My Life in 4 Trades: James Altucher's Wrenching Journey

26:10And so I saw these closed-end funds that had like 15%, 20 % dividends, which was unreal, and were trading at a 30 % discount to what is called their net asset value. So it's as if someone had a wallet with$100, but he was willing to sell it to me for$70. That is actually, I'm not even making an analogy. That is actually literally what it was. And the reason was is because mutual funds were liquidating. So anybody who owned these closing funds were liquidating no matter what the price. And that was driving the price down, even though it was irrational. By the way, this is the strategy. This is the exact strategy Warren Buffett used in the 50s and early 60s.

26:50This is very Benjamin Graham style. It's called cigar butt stocks where Warren Buffett would say it's as if you found a cigarette on the sidewalk and you could pick it up and it still had one puff left. And so that's what these closing funds were. So I bought a whole bunch of these closing funds that not only did they have a discount that would eventually close, they wouldn't have such a large discount anymore, but they were at 20 % dividends or 12 % dividends, ridiculous dividends. And eventually they all did come back. So it took a while. I owned them for about a year and a half, and it was a very good trade.

27:28Do you think that your experience, especially, you know, we talked about 9-11, about not understanding risk and about just relying on programming. And, you know, the great financial crisis was a very, again, traumatic time for people. Do you feel like the experiences you learned that time around helped you out in this situation to be able to? Oh, yeah, absolutely. For one thing, I didn't just blindly rely on my software, which is what I was doing in the 9-11 situation. The other thing, I did not use leverage. Now, I did invest quite a bit because these were very irrational situations, but I did not double down on anything.

28:04I instead kept looking for more and more irrational situations. and I legged into these trades over a period of a few months. I'm not saying, by the way, it wasn't scary. Again, at that time, I was no longer doing a hedge fund. I was day trading my own money and I was perilously low. But because I was managing my risk a little bit better and I understood I needed to be able to wait this out, not just a few hours or a few days, but potentially six months to a year, I understood that that was the timeframe of these trades. I managed my risk accordingly. So I knew it was a good idea, but I just needed to understand what the risks were.

28:48And the risks were is that, as John Maynard Keaton said, the markets could remain irrational longer than you could remain solvent. So I had to make sure I remained solvent. Yeah. So did you feel that after this, and this ends up being a winning trade for you and you do well off of it, did you feel like you're on more solid footing? Do you feel more confident about your skills? What was your takeaway from that? Yeah, I was very confident in my skills, but by then I had earned it. Then I had been trading professionally for almost a decade. I had written about four or five books on investing at that time.

29:27When you write a book on investing, you have to do a lot of research. I wrote a book about Warren Buffett, so I had to really research every trade. I did a book about Warren Buffett's early trades, not his famous trades like Coca-Cola and all those, but when he was trading as a beginning hedge fund manager in the 50s and 60s. It's not widely available, like his letters that he was writing then. And so I got a hold of some of his private letters that he was writing then, and I studied every trade. And I think that helped me a lot as well.

30:02So your third trade is pretty soon after that. And it's July 4th, holiday, national holiday here in the US, 2010, debating Noriel Roubini on CNBC. How did this come about and why does this feature as one of your trades? Starting in March 2009, the market started rebounding permanently. I mean, it's never gone that low again. So the market started rebounding. But then in June, July of 2010, a year later, the market, I don't know if we reached bear market territory, but the market fell about 20%. And everybody was saying, it's over, the bull run, the bounce back from the 2009 was over, and now things are going to collapse.

30:45But I was really strongly bullish. I had a long term portfolio at this point. I didn't add to it, but I wasn't selling it. And I was writing quite a bit that there are many reasons to be bullish. Apple was trading for something like six times earnings. And they were putting out the iPad and selling enormous numbers of iPhones. There's no reason for it to trade for six times earnings. There were a lot of stocks like that. Also, in 2008, 2009, there were these huge bailout packages. And the economy, it's not like the economy, when there's a stimulus package, like let's say how there was in COVID, it's not like the economy reacts to that in one day.

31:28It takes 12 to 18 months for that money to filter through the economy. So we hadn't even really seen the positive effects of the stimulus packages from 2009, because it was only 12 months later. Maybe we were just beginning to see it. And there's also a lot of subtleties and nuances to why the financial crisis happened, why there wasn't going to be another financial crisis. The banks had more money in reserves than ever they had before. There was more regulation about, you know, what kind of derivatives they could trade. Things were good. And there was no reason for the market to go down. I was more confident about this than pretty much any other trade ever.

32:06And so I go, so CNBC asked me to go on because I've been writing on in the Wall Street Journal, the Financial Times and other places that this market is going up. It's down irrationally. And Nuri Robini is on there. He's known as Dr. Doom because every other day he predicts that the market's gonna collapse and every now and then it does collapse and he's right. And so he was on and he was saying the market was gonna go down another 20%. And I was saying, well, how could that be? Is Apple gonna trade for three times earnings? Like is Microsoft gonna trade for one times earnings? Like it just didn't make any sense to me.

