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What if investing didn’t have to be a guessing game? In this episode, Sharran shares his 3-Part Money System, a framework that completely transformed his approach to investing. After building two billion-dollar companies and navigating the ups and downs of investing, he developed a system to help investors make better decisions.
Sharran walks you through the three core principles that drive his money decisions. He shares practical examples of how this system works in real life, from evaluating investments like Bitcoin and real estate to understanding the capital stack.
If you’re tired of guessing and want a clear framework to guide your financial decisions, this episode provides the blueprint for success.
“Knowing the system is not enough. Understanding truly comes from when you use the system the same way every single time.”
– Sharran Srivatsaa
Timestamps:
01:46 – Why many people often do nothing with their money
02:31 – The importance of time in the market
03:50 – Taxes and fees as the biggest wealth-draining factors
05:32 – Understanding risk and reward in investing
06:15 – The capital stack: understanding where you sit
08:55 – The “four good” framework for making investments
10:37 – Scoring system to analyze investment opportunities
12:27 – The three types of investors: Which one are you?
Resources:
– If You Understand This, You Understand Investing
– The Next Billion by Sharran Srivatsaa
– Board Member: ARC Multifamily Real Estate Investing
– Board Member: The Real Brokerage
Connect with Sharran:
– X
– YouTube
– Threads
Transcript:
[00:00:00] Hey, this is Sharran Srivatsaa. Welcome back to the Business School Podcast. And we just dropped a video called, if you understand this, you understand Investing on YouTube. And it’s honestly taking off. It’s officially the fastest-growing video on my YouTube channel right now. And I actually think it’s hitting a nerve because, honestly, I am not sharing the theory behind it.
[00:00:17] I’m actually breaking down a three-part system that I had to learn the hard way after building what? $2 billion companies doing what? A hundred plus deals. And honestly, to be real with you, losing a bunch of my own money as an investor. I came up with this system for cell phone. I’m sharing with you, you can watch it, and let’s do it on two x speed, and I’m breaking up it all down for you starting right now.
[00:00:43] One thing is for certain: just because it’s tried and true doesn’t mean it’s working right now. So the big question is this. Where can you learn what is working right now? The strategies, the tactics, the psychology, and the exact how-to. How to grow your business, how to blow up your personal brand, and supercharge your personal growth.
[00:01:06] That is the question, and this podcast will give you the answer. My name is Sharran Srivatsaa, and Welcome to Business School.
[00:01:18] What if I told you investing isn’t actually about picking the perfect stock. It’s actually about building a system that makes the decision for you, even when your instincts can’t. By the way, I used to stare at the screen, stuck on exactly what to choose, and today I’ve invested in dozens of companies.
[00:01:32] I’ve taken companies public, and I’m now the president and managing partner@acquisition.com. And the difference is that I stopped guessing and started using a system. So in this video, I’ll walk you through the exact system that you can rely on when things are just not clear. If you’re just starting out or you’re a seasoned investor.
[00:01:49] The problem is that most people don’t have a design system for deciding what to do with their money. The first is they cannot compare between one investment and another investment, so they just freeze and do nothing. That’s normal. Second is that when you don’t have the financial education, everything seems the same or just too risky, and because of that you do nothing.
[00:02:09] And third, you just prefer to just sit on cash. You’ve worked hard to make the money, and you then realize that you have FOMO in the market, and then you start chasing headlines. Like Bitcoin or gold, and then that gets into a tough spot. That is why we need a system to make the decisions for us. Let me start with the first rule because this one is why people who wait for the right time actually get left behind.
[00:02:30] Let’s say you have three people. Each of those people are actually starting to invest. The first person just stays safe and does not invest anything at all. The second person chooses to invest a little bit and then stops, and then chooses to invest again, and then stops and chooses to invest again, and the third person chooses to invest.
[00:02:46] And waits for time to take over and seize major results. The key to compounding is to understand that time is your business partner and time works slowly, but when it starts to work, it works better than any other business partner you can ever find. This is why when you have children, you want to start as early as possible with them.
[00:03:05] My children are nine and 14, and we have both of them working real legitimate jobs in my business. My daughter Laura, actually helps with our graphic design ’cause she’s very creative. My son Neil. Is very good with AI. Both of them don’t do chores. They actually work in the business, and we pay them, and I take all their income and put it into a Roth IRA.
