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You don’t need to be a billionaire to make smarter investment decisions. But when everyone seems to have a hot stock tip, a promising startup, or the next big investment opportunity, how do you know which ones are actually worth your money?
In this episode, Sharran shares three lessons he learned from Warren Buffett. Drawing from his experience as an investment banker and investor, Sharran explains why having “dry powder” can help you act when others are fearful. He also introduces four questions that help to evaluate an investment.
The takeaway? You don’t have to be Warren Buffett to become a more thoughtful investor. You need a clear framework, patience, and a plan for making your money work for you.
Learn how to use the Investment X-Ray to evaluate your next opportunity:
https://sharran.com/episode258/
“It is an amazing thing to do to actually get your money to work for you because every dollar needs a job.”
~Sharran Srivatsaa
Timestamps:
00:00 – Introduction
00:22 – How to make big bets but safe bets
03:39 – What dry powder means for investors
05:12 – How to keep cash ready for opportunities
07:23 – The 10-hole punch card: Choose investments wisely
09:30 – The four-part framework for evaluating investments
10:47 – Recap: three lessons from Warren Buffett
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] Warren Buffett has a net worth of over $146 billion. But the crazy part is that over 90% of that was created after his 55th birthday. And today I wanna tell you about the three big lessons that I’ve learned from Warren Buffett that I’ve actually had a chance to use in my own life, and these are the same prin- principles that you can use in your life as well.
[00:00:22] And the first one is how do you make big bets but safe bets? And this goes to the time when I was a banker at Goldman Sachs. And if there’s anybody who had to be a banker in this time, I recommend you should never do that because it was during the great financial crisis in 2007 and 2008 when all the banks were imploding.
[00:00:43] Banks as an entire sector were looked upon as this liability for the economy. You had Bear Stearns go under, you had Lehman Brothers go under, and the entire US and world banking system was being questioned about its, you know, financial integrity. [00:01:00] At that time, Warren Buffett did something amazing. He invested a significant amount, I think it was, you know, 50 to $100 billion in, into Goldman Sachs at that time, and there’s a couple of reasons why he did that.
[00:01:13] After he made that investment, he actually shared, uh, an op-ed which said, “I am betting on America.” And the reason this is extremely important is that he made a big bet, but he actually made a safe bet. And the safe bet comes in because he was able to look at all the banks and how they were trading from a value perspective, and their values were just completely diminished, and he had a chance to invest in a lower value, uh, when nothing else was wrong except a few of the banks were going under.
[00:01:46] So he felt like he could make a big bet, but a safe bet. But him making that bet actually was a bet on America, was a bet on the confidence of the banking system overall That’s why it is important to make [00:02:00] big bets but safe bets. When I was talking to my son Neil, who is 15 years old, and he asked me about how he should start investing the birthday money that he was getting, uh, he said, “Dad, should I buy several stocks or should I buy a different ETF?”
[00:02:15] You wanna make big bets but safe bets. I asked him, “What is a high-conviction bet that you can make?” And Neil said this to me. He’s like, “Dad, I believe that in the future technology’s gonna be better than it is today.” So every dollar that he has invested, he has invested in QQQ, which is the technology index of the future.
[00:02:34] So the high-conviction bets, which is making big bets but safe bets, is really important. And the reason you can make big bets but safe bets but it doesn’t look like it’s safe to everyone else is because, um, Warren Buffett has this amazing quote is, “Be fearful when others are greedy and greedy when others are fearful.”
[00:02:54] And so when the entire, uh, US banking system was struggling and when the entire world was [00:03:00] fearful, he was able to inject capital and be greedy at that time and inject confidence into the market at that time. And that’s why he was making a big bet and a safe bet. So you must say, “Well, Sharan, I’ve heard this quote about be greedy when others are fearful and fearful when others are greedy.