32:41There was a lot of cash. The S &P companies have more cash than they ever had. Their earnings were at all time highs. there was just no, and there wasn't anything bad politically happening. Like there was no, there wasn't like a war, you know, I mean, there was wars going on, but it wasn't like in the news the way, you know, there was nothing happening in the world. It was just the market was taking a breather in the summer. And I was a little bit lucky there because, you know, that was on July 4th, July 5th, the market was open and the market started going up then. I think it was around a thousand.

33:14The S &P 500 was about a thousand. The market has never hit a thousand again. So it was always, I always remember because there's a video of me debating Rubini and he was so totally wrong and I can't stand how he's so bearish just because that's what sells newsletters for him, I guess, because people buy newsletters to know when to panic and panic sells more than, basically fear sells more than greed. And I'm always an optimist on the market. Like every year, things are better than the year before. Even now, we've had COVID, we have pandemics, we have wars, we have all this stuff. But there's so much innovation happening in the United States.

33:55It used to be in internet tech, but now it's in biotech and genomics and energy alternatives and crypto and automation, you know, all these amazing innovations. Do you think your technology background enables you to see that innovation potential in a way that other people may be more skeptical around? Because we do have a big pushback now, you know, there are people who think it's this 1970s again. In terms of my technology background, no. But what does help is reading a lot. So even if you don't read like the news about innovation, there's a couple of good books to read, like a book called Abundance by Peter Diamandis.

34:38He describes all these exponentially growing industries. There's a book by Matt Ridley. The Rational Optimist is a very good book. It basically just shows how things tend to get better all the time, even though it doesn't seem that way. Like Steven Pinker, for instance, has a great book about the history of violence. and this is going to sound like an odd statistic, but every century since the dawn of civilization has had less violence than the century before. And so you think last century, oh, we had atomic bombs, we had World War II, we had World War I, Vietnam, Korea, but per capita, deaths from violence were less a percentage of deaths than the 19th century, which was less than the 18th century and so on.

35:26So things do have a tendency to get better, but sometimes it's people don't see that. Yeah. Do you think we're overly fixated on the negative right now? We're always overly fixated on the negative and for strong evolutionary reasons. If you were passing a bush 200 ,000 years ago and you heard some rustling in there, you're not gonna say, well, probably it's just the wind. You're just gonna take off running because it might be a lion. So the humans who were like, it's nothing. They have no descendants, those humans. So we, the humans that live now only are descendants of the ones who ran all the time because they correctly were afraid.

36:12And so fear is a much stronger emotion than rational thinking.

36:20Your fourth trade and final trade is a really interesting one because it is in this kind of bold new area where there are plenty of people who are fearful, who are negative, who are doomsayers, who think this is just the riskiest, most terrible thing in the world. And that is in the area of cryptocurrency. So your trade is setting up a Bitcoin store in 2013. So give us the backdrop for this. So I used to have these Q &A sessions on Twitter. Every Thursday, I did this for six years. Every Thursday from like 3.30 to 4.30, I would have anybody could ask me, I had a lot of readers. Anybody can ask me questions and I would answer them.

36:55And a lot of people were asking me about this new thing, Bitcoin. And I remember in March, 2013, I said, oh, Bitcoin's a scam. Like I didn't trust it. Like, what is it? It's not anything. And so Naval Ravikant, who's really an investor, he started AngelList. He started a bunch of companies. He's an early investor in Uber and Twitter. He calls me up and says, no, no, no. Bitcoin is the real deal. I'm going to be in New York. Let's get together. And so he spent the day. He had a whiteboard up. He spent the day explaining to me from Bitcoin. And I was blown away. I had no idea anything about Bitcoin.

37:33So I changed my mind. And sometimes people said, oh, no, you said this in March 2013. Well, people change their minds. I learned new information. They learn, they evolve. I learned new information. And then, of course, I didn't just stop my education there. I've been learning about crypto every day since. I mean, and this is not a crypto podcast, but we haven't even begun to see the ways in which crypto is truly revolutionary and is going to change the economy. And that's another topic. But at the same time, I was writing a book called Choose Yourself. And this would be my best-selling book. This would end up being my best-selling book ever.

38:10And I was self-publishing it and doing a real, I was doing what I call professional self-publishing. Like I hired a cover designer. I hired really good editors. I hired a marketing firm. I was really doing it as if I was a real publishing company. And one of the things I did was a month before I was releasing it on Amazon, I created, because I have a software background, I created my own store where I was selling the PDF of the book, Choose Yourself, for 0.1 Bitcoins. I think Bitcoin was about$100 then. So it was about$10 I was selling each PDF of Choose Yourself. And I launched this store. I wrote about it.

