After 31 Years of Investing, THIS Is My Exact System (Copy Me)

Most people are investing completely wrong, and it's not because they're picking the wrong stock or the ETF or bond, it's because they don't have a system for actually figuring out how to deploy their investments over time. Hey, my name is Sharan Trivatsa, and if you don't know me, I've had a chance to build $2 billion companies. Most importantly, I've done each of this work for clients when I was a banker at Goldman Sachs, and today I get to work as a CEO of Acquisition.com, along with my partners, Alex and Lila Hormozy, and I do this every day with the portfolio company CEOs that we mentor, and even myself and my personal family. So what I want to do for you today is give you the exact system that I learned at Goldman from the wealthiest of clients and what I use that for in my day-to-day investing. Because when you have the system, you'll know exactly what to do, and it takes away all the guesswork of what to do next if the market goes up or market goes down, or if you're thinking about taxes, or if you don't have the cash. The first rule overall. It has three parts, and it's thinking about cash, thinking about sizing, and thinking about the two rules. So the first thing is about cash. How I think about cash is that I want to keep at least 20% of my entire portfolio in cash. I call it opportunistic cash. Now, why do I say this? You may have heard this quote, which is, be fearful when others are greedy, and greedy when others are fearful. What does that mean? It means that when the market is roaring and ripping, and everyone's really excited about doing things, and everyone's really greedy, then they want you to be fearful. But the opposite is where everyone gets stuck, which is be greedy when everyone else is fearful. Imagine when the market's coming crashing down, when you think there's a great opportunity. Well, what happens is you or I generally don't have what they call the dry powder or the cash to actually take to go invest in the things that you want to invest in. That is the big problem. The reason we don't. Take advantage of opportunities is not because there are no opportunities. It's because you don't have the cash or the capital to actually take advantage of those opportunities. So I have always decided to keep 20% of my portfolio in opportunistic cash. And I'll tell you when I actually realized this. This was in the 2001 stock market crash. I remember my mentor at that time told me, he said, hey, Sharron, you've got to keep some cash because if this goes south, this may be a buying opportunity. For you. And the crazy part is I had not even invested in anything. I had no system at all. So all I had was cash. And by default, I had all this dry powder. By default, I had all this excess capital, which is everything. And I was able to actually buy into the market for the first time in the lowest of low prices. I remember over like a three to five year period, I bought Apple at $5 a share and I still have not sold it, which is crazy if you think about it, because I had the opportunity to buy something at that time. So rule number one for me is always keep 20% in opportunistic cash, which means I'm always looking for opportunities to put money into. The second is the sizing rule. And what does sizing rule mean? It means that I don't have my entire portfolio in one stock or one fund or one something, you know, because I'm not watching the portfolio every day. So I need some form of diversification. My job is to make some bets. And these bets need to actually have. Uh, some sizing associated with it so that I have two rules for sizing. The first one is no position is greater than 5%. And the second one is no theme is greater than 10%. Well, what does that mean? When I say no position is greater than 5%, let's say I'm really convicted about Tesla stock. Well, the Tesla stock cannot be more than 5% of my portfolio. I try not to violate this rule because that way I can have a maximum of 20 stocks in my portfolio, right? But also no theme can be greater than 10%. And I'll talk about the theme in a second. But if I'm thinking about technology as a theme that allows me to say, okay, if this entire theme is technology and I'm solely focused on technology, I can't have more than 10% of that theme. So those two rules allow me to stay very close to that total allocation that I, that I want. The third is, it's called the two job rule. I've realized this is what I learned at Goldman Sachs. I've realized that when you have. Each, uh, each investment that you make needs to have at least two jobs, meaning most people are like, well, I just want to buy Apple stock. Well, it only has one job. You bought it. Well, can it have two jobs? And the way I think about the two job rule is I generally buy things in pairs and it's called a pair trade. Um, the reason is I believe in one thing over another thing. So let's say I think that Coke is going to go up and Pepsi is going to go down, or I think that Coke is going to go up and it's going to outperform the market and the market is going to go down. I think. I think about like, always think about two things and think about a pair trade. And that allows me to not just focus on one stock or one