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The biggest investing struggle isn’t picking the wrong stock–it’s not having a system in place. In this episode, Sharran breaks down the investing framework he uses to make smarter, more disciplined decisions without constantly watching the market.
He explains his three core rules of investing, explores the difference between active, passive, and thematic investors, and explains why knowing which type you are matters. Sharran then dives into tax optimization, asset location, tax-loss harvesting, and the simple weekly, monthly, and quarterly cadence he uses to manage his portfolio.
Financial freedom goes beyond finding great investments. It includes creating a system and using it consistently to deploy your investments over time. Tune in, take notes, and build an investing playbook designed for the long term.
“A passive investor essentially invests in active investors… because if it’s passive for you, it has to be active for someone else.”
~Sharran Srivatsaa
Timestamps:
00:00 – Introduction
00:54 – The three rules behind Sharran’s investing system
05:47 – Tax-loss harvesting and building a warehouse of losses
08:15 – Investment strategies, asset allocation, and optimizing for taxes
17:15 – The weekly, monthly, and quarterly investing cadence
20:45 – How a simple system creates investing confidence
Resources:
– 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] Most people are investing completely wrong. And it’s not because they’re picking the wrong stock or the ETF or bond, it’s because they don’t have a system for actually figuring out how to deploy their investments over time. Hey, my name is Sharran Srivatsaa, and if you don’t know me, I’ve had a chance to build two billion-dollar companies.
[00:00:16] Most importantly, I’ve done each of this work for clients when I was a banker at Goldman Sachs. And today I get to, uh, work as a CEO of acquisition.com, along with my partners Alex and Leila Hormozi. And I do this every day with the portfolio company CEOs that we mentor, and even myself and my personal family.
[00:00:32] So what I wanna do for you today is give you the exact system that I learned at Goldman from the wealthiest of clients, and what I use that for in my day-to-day investing. Because when you have the system, you’ll know exactly what to do, and it takes off… takes away all the guesswork of what to do next if the market goes up or market goes down, or if you’re thinking about taxes, or if you don’t have the cash.
[00:00:54] The first rule overall is to, um… It has three parts, and it’s, and [00:01:00] it’s thinking about cash, thinking about sizing, and thinking about the two pair, uh, the two rules. So the first thing is about cash. How I think about cash is that I want to keep at least 20% of my entire portfolio in cash. I call it opportunistic cash.
[00:01:17] Now, why do I say this? You may have heard this quote, which is, “Be fearful when others are greedy, and greedy when others are fearful.” What does that mean? It means that when the market is roaring and ripping, and everyone’s really excited about doing things, and everyone’s really greedy, then they want you to be fearful.
[00:01:35] But the opposite is where everyone gets stuck, which is be greedy when everyone else is fearful. Imagine when the market’s coming crashing down, when you think there’s a great opportunity. Well, what happens is you or I generally don’t have the what they call the dry powder or the cash to actually take to go invest in the things that you want to invest in.
[00:01:54] That is the big problem. The reason we don’t take advantage of opportunities is not because there are no opportunities, it’s because you don’t have the cash or the capital to actually take advantage of those opportunities. So I, I have always decided to keep 20% of my portfolio in opportunistic cash, and I’ll tell you when I actually realized this.
[00:02:13] This was in the 2001 stock market crash. I remember my, um, my mentor at that time told me, he said, “Hey, Sharran, you gotta keep some cash because this– if this goes south, this may be a buying opportunity for you.” And the crazy part is I had not even invested in anything. I had no system at all, so all I had was cash.
[00:02:34] And by default, I had all this dry powder. By default, I had all this excess capital, which is everything, and I was able to actually buy into the market for the first time in the lowest of low prices. I remember over, like, a, like, a three to five-year period, I bought Apple at $5 a share, and I still have not sold it, which is crazy if you think about it, because I had the opportunity to buy something at that time.
[00:02:57] So, uh, rule number one for me is always keep 20% in opportunistic cash, which means I’m always looking for opportunities to put money into. The second is the sizing rule. And what does sizing rule mean? It means that you– I don’t have my entire portfolio in one stock or one fund or one something thing, you know, ’cause, uh, I’m not watching the portfolio every day, so I need some form of diversification.