[00:03:16] Well, what does that mean?” And I thought about the same thing. I didn’t know what that meant either because I was probably one of those people that was fearful at that time. I was– I didn’t want anything to happen. I wanted my nest egg to be protected, and I just wanted to wait and let it play out so that I can come back into the market when things got a little better.
[00:03:33] But I wanna give you a way to implement Warren Buffett’s advice, which is how do you be greedy when others are fearful? How do you be fearful when others are greedy? And that gives me to lesson number two And that is to have dry powder. Well, what does that mean? In the investing world, when you use the words dry powder, it means you have the ability to have money and, and available funds to invest in things where opportunities come up.
[00:03:58] And I think, [00:04:00] uh, Buffett and Berkshire Hathaway have done a phenomenal job of that. They’ve almost, uh, on average have $150 to $300 billion worth of dry powder to just wait for opportunities. Just recently, uh, in the last three to five years, Buffett has seen the housing crisis, and he’s realized that, uh, there’s a massive Berkshire Hathaway bet, which is there’s not enough housing supply in the markets, which is why you’re seeing a completely big dislocation between wages and home prices.
[00:04:31] And a big part of that is there’s not enough supply in the market, meaning there’s not enough homes for people to buy, therefore, the prices of homes are going up. And so what did Berkshire Hathaway do? They’ve bought multiple home builders, Taylor Morrison, Pulte, and they just made a, a, a massive investment in D.R.
[00:04:47] Horton. And these are publicly traded home builders, and they’ve figured out how to actually, uh, make a big investment in them. Right now, uh, over the last three years, the biggest investor in home builders is Berkshire Hathaway, and [00:05:00] that is because they had this, this dry powder of capital to invest in the market when no one else ever thought.
[00:05:07] They were making big bets, but safe bets, but they had dry powder for that. So you must be asking, “Well, how do I have dry powder, Sharan, when you’re telling me that I should be investing in more things?” Um, when I was a banker at Goldman Sachs, I saw s- billionaires do exactly the same thing where they were never fully invested.
[00:05:26] So let’s say they had $100 million, right? They would always invest, uh, most of it and they would consider it to be fully invested, but they would keep a little bit aside to be, uh, to, to have dry powder. So I learned this idea of always having 20% of my portfolio in opportunistic cash. Opportunistic cash just meant that I could liquidate that, that part of my portfolio and then invest it in opportunities as I saw fit, because when the market is fearful, those opportunities don’t last very long.
[00:05:54] And so if you did not have the ability to, uh, release the cash to actually invest in these opportunities, [00:06:00] you lose out on how to do that. So my advice for you is if you’re thinking about, uh, wanting to implement this principle of Warren Buffett in your life and in your investing, the single biggest tactic that you can have is to build a portfolio that has a percentage of opportunistic cash.
[00:06:17] That can be 10 or 20%, but that should be able– you should be able to liquidate that easily to then go invest in something. This has been my, uh, saving grace in, in, in all the investments that I made. I look back during the COVID timeframe when I had put this in place, and I knew that there was massive dislocation in the market during COVID.
[00:06:38] I had 20% of opportunistic cash while the rest of my market was, my portfolio was going down. I had 20% of opportunistic cash. I was able to take that and buy very key stocks, especially like Apple and Tesla, that completely took off. If I did not have access to that opportunistic cash that I’d actually built, I would have not had the dry powder, and I would not have a chance to become greedy when others were fearful.
[00:06:59] [00:07:00] So lesson number one is, you know, uh, make big bets but make safe bets, and lesson number two is have dry powder. If you do not have dry powder, you’ll always feel like you’re behind the eight ball, so you have to create a way to have some kind of dry powder, some kind of opportunistic cash. So if you have, if you’re willing to make big bets and safe bets, and if you have the dry powder, the question you’re probably asking is, “Well, how does Buffett pick these investments and what should I invest in?”
[00:07:27] And the biggest lesson that I’ve learned from Warren Buffett is the 10-hole punch card I saw this interview where Buffett talked about, uh, getting a, a punch card like you would, um, when you would go to a grocery store. And if you only had 10 punches of investments that you could make in your entire lifetime, which investments would you make?
