MI Rewind: Road to Becoming A Successful Entrepreneur w/ James Altucher

0:00You're listening to TIP. Hey guys, on today's show, we're resharing some of my favorite episodes from the past for a few reasons. First, we get a lot of new listeners each week, so new listeners may never have heard this episode before. Two, even if you've been listening for a while, you may have missed it when it first came out. And three, even if you've heard it before, it can be a great episode to reinforce your learning. If you're not interested in this episode, no worries, you can pick back up with us next week with a brand new episode. Everything going forward is from the original episode, and I hope you guys enjoy this one.

0:31On today's show, I talk with James Altucher. James is a prolific writer, a successful serial entrepreneur, chess master, and venture capitalist. James has a very colorful history throughout many facets of the finance industry. He has successfully started and sold various companies, and James currently invests in or advises over 30 companies in multiple industries. Without further delay, let's jump right into today's episode with James Altucher. You're listening to Millennial Investing by the Investors Podcast Network, where your host, Robert Leonard, interviews successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

1:22James, welcome to Millennial Investing by the Investors Podcast Network. your background is so interesting and covers many different avenues. Talk to us about your background and how you got to where you are today. I think the age of specialization is over. The days when you would just major in electrical engineering in college, and then you become an electrical engineer for the next 40 years, and then you retire, that's obviously over. I think that's been over for a while. But I think people now are used to switching careers and opportunities and passions very frequently. And so I almost am like, for better or for worse, a little bit of a test case in that.

2:04I did major in computer science. I went to graduate school in computer science. I was a programmer for a while. And then I worked for HBO, the television company. I shot a TV pilot. I started a company building websites for entertainment companies. I ran a venture capital firm. I ran a hedge fund. I started writing about investing and I wrote many books. And then I started writing about more self-help motivational stuff. So what happened was is that after I sold my first company, made a lot of money, I went dead broke. Then I made money again. I went dead broke. I made money again. I went dead broke.

2:41Finally, decided to be transparent about it and write about what I had been through and how I was back and also various depression that resulted and each time how I had to kind of bounce back. So I started writing books on that and that kind of changed careers a little bit. So this is like fourth or fifth time I'm describing a career change. And then it keeps moving on. I've started other companies. I've invested in other companies. I'm a co-founder of many companies. I've written all sorts of books ranging from self-help to a little bit more literary to finance. I've written columns for almost any topic under the sun.

3:20I've written for financial newspapers, yoga journals, Wall Street Journal, Financial Times, TechCrunch. I've done a lot of different things. Oh, and I own a comedy club. And for the past five years, I've done stand-up comedy most nights per week. On your website, you mentioned you were one of the few people in New York City that knew how to code a website back in early 1994 when you were just starting your career in web services and the information technology industry. What was the internet space like back then, and what inspired you to enter the uncharted world of the early internet? Well, the internet has been around for a long time, since like the early, since like 1971 or 72.

4:01And then the web on top of the internet started around 1991. I didn't start using it until maybe 92 or 93. And I got obsessed with it. I thought, But wow, this is this new artistic medium. It's like you don't just write a straight novel. Now you can have hypertext to other stories or other pieces of information. I just got obsessed with the three-dimensional nature of text and images. And that maybe this is... I didn't think of it as a commercial medium. I thought maybe this is something I... I was very interested in writing novels at the time. I thought maybe this is a new medium I can learn how to create with.

4:39And I was a programmer. So the combination of these two interests, the web as a creative tool and programming and writing, the combination of these three interests made me learn everything I could about web development. And so when I moved to New York City, nobody here even knew the web existed. And I would explain to people, oh, no, this is a new thing. That's it's going to be very popular. Nobody's really using it right now, but it's so amazing. Eventually, everyone will be. And this shows how little I understood about business, because if I understood anything about business, I would have built like, I don't know, even a search engine back then or something.

5:13But instead, I didn't have any money at all. I had zero dollars in the bank. I couldn't just, I didn't know anything about raising money. I was a computer guy and I was trying to write the great American novel and I was busy working at HBO during the day. So I convinced a couple of people, hey, maybe you need a website. And I convinced HBO, maybe you need a website. And there was no competition. There was maybe, I would say, I could name them, the four or five people who knew how to program, and I do mean program, but how to program a website from scratch back then. There was no WordPress. There were no tools to make websites.