38:53And about 60 people paid 0.1 Bitcoin for the PDF of Choose Yourself, which now, looking back on it, they spent$2 ,200 for a PDF file. And I ended up with about six Bitcoins. And that's the first Bitcoins that I owned. And that was a successful trade. Which, by the way, I did for the wrong reasons. I didn't think it would go up to, I didn't know where it was going to go. I was just, I believed in the technology and I believed this was going to be game changing. But I wasn't really a speculator. I didn't buy any Bitcoin at that time. I just, I had Bitcoin from this. But I remember at one point, CNBC had me on and I forget who the anchor was.

39:35And the anchor said to me, did you, so we talked about crypto and Bitcoin a little bit. And then he said, did you just do this though as a marketing stunt? And I said, well, it got me on national TV, so it worked. What do you make of the fact that people seem really tribal about this topic? I think more than any other asset, the people who hate it are just really visceral. It feels personal. I feel like people read enough and learn enough to be dangerous. So I was talking to somebody who is a well-known investor, businessman. this was on my podcast. So I can even say his name is Kevin O 'Leary, Mr.

40:17Wonderful on Shark Tank. And by the way, he has a great Bitcoin oriented company called WonderFi, which I do believe solves a lot of the problems of ease of use in the crypto world and so on. But he was saying to me, for instance, that the Ethereum merge is never going to happen. He said that the Ethereum merge is never going to happen. And it just showed me he doesn't really read what the developers are saying in their personal blogs. He doesn't really read the discords and the message boards where the developers are actually testing the latest code and all this stuff. But I do read that because it's a very complicated topic.

40:53I don't understand all of it, but I want to learn as much as possible. And to me, it's pretty clear the Ethereum merge is happening. Well, whether you believe that or not changes your investment bias. And some people feel very strongly one way. And so other people feel very strongly another way. And you're right. I think they get tribal about it and they refuse to learn more. Like I have one friend who says, tell me something Bitcoin or Ethereum can do that you can't just do on the internet with regular software. And so I described something to him. It's not important what it was. And he was like, let me think about it.

41:30And the next morning he wrote a rebuttal to me why it wouldn't work. and I wrote a rebuttal back, no, this is why it's going to work. That problem's already been solved. If you read this stuff, you would know that. And then he never wrote to me again. So people like stay in their lane rather than accept new information. And it's very important with investing to be able to change your mind and to accept new information. You make money by changing your mind at the right moments. Like every time you change your mind is going to be a money-making moment, but you have to be open to it. You can't just have one philosophy.

42:02For instance, I might be dangerous because I'm an optimist about the world and the economy. And every year, people say, this is it. It's over. The world is over. Every year that happens. And then the world's never over. It's like last election. You would hear all the time, this is the most important election we've ever had. Well, I went to newspapers.com and I searched in every election year since 1820, Newspapers have called that election the most important election we've ever had. So people just repeat themselves over and over again on their negativity, and they just refuse to learn from the past.

42:41So what was your takeaway? What was your lesson from this trade, do you think? Because clearly, I think you view this as a positive trade, as one of your best trades, right? Yeah. So my takeaway is that, A, it's important to be able to change your mind. Again, a few months before I built this Bitcoin store, I very publicly called Bitcoin a scam. And people have never let me forget it. Like, people think it's embarrassing to me. Look, here's a copy of the tweet from March 2013 where he called it a scam. And now, nine years later, he likes it. So what? Like, you should be able to change your mind on occasion.

43:16Warren Buffett famously changed his mind on his entire investing strategy when he bought American Express. And he put a third of his portfolio in American Express when they were in the midst of a bit, what's called the salad oil scandal. and it looked like American Express was going to go bankrupt, but he did something he never did before, which is he bought a company based on its perceived brand value as opposed to its actual assets in the bank. That's the first time he ever did that. And that's what made him his billions ultimately is that change in approach. So changing your mind is very important in investing.

43:50Not every day. You need to be consistent, as consistent as possible. But if new information comes in and smart people educate you. And again, you're the average of the five people you spend your time with. The smartest person on the planet in Bitcoin educated me on it. And then I continued my own reading and I changed my mind. So that's very important. The other thing is, you know, some people are value investors. Some people are growth investors. Some people are arbitrage investors. It's very important. Some people buy real estate. It's very important to be open to every style of investing. It might become a time when the stock market's going down, but baseball cards are going up.

44:30And there are exchanges for baseball cards. There are exchanges to buy shares in farmland, which has its own trends. Yes. I spoke to somebody who has one of those companies. Yeah. Or sometimes, you always want to be open to new styles of investing and learn about them. And that's another thing I had to do with crypto is that it's not like buying stocks. It's a different beast. So do you feel more fearless in your investing now or wiser? How do you categorize where you're at right now as you approach different opportunities? I think I feel more discerning. Like I don't, it's very rare that I make any investment now.

