The Truth About Investing: Part I

I first learned about investing at the age of 8 when my mom’s friend was talking about stocks. I didn’t understand much, except that you could buy something with money and it would make even more money. And funny enough, I think this just about sums up the actual understanding of the average person on this topic.

In the financial world, especially on social media, being an investor has actually become a craze over the years, a lot like becoming an “influencer” a few years prior.

But to really know the truth about investing, we need to understand what this word means and what Laws of Wealth apply to it.

The root origin of the word “invest” means “to clothe your money.”

Now the good news is that all of us are familiar with clothing.

This definition is something I learned in 2016 and that I’ve been applying to my investing ever since and it has led me to discovering the following Law of Wealth:

“Only put clothing on your money that you like, understand, can control, that fits you personally, that fits your goals & purposes, which is a life essential, and that is fairly priced.”

I discovered this by thinking about what I look for when I clothe myself, and all of these same elements would need to be present. If I were going to wear an outfit of clothing, I would need to like it, understand it, it would need to fit me, fit my goals and purposes, it would need to be essential first, and I would not buy something that wasn’t fairly priced.

Before I invest in anything, I must be able to check off all 7 of these points and if I cannot, I won’t invest.

Let’s take a look at each point and how it applies.

1. Like: This means I need to have positive affinity for the asset class itself. They must be things I feel good about, that I agree with, and that I enjoy. The good news is, I like lots of things. I like houses, I like precious metals, I like life insurance, I like business, I like cars…and the list goes on. But the opposite of this means I wouldn’t invest in things I don’t like. I don’t like war. I don’t like drugs. I don’t like psychiatry. I don’t like things that destroy our planet. I don’t like things that hold people down or hold people back. I don’t like lies. I would avoid any investment that supports things I don’t like. And lastly, there are things in the middle where I don’t like or dislike them and where I’m neutral. I also wouldn’t invest in these either because I have a hard time getting excited about it. Right off the bat for me, this excludes mutual funds. A mutual fund can on average have over 100 different investments in it. And that’s 100 different companies that I would need to understand to see if I really like what they do. I don’t want to review 100 companies. I want a handful of assets I really like.

2. Understand: For me, understanding means simplicity. When I really understand something well, I can take the most complicated aspect of it and know how it works and explain it to a 5-year-old. To understand something, I need to be able to fill in all of the following:

a. What the financial instrument or transaction is

b. The definitions of the key words used in it

c. How did it come into being and how long it’s been around

d. What does it do?

e. What problem it solves and for whom

f. What are some known & basic things it’s similar to just so it can be grasped easier

g. Show it pictorially so it can be more easily understood by observation

h. How do you use it successfully and measure its success?

That means if I can’t answer these, I don’t understand the investment. Here is the problem: Most people, including financial advisors, can’t answer all of these questions about the very investments they deal with on a day-to-day basis. To not have these answers is to not understand and you can’t succeed with something you don’t understand. This does mean that an investor needs to study and train and in fact, Warren Buffett is known to study 4 hours per day before he does any investing at all.

3. Control: I added this aspect in 2022 after losing a considerable amount of money to investment fraud. You see, I thought “private” meant “control”. I would avoid public investments like Bank and Wall Street products because I knew they were full of manipulation, deceit, and even fraud. And I thought “well, the opposite of this is private investments so I’ll do that instead”. And I did successfully for several years until one day I got an email stating that a private fund I had invested in committed fraud. I realized that I didn’t have control. Control means that I can start, change, or stop any aspect of the investment that I desire and it means that I can regulate and monitor all aspects of it. In this case, private investment funds do not provide financial statements other than just reporting their returns to investors. But an investment in a private fund is not an investment in the underlying assets of that fund. It is an investment in a small business that buys assets. So how do I gain control? This is an important question because control has a direct correlation with positive returns. There are 2 ways:

a. Possession: I can control tangible assets that I possess. If I buy a house, it is a physical object and I control it. If I buy precious metals, similarly, I have a physical object and I control it. This is the highest degree of control that exists and because of that, I do lots of investing in tangibles like this.

b. Inspection & Oversight: In the case that I can’t have physical possession over a tangible asset, I need to have tight inspection and oversight. Inspection means that I can go and look for myself at any aspect I desire with the investment. If it’s a private fund, I want the ability to look in their bank account. I want to see their profit & loss. I want to interview their managers. I want proof that they actually own the assets they say they own. And most investment funds aren’t willing to do this. Why? Because they know what you’ll find. But this is how I manage my own companies and this is how I ‘d want to manage an investment if I couldn’t have possessive control over it. Oversight means that I am looking quarterly at how things are run and the underlying assets as well. And where I can’t do this myself, I want third party firms doing it for me. In the case of the fraud that I experienced, the guy was sending his investors falsified reports, accounting statements, trade statements, etc. Because he was allowed to do his own reporting, nobody, including several large hedge funds, knew that he was committing fraud. If it isn’t a tangible asset, it’s mostly likely a business or having to do with one. And this is how a business should be overseen.

