you're screwed. Like, there's no, there's no diversification in your, in your portfolio of things that you're doing. So I do think it's good to be countercyclically focused. But tell me what you're.

Diversification is a luxury that, that people should pursue, but I think you get to diversify after you've largely gone all in on one thing and it's created the margin and the overflow to now begin to invest another thing. And so a mistake that I see a lot of people making who are younger and who frankly just don't have that much fricking money is they'll go and they'll put like, I'm going to put 10,000, you know, in this index fund. I'm going to put 10,000, you know, in this crypto thing and put some money over here and put some money over and do this thing over here. And they're so spread out and they're so diversified that if any one of them wins, it doesn't win enough to materially change their life and that yet they're losing a little bit over here. And the idea of diversity is really downside protection. Well, the good news, if you got nothing, you can't go much lower. And so I think if you don't have much, then you should absolutely just go all in. Literally. What do you have to lose? Might as well just go nuts and see if it works because then you at least have a shot at building something big. So I think it's one of those things that is likely good advice to people, people with, with surplus. I think it's maybe not great advice.

I, I, I like that, I like that. I, that idea. I, what I was going to ask, what I was going to say to you was the, you've got to be invested in stocks and the equally dogmatic, you've got to be invested in real estate because that's where all great wealth has come from. What do you think about those bits of advice?

Well, yeah, I mean, the real estate one and look at real estate is, you know, is great. You and I are not big real estate investors. I think we've both done well on personal homes and little things, but we're not. I certainly wouldn't define myself as a real estate investor, would you?

No, not currently. I have been, but not now.

Yeah. And again, not to say there's anything wrong with that, but so much of the like, this is where all of this wealth has been created. It's like, well, okay, I mean, it's also kind of been around since humans crawled into a cave. Right. So it's had some time to build up as an industry. You know, lots of wealth has been created in, you know, entrepreneurship and building. Business too. Businesses too, last I checked.

So.

So yeah, I mean, this idea that, that if you're going to buy stocks, the idea of buying individual stocks scares the crap out of me because I've got to know more about that business than people who. It's their job to know everything about that business and I can't influence it. That scares that, that scares me to no end. And so I don't believe that you have to own, you know, public stocks to get rich. We've known plenty of people who have done that and don't. And similarly with real estate, I think it has to do with where your time and effort and energies go. That's what's going to largely grow. And so I think you're best to keep that focused for a while at least on, you know, if you're a business owner, on your own business, if you're an investor, on the investments that you know the best. But to say that, to have this sense that, oh, I need to diversify into these other asset classes, I think you get to do that once you have surplus. But this thing that, like I need to or I'm going to lose money usually again, this, this is about downside protection. You're not going to necessarily make more money if you do that. You're going to potentially spread out your, your losses a bit more. So I don't think you need to always. Yeah.

Let's take a break and then we will be right back.

Hey, business lunch listeners. We're going to get right back to the show, but Roland wanted me to invite you to a brand new training that he's doing on acquiring businesses with no money out of pocket. It's something that he's talked quite a bit about on the show, but he's doing a free training where he's going to walk through the entire process. So if you want to get access to that, go to businesslunchpodcast.com epic. That's businesslunchpodcast.com epic and you can get signed up.

Okay, so on the diversification thing, we talked about different things and I agree with you 100%. I think that, and you know, we're designing model portfolios now for our entrepreneurial investing folks because you and I are primarily entrepreneurial investors. We are invested in many businesses which are very diverse, but not in a lot of things outside of those. I'm, you've got some cash that you put in stocks. I've got some cash that I've kept in cash. And mostly we invest in businesses, right? We've got like, you know, real estate in the form of personal residence, which turns out to be great. But, but really the big thing is the businesses that we invest in and we're in good company. You've got, that's primarily what Buffett does, right? It's, you don't, you don't have Buffett out there flipping houses. You've got him and buying companies. So the companies ideally have some diversification. You wouldn't to want, want, I think, to buy all restaurants, for example, just to pick on the restaurant industry. But, but I think that it is good to, to, to go with what you're, you know, where you can get the greatest return because I know that you and I are not going to get anything near the returns that we can get on the businesses that we acquire and invest in in the stock market or in real estate or in crypto. You know, it's just not going to happen. So we're, we're happen to be very good at the business thing. And, and that's, that's where we go. So then another one would be never keep a large amount of money in cash. You should definitely always have your money earning you money in the stock market or something like that, as opposed to cash.

I mean, that's right. If the only way you make decisions is with a spreadsheet, then yes, you can definitely make an argument that keeping money in cash is stupid. Because all the spreadsheet is going to say is, well, this is how much you're going to, your money is making now. This is how much you're losing, especially in a high inflationary environment like we have right now, which by the way, only affects stuff if you spend your money, right? If you spend your cash, I mean, this idea that like, you know, oh, if you've got, you know, if you've got a million dollars in the bank and you know, inflation, you know, is now at 8%, like, you know, you just lost whatever. 80 grand or like. No, you didn't.

There's literally somebody came into the bank and took $80,000 of your money out. No, that didn't happen.

