Lessons - Building Wealth Through Cash Flow and Financial Intelligence | Andy Tanner - Investment Strategist

In this lessons episode, learn how the biggest mistake new investors make is chasing deals before finding mentors, discover why shifting from a culture of advice to one of education transforms your investing journey, how building a system with clear criteria leads to better decisions, and why mastering four pillars, fundamental analysis, technical analysis, cash flow positioning, and risk management is essential for long-term success. When people, and you can talk about your own experience too, because I think that the best teachers are people that recognize their own mistakes, and then they stop people from making those mistakes as much as they can. And the question was actually going to be what are the biggest mistakes that people make when they first start investing. But I'm going to change how I say that question and ask you what were the biggest mistakes that you made when you first started investing. One of the biggest mistakes that I made is I started looking for deals before I started looking for people. And if people have heard me share the story before I apologize, but it's instructive. I'll give you an example. So my wife and I, we read the book, Rich Dad Poor Dad, were newly married, not quite newly wedged, but pretty close. And a friend of mine gives me this book, Rich Dad Poor Dad. And I started reading it, and immediately I knew I wanted to share this with my wife. So I bought another copy. And as my wife and I do, we do everything together, and I said, hey, would you like to read this with me? I'll read a paragraph, you'd read a paragraph, let's go through this journey together. So we finished the book and the mistakes that we made started is we were going to be real estate investors. And we failed miserably. I'll bet we looked at 100 houses. We didn't buy one, not one. And it's because we just thought that book was about assets and liabilities. We didn't understand what that book was, my wife found it. She's in fact, she said, let's read it again. You always failed, didn't buy anything, no, no progress. And she said, let's read it again. See what we missed. I go, we miss anything. We read every page because let's just read it again. And I'm not kidding. We go to approach the book for the second time. And she says, I got it. I know what our first mistake was. I go, we haven't even opened it yet. She goes, look at the cover. She goes, this isn't a book on assets and liabilities. This is a book on mentorship, rich dad, poor dad. We already have poor dad. So we're halfway there, man. And we made a shift. We made a shift where we stopped looking for deals. In other words, we stopped looking to just do a deal or find a, find a deal to do. And we started looking for people that could teach us how to get things done. And that, that shift, that, that shift in focus from people just want to invest. And what happened is we made a shift from the culture of advice to the culture of education. So let me talk about the mistake if I could because I think it's a great thing that I learned. And if someone can learn it, I think it'll help them. So Wall Street is this culture of advice. And the question I get more than any other is, Andy, if you only had $10,000, what would you buy? Or Andy, what do you think of Bitcoin? Or Andy, what do you think of real estate? Or where do you think of this AI stock? Or you know, they're asking vice, you know, if you were to say Andy, uh, start by gold, if I said yes, or if I said no, uh, would you know anything more about gold than just before? And if the market changes, then how do you know when to change? So when people say, what do you think about gold, this is what do you know about gold? If they say nothing, this is probably not your best asset. So we shifted from this culture of advice of trying to figure out what to buy to a real culture of education to learn how to buy it. And it was amazing. We, we, I was at a gathering within probably a month in what you, what you focus on expands, what you look for you will find. Instead of looking for deals and looking for people and I'm at this party, an old basketball buddy of mine from a few years ago named Greg hadn't seen him in a few years. And I says, what are you up to? He goes, well, I'm a real estate investor really. So now I became kind of a stalker. And I said, uh, you know, I want to come to your office and watch you do this, what you, what you do is just what? And I, he says really now that issue goes interesting with me. I go, I've been trying to buy real estate for six months. I'm bought one. I just want to see how it's done. And with a little convincing and some bribery, uh, he said, okay, you and your wife, you'd be in my office nine am by Wednesday. We had our first property. So that shift from just trying to find an asset to really finding a person that could help me. I think that's one lesson. One mistake that you make is if you try to go it alone, very few people, I think can stand and win entrepreneur the year. And so, oh, yeah, I did this all by myself. And you know, this was easy to do. So one mistake is, is trying to do things on your own. It's a team sport. I'm curious when you look at that first deal that you did, what was the thing that shadowing Greg showed you that you did not, that you were not able to figure out on your own? Well, first of all, I would look at a deal with no education. And there was a fog of concern that would come in. We looked at a lot of deals, but I'd say there were just details to it and say, well, why are they offering for this price? It seems like a good price, but, you know, maybe, maybe it's not. I didn't feel comfortable in pulling the trigger. And what if the renters baked crystal meth in the basement? And right now it's summer, but what if there's a leak in the roof? And I can't see it. I don't know construction. And, you know, all these questions that I didn't know, the thing I learned from Greg is he had a system. And he had a checklist that he would go through. And he says, you know, here's how you check these things from financing to he had people, he had connections with mortgage brokers, he had connections with agents, he had money lenders. Another thing I learned was to see said, you know, but how to use the debt right and that you could use private money instead of your, I mean, there's so many of those things. So the details, the biggest thing I learned from Greg is there was a system and he invested based on criteria. He had a very specific criteria. And if it matched it, it was a deal. If it didn't match it, it wasn't a deal. And he just, it was actually quite simple from from that point on. Outside of having a checklist or a system, we actually just spoke on another podcast a lot about mindset. So I think checklist system is very important. What are some fundamental mindset shifts that you went through and you think other people have to go through to be successful investors? I'll I'll revert back and maybe hit that nail one more time at the risk of pounding it too far. It is I've I've taught for, you know, 30 years now. It is so hard for people to go from the advice mindset to the education mindset. That is so tough. And the reason is is the advice mindset is lazy. You think about I have so many people say this, well, I don't want to learn anything. Just tell me what to buy. In other words, I don't want to do any work. I don't want any growth. I don't want any knowledge. Just tell it. It's