5:44If you made a website, a basic website used HTML, but if you wanted any functionality, you had to program in C or C++ or a few years later, Perl to make a website functional. And then you had to understand Photoshop and make designs. There weren't massive archives of images and logos and public photography to use. You had to make the images. And so very few people knew how to make a website back then and make a functional one because also the web didn't really work that well. Browsers didn't really work. So we're kind of all figuring it out at the same time. And it was exciting. It was fun. It was exciting.

6:22We all knew each other. First, all of us as individuals were making websites. Then we all had companies and we all knew each other and we all went to the same parties and we all hung out together. Even though we were to compete to the death during the day. And it was ruthless, but it was an exciting time as well. During your intro, you mentioned that you had made a lot of money and then lost it and then made a lot of money and lost it. Talk to us a bit about those times when you lost it all. I sold my first company. And again, I knew nothing about business. If I knew something about business, here's an example of how I knew nothing about business.

6:56One time we were doing a little website. We were doing americanexpress.com. And it was the very first website they ever made. And it was about 60 ,000 pages. And because there were so many pages, I wrote software that basically made all 60 ,000 pages. I made some templates. And not only that, I allowed the people in each department of American Express, I set up little message boards behind the scenes for every page where they could send, they could communicate, oh, there's problems with this page or problems with this page. And they could talk with each other and do quality control and so on. But I didn't tell them I made this software because I didn't want them to think it only took me a few minutes to generate all 60 ,000 pages with the software I wrote.

7:38So I was like, oh, we worked for weeks, hour after hour and hired all these people, made 60 ,000 pages. Well, what I forgot to realize is that a software company is valued so much higher than essentially a glorified ad agency, which is what we were when we were building websites. We were an agency. And agencies get valued at maybe six times earnings. Software companies get bought for hundreds of millions before they even earn money. So if I was just smart about business, I would have said, no, I'm a software company. I'm a software guy. I'm a tech guy. And I would have sold to some big company.

8:12Like, let's say, Yahoo was the biggest internet company back then, or Lycos, or one of these early internet companies. So instead, sold the company, still did well, made about$15 million for myself personally, cash. I knew this was crazy, so I cashed out when I could. And then I said to myself, well, I just achieved the American dream. I must be the smartest person in the world. So I poured all the money back into stocks. And I also made a lot of investments in private companies, and I just didn't know what I was doing. I wasn't an investor. I was a computer programmer. I was a writer. I was somebody who loved working at HBO.

8:51And I didn't know anything about investing. I mean, this was like 1998, 1999. And so eventually, I lost every dime. Went from 15 million by low point, give or take a few pennies. I looked at my checking account one day and I had$143 left. That same account, maybe a year and a half earlier, I'd had$15 million in it, cash. And I was just so stupid and so unreasonably confident. And I was confident because I thought I was smart and you should always never think you're smarter than the entire world. When you invest even$1, you're competing against the entire world. They're on the other side of your trade.

9:31And I should have been a little bit more humble about learning and studying and being a student of the market, something I didn't do until later. And I should have just focused on, oh, I made all this money. Now maybe I can have an impact on the world. Maybe I can do the writing I wanted to do. And maybe I can work on myself and improve in other ways now that I did all these years of business and programming and so on. And I was tired, but instead I was stupid. And then every time I made money, I kind of went through the same process where essentially there's three skills to money. There's making it, keeping it, growing it.

10:06And at first, I was very good at making it. I would make it. I'd lose it. I'd make it. I'd lose it. I couldn't seem to keep it or grow it. And that was a problem. That went on for something like 11 years. It's very frustrating that I started another business, sold that for 10 million. I did some deals and investments, made a million here, made a million there. Each time I thought I was real smart. I thought, that's it. Done. I'm now smart again. And then I would blow it. And it occurred to me, Whenever I was going up, I was doing similar things and had similar habits. And whenever I was going down, I would forget to do those habits.

10:42So the habits on the way up, I was very focused on what I now call a daily practice. And this is something I try to focus on every day. I try to improve in four different ways. Physical health, emotional health, creative health, spiritual health. So physical health is sleeping well, eating well, exercise. Emotional health is trying to improve the relationships around me, my family relationships, my friend relationships, and my business relationships, creative health. I try to exercise my creativity muscle. I write down 10 ideas a day, and I also do writing every day. And spiritual health doesn't mean like prayer or meditation.

