Hello, everybody. It's Sam from the Financial Samurai podcast. And in this episode, I want to talk about overcoming your fear of investing by coming up with an investment thesis. I've been investing since 1996, when I had my first Ameritrade account. Made some money, lost a bunch of money, made a lot of money during the first dot-com boom, and then subsequently lost a lot of money.

So I've been going up and down this roller coaster for a while now. But thankfully, thanks to the bull market, it's generally gone well. Now over time, over the years since I started writing on Financial Samurai in 2009, I have noticed some people who are unwilling to put their capital into risk assets like stocks, real estate, or any other type of asset that has no guaranteed return.

As a result, over time, they fall behind inflation. Inflation has been recently running at about 3%, 3.5%. It was as high as 9.1% in mid-2022. So over time, the value of your cash, which generally pays less than inflation, gets whittled away. And that's not good. Inflation right now is probably a top three financial issue for the American public.

And the only way to overcome inflation is by investing long-term in risk assets such as stocks, real estate, and more. When I was in my 20s and early 30s, I was a very active trader, wild trader, undisciplined trader. If I saw a 10% gain, oftentimes I would just sell.

And then I would pay short-term capital gains tax. And then over time, after I racked up many, many trades and also had to do my taxes at the end of the year where I had to consolidate those trades and see how much I made and lost, I realized I was wasting a lot of time going in and out of securities.

Sometimes I made money. Sometimes I lost money. Or sometimes I just broke even. What a waste of time. And it was a career-limiting move for me because instead of focusing on my job, I was almost hooked to trading in the markets because I was sitting on the trading floor.

Over time, I learned to buy and hold because as the old saying goes, time in the market is better than timing the market. I learned this the hard way through admonishments by my manager, who came out from New York City and asked, what the hell are you doing? You've got to focus on your job.

I see all your trades. Focus. And it took a lot of energy to focus, probably because I was hooked. I was probably addicted to trading. But this time, I knew that if I didn't stop, my career would be at risk. The most important strategy I came up with to holding long-term was to come up with an investment thesis for any single investment I wanted to buy and any investment I had held that I continued to want to hold.

The great thing about coming up with an investment thesis is that you don't have to be a financial analyst to come up with one. You just have to think logically about the future. Let me give you some examples. Back in 2012, when I negotiated a severance package from my job of 11 years and my career of 13 years in investment banking, I was not 100% certain I was doing the right thing.

It was a multiple six-figure salary plus bonus. And I was only 34 years old. So what I did was I said, OK, I'm done with finance. I have a severance package. I have the opportunity to see what else is out there. So I ended up with no connections applying to tech jobs from Apple to Facebook to Google to Airbnb.

And I basically got shut out. I either got ignored or I got a kind no over email. And this is the problem with applying to jobs with no connections. You're just sending resumes in a black hole. But I took the no's and the rejections in stride because at the time, I was focused on early retirement, traveling with my wife, and also writing on Financial Samurai.

I just didn't want to have any regrets saying I didn't try to at least apply to these tech companies, which I thought were the future when I look back. And so I don't have any regrets. I tried. I failed. There you go. But I did come up with an investment thesis.

And that investment thesis in 2012 was if I am not good enough to even get an interview, let alone a job at one of these tech companies, then these tech companies must be pretty good. So maybe this was a coping mechanism. But I said, you know what? I am going to invest in these tech companies instead.

So in 2012, I started buying about $10,000 to $20,000 worth of Apple, Facebook, Google. And then I turned the situation around. And I said, if I can't work for you, you are going to work for me as a shareholder. And as long as I held these stocks, I am technically the boss.

I'm the shareholder. You work for me. I'm the captain now. 12 years later, these holdings have done well. They've been able to grow large enough to provide for my family in terms of college education, and even to buy some property. It's been a great ride. Now, of course, 2012 was close to the bottom of the bear market, right?

So a lot of this has to do with luck. However, if you look at all the historical data regarding at least holding the S&P 500 since 1926, the average compound return is about 10%. And if you hold the S&P 500 for at least 10 years, the average probability of making money is over 95%.