like they want free money. Well, just if you just tell me what to do, I'll do this and I'll get free money. And there's no after that. And that's how Wall Street gets rich, by the way, is they take that mindset and they charge fees under the guys that they could do it better than you. And they get rich because of it. So I would say above all, making that shift from the advice culture and listening to other people telling you what to do to the education culture where you don't need advice, you know what to do. So I would say that's a that's a mindset that is really, really important. And then you and I spoke about this one is I have, you know, I have four four main areas of study when people say, all right, education boy, you know, what should I learn? I say, well, you should learn four things. And the most important of those four, by far, is risk management. The mindset of understanding risk, not from a tolerance, you certainly have to have some tolerance. But understanding risk, I would say mechanically, maybe might be a word to say it to to take that concept of risk and make it measurable and and understand what those metrics mean and understand the relationship between risk control and sizing and all of the different tools we have for risk. I think the mindset of understanding risk, that's a huge one to have. If a person can't deal with risk, forget about it. It's over before it starts. So those four pillars, you have fundamental analysis where you understand the numbers, you have technical analysis where you retrends and patterns, you have position management for strategic placement of cash, so then you have the risk management. Talk to me about how these sort of four pillars, they all work together because you mentioned risk is sort of the first one that you need people to understand. But then there's three more that are also also very important. Yeah, I'd say risk is number one in terms of importance. But it's really the last but not least, it's the last thing you do before you pull the triggers, you have a higher risk. So I start with impressive that you know those four, we start with fundamental analysis. And the word fundamental, if you don't mind a long form podcast, this is nice because I get to talk about it a little bit. We have no time limit. We can edit. We can always edit, you know, I'm the guy asked me a 10 cent question. I'll give you a five dollar answer. So fundamentals is an important idea. What is what does what does that jargon mean? Well, everyone knows what fundamentals are. They're the important things. They're the things they're basic. If you're going to be a basketball player, you got to dribble past and shoot or you're going to struggle. The fundamentals of marriage or listing communication love and selfishness, there's just certain fundamental things. Well, in every business, in every entity, whether it's a household, a church, a nonprofit, a school, a nation, a Venezuelan or the US, everyone has a financial statement. Everyone does. They have income, they have expenses, they have assets, they have liabilities, they have a statement of cash flow. And a person can look at those as a start. And there's just certain things that should be there. Fundamentally, you should have cash flow, you should have earnings and runners surplus, not a deficit. That's fundamental. You should have value, you give to other people. You know, all of business is if it has earnings, all that means is that there's some value that they're giving to the world and they're able to deliver that value with certain efficiencies that allow for profit. That's all it is to me. So when you invest, you're really a business owner. So if I, if it were a stock, for example, or even a real estate deal, for example, that we'd say, look, are these fundamental boxes we mentioned criteria? Can we check those boxes? Warren Buffett says, is there a moat? You know, Geat talks about Coca-Cola selling two billion drinks a day. That's a castle that's, you can have a Cola war in the 80s and you're not going to win that thing. I mean, their moat is solid because the value they deliver on such a grand scale and such efficiencies. So the first two fundamentals and tentacles are information gathering. And the first fundamentals tells me there's just our things running the way they should. Are they checking the fundamental boxes of a business that makes sense? And generally, those are valuations. It helps you know what you're buying. If prices what I pay and values what I receive, fundamentals gives me the lighting to know what I'm getting. So for example, you're in the VC world. You've had a lot of experience in, you know, credit investors. So if I get a PPM from you, you say here, invest in my deal, you know, the longer the brochure, the worse the deal, usually because they're having to flower this thing up and put lipstick on the pig with this big long brochure. Just show me the fundamentals. And I'll know, show me the fundamental analysis. You know, show me show me that those basic things and that they're in order. And then maybe we risk some capital. The second pillar you mentioned, which is technical analysis, is studying markets and and sentiment. And that's important for more than stock investors. That's actually very important for options investors because the difference is is, you know, when you buy a stock, you know, a company, there's no expiration date. So you're always going to invest in a stock, but you're always going to trade an option because they expire. And that expiration date has a lot to do with where the prices. So we need, if we're going to add the option element to that, we need to understand how to get metrics and take emotions of market and put it into data that we can interpret. So once I have an understanding of the business and then I have an understanding of the emotions of the market, I can take those two things and it's just information gathered. I can't change fundamentals. I can't change market sentiment, but I can take that information and then I go to the third when you mentioned, which is cash flow. How am I going to position myself to share and contribute and and share in those profits? How am I going to put myself in the way of that success and share in that opportunity? And then, of course, the last one you mentioned is, okay, when that's all over, what's your plan B? Yeah. And you mentioned earlier, what's interesting gambler and investor gamblers don't have a plan B. They bet on red and once the wheel starts turning, what's your plan B? If it misses, you don't have one. But investors, they have exit strategies. They have hedges. They have insurance. They have sizing. They have lots of strategies for adjustment. They can pivot while the wheel's still spinning. You mentioned KPIs, key performance indicators. If those start to get ugly, you can pivot, move and influence. So those are some of those with four pillars of investing. And that's usually where I start with a new investor is saying, let's learn those four because they transcend language. They train, I mean, show me any company in the world income, income expenses, asset liabilities. It doesn't matter where, which might be why Warren Buffett, you know, he's investing in Japan a lot now. It's the same game, same thing. Thanks for tuning in. If you found this valuable, don't forget to hit that subscribe button so you never miss an episode. And if you want to dive deeper into this conversation, check out the links in the description to watch the full episode. See you in the next one.