idea or one security. It allows me to think about two ideas, because if you're now focusing on two ideas and how they interact with each other, you actually cancel out all the noise in the market. Let me explain what I mean by that. So let's say there's two hardware stores. You got Lowe's and Home Depot. Well, they're both publicly traded stocks. You can invest in both of them, but if you think for some reason that Home Depot is going to go up and Lowe's is going to go down, if you think for some reason that's going to happen, then you just pit them against each other. When you pit them against each other, what happens is it doesn't matter what's happening in the general market. It doesn't matter if the market's down or the market's up. All that matters is that Home Depot goes up and Lowe's goes down. This allows you to cancel out all the noise in the market. It's a really powerful thing. And so I've noticed that most of the money that I've made has been on these pair trades. If I can't come up with a pair trade, I think I want to think long and hard about why I'm doing the thing. The other reason I like to do a pair trade is to do tax loss harvesting. Now, let me tell you what I mean by that, and I'll explain that in a second here, which is, let's say you own a stock called, say, Tesla, and Tesla drops in price by 10%. What you can do is you can sell Tesla, capture the loss, and then buy Ford or buy SpaceX or buy some other company. What that does is it harvests the loss, but you can't turn around and buy the same security again because it's called a wash sale rule. You can't buy the same security over and over again just to harvest the loss. The reason this is important is because now you're looking at the stock, you get some exposure, and if it does drop, fall in price, instead of having it affect your mindset, oh my goodness, I invested in something and it lost value, you instantly think, wait a minute, I invested in this, I had a thesis, but it went down in price, no problem. I'm going to capture the loss so that I can harvest this loss and hold on to it. Now, why should you harvest losses? Taxes are the number one dragon wealth creation, and having a warehouse of losses allows you to carry losses forward indefinitely, meaning if you had $100,000 worth of losses, you could use that against gains this year, and whatever you don't use, you could use it against gains next year, and whatever you don't use, you could keep carrying it forward. One of the smartest things that you can do in tax planning is to actually continuously harvest losses because you could always use those losses in the future. And they never expire until the day you die. It's very hard to come up with losses in tax management under the year you need it, so I spent a lot of my time thinking about how can I just have this warehouse of losses that I can just accumulate just in case I need them in the future. Now, I'm not, please no, I'm not actively going out to lose money to capture a loss, that's not what I'm doing, but there's a good chance that one of two things can happen to a stock. It can either go up or go down. Now, if it goes down and you can't handle it and you thought it was a bad investment, you harvest the loss and you get out. But if it just goes down for a small period, you manage it overall. Now, instead of having your mindset think that, oh my gosh, I'm going to lose all this money, you now know that when it's going up, it's doing good things for your portfolio. When it's going down, you can still harvest losses and it's doing good things for your portfolio. That's a good thing. The second piece of the system is the input of the system is the overall strategy. Now, what do I mean by the overall strategy? A strategy's definition is that you curate and prioritize your action items, right? Curate and prioritize. Curate is figure out the best ideas that are out there. Prioritize, figure out what exactly you're going to do. But before you come up with a strategy, you have to realize what type of investor you are. Now, what does that mean? Every single person can easily say, well, hey, what is the next hot stock tip? Should I invest in Brazil? Should I invest in AI? Should I invest in these corporate bonds? Well, I don't know. I have no idea what your goals are. I have no idea what you're trying to do with your investment strategy. And which is why I think that all investors fall into one of three buckets, which are active investors, passive investors, and thematic investors. So let me explain each piece. Active investors. You are an active investor if and only if you wake up in the morning and you do your investing for a living. So if you're a real estate investor, all you do all day long is invest in real estate. If you're a crypto investor, all you do all day long is trade crypto. If you're a stock market investor, all you do all day long is you professionally for your work, trade stocks. Because that is what an active investor does. A thematic investor is what many of us are going to end up being, where we pick a theme for the future, and then we invest in that theme. Let me explain what that means. So let's say you believe that over the next 10 years, healthcare is going to do very well with AI, with new