28 Years of Stock Market Investing Knowledge In 21 Minutes

I've spent 28 years in the market, winning big, making huge mistakes, and dialing in a principle-driven process through value investing. I'll hand you some of my biggest wins, some of my biggest mistakes, and the hard truths that nobody tells you about chasing hype. If you're serious about building wealth, you cannot afford to miss this. Guys, I became a teenager during the go-go 90s of tech. I was there. I became obsessed with Bill Gates before Microsoft stock became big. I did not buy Microsoft stock to start, though, but I was immersed with technology. I remember saying to somebody once, something very, very important, I was right, but for the wrong reasons. I said, tech deserves a premium because they can make more money than other companies. Early on, my first year in investing, I made 98.6% return. That is a fact. I thought, oh my God, I'm awesome. Guess what? It's because I followed the hype. I followed those big winners. I followed all the stuff that was out there. Guess what? I also had a really good year one year when the market was down a lot, purely from one stock hitting it big. One of my biggest wins was Oracle. My dad and I bought Oracle together. That thing went up 10X. Guess what? It was also my biggest mistake because as it fell, we exited, but as it fell, I didn't learn the lesson of buying more at the right price. I finally started buying more, but as it went down, I didn't understand why it was going down and I was getting anxious about it. It was scaring the crap out of me. Now, I was very fortunate. I didn't fall for the dot-com stocks. I remember a friend of mine making fun of me for that in terms of the actual dot-coms with no revenue and profit, but I did fall for the other things like Global Crossing. Go look up that company. The fastest company ever to create a CEO that was over a billionaire in 11 months and went to zero. Why did I buy it? Because somebody told me to buy it. I was like, oh my God, this person's older than me. They're smarter than me. They're the right person. Global Crossing is doing the right thing. Absolute catastrophe. When stocks started to go down and I didn't understand why, it gave me anxiety. I was scared. I wanted to sell everything and eventually I did, but I was one of the few people who sat there and said, there's got to be a good way because I was learning and I was reading about Warren Buffett going, how did he do well for so long? Little did I know back then in 2000, 2001, 2002, that I was in the early stages of understanding what was called value investing. Yes, I knew who Warren Buffett was and yes, I liked the idea that he was able to show the world over a long period of time that you could beat the market, but I truly believed he was one of the few that could do it. Every single mistake I've made, whether it was buying Global Crossing, whether it was buying some other stupid company that made very little revenue or profit, whether it was buying IPOs, I bought into IPOs as well and I saw them all go to zero. Not a single RPO I bought is around today. And guess what? They all taught me one thing. In the short run, stocks are a voting machine, in the long run, they're a weighing machine. And once I understood that, I realized that when I buy a company, and I kept it very simple, if I bought a company today that made a dollar and 10 years from now, it made $10, my investment should go up 10X, right? Sure. But there's a caveat to that. It assumes I pay a reasonable price today. Because I always talk about Cisco and Intel. Let's put them up right now because if you're new to our channel, it's really important that you understand this. Cisco and Intel were the NVIDIA of 2000. You were stupid if you didn't have these companies. You were literally an idiot. Now let's look at the chart for Cisco. All time high, $82 on March 27th of 2000. That was 17 days after the peak. They've not been there since. And here's what's interesting. Let's go look at their financials back then. We go back then, currently, the last 12 months, they did 54 billion in revenue with profit of 9.2 billion. In 2000, they did 19 billion of revenue with profit of 2.6 billion. So they're almost three times bigger in terms of revenue, and their profit is four times bigger. Yet the stock is down from its all time high back then. Why is that? Well, because if you pay too much for a great story, it ends up being a bad investment. If I told somebody back then when they bought Cisco for 80 bucks, that 25 years from now, they'd have three times revenue and four times profit, they'd have said, oh, if it's an 80 to now, it's going to be at least 250. It's currently selling for $63.37. And guess what, guys? Guess what the worst part is? It's selling for 20 times free cash flow and 28 times earnings. It's not like it's selling cheap. Somebody could make the argument, well, it's selling for three or four times earnings. No, these all taught me something. All these mistakes taught me something. And that thing that taught me was if you understand how a business makes money, if you understand that in the long run, stocks are a weighing machine, that the fundamentals drive the price, that's going to save you a lot of heartache and aggravation. The heartache and aggravation you're going to have is just by avoiding the hype and being looked like it as an idiot. That's the hard part. I'd love to say there was one moment that value investing clicked for me. It wasn't necessarily that. I always believed there was a way to explain these things. And I sat there and said, listen, there's no way that Warren Buffett and all these other guys can beat the market consistently over long periods of time, but the other guys can't. It was more over time realizing, and guys, guess what? I'm 43 currently. I guarantee 20 years from now, I'm going to look at investing very differently than I do today. Luckily, the dot-com crash happened and slapped me right into place. It said, Paul, hype doesn't work. Following your neighbor and following everybody else isn't going to work. Because at the end of the