4. It fits you: Look, I believe each investor is unique. They have different things they are okay with in terms of risk, reward, liquidity, timeline, etc. Our members actually have the ability to do a full investor profile exercise with our Registered Investment Advisor so that they can understand all of these things about themselves. The financial industry has put investors in the category of things like age, timeline, and “moderately aggressive” or “conservative”. If a person really wants to understand themselves as an investor, it goes much deeper than that. I believe it is wise for investors to go through the exercise of building their own investor profile. For example, I am not okay with very much risk, but I want 8–12% annual returns and I don’t like volatility. I have a pretty long timeline where I don’t plan to ever really touch my principal and I want to receive income now from the things that I invest in. That’s me as an investor, which is 50% of the equation. The other 50% would be the assets themselves. So, if I need to understand the investment assets and that’s only 50% of pie here, wouldn’t it also be equally important to understand myself the investor as the other 50%?

5. It fits your goals & purposes: Simply put, it needs to line up with what you’re trying to achieve. My goal right now is to increase my passive income. As I write this, my Passive Income already exceeds my Generosity, Expenses, Taxes & Savings, but I would like to increase my quality of life so I am still investing for passive income. If an asset doesn’t have passive income that pays me now, I’m not doing it. Once I hit my goal, then I’ll invest for net worth growth, which is a different goal and purpose. At that point, the assets I invest in will need to align with that. Retirement is never a goal of mine so the chance that I’m going to load money into retirement accounts is very small.

6. It is a Life Essential: This means that life depends on the asset class or that it supports life. Things like housing, education, food, clothing, transportation, clean air, clean water, and things that help humanity in general are all life essentials. The great thing about investing only in life essentials is that they typically are going to make a positive impact, which I love, and they aren’t a fad. They’ve been around for a while and they’re going to be around for a while. This keeps me out of the territory of speculation because something that is speculative isn’t essential to life.

7. It is fairly priced: All assets have something called “extrinsic value” (price) and “intrinsic value” (worth). Warren Buffett is famously quoted as saying “Price is what you pay. Value is what you get.” This means for me the long-term value (5 years or longer) needs to be more than the price I’m paying today and that the price I’m paying today needs to be fairly close to what the value is today. Value comes from production and so if an asset doesn’t produce anything valuable or aide in the production of something valuable, then I don’t invest in it because the price is higher than the value (since there is no value being produced or supported). And value isn’t the rate of return. For example, investing in real estate has value on a utility basis since there are physical materials such as lumber, metal, etc. and there is land where can always be used. Additionally, it produces shelter and shelter is valuable. So I’d look at what the worth is of the material parts and what the worth is of the shelter being provided and compare it with the current price to invest and also look at what that value would be worth in 5 or more years from now to make sure my value future value is going to be worth more than the price. Now, I want you to understand this is not about paying a lower price today than the current value. Oftentimes, that’s not going to happen. In almost all cases, you will pay slightly more today than the current value of the asset. Otherwise, whoever you are acquiring it from isn’t going to make much of a profit. But it shouldn’t be unreasonably high on the price compared to today’s value. And based on the value in 5 or more years, it should be a no-brainer.

So, there you have it. These are all of the points I look at when I decide to invest in something. And like I said before, if I can’t check off all of these boxes, I don’t invest.

How well I know the person is not on this list. Who else is investing in it is not on this list. Possible limited opportunities in the market or speculation of the future is not on this list. What a financial advisor thinks is not on this list. Investing for the sake of “diversification” is not on this list.

The list is the list and every time I’ve followed it, I’ve made money and the only times I’ve lost money are the times I did not follow it. And nobody else can know it for you or do it for you.

As an exercise, I want you to take the assets you already own and invest in and I want you to apply this Law of Wealth to them by running each asset through all 7 points here and see how many of them pass. And don’t be discouraged if the majority of them don’t get a pass. That means you have some training to do and some work to do and it’s all part of the process. But the end result of only investing in things that you can give a 100% pass to on this list is that you’ll be happy with the investments you have.

In closing, my mission in life is to help good people build more wealth who make the world a better place.

So, if you’re a good person who wants to help make the world a better place and this article helped you, I want to encourage you to join our free Facebook community, Wealth DynamX Nation.

I want to encourage you to start putting this into practice. And feel free to write to me and let me know how it went. Or if you’re a client of mine and you’d like help leveling up, send an email to my team with “Level Up” in the subject line to Contact@WealthDynamX.com.

If you’re a follower and have not read my book, The Blueprint to Financial Freedom, yet, that is the place to start. This book covers the specifics for each level in the various chapters and you can grab the book for free as my gift.

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The Blueprint to Financial Freedom by Jerry Fetta

To Purpose, Wealth & Freedom,

Jerry Fetta

Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on 100+ podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.

Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.

Learn more at www.WealthDynamX.com

(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)