Why Mainstream Investing Advice is Wrong

investing advice

“Buy mutual funds, diversify, and hold for the long term!”

That is the mainstream advice we hear from all the commercials and investment houses trying to sell us on giving them our money.

Notice I said “sell” because that is really what they are doing. They are selling you.

Many of the mainstream financial advisors out there are just salespeople peddling whatever their investment firm thinks is the hot item. And that is fine for those that prefer not to educate themselves and hand over their money to be “managed.”

But, if you are like me, you don’t follow the mainstream herd.

You want control over all aspects of your life. You want control over your business, your success, your health, your time…and especially your wealth.

Don’t get me wrong, there are some great financial advisors out there, but they wouldn’t consider themselves mainstream. They would consider themselves investors, who truly understand how to build and create wealth. Many times these advisors will have their clients invest in businesses, real estate, and things like placements or IPOs – not mutual funds. You also won’t hear them recommend diversifying either.

Because these advisors are good at what they do, they understand what other investors have figured out long ago.

If you look at the Forbes list of 400 Wealthiest, you will notice pretty quickly that the majority of these people either own businesses, real estate, or made money investing in businesses and real estate. And those that invest in businesses don’t diversify, they focus. They look for one or two really great businesses and invest strategically in them. Warren Buffet is a prime example of this.

Those that invest in businesses don’t diversify, they focus.

Of course that is Warren Buffet, the most successful investor of all time. But, if you look at most hedge funds and other investment groups, they do the same thing.

As a single investor, how are you supposed to be able to compete with them and invest outside the mainstream?

That was the same question I asked a number of years ago when creating my investing strategy. I started with what I wanted. I wanted a strategy or system that allowed me to generate professional investor-like returns without putting in professional investor-like time. Because I was spending 70+ hours a week building my businesses, I didn’t have time for much else. I knew I needed to create a simple system that worked consistently and that I could manage in just a few minutes a day from my smart phone.

A lot of people said it was impossible, but I approached it like building a business and over a few years figured out the system I use today. And you won’t hear any of this from the mainstream.

  1. The first thing I looked at is how to put the odds in my favor.

When you buy a stock, how do you make money? It’s not a trick question. It has to go up. But, if you think about it, a stock can go 3 ways – up, down, or stay the same. So, that means if you buy a stock, you have a 33% chance of making money. To put that in perspective, the odds at a Vegas blackjack table are 47%. You are literally better off taking your money to a casino than buying a stock. Learning that was a huge awakening for me because it caused me to ask the next question, which is…If buying a stock gives people a 33% chance, who then has the 67% chance of making money?

Because that is where I want to play. I’m betting that’s where you want to play as well.

The 67% chance comes from “selling” the stock. But, you cannot sell a stock when you don’t own it, right? Wrong. Back to that in a second.

Remember earlier where I mentioned that the Forbes List of 400 Wealthiest investors in business and real estate? The second key, outside of using the skills of building a business to finding the right strategy, was to understand real estate.

2. Understanding real estate.

Here is what I figured out. There are two lessons important from the Forbes 400 Wealthiest: The first is that if you are going to make a decision to purchase a property, you better be willing to keep it for at least 10-20 years because it is not a liquid asset.

The second and most important lesson is to invest for “cash flow.” That’s right, no flipping, no quick money, just a nice consistent, monthly revenue stream. Nothing flashy, just a nice 8-10% or more return on cash invested.

These same rules apply to investing in the markets. If you are going to invest in a stock, commit to it and invest in it for cash flow over and over again.

The main trade I use for doing this is a simple options trade called a Naked Put. I only sell. I never buy. Here is how they work and why they are such a good vehicle for investing.

Selling a naked put allows you to sell someone the right to give you their shares of a stock at a specific date in the future. For example, let’s say that you have a stock that is currently at $40 per share. You could sell someone the right to give you their shares for $40 in 3 months. The key is selling it. When you sell something, you get paid for it.

That is why I love these trades, because I get paid up front for doing them and create cash flow out of thin air. With the example above, the $40 strike in 3 months might be selling for $3 per share, so if someone buys my put option, that means they pay me $300 now to be able to give me their shares at $40 in 3 months. (Options trade in 100 share blocks – $3 x 100 shares = $300)

Now for the exciting part. I will use this analogy. Let’s say you were going to go buy a house. And for this example, a $100,000 house. You would probably not offer $100,000 for it. You might offer $90,000 and negotiate. Well, you can do the same thing with Naked Puts. You don’t have to sell them at the price the stock is at today. You can sell them at a lower price. From our example above, maybe you would sell your put at $35 instead of $40 where the stock is today. You might collect a little less, say $220 instead of $300 up front, but you are getting cushion in case the stock drops. That is like buying the house for a below market price and the buyer paying you to do so on top of it!

Now for the really exciting part.

If you get to the end of the three months and the stock is not at your price, in this case $35, you get to keep the money you were paid up front ($220) and then do it again. You don’t have to buy the stock! Only if they stock is at $35 or below would you have to buy it. And that is your risk. The stock could fall below $35 by more than you were paid up front ($2.20 per share) and you would technically be underwater on your shares. Even if you did get the stock below your “breakeven,” there is actually another strategy for collecting cash on it that I do not have time to go into here.

But you do have to be prepared for the occasional significant drop in price.

That is why over the years, I have created a defensive strategy we use in our system on every trade and 99% of the time, we don’t need it. The odds from the start give us a 67% chance or better in our favor. But it is nice to have just in case.

And I do all of this in 12 minutes or less a day.

Of course, this is a high-level overview to get you thinking. In a short article like this, it is hard to truly go in depth on things. What I hope you take away is that you don’t have to follow the mainstream, and that what the mainstream has taught you about investing doesn’t have to be your only option. With a little education and initiative, you can create much easier and more lucrative ways to build your wealth and have more control over it for yourself. Here’s to beginning of you getting out of the mainstream!

Dave Lukas

Dave M. Lukas is a serial entrepreneur, best-selling author of “The Ten Year Career, The Fast Track to Retiring Young, Wealthy and Fulfilled.”, investor, and Founder of the Misfit Entrepreneur Podcast. His companies have been on the INC 5000 List multiple times. He has been featured on radio, TV, and many top trade publications and web such as Forbes, INC, Yahoo! Finance, BTN, BTE, and others.