capital that's being introduced, with the regulation from the government. You think that healthcare is going to have a big run-up, which means there's going to be more modern innovation. There's going to be better healthcare services. If you think that, you also would wager that those stocks are going to go up in price. So what do you do? You buy. a healthcare ETF, right? Or you buy a healthcare fund that allows you to gain exposure to that asset class over a period of time, because you're betting that in that period of time, healthcare will go up. We all can bet that, you know, with a fairly decent sized bet that over time, we think at least over the next five years, the AI boom is going to continue to rise. Now, you may or may not like that, but that is a theme. And I can bet on that theme by investing in an AI-based ETF or buy AI-based companies or invest in an AI-based fund. I'm not doing anything other than getting exposure to that theme. The third is a passive investor. And I thought for a long time, what a passive investor is. A passive investor essentially invests in active investors. So if I'm a passive investor in real estate, that just means that I have chosen to put my money with an active manager. And that active manager's job is to go out and invest my cash. The active manager is looking at my things every day. The active manager is trading my things every day. The active manager is managing my portfolio every day. The active manager is running my apartment complexes every day. The active manager is doing all the active work. Because if it's passive for you, it has to be active for someone else. It can be passive for you and then for the other person and then for the other person and then for the other person. If that happens, it's called a Ponzi scheme, right? You don't want to do that. That's why whenever I'm evaluating funds to invest in, I always want to invest in active managers. Now, active managers come with fees and that's okay because they're actively working to do the job. And we all, in different asset classes, when you actively manage something, you generate value for that overall, especially in real estate, et cetera. So understanding what type of investor you are is really important. And not mixing that is good because if you're trying to actively trade stocks, but you're not an active investor, you're only going to stress you out and you're going to make less money. So please don't do that. But if you're a passive investor, but you're not investing in active managers, and you're worried about the fees, then you're not a passive investor. Most of us will probably fall into the bucket of being a thematic investor. And that requires you to have conviction of a particular theme going on in the future. All right. The second thing that I will tell you about in a strategy is this. If you are not paying attention, this is probably the most important part of the video because you want to figure out how to optimize for taxes. Taxes are the number one drag on wealth creation, which means that whatever you can do to reduce your tax burden, you can do it. So if you're not paying attention, this is probably the most important part of the video because you want to figure out how to optimize for taxes. So if you're not paying attention, this is probably the most important part of the video I, have no idea and you shouldn't either because you are waking up every morning and actively doing your job you want a very simple system to invest because if you're chasing a random video with the next best ETF now you're not going to know if you ever have to rotate out of it now you're not going to know if there's something better now you're not going to know if that if something happened with that ETF now you're not going to know if that stock needs to be managed and then you look at it three years later and it's lost you a lot of money and you never did anything with it and that's the important part the weekly monthly quarterly cadence you will if you implemented that you will start to see that it makes you much more calm and settled about your investments and once you have a system you will feel more confident to actually put more money into your investments the number one reason why people don't invest is not because that they don't know which is a hot stock or the hot ETF it is because they don't have a system that they can confidently put their money into knowing that it'll have the review and it'll have the growth and it'll have the safeguards necessary for a long-term future so number one make sure you have the right rules in place which are the cash rule the sizing rule and the um and the two job rule the second is make sure you know what type of investor you are active thematic or passive and figure out the asset location versus asset allocation and once you put all this in place you never have to touch it again because then you only spend a few minutes weekly monthly and every quarter doing the right things that are necessary for the financial future of your family the most important thing that you can do is to have a system that you have committed to memory and committed to your lifestyle that allows you to become a better investor instead of figuring out which investments to make