[00:03:20] My job is to make some bets, and these bets need to actually have, uh, some sizing associated with it. So the– I have two rules for sizing. The first one is no position is greater than 5%, and the second one is no theme is greater than 10%. Well, what does that mean? When I say no position is greater than 5%, let’s say I’m really convicted about Tesla stock.
[00:03:42] Well, the Tesla stock cannot be more than 5% of my portfolio. I try not to violate this rule because that way I can have a maximum of 20 stocks in my portfolio, right? But also no theme can be greater than 10%. And I’ll talk about the theme in a second, but if I’m thinking about technology as a theme, that allows me to say, “Okay, if this entire theme is technology and I’m solely focused on technology, I can’t have more than 10% of that theme.”
[00:04:07] So those two, uh, rules allow me to stay very close to the total allocation that I, that I want. The third is, it’s called the two job rule. I’ve realized, this is what I learned at Goldman Sachs I’ve realized that when you have each, uh, each investment that you make needs to have at least two jobs. Meaning, most people are like, “Well, I just wanna buy Apple stock.”
[00:04:31] Well, it only has one job. You bought it. Well, can it have two jobs? And the way I think about the two-job rule is I generally buy things in pairs, and it’s called a pair trade. Um, the reason is I believe in one thing over another thing. So let’s say I think that Coke is gonna go up and Pepsi’s gonna go down, or I think that Coke is gonna go up and it’s gonna outperform the market, and the market’s gonna go down.
[00:04:54] I, I think about, like, always think about two things and think about a pair trade. And that allows me to not just focus on one stock or one idea or one security. It allows me to think about two ideas. Because if you’re now focusing on two ideas and how they interact with each other, you actually cancel out all the noise in the market.
[00:05:11] Let me explain what I mean by that. So let’s say there’s two hardware stores. You got Lowe’s and Home Depot. Well, they’re both publicly traded stocks. You can invest in both of them. But if you think for some reason that Home Depot’s gonna go up and Lowe’s is gonna go down, if you think for some reason that’s gonna happen, then you just pit them against each other.
[00:05:29] When you pit them against each other, what happens is it doesn’t matter what’s happening in the general market, it doesn’t matter if the market’s down or the market’s up. All that it matters is that Home Depot goes up and Lo- Lowe’s goes down. This allows you to cancel out all the noise in the market.
[00:05:43] It’s a really powerful thing. And so I have noticed that most of the money that I have made has been on these pair trades. If I can’t come up with a pair trade, I think a- think– I wanna think long and hard about why I’m doing the thing. The other reason I like to do a pair trade is to, is to, uh, is to do tax-loss harvesting.
[00:05:59] Now, let me tell you what I mean by that, and I’ll explain that in a second here, which is, let’s say the– you own a stock called, say, Tesla, and Tesla drops in price by 10%. What you can do is you can sell Tesla, capture the loss, and then buy Ford or buy SpaceX or buy some other company. What that does is it harvests the loss, but you can’t turn around and buy the same security again because it’s called a wash sale rule.
[00:06:26] You can’t buy the same security over and over again just to harvest the loss. The reason this is important is because now you’re looking at a– you’re looking at the stock, you get some exposure, and if it does drop, fall in price, instead of having it affect your mindset, “Oh my goodness, I invested in something and it lost value,” you instantly think, “Wait a minute.
[00:06:43] I invested in this. I had a thesis, but it went down in price. No problem. I’m gonna capture the loss so that I can harvest this loss and hold onto it.” Now, why should you harvest losses? Taxes are the number one drag on wealth creation, and having a warehouse of losses allows you to carry losses forward indefinitely, meaning you…
[00:07:03] If you had $100,000 worth of losses, you could use that against gains this year, and whatever you don’t use, you could use it against gains next year, and whatever you don’t use, you could keep carrying it forward. So one of the smartest things that you can do in tax planning is to actually continuously harvest losses, because you could always use those losses in the future, and they never expire until the day you die.
[00:07:26] I- it’s very hard to come up with losses and tax management on the, the year you need it, so I spend a lot of my time thinking about, how can I just have this warehouse of losses that I can just accumulate just in case I need them in the future? Now, I’m not… Please know I’m not actively going out to lose money to capture a loss.