And then once you're at about 18 to 19 years, the percentage win rate is 100%. So time in the market, very important. Now, with Apple stock, for example, I didn't know that it was going to outperform. But I felt that with the people they hired, with their technology, with their inventions, it would outperform.

And it did outperform dramatically. So what now, 12 years later, for example, with Apple stock? And this is not investment advice for you. This is an example of what I'm doing and how I come up with the investment thesis. With the S&P 500 at about 5,000, it's at an all-time high, more or less.

And so it's been hard for me to put new money to work in stocks. However, when Apple came out with its new Vision Pro, I got excited, I was interested. Approximately 2.2 billion people worldwide experience some form of visual impairment, while an estimated 237 million face moderate to severe impairment.

And among them, 40 million are considered legally blind or completely blind. And for those who don't know, the definition of legally blind means the inability to correct your visual acuity to at least 2,200 with corrective lenses, such as contact lenses or glasses. Most people can correct their visual acuity to 2,020 to 2,040 with glasses or contacts.

Legally blind usually does not mean complete blindness. There is a field of vision. It just means you can't correct to 2,020 to 2,040. Now, what does it mean, 2,200 or 2,040? So if someone has 2,200 vision, it means that they can only see clearly the details 20 feet away what someone can see 200 feet away.

Again, this is after using corrective lenses, such as contacts or glasses. I think about vision a lot because someone dear to me has a visual impairment and I wanna help him see the world, learn and interact with others as much as possible. In fact, if there's one minority group that I'm fighting for the most, it's the minority group with disabilities.

Roughly 15% of the world's population has some sort of disability, either mild to severe. And I firmly believe this is the minority group that the world needs to fight for, for equal access, equality, equity. My investment thesis with Apple stock now is the Vision Pro is a defining technology that will help the world see better, connect better and experience the world better.

I watched a bunch of demos online as maybe you have. And then I took my wife to the Apple store. We made a date out of it. We first had hot pot lunch and then we registered online for an appointment. And then we did the demo, 30 minutes. And it was an unbelievable experience.

The immersion, the clarity, the 3D videos. I couldn't believe it. It blew me away. It brought tears to my eyes. It was that amazing. During the entire 30 minute demo, all I could think about was how this tool, the Vision Pro could significantly improve accessibility for the visually impaired.

The experience of the Vision Pro was equally, if not more impactful than when I first got a BlackBerry device and I could type an email and maybe surf the web a little bit. That was a pretty defining moment. It was similar to 1997 when I discovered Yahoo in the college computer labs.

Wow, the internet, unbelievable. But actually, the Vision Pro blows past any new experience I've ever had with technology. It's not even close. Now, are there negatives? Yes, the price point, $3,500. Only the most gung-ho early adopters will buy the Vision Pro. And also, it's heavy. So after about 30 minutes, definitely after about an hour, the fit might start weighing on your head and forehead.

You've got to get that right fit going. But it is clear to me the Vision Pro version 2, 3, 4 is gonna get better and better. More apps are gonna be created and the world is gonna be better connected and more people will be able to experience and see the world better.

So what am I gonna do with my Apple shares that I've held for 12 plus years? I'm just gonna keep holding them. In fact, since the stock has sold off from its $198 high, I'm gonna be nibbling on some more because I do believe in this investment thesis of helping the visually impaired see better.

Let me share with you another example of how coming up with an investment thesis has helped me make a decision on my old home. Now, I had a decision whether to sell it and pay those commissions and taxes, fees, or rent it out. In my heart, as a 46-year-old man who is tired taking care of two young children and writing a lot, I don't want to own another investment property.

I wanna simplify life, not have to deal with the maintenance hassles and tenant inquiries and so forth. However, I came up with an investment thesis to help me make a decision because selling in 2024, I think is a mistake in terms of selling real estate because I think rates will gradually come down.