day, when you lose money, that's on you. It's not on anybody else. Now, how did I learn that part? Well, I tell this story all the time. There were two major stories that made me realize that humans were their own biggest barrier into success in investing. The first one, and if you're new to the channel, you'll hear me say this over and over again. Oh six, two friends of mine sat me down and said, Paul, we want to save. Tell us how to do it. I sat there and said, guys, if your money fell in half tomorrow, what would you do? And the wife looked at me kind of like confused and saying, well, we buy more, right? I said, exactly. And sure enough, 08 financial crisis happens and I get an email, Paul, oh my God, stocks are falling. What are you doing? And I wrote back, I'm buying more. Didn't we discuss this? You're actually buying more? Yeah, we discussed that. You said that. Oh no, but I didn't realize this was going to happen. This is terrible. The world's going to, blah, blah, blah. We're selling everything. I'm like, the stock market's not going to zero. And she wrote back, what if the stock market goes to zero or some variation of that? I thought to myself, oh my gosh, that's insane. But that's human nature. Fast forward, the market recovers, 2011 and 12, I start seeing Microsoft. I'm like, man, this is weird. I started paying more attention to financials. I'm like, their revenue goes up consistently every year. Their profit goes up consistently every year. And the stock is selling for nine times earnings. So I was at lunch with the tech CEO and I said this to him and he goes, oh, Microsoft's dead. This is a company in the tech business. I wouldn't buy it. I'm like, well, no, it's revenues up a lot. He's like, I wouldn't buy Microsoft for anything. I'm like, well, not anything. Of course, if you could buy it with zero debt and pay 50 billion for it, it had a hundred billion dollars in the bank. Of course, you'd buy it. No, no, not even then. And I honestly thought he just misheard me. I'm like, there's no way anybody's that stupid. I said, no, no, no, you don't understand. And I repeated it to him. His name was John. He goes, no, Paul, even if that was the case, I still wouldn't do it because tech companies can change like that and go to zero. And I was like, but you can shut it down tomorrow and cash 50 billion in profit. And I was like, oh my gosh, people really are dense. And years later, I read a book by Guy Spear called The Education of a Value Investor. And it's an amazing book because he doesn't sit there and talk about numbers. He talks about the most important part, the emotion. He's like, I had all these value investor friends of mine in the great financial crisis who said they wanted stocks cheap, but when stocks got cheap, they got scared because the story around them was bad. We show this incomplete chart so many times in our channel, going back to 1950, here's a fraction of the horrible things that have happened in our world. And here's the S&P over time. And guys, this isn't a true indication of S&P, this is a log chart. It actually looks like this. And all these things cause major fear for people. And all that happened was stocks kept going up. Why? Because you're betting on the US economy. Now guys, value investors come in very different shapes and forms. I used to be the type of value investors that I want to buy one company, wait till it hits its value, then sell it and move on to the next one. That's what I did with Microsoft. That's what I did with a bunch of other companies in the past. And it felt great to have that win and lock in that profit and move on from it. But over time, I realized I was pretty lazy. I just wanted to bet on really good companies. It made more sense to me. My biggest influence was Charlie Munger and Warren Buffett. I love the idea of buying great companies and just letting them grow and letting them compound themselves. And once I looked at the math and realized, you know what, if these companies just grow, I don't pay taxes on them. I let it compound and compound and compound, and all I got to do is make sure that they're still doing what they say they're going to do and pay and sell for a reasonable price. Once I was able to transition to that, investing became a lot easier for me. Now, it's too short term, but the last two and a half years, I have accumulated positions in other companies that have done great, but I don't consider those companies complete. I wouldn't even take a victory lap yet. Why? It's too short term. Yes, two, two and a half years is too short term. Now, handling the emotions is the hard part because there will be a time when every great company has a very negative image. It might be driven by the economy. It might be driven by something short term. That's your best chance to get a great company at a great price. And those opportunities aren't very often. I'm very proud of, for example, Metaverse and being one of the few people on the internet who said Meta is a great buy. I actually got lucky enough to dollar cost average and bought it at its lowest price of $88 per share on November 4th of 2022. The mistake I made was selling too quickly because it ran up fast. And I thought to myself, let me take some money off the table and make sure I am good with this. And since then, it met a skyrocket. The same thing happened to Microsoft in 2011 and 12. I was buying between 17 and $21 a share. It hits 60. I said, too expensive. I sold it and now it's at 400 and some, and it's never been priced the right way for me since then. If I just let it compound and know that Microsoft's just going to do a great job winning, I'm going to do awesome. Guys, my biggest mistake ever investing was shorting Nvidia. Absolute terrible mistake. It's very well known. It wasn't investing. It was speculating. I use valuations as a timing tool. It is not a timing tool. And I'm so glad that that mistake happened. It had absolutely helped me. And I was going through changes in my life anyhow, and how I looked at money. And it absolutely helped me realize that I already have enough. Why risk what I have to make more