45:16I mean, investment has to be really good. And it's not because, oh, I don't need to invest. You always need to invest and provide for your family and do things and so on. So I do look for investments, but I would never day trade again. That I would never do. Just for this, I don't have the psychology for it anymore. I'm too old. I would have a heart attack and die. I was reading about this woman who's 97 years old, who when she was four years old, she was a prodigy. and she studied, she's the only living person who has studied under Rachmaninoff, who was not only a composer, but the greatest piano player of his time in the early 1900s.

45:56And he said, play me a piece. And she played a piece for him that for anybody else would be impossible, like some Chopin etude. And he said, that's horrible. And she said, how could it be horrible? I've been practicing this for three weeks. And he said, come back when you've been practicing it for three years. So you have to really know something to do it. And you have to really know the asset classes very well that you're investing in before you trade. That's so interesting because you're talking about mastery right now. You're talking about mastering something, not just casually hearing about it.

46:35You're talking about spending the time, having the growth mindset, being willing to make mistakes to actually master something. You should not invest professionally, which means for other people or for yourself to make a living. You should not invest professionally until you have mastered it, which means you have to invest a lot, but just in very small amounts until you've really mastered it. And then you have to master every asset class you're going to be investing in. Like I'm not going to buy a bunch of apartment buildings to rent out the apartments if I don't really understand everything about real estate investing, which is an area, quite frankly, I'm weak on.

47:10I know people today, adults who invest millions of dollars, who say a stock is cheap because it's trading for$5 a share, but another stock is expensive because it's trading for$300 a share. And I'm like, that's not how stocks are expensive. What's the market cap? What's the price over cash flows? What are those cash flows made out of? Or what are the customers? What are the write-offs? What's the debt? A lot of people make decisions based on price. I make decisions based on what is the story that I believe in here? Is this company going to do well? Is this crypto going to do well? Is this area of the United States going to do well?

47:50And as long as the, I have what I call story stops. As long as the story doesn't change, I'm not going to double down, but I'll stay in the play. Yeah. So discipline and patience. You also talk about, your blog is great, by the way. I just was poking around and there's just so many great things in there. but you talk about a daily practice for success. And I thought this was interesting because it's not trading strategies. It's not specific, which I think everybody wants the answer, right? They want sort of like the kind of guidelines. Yours are much broader. And they talk about things that really don't have anything to do with money, physical, emotional, spiritual, mental.

48:28I think that's so interesting. How did you come to that? Could you just talk a minute about that? Mindset's everything. So how do you have a good mindset? you have to have energy. At night, we go to sleep because we run out of energy for the day. You shouldn't do investing when you're real tired. So physical health gives you physical energy. Emotional health, if you're arguing with your spouse all the time, you probably are not going to have enough energy to write a book or compete in a sports event or invest or do whatever it is that you want because you're competing against really good people who have the energy.

49:05So emotional health is important. Creative health is very important. That's why I write these 10 ideas a day. So I know I'm going to, you know, some people think lightning's going to hit when they have the right idea. Lightning doesn't hit. You have to earn the ability to have good creative ideas. And then spiritual health, you know, that's not about religion. It's just like, okay, I can't really control. I have to surrender to what's happening. It's too bad this one company went to zero. I was invested, but I've got to move forward. I can't cry about it for more than a day because I got to live my life.

49:41And so it's a very selfish thing, this daily practice, because it's the only way. I play chess. I'm a nationally ranked chess master. And I took a 25 year break and I've recently started playing in tournaments again. And it's very visceral how much energy when I was in my twenties, I had so much more energy than now. Like I have to really plan how I'm going to, in the middle of a tournament, how am I going to replenish my energy? Because all these little kids now who have taken over the game, because that's how they're getting into college these days is they have enormous amounts of energy and I got to be able to keep up with it.

50:24Well, James, we've loved having you today. This has been an amazing conversation. Thank you so much for being on the podcast. Thank you so much. And again, congratulations on such a fascinating concept. It reminds me of, I remember I ran into these podcasters in the studio and I said, oh, what's the name of your podcast? And the name of their podcast was Denzel Washington is the greatest actor ever, period. And so every episode was like another Denzel Washington movie where they would introduce, they would interview extras and cast members and, you know, critics. And it was just such a fun filter for a podcast.

51:00And this is like a fun filter. James, thank you so much. I hope we get to meet in person one day. That'd be so fun. Yeah, eventually. I'm sure we will. Hey everybody. Today's Real Vision Daily Briefing is sponsored by Engrave, maker of the coldest hardware wallet, Zero, and stainless steel backup Graphene. Engrave brings you the highest security in a touchscreen

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