I think real estate is gonna catch up to the performance of stocks. And I think there's gonna be a boom, at least here in San Francisco. First of all, tech stocks since the beginning of 2023 have seen a tremendous rise in performance. We've got everything from Google, Facebook, Apple up 30% to 70%, Nvidia continues to climb.

Second of all, there is an artificial intelligence boom here in San Francisco. Check out The Economist's profile on how San Francisco has made a comeback. AI companies, the largest ones are all here. We're talking open AI, Anthropic, Databricks. And it was interesting because I was invited to invest a hundred grand or more in the latest fundraising for Anthropic, a company that's only three years old and they were raising at a $15 billion valuation.

So that's from nothing to $15 billion in three years. And there are many smaller AI companies doing the same thing. I'm sitting here folks in ground zero. I'm talking to everyone. I'm a limited partner at several top funds, venture capital funds. And it is obvious to me, 70 plus percent of new startups it seems are doing AI or have some AI type of focus and the venture capital money is going there.

Now, it feels a little bubblicious, right? Based on valuations, based on how much revenue is being generated, based on the valuation of the company. It obviously seems very bubblicious, just like in 2000, 2021. However, the momentum is there. And I think we can agree that AI is gonna transform productivity, companies, technology for decades to come.

And I wanna be here as this transformation happens because I was here in the early 2000s. When Facebook, when Google, when public, my firm was part of the tombstone where we helped take these companies public and it transformed the landscape. It made thousands of people very wealthy and the real estate market did very well subsequently.

I've been a landlord since 2005, right? 2005, I've gone through many, many sets of tenants and the majority of my tenants, about 65 to 70% of them, all hailed from tech companies. And I've seen their incomes because that's what I've gotta do as a landlord. I've got to vet them financially.

And it seems very clear to me that this boom in wealth, thanks to big tech and now AI, is gonna happen again in 2023, 2024 and beyond. So in 20 years, when my kids are 24 and 26 1/2 years old, I don't want them coming back to me and saying, dad, why did you sell that property back in 2024?

When you could have just rented it out and ridden the boom, the boom in the San Francisco market because of the boom in technology and AI. I don't want them telling me that because owning these single-family homes with ocean views on the west side of San Francisco is something that I can control.

Being able to get a job at one of these booming companies is something I cannot control. I don't have the technical expertise or the connections to land these jobs or start these type of startups. It's just not me. So now I've got two components of my investment thesis down.

Tech booming, AI just getting started, that's number one. And two, thinking about the future where my children inquisitively ask, why did you sell back in 2024 when you could have just held on for the next 20 years and ridden the boom in that derivative way? If you held on, we could have had affordable living.

But no, now we've got to pay $15,000 a month for a one-bedroom apartment in a bad part of town. Dad, why did you sell? So now I'm thinking to myself, okay, rent or sell. Gosh, selling just doesn't seem like the right time right now. And then here's the final part of the investment thesis for why I should rent out the property.

The west side of San Francisco is booming due to a couple factors. One, there's gonna be an opening of a new school called the Chinese American International School on 19th Avenue across from Stonestown Mall, September 2024. The school has over 500 students and it's gonna be on a 5.2 acre campus.

It's gonna be the best campus in San Francisco because it's gonna be the largest with the most amount of facilities and it's gonna be fully renovated. It goes from preschool three through the eighth grade. So every single year, there's gonna be about 60 new kids joining the school. And that means every single year, 30 to 60 families probably are going to have to look for property on the west side of San Francisco relatively near the campus.

I would say within three miles. And when you have a perpetual installed base of demand every single year for probably forever, that is good for single family home property prices on the west side of San Francisco near the school because the home we used to own is within a couple miles of the school and it's a single family house that we would have happily raised our children in for the next 10 years.

It was just that real estate FOMO got the best of me in 2023 and I decided to buy another house. But this is a topic for another conversation. And then there's another catalyst for the west side of San Francisco. And that's the $4 billion plus remodeling of UCSF Parnassus Hospital and Research Center.