money? Now luckily overall, we only lost like four or 5% of our net worth on that one. It's not going to make our day at all. It's going to be fine for us. We're not, no, there's gonna be no issue whatsoever, but it was painful enough because it happened so quickly that it made us realize, you know what? I don't need to hit home runs all the time. All I need to do is find some good companies and let them ride. In every single company I own right now, as of today's thesis, I believe in, even if the valuation is too high, something like a Sprouts Farmer's Market. I bought it in the low thirties, it's now at 140, got as high as 170, 180, but I didn't sell it. Old Paul would have sold it because I don't think it's worth much more than 85 or 90. But now I'm just letting the company ride because I don't know what the short run is going to happen. I don't know what's going to go on. All I know is I found a great company that manages our capital well with a long runway that can keep compounding. I'm going to let that happen. But guys, it's hard to do that. The emotions of investing are 90 to 95% of it. And guess what I do to get over the emotions? I repeat the basics over and over. Everybody in the world wants to make investing some complicated thing. It's not. As you know, I have real estate. In 08 and 09, everybody called real estate toxic assets. I was too stupid not to do that. And I was buying real estate like crazy. And I made a killing. That's what led to some of my later mistakes in investing, thinking I would be the one guy who realized everything was going to be okay. And that these overhyped stocks would eventually fall. And they will eventually fall. But timing it is a hard thing to do. But if you have a good process on investing and you keep doing these basic things over and over, you will do very well. At the end of the day, all investing is, is about determining what today's price is worth based on what you perceive the future to look like. But we don't know the future. The future is unknown. That's why we need a margin of safety. And this is why we created what's called principle-driven investing. Guys, the five pillars of principle-driven investing are very simple. One, we're investors, not speculators. What does that mean? Speculators only buy something hoping it goes up in value. Just because you buy a stock doesn't mean you're investing it. You could be speculating. Even though that stock may generate cash flow and be a very viable company like Nvidia. But if the price you're paying does not justify today's price, you've got a problem there. You're speculating. You're hoping somebody else pays a bigger price for you in the future. Two, every investment is the present value of all the future cash flows you're going to receive. So what I mean by that is this, very simply. Let's say if investments can pay you $1 a year for the next five years, okay? If you paid $100 for this investment, you're going to lose a lot of money, right? Because you present value all these $1 all the way back to here, and then the return is very big negative number, negative 75, 95%, whatever it is. I don't know what it is, but it's bad. Okay, what if you pay $1 for this? Well, guys, you paid $1. The next five years, you can get $5. That's going to be a really, really high return on investment. So what does that mean? The more you pay for something, the lower your return. At $100, it's speculation. At $1, it's a pretty good investment. Every investment is this way. You lay out a cash flow of $1, and your return is going to be on all the dollars you receive in the future. But again, we don't know what that future looks like. So it's really, really important to have a margin of safety. Number three, if we don't understand it, we don't invest in it. Remember, guys, it's okay not to invest in something you don't understand. And when I say don't understand, it doesn't mean that you're not smart enough to understand it. I look at crypto. I don't understand it. When people say, see, you don't get it, but we get it. No, everyone doesn't understand it. It's pure speculation. And I don't know how it's going to go up or down, unless it's just people demanding more of it and demanding less of it. There's no intrinsic value to it. If I can't determine intrinsic value that I can compare to the current price, I don't understand it. Therefore, I move on from it. But people take that statement to mean, oh, I don't understand tech. No, we understand there's a business. We understand there's money to be made. But if you can't understand how you're going to make money, you're not going to understand how you're going to lose money. And right now in crypto, that's the most obvious thing to me. People just see something going up and up and up, and they think that's an investment. That is not the case at all. Number four, probably the most important pillar. A great story can become a very bad investment if you pay the wrong price. NVIDIA is a great story. It's a phenomenal company. Google is a great company. Microsoft is a great company. Apple is a great company. If all that mattered was them being great companies, there should be no price that's too high. But we can all agree there's too high a price for everything. Let's make it simple. A Ferrari is one of the best cars ever made. Some would argue the best car ever made. And if you don't agree with that, pick the best vehicle in the world. Go pay a trillion dollars for it. It's too much. I thought it was the best vehicle in the world. And fifth, final pillar. In the short run, stocks are a voting machine. In the long run, they're a weighing machine. What that means is what's popular in the short run will go up. What's not popular will go down. But in the long run, the fundamentals as they get better will drive up the stock price. The hardest part about all of this is being told you're wrong. Because at the end of the day, in order to find good value, it has to be a place that people don't understand. That's what I mean by if you don't understand it, you don't invest in it. Most people out there don't understand when a company is doing