[00:03:24] They don’t know that I do that, but now doing that gives them their ability for that money to compound over time. They will not realize this for many, many years to come, but the day they open their accounts, and they see tens of thousands or even hundreds of thousands of dollars in their account for what time as their business partner has done.
[00:03:41] That’s when you know that the power of compounding is in your advantage. Now, let’s talk about the second rule, because this is where people think that they’re earning money, but they’re actually not. Taxes and fees are the biggest drag on wealth creation, and that is the friction. Let’s assume that you made an investment and you actually are getting some good returns.
[00:03:59] Well, you’re probably gonna spend at least a third of these returns just in taxes, and then even though you don’t know it, another 10 to 20% is gonna go in fees. And the reason we don’t know that is because it compounds over the life of the investment. At some point, you realize that only 50 to 60% of what you make actually is in the return.
[00:04:19] This is why it is important to know that it’s not what you make, it’s what you keep. There’s so much friction. When we make an investment that we are focused on the high return or the cool investment, or how much we made, we don’t realize the efficiency of that investment overall. Well, you may ask, how do you actually get rid of this friction?
[00:04:37] Well, there are a few different ways. When it comes to taxes, there are some tax-efficient vehicles that you can use, so you can still get the highest possible returns and be more tax-efficient. It may be using vehicles like the IRAs or the 401Ks to make your investments because inside of those investments.
[00:04:50] You get tax-efficient returns, you don’t pay any taxes at that time. Second, in the United States, you have something called an opportunity zone, zones that have been designated by the government where you make these investments, and then if you hold them for a 10-plus-year period, your investment is completely tax advantaged.
[00:05:04] Or third, you may have heard about depreciation, which is an advantage in the US tax code that allows you to take losses against your income that are just book losses, that helps you reduce your taxes overall. There’s a great saying in the tax world that says. If you can defer your taxes, you’ve actually avoided your taxes because you pushed it out into the future, and you can use that return today for your benefit.
[00:05:24] So don’t just chase the high returns on great investments. Be educated about both the taxes and the fees that go along with it. The third rule is the one that people misunderstand the most. Most people think risk. Is a price movement, but the real risk is not understanding what you actually own when it comes to investing.
[00:05:39] Risk has two layers. The first layer is understanding how the business actually works, and the second layer is understanding what the capital stack is. Understanding how the business works just means, can you explain what the business does? If you can’t explain exactly what the investment is, you probably shouldn’t do it because.
[00:05:57] You don’t know how it works, but the most important part is understanding what you own, which is the capital stack. Now, I wanna explain the capital stack to you because when you understand this, it will make investing very, very clear because investing is about risk and reward. The reward is the upside, and the risk is managing the downside.
[00:06:15] So the capital stack allows you to understand one important thing: what part of the business do you actually own? So let’s actually use the example of Amazon. If you own Amazon stock, there’s two layers to this capital stack. One layer is the debt, and the other layer is the equity. And most people have not actually broken this down for us.
[00:06:33] The debt is generally broken down into what they call senior debt. This is where a bank owns this or mezzanine debt. This is where an investment bank generally owns it. The equity is broken down into preferred equity, which has voting rights and a few other incentives, and then common equity. Understanding where you sit in the capital stack allows you to know how risky a certain investment is, because for one important reason, if something happens to the business, the way you get paid is in how high you are in the capital stack.
[00:07:00] Meaning whoever’s on top gets paid first and whoever’s on bottom gets paid Last. On the senior-most part of the capital stack, say Bank of America is on top, they get paid first on the mezzanine investment, maybe Goldman Sachs is there. They get paid second. The third is the pref equity, and this is.
[00:07:16] Probably Jeff Bezos himself because he has the voting rights and the board control of this business, and you are there at the end of the capital stack. So when anything happens, if something happens to this business, it gets paid in that order. And it’s important for us to know where exactly we sit in a capital stack.
[00:07:34] Let me give you a more practical example. So if you own your own home, you have a mortgage, and then you own all the equity, now you know very clearly if something happens to the home, the bank gets paid first. And then you get paid second. So you know you are in second position after the bank. Knowing where you sit in the capital stack is the entire understanding of risk.
[00:07:52] That is why it is probably more beneficial for you to loan the company money as debt than invest in the company as equity. So lemme tell you a personal story. I made an investment that actually lost me some money, and it’s important for you to know how that happened. I was originally consulting for a company, and they were doing very well, and I spent six months consulting for this business.