I drive by it every time I send my kids to school and it is a sight to behold how much remodeling they've done on the top of this hill. And in 2030, once the remodeling is done, this is the estimate, the new hospital will be able to accommodate 1,200 to 1,400 new jobs.

1,200 to 1,400 new jobs just in this surrounding area on the west side of San Francisco, that's a lot of jobs. That means more demand for housing, more demand for coffee shops, restaurants, hardware stores, all this, these are local economic catalysts that are clearly planned out, that will clearly happen over the next five to 10 to multi-decade years.

And given there's already a housing shortage and it's very tough to build new housing in San Francisco, I see real estate prices on the west side of San Francisco, the more affordable side of San Francisco continuing to go up over the next couple of decades. Once I put all these points together for my investment thesis, I said, you know what?

I'm just gonna hold, save my money in terms of paying that commission dollars because also I believe brokerage commissions will come down over time. Please check out the previous episode I did interviewing Mike Ketchmark, the trial attorney who won the case against the National Association of Realtors for price fixing and real estate collusion.

Again, I prefer not to be a landlord to another property. However, based on my investment thesis, I cannot sell now because I'm gonna regret it, I think 10, 20 years from now. The next time I have some type of tenant or maintenance issue to make myself feel better, I'm just gonna revert back to my investment thesis that will force me to just do the work, stop complaining and get on with it.

Now, owning this rental property doesn't preclude me from investing more passively, such as in private real estate funds, in real estate ETFs and so forth. It's not mutually exclusive. I will continue to do that because I want to focus more on passive income. Now, the tricky thing about coming up with an investment thesis is that you could get your investment thesis right, but your investment wrong.

And you can get your investment thesis wrong, but still make money on your investment. There are multivariables that are included in an investment decision and you can't get them all right. Many factors are at play here. Sometimes you just get lucky. But as we talked about at the beginning of the show, the longer you stay invested, generally the higher the probability you're gonna have a positive outcome.

So in conclusion, I wanted to share how to come up with a good investment thesis. There are 12 points. One, make it clear and concise. If you can't explain your investment thesis clearly to a friend or a loved one, then you're not doing it right. Two, it should be supported by research.

Three, it should be aligned with your goals. Four, should identify investment opportunities here and there, right? You have to look for what people are missing, connect the dots. Five, you should analyze all the risks, right? Not only should you have blue sky and realistic scenarios, you should have downside scenarios as well.

What if this is a bomb? What if this doesn't turn out? Six, you should have a time horizon. How long are you willing to invest in this asset? Or how long are you willing to give in your investment before you change your mind because management didn't come through with something?

You should understand the company's competitive advantage or the city's competitive advantage or whatever asset class's competitive advantage. You should understand the financial metrics. That's eight. Nine, you should run different scenarios. This is scenario analysis. 10, your investment thesis should be adaptable and dynamic. Always review your investment thesis every six months, 12 years to make sure it's still on track.

If it's not on track, then you've got to adjust accordingly. 11, you should have an exit strategy. At what price point will you sell if the stock gets to a certain level or valuation level? Or at what period of time are you gonna sell because you're 70 years old and you're seriously tired and you wanna enjoy the rest of your life?

And then finally, you should communicate your investment thesis to not just your friends and loved ones, to more people, maybe strangers, maybe just acquaintances while you see them on the playground or the tennis court and see what they have to say because they will help uncover some blind spots.

The more blind spots you uncover, the more you're ready to take action and hedge against bad things happening. All right, everyone, I hope you enjoyed this solo episode of me talking about how I think about investing and how you can overcome the fear of investing. If you come up with that investment thesis, I promise you, you'll feel better about investing and you'll feel better about holding over bad times and during good times.

If you enjoyed this episode, I appreciate a positive review on Apple, Spotify, or wherever you're listening. And also, if you want to subscribe to the Financial Samurai newsletter, you can join 60,000 plus others and subscribe at financialsamurai.com/news, N-E-W-S. Thanks so much. (upbeat music) (upbeat music) you