[00:07:43] That’s not what I’m doing. But there’s a good chance that one of two things can happen to a stock. It can either go up or go down. Now, if it goes down and you can’t handle it, and you thought it was a bad investment, you ca- you harvest the loss and you get out of the position. But if it just goes down for a, for a small period, like, you manage it overall.
[00:07:58] Now, instead of having your mindset think that, “Oh, my gosh, I’m gonna lose all this money,” you now know that when it’s going up, it’s doing good things for your portfolio. When it’s going down, you can still harvest losses, and it’s doing good things for your portfolio. That’s a good thing The second, uh, piece of the system is the input of the system is the overall strategy.
[00:08:15] Now, what do I mean by the overall strategy? A strategy’s definition is that you curate and prioritize your action items, right? Curate and prioritize. Curate is figure out the best ideas that are out there. Prioritize, figure out what you exactly are gonna do. Um, but before you come up with a strategy, you have to realize what type of investor you are.
[00:08:36] Now, what does that mean? Every single person can easily say, “Well, hey, what is the next hot stock tip? Should I invest in Brazil? Uh, should I invest in AI? Should I invest in, uh, you know, these corporate bonds?” Well, I don’t know. I have no idea what your goals are. I have no idea what you’re, what you’re trying to do, uh, with your investment strategy.
[00:08:54] And which is why I think that all investors fall into one of three buckets, which are active investors, passive investors, and thematic investors. So let me explain each piece. Active investors. You are an active investor if, and only if, you wake up in the morning and you do your investing for a living. So if you’re a real estate investor, all you do all day long is invest in real estate.
[00:09:15] If you’re a crypto investor, all you do all day long is trade crypto. If you’re a stock market investor, all you do all day long is you professionally, for your work, trade stocks, because that is what an active investor does. A thematic investor is what many of us are going to end up being, where we pick a theme for the future, and then we invest in that theme.
[00:09:35] Let me explain what that means. So let’s say you believe that over the next 10 years, healthcare is going to do very well with AI, with, uh, new capital that’s being introduced, with the regulation from the government. You think that, uh, healthcare is going to have a, a big run-up, which means there’s gonna be more modern innovation, there’s gonna be better healthcare services.
[00:09:54] If you think that, you also would wager that those stocks are gonna go up in price. So what do you do? You buy a healthcare ETF, right? Or you buy a healthcare fund that allows you to gain exposure to that asset class over a period of time because you’re betting that in that period of time, healthcare will go up.
[00:10:10] We all can bet that, you know, with a fairly decent-sized bet, that over time, we think, at least over the next five years, the AI boom is going to continue to rise. Now, you may or may not like that, but that is a theme, and I can bet on that theme by investing in an AI-based ETF or buy AI-based companies or invest in an AI-based fund.
[00:10:29] I’m not doing anything other than getting exposure to that theme. The third is a passive investor. And I thought for a long time what a passive investor is. A passive investor essentially invests in active investors. So if I’m a passive investor in real estate, that just means that I have chosen to put my money with an active manager, and that active manager’s job is to go out and invest my cash.
[00:10:55] The active manager is looking at my things every day. The active manager is trading my things every day. The active manager is managing my portfolio every day. The active manager is running my apartment complexes every day. The active manager is doing all the active work. Because if it’s passive for you, it has to be active for someone else.
[00:11:10] It can’t be passive for you and then for the other person, and then for the other person, and then for the other person. If that happens, it’s called a Ponzi scheme, right? You don’t want to do that. That’s why whenever I’m, uh, evaluating funds to invest in, I always want to invest in active managers. Now, active managers come with fees, and that’s okay, because they’re actively working to do the job.
[00:11:29] And we all know that in, in different asset classes, when you actively manage something, you generate value for that, for that overall, especially in real estate, et cetera. So understanding what type of investor you are is really important, and not mixing that is good because if you are trying to a- if you’re not…
[00:11:45] If you’re trying to actively trade stocks but you’re not an active investor, you’re only gonna stress you out and you’re gonna make less money. So please don’t do that. But if you’re a passive investor but you’re not investing in active managers, then, and you’re, and you’re worried about the fees, then you’re not a passive investor.
[00:11:59] Most of us will probably fall into the bucket of being a thematic investor, and that requires you to have conviction of a particular theme going on in the future. All right. Uh, the, the second thing that I will tell you about in a strategy is this If you were not paying attention, this is probably the most important part of the video because you want to figure out how to optimize for taxes.
