How Millionaires Invest Their Money Differently Using 3 Major Rules
Wealth comes to those who manage and invest their money differently than others. Tony Robbins the famous personal development coach, J.Kyle Bass the hedge fund manager who predicted the 2008 financial crisis, Richard Branson the famous self-made billionaire and founder of virgin group, and other entrepreneurs like the ones on Shark Tank, like Kevin O’Leary, Mark Cuban, they all have something similar using very common three different strategies.
Strategy 1: Asymmetric Risk/Reward
The first thing they do is invest in Asymmetric Risk/Reward ventures. In simple words, they look to minimize the downside while maximizing the upside as much as possible.
Tony Robbins for instance, in his book Money Master the Game was looking for a place for his mother-in-law to live as good of a life as possible, as someone who needed constant care in her old age. He wasn’t always satisfied with the results of many different senior care living facilities. after doing some research there was a big problem in the amount of needed space and care of retiring people with conditions such as Alzheimer’s and dementia.
If you look at a post by Health Services Research, you’ll notice that by 2030 there will be basically double the number of retirees needing senior care in facilities like these.
Baby boomers are going to retire off at a rate that will make it difficult to provide proper care for all of them. They are retiring at a rate of around 10,000 per day and it will only get worse in the near future.
So, Tony Robbins saw an opportunity not only to find the best place to care for his mother-in-law, where she would enjoy the last few decades of her life but also to invest in great senior care facilities and even help build them himself.
One of the great things he tries to do is invest in a thing that is almost impossible to fail as more senior care is needed and the rising amount of retired baby boomers that need content care increases.
Tony Robbins in his book Money Master the Game talks about how he started to invest in building great facilities and in the opportunity of making a large profit from something that is only going to keep rising in the future. Which is the industry of senior care with it the risk seems mitigated because we know that the number of baby boomers out there that will need care that cannot be provided by their family members who aren’t qualified to give it will keep increasing? So, investment in this area almost seems too perfect to ignore.
Another example of Asymmetric Risk/Reward also mentioned in the book Money Master the Game is from a hedge fund manager named J.Kyle Bass who predicted and effectively bet against the US sub-prime mortgage crisis in 2008. For more information on that, you can watch the movie “The Big Short” which explains pretty much everything you need to know in a couple of hours about what happened and how terrible the 2008 financial crisis really was.
As someone who has been a very successful hedge fund manager, a story he outlines in the book Money Master the Game “How to take as little risk possible while maximizing the reward”. One thing he did was invest in nickels, he put millions of dollars into nickles because like pennies, years before nickles had actually become worth more in their melt value and what they were made of the than the 5 cents that they are worth in the economy.
Eventually, they’ll have to make nickles in a lower-cost way to continue to make them worth 5 cents.
Something similar happened in the past with the copper that was used to make pennies because the melt value is worth more than the economic value of the Nickle. There’s pretty much no way that this could be a bad investment and J.Kyle Bass knew that he could put as much money as he wanted into nickles without having much risk of losing any value in the future.
These were two examples of Asymmetric Risk/Reward, Maximizing the upside while minimizing the risk.
Strategy 2: Minimize Downside/Exit Strategy
The second way many successful millionaires and billionaires invest is by minimizing the downside and not making too much of a commitment in the beginning. They always seem to have an exit strategy if needed.
One example of this is Richard Branson, who has an already successful billionaire and owner of The Virgin Groups he had a bad experience on a flight and decide that he might want to create his own airline company.
In an article by CNBC entitled “How Richard Branson started Virgin Atlantic with a blackboard selling 39 dollar flight”. He covers the story about how he had a bad experience and decides to call up a Boeing representative named RJ Wilson to make a deal to acquire planes to start an airline company that he would run his way, which would create a better experience than he had in his past flights.
Branson convinced Rj Wilson on the idea and how he would do it and he convinced Boeing to wheeze him secondhand 747 aircraft for a year and if Virgin Atlantic did not do well he could send them back without having to pay the full price.
This is just one example of minimizing the downside and having an exit strategy when investing in new business.
Another example of this strategy is Tim Ferriss. When thinking about investing in a new business idea where he would have a podcast and interview interesting successful people, finding the habits and routines that they used to succeed. Tim Ferriss wasn’t completely sold that it would be a long-term fit. So, he promised to do six podcast episodes, he scheduled them out with interesting guests and decided he would see how that went first before the community to anything beyond that.
He later became was probably by far the most successful business venture he’s ever done outside of startup investing he had an exit strategy he committed to only a short period for his new business if it failed he would have learned but it succeeded and now he still does it years later 20 this day.
Something similar happens with Virgin Atlantic and Richard Branson.
Strategy 3: Invest In What You Know
The third strategy many millionaires and billionaires use when investing their money and business ventures, stocks, real estate, or anything else if they invest in what they know.
One example of this strategy is Joe Rogan, not really known as an investor but has been a successful comedian, TV show host of Fear Factor, and podcast host of the Joe Rogan Experience. He invested in a company called on it, Onit.com is a fitness and nutrition company all about optimizing the human body through the best strategies and tools.
Jocko Willink also not known necessarily for being an investor but for his leadership, he was a Navy SEAL Commander, now has his own podcast, and has invested in different companies to make himself very wealthy. One of which is victory MMA and fitness Jocko Willink probably knows more about combat than just about anybody you’ve ever met.
As Navy SEAL Commander and a jujitsu expert, he invested in his own jujitsu gym because that’s what he knows and in his interviews with Joe Rogan you’ll find out that, that is all he invests in is the things that he knows that best.
Another example of this strategy is the Shark Tank. Many of these investors come from different backgrounds but all are healthy in their own right.
Barbara (Barbara Corcoran) built a very large real estate business, Mark Cuban built a very large internet business, Daymond John built a very large fashion business, Lori Greiner built a very large sales company.
These sharks tend to invest in the startup based on what they feel they have the best connections to and that they know the industry best.
For intense, Mark Cuban might invest in many different tech and fitness companies, Daymond might invest in thing related to fashion and Lori might help small household items get sold, for the four different startups on the show, they invest in what they know the best and where they have the most connections (watch any episode of Shark Tank you’ll see the trends).
Last but not least Kevin Rose founder of digg.com and a very successful startup investor and app creator, in an interview with Tim Ferriss, outlines some of the things he thinks about when considering the investment. He invests in things he understands but not in things he doesn’t understand.
For instance, Tim Ferriss show 408 he talks about how he missed out on investment with Netflix. He could have made millions of dollars off that by being an early investor but simply admitted that he did not understand why the business would succeed. So, he passed and does not regret it because he had so many other investments that he was more comfortable taking because of his background and because he knew them better based on the industry knowledge he had.
He didn’t invest in Netflix because he didn’t know the industry as well or the business model either.
You can apply these 3 strategies in your any type of investment when you’re trying to start a startup.
You can use these financially with your money and also you can use these with your time investment and effort investment as well.
Many of these strategies can be traced to books like Money Master the Game, podcasts like The Tim Ferriss Show, and TV shows like Shark Tank but these three strategies of looking for opportunities with “Asymmetric Risk/Reward, Minimizing the downside and having an exit strategy, and investing in what you know the best” are three of the main strategies I found in common among the world’s most elite entrepreneurs and investors.
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