[00:08:11] And then chose to actually invest in this business. I invested a million dollars into this business, and I did it in a very thoughtful way. I put $800,000 into debt and $200,000 into equity, knowing that my $800,000 was protected, and if my 800,000 was protected, my 200 would be protected too within weeks of me making that investment.
[00:08:31] The CEO and the founder of that company just vanished. He disappeared. The company folded. Even though I’d been consulting with this business for six months, I couldn’t even find the CEO. I actually hired a private investigator to try to go find him one morning. My entire investment was worth zero. This made me gun-shy as an investor.
[00:08:49] This made me realize that I may not know as much as I know, and I needed to document my learning so that this never happened again. And so when I learned this, I came up with what I call the four goods, the four good things you need to do to actually make an investment. The four goods are good people.
[00:09:03] You can’t make a good deal with a bad person, so actually doing the research, actually connecting with the people, actually deep diving on the business and the people, and checking references is extremely important for good people. We do something called a mutual background check. I talk to the business owner, and I say, if we’re gonna be partners in this business, I would love for you to do a background check on us.
[00:09:24] And I’m assuming you have no problem if we do a background check on you. This mutual background check process allows both parties to feel very clear about who their partners are in this business. The second is good intentions. When people are under pressure, they will make decisions that are in their own incentives.
[00:09:38] So I always wanna know what their intentions are. I wanna know why they’re in the business. I wanna know why they started the company. I wanna know why they’re doing that deal. I wanna know if they win. What happens if they loses? What happens? I wanna know how much skin they have in the game. I want to know if this goes wrong.
[00:09:51] How much does it affect them? Having their clear intentions is really important because it’s not about if things go wrong, it’s only about when things go wrong and when things go wrong. You wanna be sure the person you bet to be in the seat is the right person that can guide you outta that storm. The third is good rationale, and this is just making sure that the numbers are right.
[00:10:07] I always talk about this as a spreadsheet problem. If the good people are right and the good intentions are right, then the spreadsheet needs to be right as well. When I’m talking to a lot of companies about investing with them, I just ask them if they have a model, a financial model, and the companies that have a financial model will send it to me right away.
[00:10:23] And the companies that. Will delay sending it to me because they actually haven’t even put those numbers to place. And only when those three are right, do you actually do good contracts. So the next time you’re making an investment, think about this. Good people, good intentions, good rationale, and only then good contracts.
[00:10:37] Once you understand the rules, you still need a way to compare your options because clarity only comes from seeing the trade-offs. Whenever you’re comparing investments, you want to look at four different categories. Capital preservation, will you actually get your money back? Tax efficiency means does it have any tax advantages?
[00:10:54] Cashflow means, does it provide you some yield or some cashflow during the process and growth? Does it have the potential to grow over time? It’s hard to just take these four things and compare multiple investments. So I came up with a scorecard. I give each of these. A 25 score out of a hundred, and even though it’s an arbitrary score, it allows me to quickly understand how to analyze an investment.
[00:11:14] If I were to take Apple stock and I said, what is my capital preservation around it, I may give it a score of 20. My tax efficiency is probably zero. My cash flow is probably five in case it pays some dividends, and my growth is probably 25. Over the years, so now I have a score of 50 for Apple stock. I have some quick scores that I could use to evaluate this investment.
[00:11:36] If it was Bitcoin, I would do the same thing. My capital preservation on Bitcoin is probably not much, so I call it a five. The tax efficiency on Bitcoin is probably not much. I’m gonna give it a zero. The cash flow on Bitcoin is probably not much. I’m gonna give it a zero again, and the growth on Bitcoin may be great.
[00:11:49] So I’m gonna give it a 5, 25. On this, I get a score of 30. Well, this may not be the be-all, end-all comparison. It instantly gives me a way to evaluate these two investments. The next time you’re presented with an investment, go through capital preservation, then tax advantages, then cash flow, and then growth, and put ’em in a matrix so that you can give it to score and you can start to compare investments much.
[00:12:10] So even with the rules and a lens, you can still freeze. You can still get stuck because you have to decide what role you’re playing. Let me explain what that means. The most important question to ask when you’re making an investment is to understand your responsibility, meaning, what is my responsibility in making this investment work for me?
[00:12:26] There are three types of investors active. Thematic and passive active investors are the ones that are actively doing the work. They’re in day-to-day. They’re professional investors. I used to be a professional investor at Goldman Sachs. A professional investor is an active investor. They spend all their time day-to-day working in the business.