11:16It just means having awareness of what you have control over in your life and what you don't have control over. So you can't do anything about the things you don't have control over, but you can try to make better the things you don't have control over. And that helps you kind of relax and have more sense in your life. Let's take a quick break and hear from today's sponsors. Even Einstein had blind spots. That's why modern science is built on the idea of peer review. Investing may be more art than science, but that doesn't make peer feedback any less valuable. The tricky thing is finding qualified people who are interested and willing to help vet your investment ideas.

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12:26That's theinvestorspodcast.com slash intrinsic value community. Support for the show comes from public.com. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi-asset portfolio for the long haul. stocks, bonds, options, crypto. It's all there. Plus, industry-leading yields on your cash with no fees or minimums.

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14:11To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. My guess is through all of those ups and downs, you probably learned a lot. So what advice do you have for today's entrepreneurs that may be on a similar volatile rollercoaster as they strive for their own success? Well, it's really interesting because I feel like a lot of people want to be entrepreneurs. And you get all this self-help advice about you can do it.

14:56Everybody's got a business inside them. If you just work 100 hours a week, I don't really know if that's true. And I'm not saying advice like that is totally bad. If you're passionate about something, then yes, if you have the energy, work 100 hours a week. Respond to every email. Respond to every comment. Study the industry. Study all your competitors make a better product. If you have a passion for something, if you don't, then what are you hustling for? You only have so long to live. If you spend it all running on a treadmill, you're going to die. So I think hustling and so-called crushing it does work, but only if you're passionately, passionately interested, so passionately that you dream about what you're interested in at night, that you love talking about it, that you love studying it and reading books about it and interviewing people about it and networking about it and putting yourself in environments where hustling becomes easier, crushing it becomes easier.

15:47So you don't necessarily have to be an entrepreneur. Essentially, think about the average multimillionaire. The average multimillionaire has five different sources of income. According to the IRS, that's not like statistics, that's like IRS facts. They see people who are worth a million file income sources from five different sources on average. And so a job, if you have a full-time job, that's only one source. So you can't get financially free, most likely, from only one from one job. But being an entrepreneur is only one source of income also. So that's not always the best strategy. Now, it's a great strategy if you have an idea that you could sell for$100 million, but that's pretty rare.

16:26And there's a lot of skills involved in being an entrepreneur. It's not just coming up with a good idea. You have to also have relationships to raise money. You have to have relationships to get customers. You have to have sales ability. You have to have technical ability. Even if you don't build the product, you have to be able to micromanage the product because you'll hire developers or whatever. You have to have leadership skills, motivation skills. You have to be detail-oriented so you can keep track of profits and losses and stay on top of clients, particularly if you don't have enough staff yet.

16:57So being an entrepreneur is very hard and requires... There's no one skill called entrepreneurship. It's like an umbrella of skills. So I encourage young people, try lots of things because you can't figure out what you're interested in. You have to do things to determine if you're interested. My guess is you didn't say to yourself, I would really like to invest in real estate. My guess is you did things. You saw people invest in real estate. You went on location. You saw people you admired who were having a fun time or enjoying the process of real estate investing. Maybe you helped someone place an investment.

17:31Maybe you did your first investment and it felt good. And you said, huh, that feels good. It's like a compass pointing me more towards this. And so I'm going to read the real estate listings and And I'm going to see which ones I think are undervalued compared to other buildings or projects that have been sold nearby or in similar situations. You started to become more and more of an expert because you were hustling at something you were interested in. So your hustle mattered. And I think, you know, again, you have to try lots of things because maybe it's not real estate investing. Maybe you would have rather been a Bitcoin investor or a stock market investor, or maybe you would rather invest in private companies, or maybe you do have an idea to start a company or whatever.

18:08You don't know. So you have to try lots of things. you're trying podcasting, you're looking at stocks, you're looking at real estate, you're trying lots of things. That's the first thing I would recommend is A, every day work on your inner self. So physical, emotional, creative, spiritual health. B, try lots of things, experiment and take small risks, not big risks, but small risks to see which risks you're comfortable with and which risks excite you. Those are really the first two basic things. And I think most people skip those two things, working on their inner self and experimenting with lots of things.

18:40So it sounds like a cliche answer. I hate to say it sounds like almost too self-help-ish, but it's not because it's not the basic advice and it's actually critical for any successful entrepreneur or even investor. No, I don't think it's cliche. I think it is really good advice. What made you want to go from being a programmer to becoming a hedge fund manager after having trouble or losing it all from trading stocks? That's a good question because because again, it goes against the normal narrative. Everybody thinks, oh, I need to get a business degree, then an MBA, then I'll work at a Wall Street bank, then I'll work for a hedge fund, then I'll go off and start my own hedge fund.