[00:12:23] Taxes are the number one drag on wealth creation, which means that whatever you can do to reduce your tax burden, it’ll allow you to get dollar for dollar in that kind of returns. Meaning what? Let’s say your tax bracket was 30%. You made $100, you paid $30 in taxes. Well, if you cut your taxes from $30, 30% to 20%, you’ve automatically made 10% on your money.
[00:12:43] That is amazing, right? So, uh, the way I think about taxes in a very rudimentary way is called asset location. There’s two types of words you may have heard in, in investing. It is called asset allocation and asset location. Asset allocation is just figuring out the composition of how your investments are made, whether you have stocks and bonds and real estate and, and things like that.
[00:13:05] That is the asset allocation. Asset location is where your assets are located. Assets can be located both physically and conceptually. Physically, they can be in a certain state or a certain jurisdiction, and conceptually they can be in a certain different type of account. Let me explain what that means.
[00:13:21] If you are an investor and you live in the state of Nevada, you pay no state taxes. Now, if you have a gig economy job and you don’t really have to go into work and you’re working remotely, it may be worth your while to consider whether you can live in a tax efficient state, which is, uh, not California, right?
[00:13:42] Uh, Texas, Florida, Nevada, uh, Wyoming, et cetera. The reason is that when there’s no state taxes in a certain state, you immediately get a 5 to 15% just give on your, on your, on your, uh, overall income overall. But… And that also happens to your income, it also happens to your investments. But the other part of asset location that is really important is which of your assets are in irregular taxable accounts, and which of your w- uh, assets are in tax-efficient accounts.
[00:14:13] Well, what does that mean? The tax-efficient accounts as we know it are all these, uh, retirement accounts and charitable accounts. This may be your 401Ks, your IRAs, your pension plans, uh, your SEP plans, et cetera, or a, uh, charitable account, which is a private foundation or a donor-advised fund. Those accounts allow you to actually grow your assets without having to pay any taxes on the growth inside of them.
[00:14:39] Now, why is that important? It’s important for one reason, which is if you’re actively trading your account, meaning you’re buying and selling stocks often, you want to think about whether y- it’s better off being in a taxable account, ’cause w- every time you buy and sell, you have to pay taxes, or you can put that in a, um, tax efficient account like your 401Ks or IRAs.
[00:15:01] Because every time you trade, it doesn’t matter because it, it’s completely tax efficient When I originally started getting into crypto and I thought I was really smart, I lost a lot of money in the crypto boom. But I realized that one of the things that I could do was trade crypto often, almost every day.
[00:15:19] And I took the crypto and I put it into my IRA. How I did it was you get a, uh, LLC, and the LLC opens a brokerage account, and that brokerage account invests in crypto. And then your IRA owns the LLC. So you can trade it normally, but it’s still part of your, uh, IRA account. And so I was trading crypto a lot.
[00:15:40] I lost a bunch of money, but I did not pay any taxes because it, it was efficient inside of the crypto account. This is important to note because just by making a decision on, one, where you live, and two, which account you use, it dramatically changes the amount of taxes that you have because taxes are the number one drag on wealth creation.
[00:15:58] And y- you may not even have to have any outsized returns. If you just manage where your accounts were located, it would do really well I’ll give you an example. Um, I do an active trading strategy called options. Uh, what I do is it’s called covered call writing. I buy a stock and then I write… Then I sell a call on it, and technically all that it means is that I’m able to use the options market to get some income from it.
[00:16:25] Well, it’s, it’s really messy from a tax treatment perspective because how you calculate the taxes on the underlying shares and the options get very complex, and the CPAs hate it, which is why I do a lot of my, uh, options-based trading and, uh, covered call writing and all in a, uh, IRA account or a tax-advantaged account.
[00:16:43] Because when you do it in there, everything related to the taxes is automatically handled because you don’t pay any taxes in that account. I do a lot more of my buy and hold, things that I don’t sell often, I leave that in my taxable brokerage account because you don’t generate a lot of taxes associated with that.
[00:16:58] So the, the, the pro tip is if you’re making active sca- trading strategies, use a tax-efficient account. If you’re making buy-and-hold decisions and you’re gonna hold something for a long period of time, use a regular taxable account. So that is input number two. And here’s input number three, which is: what is the playbook?
