My Unconventional Investing Strategy: Embrace the Risk, Catch the Knife!

"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." — Warren Buffett

Important Notes

Everyone’s risk tolerance is different, and my approach to investing may not suit yours. However, this method works for me, and I have built it on a foundation of time-tested wisdom from some of the greatest minds in finance. As the legendary Warren Buffett once said,

These rules assume you're not living below the poverty line, in poor health, or caring for sick relatives. Those situations require different techniques.

My Simplified Approach

Here’s my core approach to managing my money:

1. No more than 2 loans/debts – 3 if you’re a couple.
2. Budgets are great—pick a style and stick to it.
3. Save 20-40% of your income.
4. Invest all of your savings in yourself/spouse and/or the markets.
5. Don't keep a lot of cash around.
6. Find a balance between safe and riskier assets that you can handle.
7. Buy more during market dips
• Buy more when the market drops 20%, sell first 1/3 of "safe assets" for what's dropped a lot.
• Buy more when the market drops 30%, sell second 1/3 of "safe assets" for what's dropped a lot.
• Buy more when the market drops 40%, sell last 1/3 of "safe assets" for what's dropped a lot.
8. Optionally, put 0-10% of your savings in a high-risk account—your "I can beat the market" account.

Expanded with Comments

1. Debt: The Two-Loan Tango

Keep it simple: a house and a car, or a house and a student loan. That's it! No fancy debt-juggling acts here. And please, avoid those shiny 0% or low interest consumer loans unless you can pay off the item 10 times over with your current investments. Example: you want a 100k car, only get a loan if you have a liquid net worth of 10x or pay cash or don’t buy it. Buy a cheap economy car instead. Debt consolidation may seem like a solution, but combining multiple loans doesn’t mean you’ve reduced your financial burden.

The more money you keep away from debt the more money you have to work for you, as Kevin O'Leary wisely said,

"Here’s how I think of my money—as soldiers—I send them out to war every day. I want them to take prisoners and come home, so there’s more of them."

”Whether you think you can or think you can’t, you’re right.” — Henry Ford

2. Budgeting: Pick Your Poison

I'm a fan of the "starvation budget." It's not as grim as it sounds! Automatically funnel money into your 401(k) and Roth IRA, set up auto-payments every 2 weeks for your credit card, and voilà! What's left is yours to splurge or invest in your fun brokerage account. If you can't reliably payoff your credit card you're not a credit card person cut it up.

Example: if I spend 2k a month on average on my credit card, auto payments are set for 1k payment every two weeks. It's not uncommon to overpay my credit card a bit, which is a nice surprise. Has your credit cards company ever sent you a check because you kept a $100+ balance a little too long?

“We buy things we don't need with money we don't have to impress people we don't like.” — Dave Ramsey

"Do not save what is left after spending but spend what is left after saving." — Warren Buffet

3. Savings: The More, The Merrier

Savings should be at least 20% of your income, but if you can do more, go for it! If you think 20% is too much, see 4 below what savings is used for. My savings rate varies between 30-40% now, but at the start of my career, it was 10% until I got enough raises to afford 20% and stayed there for years until I started making more than I needed.

"The investor’s chief problem — even his worst enemy — is likely to be himself." — Benjamin Graham

4. Investing: In Yourself and the Markets

Don't just throw money at stocks - invest in yourself too! Take classes, get certifications, or learn new skills that can boost your earning potential. Once you've leveled up your income, you can do both self-improvement and market investing.

This is what I have done. I take savings and invest in expensive training that makes my life better or on a topic that I am weak on. For example, I took Dave Ramsey's class to be an instructor for Financial Peace University. I don't just take the normal class; I want the "how to teach it" deep dive.

"An investment in knowledge pays the best interest." — Benjamin Franklin

"Invest in yourself, you can afford it, trust me." — Rashon Carraway

5. Cash: Don't Let It Gather Dust

Unless you're saving for a specific big-ticket item, don't let cash pile up. I know it's controversial, but I don't keep a 3-6 month emergency fund. Why? Because I save aggressively, and my investments have grown enough to cover emergencies if needed. I'm happy to sell when the market is down, if needed, because my investments have generated a lot of compounding growth for me!

Note: I have no debt beyond a mortgage. Cars are paid off in 2-3 years. Makes less saving easier to sleep at night too.