[00:07:50] That forces you to know that you are gonna pick each one, and you’re gonna make a big bet, but a safe bet from a quality perspective, and you’re not just gonna, gonna spread your bets around. [00:08:00] And, uh, this is– this completely released me from all the FOMO that I had in life. I didn’t have fear of missing out anymore.
[00:08:08] I started to realize that a, a, anytime I had an opportunity, if a friend would pitch me their startup or I knew that, uh, you know, I was gonna invest in SpaceX, I would ask, “Is this one of those opportunities that I’m willing to use one of my punch card holes for the rest of my life?” And sometimes that may feel like high pressure, but it allows you to know that you don’t make dumb decisions.
[00:08:30] So the next time you’re presented with an opportunity, just ask yourself, “Is this one of your 10 punch card investments that you would use in your entire life?” Because most of the people that have kind of made it on the Forbes 400 list, if you notice, they did not make it on spreading their investments a-a-around on, on different stocks or bonds or securities or investments.
[00:08:49] Diversification is just a hedge against ignorance. You don’t need to invest in 100 different things and hope that one thing will work. You gotta figure out the– make the big bet, but in your opinion, what [00:09:00] is the safe bet to be able to do that thing? But that’s a tall order. That’s tough. You’re now thinking, “Well, yes, I, I have the courage to make these big investments.
[00:09:10] I, I’m willing to have dry powder. I’m willing to take this, this 10-punch card idea, but what do I actually invest in? I can’t be Buffett. I don’t have the ability to sit down and read 10-Ks and 10, 10-Qs, think about the demand of housing, or figure out how to invest in Coca-Cola.” You may be probably thinking that, and I tell you that is probably true because you’re not a full-time investor.
[00:09:29] And when you’re not a full-time investor, it is extremely important for you to have some kind of framework on how you actually pick an investment. I- if you’ve never seen the investment X-ray that I talk about, you should check out the other videos in my channel, but I’ll give you a brief idea on how you, you, you can choose an investment.
[00:09:47] It is the same exact system that a billionaire at Goldman Sachs taught me on how to pick an investment, and it has four parts. Number one is capital preservation. When I make an investment, what are the chances that I actually get my capital back? [00:10:00] Number two is tax efficiency. Based on making this investment, do I actually have some tax advantages?
[00:10:04] Because we know that taxes are the number one drag on wealth creation. Number three is cash flow. When I invest in this, during the time I’m holding this, am I actually making any kind of cash flow? And number four is growth. Based on being invested in this, am I getting growth over the future in this investment?
[00:10:22] Even if your friend is pitching you his hot startup, or someone is giving you the meme coin, or you wanna invest in crypto, you want to ask at least these four questions. W- Is my capital safe? Am I getting some tax advantages? Am I getting some cash flow? And is it giving me any growth? Because once you have those four, you will know very clearly from your perspective whether that fits into one of those 10-punch card investments Based on everything that I’ve learned from Warren Buffett, I’ve, I’ve noticed that these three lessons have been the ones that I’ve been able to take and implement in my life.
[00:10:57] Make big bets, but safe bets. Number [00:11:00] two, always have dry powder so you can do something with them when the market changes. And number three, just think about your 10-punch card. Is an investment that you’re choosing one of the 10 big investments that you can make in your, in your life that will actually drive your life forward?
[00:11:12] And the reason for all of this is that when you and I wake up in the morning, we go to work. And when we go to work, we tra- we trade our time for money. We trade our competence for money. We trade our effort for money. But we are not taking our money to work for money as well. It is an amazing, uh, thing to do to actually get your money to work for you because every dollar needs a job.
[00:11:37] The best time to invest was 10 years ago, and the second-best time to invest is today. So, uh, I will finish with a Warren Buffett quote: “It’s not about timing the market to get the right investment. It’s about time in the market so that your money can actually work for you.”