They didn't. It's fine. Like, it's, it's definitely still there. I'm not spending it right now on more expensive things. And when I do spend it, I will not spend it. I will invest it. And I will invest it in something that, guess what, is appreciating at considerably faster than the rate of inflation. Right. Because nobody's out there trying to beat inflation or even, you know, hit the beta on them on the market. Right. So at least we're not with that money. So. No, I think the inverse is true. I think by and large, again, once you have your, your, your basics covered, once you have a, an emergency fund to protect some downside for a rainy day so you're not having to sell your house or your car, your kids, if you know something does go sideways, then, then, yeah, you, you should definitely build up a solid opportunity fund, which is how we think about our cash. It could be sitting in a money market. But. But yeah, I mean, it should be super duper liquid. I know, I know there are some people who say, don't do that. Go just put it in an investment, because then you can go and take a loan out against that investment. And that's the same as cash. It's actually not. That's debt. And there is additional risk there. And so there is absolutely additional risk when you take this piece, especially if what it's invested in can. I mean, if it's stocks, they can go down. They don't go to zero often, but they can. There's all these people that put their money in perfectly, you know, quote unquote safe, you know, crypto funds and then took loans out against those crypto funds. Now their funds have gone to zero and they still owe the debt and they don't have anything to pay it back. I guess what went to zero sounds cold because there's nothing to secure it anymore because they don't have any money because it freaking went to zero. So, you know, I don't like that. I don't like that plan at all. I know people who play that game and it works, except when it doesn't. And so, yeah, I would much rather look like an idiot by having, quote unquote, too much cash. Most of the wealthy people we know are sitting on lots of cash.

Yeah.

And it's really funny what you just said, because that to me is the key is that you have to be comfortable looking foolish in the short run to really succeed in the long run in almost everything. And in the short run, it looked like Bezos was nuts trying to sell books online when you could just go down to the bookstore and buy them and it cost so much to ship them. And he was losing money. But he had a longer vision than that. And I think that's it is like if you had no plan, if you were, I'm just going to always get cash because you might as well just bury it in the backyard, you know, or stuff it in the mattress, because I just want to protect my cash. That doesn't make a lot of financial sense. It might solve other emotional things for you, but that alone is not a smart decision. But to sit on a bunch of cash right now thinking that it's likely that we are in. We had 2/4 of retraction in the GDP that that typically is defined as the entry into a recession, that things are probably going to get worse and maybe be more bearish, even though we now have had also a 50% lift from the lowest point of the stock index to this point, which has never led to a recession after that, which is interesting. So you have all this completely conflicting data. But to me, the danger of sitting on too much cash right now is very minimal. If we're wrong, we're going to take a short term hit in the values of what the actual dollars, which are not going away, they are still there, as you mentioned, will buy. But that's likely to recover as inflation comes under control. And the opportunity then to come in and buy some business or stock or something at 50% off because it's panic time, like that's huge. And to me that makes a whole lot of sense. So it's like it's okay to be thought a fool in the short run if you've got a long run vision, a long term vision. And then that's true across almost everything. Right. So I think that's kind of an interesting bit of thought.

Yeah. And look, if you are sitting on cash or if I just, I just, I am pro cash, I want people to feel like it's okay to sit on cash. And I just hate this argument of inflation. Yes. If you were to take all of your cash and buy, like if you have, if you're sitting on a million dollars in cash and you decide to buy a million dollars in milk, you know, this month versus like six months ago, then your million dollars would have been worth less. That is accurate. So don't buy a million dollars worth of milk today. Either wait for milk to come back down or buy a business that you expect to, I don't know, 10x over the next three years and you don't freaking worry how much milk went up.

Right. And that's it. I think it's, it's. What are you going to be investing in? What's your return and what is your, you know, what's the horizon? So those are just some things that, like anything else you can think of that's off the top, that is advice that you hear out there that you think is just kind of questionable.

No, I mean, those are the ones that we had talked to. Those are the ones that had popped into our heads. I think it's just anytime something, you've heard it a lot, just to be careful about accepting things that seem true and that you've heard about nodding your head and saying, yeah, obviously, because, you know, most advice is absolutely correct for most people. But if you're listening to this show, that likely means it's not correct for you. Because if you're listening to the show and you're an entrepreneur and you're an extraordinary individual, then that means that a lot of the stuff just doesn't apply in the same way to you as it does to other people. So have a critical, you know, think critically about these things and understand that very often advice that's true for the masses, the inverse is going to be true for you if you're an extraordinary person. So. And when I say extraordinary, that all I'm simply meaning is extraordinary.

I like that.

Right. You're just a little better than ordinary. And when the bar for ordinary is so freaking low that it really isn't that hard to be extra. And I, again, I just say, if you're listening to this right now, you're in that camp. So take a critical eye to all of the logical lies out there.

I like it. All right, that is the end of our show today. Thank you guys for listening. And if you find that you've got somebody that is giving you this crazy advice, then you now have defense. You can refer them and share this program and say, check this out, because these guys are doing okay, and they're saying things that are the exact opposite of what you're saying. Or if you need a little support, we're in your corner here. Share the podcast. Or if you find anybody that you would like to share some wisdom with about just kind of taking a deeper look, we might be right. We might be wrong. But it's good to be thinking all the time and I think this is a good way to do that. So share the podcast. Thank you guys for listening and we'll see you in the next episode.

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