My Top 5 Worst Investments

Summary

In this video, the speaker shares the top five worst investments they’ve ever made, along with valuable lessons learned. These include private companies (small businesses, tech startups, and pre-IPO stocks), bad employees (highlighting the importance of hiring slow and firing fast), whole life insurance (which underperforms compared to better investments), weak index funds (designed to benefit financial institutions rather than investors), and cryptocurrency (which is volatile and unsustainable due to high energy consumption). The speaker emphasizes making more informed, strategic investment choices to avoid costly mistakes and achieve long-term financial success.

Takeaways

• 😀 Avoid investing in private companies, such as small businesses, tech startups, or pre-IPO stocks, as they are often high-risk and lack liquidity.
• 😀 Small businesses may provide a living but are rarely scalable or profitable enough to build significant wealth.
• 😀 New tech startups are risky and often take a long time to find product-market fit, making them a poor investment choice.
• 😀 Pre-IPO stocks are speculative, and investing in them can result in locked-up funds with little or no returns for years.
• 😀 When hiring for your business, avoid hiring fast and firing slow—hire slowly and fire quickly to maintain a productive team.
• 😀 Bad employees who criticize customers, refuse to communicate, or try to take on multiple roles can negatively impact your business.
• 😀 Look for employees who exhibit 'field awareness'—they should know what needs to be done without constant direction.
• 😀 Whole life insurance is a poor investment choice, often providing low returns compared to other investment opportunities like stocks or mutual funds.
• 😀 If you're looking for life insurance, term life is a better, more affordable alternative to whole life insurance.
• 😀 Be cautious of advisors who push underperforming index funds or insurance products—these are often more beneficial for them than for you.
• 😀 Cryptocurrency is highly volatile and energy-consuming; while it can be profitable, it's not a reliable or stable investment for the long term.

Q & A

Why should I avoid investing in private companies?

Investing in private companies, whether small businesses, tech startups, or pre-IPO stocks, is risky and often lacks liquidity. Many small businesses are not scalable, and startups can take years to become profitable. Pre-IPO stocks can tie up your money for years with no guaranteed returns.

What are the risks of investing in small businesses?

Small businesses are often not highly scalable. While they may provide a stable income, they rarely offer the same wealth-building potential as public companies. The speaker recommends supporting small businesses in other ways, like providing expertise, but not investing money in them.

What’s wrong with investing in tech startups?

Tech startups are highly speculative and often require a long time to achieve product-market fit and profitability. The speaker notes that while they made some money in the past, they also lost money, and startups are not the best option for reliable investments.

Why should I be cautious about pre-IPO stocks?

Pre-IPO stocks can seem appealing because they offer the potential for buying at a lower price before the company goes public. However, these investments are risky, and the money is often tied up for years without liquidity. The speaker regretted investing in pre-IPO stocks, as the companies remained private for years and the money was locked up.

What is the best approach to hiring employees in a business?

The speaker emphasizes the importance of hiring slowly and firing quickly. It's crucial to spot red flags early, such as poor communication, a negative attitude toward customers, and people trying to take on roles outside their expertise. The speaker values employees who demonstrate 'field awareness,' meaning they understand what needs to be done without constant direction.

What is meant by 'field awareness' or 'court awareness' in hiring?

'Field awareness' or 'court awareness' refers to an employee's ability to understand what needs to be done in a business without needing to be told. They make proactive, 'heads-up plays,' meaning they anticipate and act without constant supervision. This type of employee adds value to a team by working independently and efficiently.

What are the drawbacks of whole life insurance as an investment?

Whole life insurance typically offers lower returns than market investments. The speaker found that the returns on whole life insurance were much lower than the S&P 500, making it an unwise investment choice. Term life insurance is recommended as a better alternative because it is cheaper and more straightforward.

Why should I avoid weak index funds?

Weak index funds often underperform the market. The speaker shares their experience of being pushed into index funds that didn’t keep up with the S&P 500. This led them to take control of their own investments. It’s important to choose index funds that outperform or at least match the market.

What advice does the speaker give regarding investing in cryptocurrency?

The speaker advises caution when it comes to cryptocurrency due to its volatility and uncertainty. While they have invested in Bitcoin and Ethereum, they don’t recommend crypto as a reliable investment. The environmental impact of Bitcoin mining is also a concern, as energy consumption scales with price increases.

What is the main takeaway from the speaker’s investment journey?

The main takeaway is to focus on clear, confident investing in reliable assets with a proven track record. Avoid speculative investments like private companies, bad employees, whole life insurance, weak index funds, and crypto. By learning from past mistakes, investors can build wealth with more certainty and stability.