[00:12:43] So if you are a real estate investor, you are actually finding the properties, investing in the properties, renting out the properties, and managing the properties. If you are a trader, you are actually in there trading the stocks. Researching the stocks. If you are a private equity manager, you are searching for the companies, finding the companies, supporting the companies, and doing the work.
[00:13:00] In a lot of ways, an active investor is a professional investor or a full-time investor, and a thematic investor is focused on investing in themes. They believe in a theme for the future, and they invest in that theme. So for example. If you believe that tech is an important theme for the future, you figure out how to get exposure to tech.
[00:13:15] You may say, I want to invest in a tech ETF, or I want to invest in a basket of tech companies, or I wanna invest in Google. You start to realize what the theme is, and then you invest according to that theme. So if you wanted to invest in AI, you may go out and find an AI ETF. If you think that India is going to do well as a country, you may go out and find an India ETF.
[00:13:33] If you believe that gold is going to be an important theme for the future, you may go out and invest in the gold. Stock or a bunch of gold companies. What you’re trying to do here is you’re trying to pick a theme for the future and then invest alongside that theme. And the last is a passive investor.
[00:13:47] And when I say a passive investor, I mean that your job is to actually give money to active investors. So all passive investors give money to active investors and let them invest on their behalf. If you were investing in multifamily syndication, what you would do is you would find a multifamily operator.
[00:14:03] You would give them your capital, and they would go find the property, they would go acquire the property, they would go manage the property, and they would go manage their returns and then give you the return. The job of the passive investor is to actually invest in the active investor, and the job of the active investor is to full-time professionally invest in the property.
[00:14:19] So if you’re invested, interested in investing in a hedge fund, you may invest in a hedge fund, but that hedge fund is an active investor taking even the most celebrated venture capitalist in the world, and recent horror Horowitz called a 16 G reasonably raised. A $15 billion fund. I invested in that fund, and because I invested in that fund, I am a passive investor, and they are the venture capitalists.
[00:14:38] They are the active investors. They are looking for the companies. They’re vetting the companies. They’re vetting the themes. They’re managing the businesses. They’re on their boards. They’re managing the capital, and they’re managing the exit of this entire business. And the key distinction here is this.
[00:14:49] If it’s passive for you, it has to be active for someone else. You can’t have passive investors invest in passive things and then invest in more passive things. That’s why you get this daisy chain of people who are doing passive things, and they want passive income, becoming the scam out there. Knowing the system is not enough.
[00:15:03] The understanding truly comes from when you use the system the same way every single time. So after being a professional investor for the last 20 years, if I had to compress all of those years into just three lessons, these are the three. Number one time. In the market is greater than timing the market.
[00:15:17] There was a study that was done where three types of investors entered the market. The first one had the best timing. They bought into the market in the best possible time, and they got the run-up. The second investor bought into the market at the worst possible time, and the third investor just sat out in cash and stayed in cash the whole time.
[00:15:35] What would surprise you is that, of course, the investor with the best timing had the number one return, but the investor with the worst timing actually had this. Second-best return. The worst returns were the ones of just sitting out in cash. So what this means is that time in the market is better than timing the market, and sitting on the sidelines will always get you the worst possible results.
[00:15:55] Number two, taxes are the number one drag on wealth creation after tax returns and after fee returns are actually the real returns. So when you are offered an investment with a high potential return, think about what the taxes and the fees are and how they impact your final return. Number three, risk and reward.
[00:16:10] If reward is the upside, risk is downside protection. It goes from whether you wanna leave your money in the mattress or go to Vegas or somewhere in between. And the way to understand how you manage risk is to figure out where you are in the capital stack. Meaning if something goes wrong, who gets paid first, and where exactly are you in line.
[00:16:28] Now you’ve got the system. Pick one investment you’ve been stuck on and run it through the system today, and notice how much easier it is.
[00:16:42] Hey, this is Sharran. I have an awesome free gift for you just for listening to the podcast. As you may know, I’ve got a chance to build $2 billion companies the hard way. So if you like this episode, you’ll love getting the exact playbooks from those wins. It’s on my Substack, called My Next Billion. It has the exact frameworks I wish someone had given me when I was figuring it all out. Now you get the real lessons from the trenches as I go for a three-peat and build the next billion. So everything’s free at mynextbillion.com. Please check it out at mynextbillion.com.