well. That tech CEO was just focused on tech products. But he also was looking at the stock price of Microsoft and realizing that news follows the stock price. So he saw the stock going down. He thinks this company is bad. But he looked at numbers. He just said, wait a second. If they're so bad, why is revenue going up 8% to 10% a year and profits up 10% or 12% a year? It makes no sense. You've heard about these big wins. You've heard about the tough mistakes. But none of that matters if you don't understand why they happened. Back in 2000, one of the best investors ever, I believe he had 30 or 35 years in a row of never having a down year. And even with this bad mistake, he never had a down year. Stanley Druckenmiller was sitting there managing money for George Soros and he didn't understand the internet. And finally, he gave in and he bought internet companies. He spent $6 billion. And he said, if you go look back on it, I literally bought within hours of the peak of the market. He said in three to six months, he'd lost half that money. When they ask him now, what'd you learn from that? He goes, nothing. I knew I wasn't supposed to do that. I still did it anyhow. Remember, it's about marrying the story with the numbers. When the numbers come in, you need to understand they match the story. Because remember, news follows the stock price. As a stock is going up, the news that justifies that stock going up is going to come out. As a stock is falling, the news to justify that is falling. Prime example is Alibaba. Alibaba hit a high of around $310 per share. When it fell down to 60, as it was going down, people kept saying, oh, you don't actually own the stock. You only own an ADR. That was the way it was at 310. Why is it any different now? Oh, China has issues with Taiwan. Okay. Guess what? That was at 310 as well. Oh, but China's still communist. Okay. That was at 310 as well. The three biggest reasons why the stock was down existed at 310. But at 60, they came out. And now Alibaba's in a big surge. What's happening? Oh, people are starting to get interested. I haven't heard the euphoric talk about China yet, but there'll be a time when that does happen. Now, all this means nothing if you don't have someplace to talk about it. One of the things that helped me the most was finding people who could help me with my investing ideas. I didn't have the internet to be able to do these forums and communities and things like that. We didn't have YouTube back in the late 90s, early 2000s. My guess is that my foray into value investing would have been a lot faster if I had that. But what I like is it was on my own and therefore it matters more to me. I still repeat these same basic principles over and over. And I repeat them in the videos for a reason. It's really, really important that over the last 28 years, I show people that these are based on basic fundamentals. When we overcomplicate things, the results are less. Investing is one of the weird areas where the more you do, the less your returns. You're paid for being inactive. That's why I created this community. That's why I created these tools. All these tools were created in Excel for myself personally so that I could understand real estate deals and companies and stocks. I was able to use our stock analyzer tool, which is our most powerful, most popular tool. It's used over a million times per year to say, hey, if these are my assumptions about the future, what should I pay today? But you see how many entries there are here because it was low, middle, and high for the future. We don't know what the future holds, but we can create a range and say, is this so obvious? Alibaba was that obvious at one point. Not so much anymore. Why? Because the price has doubled. And if a price doubles and you think the investment's better because of that, you're not understanding. But that's what everybody else out there does. They see a price double, they think the investment's better. No, you've got to remember it could still be a good investment, but it's better at half the price than it is at today's price. If these things that I've talked about make sense to you, if you think that you're on the same path that I am and you want to get to the value investing portion better, you found the right place. I'm going to be here for many, many years still talking about investing because it helps keep me in check. I love doing this as a way of reminding myself, hey, Paul, these are the things you believe in. Make sure you still stick to them. I love talking about my mistakes. It's a great place, as Charlie Munger says, rub your nose in your mistakes. So if you want to learn more, you need to watch this full course linked on the screen right now, because without mastering the math behind value investing, every decision you make is just a guess and it becomes speculation. I'm going to break down all the financials, the ratios, cashflow metrics that separate successful investors from speculators and gamblers. If you're serious about building real long-term wealth, this is where the real learning begins. If you're looking to make a quick buck overnight, we're not the channel for you. More power to you. There's great ways in which to make money very quickly. I do believe that trading does work, but we're here to teach value investing on this very channel right here. So guys, if this makes sense to you, if you want to join the community, want to look at the software, click the link in the description below, everythingmoney.com sign up, and please do me a favor, re-watch this video over and over, because I assure you that learning from my mistakes is far better than experiencing them on your own from a financial perspective. But unfortunately, you have to learn from your own mistakes. I'm sure you've made mistakes. I'm sure you have home runs. Do me a favor, in the comments below, tell me your biggest investing mistakes, because I really do want to hear it, not as a way of making fun, and I want everybody to support each other, as a way of unleashing it and unloading it from yourself so you can move on from it. Thank you for your time.