[00:17:17] What is the cadence of actually doing all of this? Does this take long? Like, Sharran, you probably are spending hours doing this every day. You have, you know, a lot of background and expertise doing this. Well, not really. I spend maybe one to two hours a quarter thinking about this, and I want to give you my exact cadence of how I implement this on a weekly basis, a monthly basis, and a quarterly basis.
[00:17:39] So on a weekly basis, I log into my accounts, specifically into my Schwab or my Robinhood, and I just check my positions. I want to see if something random has happened. It allows me to feel like I’m connected to the in- the investing as opposed to just leave it be and not ever think about it. It gives me a chance to figure out exactly what I have, what I’ve invested in, and that way when I’m reading news articles or reading headlines or…
[00:18:02] I know where my money is. You don’t have to do much. You just log in, you look at your positions, see whether they’re up or down so you understand where they are, so you can, uh, always process what’s going on. This probably takes five to 10 minutes on a weekly basis. I do it every single week on the end of the week on Friday as part of my review preview process.
[00:18:19] That way I just add it to my quick check. I look at it to make sure that no money has disappeared from my account. It is just a sanity check on my account overall The monthly review is probably takes 10, 15 minutes, and I- all I do here is manage my pair trades and my options. What do I mean by that? I talked about the pair trade, you know, call it the Home Depot and the Lowe’s or Pepsi and Coke.
[00:18:40] I, I want to see the, whether those bets that I made are actually panning out or not panning out. If they’re panning out, I want to do something with the trades. If they’re not panning out, I wanna do something with the trade. Well, most of you may not even need any of that. You may just say, “Hey, I’m just, uh, checking my thematic investments to make sure they’re up or down.”
[00:18:55] The second thing that I do is manage my options positions. I wanna make sure that, uh, if any options positions need to get closed out, I actually close it out on a monthly basis ’cause I do it roughly in 30 to 45-day cycles. That way, I don’t have to check my, um, my options or, or my pair trades often, uh, on, on an o- ongoing basis.
[00:19:12] I just check it every, every, uh, every month at the end of the month The third thing that I do is quarterly. My most important meeting that I have with myself is to spend 15 to 20 minutes working on my portfolio quarterly, and my entire job during that time is to do tax loss harvesting. I look at my positions that have gone up, I look at my positions that have gone down.
[00:19:33] On the positions that have gone down, I ask myself one question. Do I want to hold onto this or do I wa- do I want to get out of it? If I want to hold onto it, I do nothing. If I want to get out of it, I sell the position, I capture the loss, and I invest it in something else or I put it in opportunistic cash.
[00:19:46] That’s it. So I don’t hold a lot of positions. At any given time, I’m probably holding seven to 10 positions because how am I gonna know as a passive or thematic investor what 30 stocks to control? I have no idea, and you shouldn’t either because you are waking up every morning and actively doing your job.
[00:20:05] You want a very simple system to invest because if you’re chasing a random video with the next best ETF, now you’re not gonna know if you ever have to rotate out of it. Now you’re not gonna know if there’s something better. Now you’re not gonna know if that– if something happened with that ETF. Now you’re not gonna know if that stock needs to be managed.
[00:20:21] And then you look at it at three years later and it, it’s lost you a lot of money and you never did anything with it. And that’s the important part. The weekly, monthly, quarterly cadence, you will– If you implemented that, you will start to see that it makes you much more calm and settled about your investments.
[00:20:39] And once you have a system, you will feel more confident to actually put more money into your investments. The number one reason why people don’t invest is not because that they don’t know which is the hot stock or the hot ETF. It is because they don’t have a system that they can confidently put their money into knowing that it’ll have the review and it’ll have the growth and it’ll have the safeguards necessary for a long-term future.
[00:21:01] So number one, make sure you have the right rules in place, which are the cash rule, the sizing rule, and the, um, and the two job rule. The second is make sure you know what type of investor you are, active, thematic, or passive, and figure out the asset location versus asset allocation. And once you put all this in place, you never have to touch it again because then you only spend a few minutes weekly, monthly, and every quarter doing the right things that are necessary for the financial future of your family.
[00:21:29] The most important thing that you can do is to have a system that you have committed to memory and committed to your lifestyle that allows you to become a better investor instead of figuring out which investments to make