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." — Robert G. Allen

6. Risk Tolerance: Find Your Comfort Zone

This is personal, folks, there is no true correct answer. Start conservative (60/40 to 70/30 equities/bonds) and adjust as you get a feel for market swings. Don't let anyone pressure you into being too risky or too cautious - it's your money!

My tolerance is high (80/20 to 100% equities), tested through market volatility. Find a balance that allows for growth while letting you sleep at night.

However, I don't recommend starting at such a high risk level. Many investors discover their true risk tolerance during major market downturns, often leading to poor decisions like selling at lows or moving to overpriced "safe" assets.

"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." — Peter Lynch

Avoid extreme positions like 100% bonds/cash or 100% options. Risk tolerance is somewhat innate but can be adjusted over time. The key is finding a balance that allows you to sleep at night while still growing your wealth.

7. The Falling Knife Strategy: Catch It If You Dare!

"Buy when there's blood in the streets, even if the blood is your own." — Baron Rothschild

"Sometimes buying early on the way down looks like being wrong, but it isn't." — Seth Klarman

"A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices." — Warren Buffett

Buy more during significant market dips:

• Market drops 20%: Sell first 1/3 of "safe assets" to buy what's dropped significantly.
• Market drops 30%: Sell second 1/3 of "safe assets" for heavily discounted assets.
• Market drops 40%: Sell last 1/3 of "safe assets" for severely depreciated assets.

I love catching a falling knife! This strategy has yielded substantial gains, especially during events like COVID-19. Spread risk by investing in multiple stocks within affected sectors. Be prepared for prolonged recoveries if the markets don't recover as soon as expected. Do I invest too early sometimes? Yes, you will never time the bottom! Do I lose money if a single stock never recovers. Yes, hence diversify.

Example: COVID-19 triggered my first two buying levels. Beyond purchasing down indexes, I invested in travel, hotel, and cruise line stocks. Uncertain which companies would survive, I diversified across multiple brands in each sector.

Don't buy at 10% drops as they're too common and often just revert to recent prices. If the market falls 50%+, I accept missing out. 40%+ drops are rare, but I'd continue investing new money regardless.

My lifestyle strategy during down markets: reduce expenses, forgo luxuries, and invest heavily in depressed markets.

8. Optional - The High-Risk Playground

For those with higher risk tolerance, consider allocating up to 10% of savings to riskier investments. This could include options, leveraged ETFs, and individual stocks. While I've personally outperformed the S&P 500 by double over 5+ years, mainly through tech and medical investments, remember that some risky investments may go to zero, others can 10x.

Risk tolerance is personal, and it's crucial to find a balance that aligns with your goals. My success came from holding onto tech stocks through volatility over the last 20ish years, resulting in significant gains despite some losses.

This approach isn't for everyone, but dedicating a small portion of your portfolio to higher-risk investments can potentially yield substantial returns.

"In investing, what is comfortable is rarely profitable." — Robert Arnott

Rough Account Investments

High-Risk Brokerage Account

All over the place—just all over. Leveraged ETFs, leveraged single stocks, single stocks. Few options, mainly call options. Invested in mainly tech stocks and leveraged indexes, except some travel stocks mentioned above bought during COVID.

Below John Bogle is referring to investing in individual stocks vs indexes BUT the same quote applies to your high risk account just replace 20% with 40% or 60%+

"If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks." — John Bogle

"If you have trouble imagining a 50% loss in leveraged high risk investments, you shouldn’t be in them." — Modified by me

Advisor Brokerage Account

Since I am high risk, I am 99% hands-off. Yes, I pay the standard 1% AUM fee. Advisors direction is aim for 6-8% a year at a 60/40 split, and to follow step 7 above when S&P 500 drops 20/30/40% he will rebalance to 70/30, 80/20, 90/20 respectively. His choice on how that's done.

Advisor account is from when I knew very little about investing. Keep him around in a separate account so I am not tempted include that capital in high-risk investing; it helps me sleep at night knowing I "can't" mess these accounts up.

Should you get an advisor/broker? Maybe. If you're too high risk or low risk, I think it's a good idea to have someone to push you. Do shop around!

Investments per Account

Final Thoughts: Your Path, Your Rules

Investing is a deeply personal journey. It's important to find what works for you and stick to it.

For more famous investing quotes to inspire your journey, check out: Charting Your Wealth - Famous Quotes.

Happy investing!