Pragmatic Investing

In this video, we go over some basic financial advice for families including budgeting strategies like envelope budgeting, tips on investing in a balanced portfolio across assets like stocks, real estate, crypto, and more. We discuss insurance, credit cards, buying in bulk, and investing in relationships and opportunities. This is practical financial hygiene advice, not get rich quick schemes.

Malcolm: [00:00:00] This is boring, basic. Financial advice. But I feel like everyone out there is some sort of get what you couldn't do or

Simone: like we'll look at financial advice. It's people looking at all these like charts and making it really complicated and they're way above my pay grade or like way below my pay grade, but pretending to be above, which is the worst.

Would you like to know more?

Malcolm: Hello, Simone. It is exciting to be here with you

Simone: today. I'm so excited. Yeah. We're going to talk today about the most important investment of all, your health.

No, just kidding. We're constantly sick because we have kids in school.

Malcolm: So the most important investment of all is money. Yeah. The

Simone: most important investment of all, money.

Malcolm: Screw your health. That's a good, that's a good, for your

Simone: health. Burn bright, die young,

Malcolm: right? Yeah. So, it is true. The, the, the most important investment is money.

After maybe kids, I guess, like, you know, we are pernatalists, so we've got to say that matters as well, but I, you know, I don't know how much actual control you have over the outcome of that. I think that's why

you

Simone: need to have a diversified portfolio. That means a lot of kids. [00:01:00]

Malcolm: Yes. So this is actually a follow up episode to an episode that we did on how to get rich.

Where we just went over like, you know, the basics of like the actual financial world starting company and stuff like that. And I think we'll do more topics on this cause the video did really, really well and I did not expect it to do well because it's not our normal sort of a topic. But obviously something I know a lot about I should mention, you know, degree, I've got my MBA from Stanford.

Simone has her graduate degree from Cambridge. Both of us have worked in venture capital. Both of us have worked in private equity. And when it comes to investments, Simone, you had a really interesting way of framing it that you were going over with me earlier today about sort of.

Simone: Yeah. We were talking about the issue of, of many people we know who've made a lot of money through investing doing it essentially by making bets, like all tact, tactically strategically.

Statistically weren't very ill [00:02:00] advised but then paid off and then they just assume I'm a great investor. And you actually saw a lot of this happen during the pandemic. The, and I think a lot of, of poker players and coaches who like teach Bayesian thinking now who have. Really summed up this kind of thinking really well.

They talk about when they're coaching poker players and they teach them to think in, in sort of a Bayesian way to make very well considered bets which are always calculated bets. And a thing that constantly frustrates them is the people they're coaching, like they'll lose a hand and they'll be like, yeah, well, I made, you know, I made the wrong choice.

I messed up cause I lost. And they're like, no, no, no. You didn't make the wrong choice because you lost, you made the right choice, but you still lost because in the end, there's some chance involved in these bets. And the same case happens with investing. You know, sometimes you make all the right choices and you lose money, but also sometimes you make all the wrong choices and you make a ton of money.

That doesn't mean you're a good investor. That doesn't mean you, you thought through things well, or [00:03:00] had a very robust strategy. And in the end, over the long run. You're probably going to lose money if you, if you don't think in a more calculated and statistically sound manner, which, you know, is, that was what we seen, right?

You were talking about all the people, you know, who used to make tons of money. Like, I mean, they put everything on Bitcoin and now, you know,

Malcolm: Yeah, no. And I, I think that for a lot of people, and this is a great, like evoke set, look at your friends who are bragging about what great investors they were during the Bitcoin, the last Bitcoin bull run.

And, and we're believers in Bitcoin, but I think that a lot of people over invest in single assets because it's an asset that they have built a portion of their identity around, and this is something we increasingly see in investing, whether it's in the crypto space or whether it's in the you know, like, you

Simone: know, it's just a stock, like a stock people really identify with, more like an industry people really identify with.

Yeah.

Malcolm: And, and this is. It's something that in the short term, when I look at these people who are all bragging about [00:04:00] this in my like Facebook feed and stuff like that they are not bragging much anymore because. What ends up happening very frequently is somebody makes one of these ill advised bets.

It pays off. They now think, oh, I can make like an income investing. So then they start doing like really idiotic stuff like leveraged investing and stuff like that. And hold on, I'm gonna explain what I mean when I say leveraged investing is idiotic stuff. So, During bull cycles, this is something that always happens.

Somebody accidentally makes some money investing. They think, well, if I make that amount of money investing every month going forwards, then I don't need to work anymore. How can I make more money investing? And then of course, they find out about leveraged investing and they go, Oh, so this is just like a thing where like, if I'm really Smart about my polls and my puts and everything like that, right?

Like I can regularly on average make money through this investing thing. And that is true for some [00:05:00] people. We have some friends who just make astronomical amounts of money through this kind of investing. Yeah. Every single one of them. Is the type of person who did math for fun before getting into this.

Yes. They were all like theoretical math people from like MIT or like programmers who do a lot of programming or like AI stuff for fun. The people who do this well, who can actually make money with this sort of investing as an income stream. These are individuals who Just have an enormous love and talent for a specific kind of math.

If the reason you are going into leveraged investing is because you want to make money, you will fail. Maybe not the first time, but eventually you will fail. It is not a good, reliable stream of income, it is gambling. It is just gambling and you can make money [00:06:00] gambling. But most of the people who make money gambling are math nerds.

They're not like a gambling nerds. I mean, there's, there's a few, you know, obviously like, like people who are just like uniquely good at gambling, gambling, but when you talk about the people who the casinos are afraid of, they're the math nerds, right? And so if that's not your thing. Don't go into that field as a safe source of income for you and your family.

So we're starting with like some of the things you shouldn't do. And as Simone pointed out, and I actually you know, I was, I was talking with some of my friends after they, they made a bunch of money on Bitcoin. I was like, so you're