19:19That's kind of the normal classic path of that. Not only did I have no experience, I mean, I worked at HBO, then I had started a company making websites for record labels. That was our primary client. And then I lost all my money investing. And then I decided to be a hedge fund manager. It's not the normal path for such a job. But after I lost all this money, I did get obsessively interested in investing. I was like, how could I make so many mistakes? And so it forced me to learn. And so once I started learning, I realized, oh my gosh, there are so many things I did wrong when I was investing.

19:55There is so much to learn. I was just so foolish to start investing before I even learned about even 1 % of this. I must have read hundreds of books, heard the biographies of every investor I could find, like every great investor. I wrote software to analyze the markets since World War II, like anything you could imagine about the markets. What happens if the stock market goes down four days in a row? What statistically happens on the fifth day? What happens for Microsoft the day after it reports earnings? What happens when insiders buy a stock? I would write software to analyze all these questions.

20:26And I read more and more about markets and accounting and every strategy, options, strategies, commodities, arbitrage, value investing, growth investing. Because I didn't have any single training, I wasn't force-fed any one particular style of investing. I learned all styles of investing. And then I started investing. In the past 20 years, I've probably invested across almost every style of investing you could think of, ranging from algorithmic, quantitative trading, to day trading, to real estate investing to arbitrage, options, value investing, and so on. And I just got very excited about it.

21:03I loved it. And when you love something, I started to get a track record and I started to write about my software. So I started to get to be known. That was my way of getting known by investors was by writing for the Financial Times, the Wall Street Journal, the street.com. And I gradually raised money for a hedge fund. And then I also raised money for a fund of hedge funds. I invested in other hedge funds, so I could invest in multiple investing strategies. And that was it in a nutshell. Do you think being a serial entrepreneur before you started your hedge fund helped you? Or do you think it hurt you as a hedge fund manager?

21:35Oh, it definitely helped me because I learned how to sell. When you're an entrepreneur, you have to sell. And I don't mean sell just your product. You have to sell your vision of the world. With my first company, I built websites for companies that didn't even have websites back then. My vision of the world was that they were going to need a website or they were going to die. And so that was the vision I was selling. And I had to convince companies. I had to convince employees. I had to convince investors. I had to convince acquirers. I had to convince my partners because when you're starting a company, it's not like, oh yeah, we make websites.

22:10We wanted to do anything possible that would make money. So while we were building websites, we considered, oh, Should we bottle iced tea and sell it in grocery stores? Should we make our own record label? We came up with so many different ideas. We were writing TV shows and building websites. And of course, the only thing that worked for us was building websites. But we were trying to think of anything we could to make money because we didn't raise a dime of money. So we were profitable from day one and we're just living off of profit. So we were just trying to make as much money as possible.

22:40How was being a hedge fund manager different than you expected? it? You can't control the stock market and you can't predict the stock market. I mean, you can guess and you can make pretty good guesses. But in general, there's a lot that happens in the market that's out of your control and it can be very frustrating and very depressing. Whereas in other companies, I feel like I'm pretty good at making deals and structuring deals and understanding what kind of products people want. So I've been able to successfully start or co-start many companies, whether I'm an initial investor or a seed founder or whatever, or creator of the founder of the company.

23:16With a hedge fund, you have no control over whether you're going to lose money many days in a row, make money many days in a row. So there was many frustrating points. It was too stressful, which is why ultimately I got out of it. Can I tell you a little story why I fully decided to get out of it? The moment I decided I'm getting out of this business. I'm sick of it. I was trying to raise money for the hedge fund. And a friend of mine introduced me to his boss. His boss gave me the tour of his facility. We spent some time together. He was a really nice guy. And he sits me down and he says, okay, James, why are you here?

23:49What do you want? And I said, well, I want to raise money for my hedge fund. And he said, listen, you're a great guy. I've heard a lot of good things about you. I read your stuff. If you ever want a job here, I'll give you a job. He had this huge, multi$10 billion hedge fund. He said, if you ever want a job here, I'll give you a job. If I give you money, I have no idea where you're going to invest the money. I can't take reputational risk. And he said, he pointed to himself and he said, the last thing I need to see on the front page of the Wall Street Journal is the name Bernard Madoff Securities on the front page.