Alex Hormozi: Why I Used To Be Poor? Misunderstanding of Risk, Volatility, & Return

Last updated: Jun 15, 2023

The video is about the misunderstanding of risk, volatility, and return, and how it affects entrepreneurs, salespeople, and employees who want to become wealthy.

This video by Alex Hormozi was published on May 21, 2021.
Video length: 19:31.

In this video, Alex Hormozi discusses the misunderstanding of risk, volatility, and return, particularly in relation to salespeople and entrepreneurs.

He shares a conversation he had with a sales team member who was advised by family members to leave sales for a more secure job. Hormozi explains that it's important to listen to advice from people who make more money than you and that volatility and risk are not the same things. He uses the example of an insurance company to illustrate this point.

Hormozi also advises decreasing expenses to decrease volatility and increase savings, which can lead to long-term wealth.

  • The video is about the misunderstanding of risk, volatility, and return, and how it affects entrepreneurs, salespeople, and employees who want to become wealthy.
  • Alex advises not to listen to people poorer than you about advice on money.
  • Alex explains that volatility and risk are not the same things.
  • Alex advises living on your salary and saving off of it.
  • Wealth is not just a number, it's a ratio between how much you spend versus how much you make.
  • Pay off credit card debt first because it has a high compounding interest rate.
  • The closer you can tie yourself to an acquisition channel, the more valuable the company becomes because you're driving revenue.
  • Entrepreneurs do not always make more money than salespeople.
  • Track your net worth every week or quarter to decrease the cycle.

Why I Used To Be Poor? Misunderstanding of Risk, Volatility, & Return - YouTube

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Introduction

  • Alex Hormozi is an entrepreneur, investor, and CEO of Acquisition.com.
  • The video is about the misunderstanding of risk, volatility, and return, and how it affects entrepreneurs, salespeople, and employees who want to become wealthy.
  • The conversation is about a person who wants to pick Alex's brain about the direction of their life.
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Don't Listen to People Poorer Than You

  • Alex advises not to listen to people poorer than you about advice on money.
  • He suggests listening to people who make far more money than you, even billionaires.
  • People who make less money than you or make the same amount of money than you at an older age are not the right people to listen to.
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Misunderstanding of Volatility and Risk

  • Alex explains that volatility and risk are not the same things.
  • He gives an example of an insurance company that is volatile but not risky.
  • Sales is an example of a highly volatile profession that is low risk.
  • Salespeople are the lowest risk in a company because they generate revenue.
  • Alex advises decreasing expenses to your salary to decrease volatility and get the upside benefit of your position.
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Why I Used To Be Poor? Misunderstanding of Risk, Volatility, & Return - YouTube

Decrease Your Expenses to Your Salary

  • Alex advises living on your salary and saving off of it.
  • If you can get someone to live on less than their salary, they can invest the delta in the S&P 500 and become top 1% within 20 years.
  • Living with other people and really trying to live down can help achieve this faster.
  • Planning like your salary is all you're going to make can make all the extra income gravy.
  • Even if you have a bad month, this approach can help you weather the storm.
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Understanding Wealth

  • Wealth is not just a number, it's a ratio between how much you spend versus how much you make.
  • Having a strong income to expense ratio is the key to building wealth quickly.
  • Setting up a favorable expense income ratio allows you to save more money and reach your goals faster.
  • Living like the ultra-wealthy is not fulfilling, having freedom and peace of mind is.
  • Retiring on your current income is possible if you have a strong income to expense ratio.
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Debt and Investments

  • Pay off credit card debt first because it has a high compounding interest rate.
  • Student loans have low interest rates and are the cost of learning.
  • Invest in the S&P 500 because it's a safe and easy way to invest.
  • Dollar cost averaging is a good strategy to participate in the market at all times.
  • Don't try to time the market, just keep investing regularly.
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Income and Expenses

  • Having a high income to expense ratio is the key to building wealth quickly.
  • Setting up a favorable expense income ratio allows you to save more money and reach your goals faster.
  • Living like the ultra-wealthy is not fulfilling, having freedom and peace of mind is.
  • Retiring on your current income is possible if you have a strong income to expense ratio.
  • Don't let lifestyle inflation eat away at your income, keep expenses low.
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Building Wealth

  • Building wealth is a process that requires patience and discipline.
  • Investing in the S&P 500 is a safe and easy way to build wealth over time.
  • Having a strong income to expense ratio is the key to building wealth quickly.
  • Setting up a favorable expense income ratio allows you to save more money and reach your goals faster.
  • Retiring on your current income is possible if you have a strong income to expense ratio.
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Tying Yourself to an Acquisition Channel

  • The closer you can tie yourself to an acquisition channel, the more valuable the company becomes because you're driving revenue.
  • Encourage employees to pick a channel that the company is not currently using and figure it out in their off time.
  • Pay more for leads or sales that come in from an employee's own efforts compared to stuff that comes in from marketing.
  • As soon as the employee figures out the system, they can come to the CEO and say they want to build a team and generate revenue.
  • The employee can make two or three times their income as a result of this.
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Understanding Risk and Income

  • Entrepreneurs do not always make more money than salespeople.
  • The average small business owner makes around $78,000 a year.
  • A salesperson making $200,000 a year owns a million-dollar business in the CEO's mind.
  • Understand the risk of being an entrepreneur and adequately assess it.
  • Track your net worth to increase it.
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Going Off on Your Own

  • The CEO's incentive is not to keep everyone in the company, but to encourage them to spread their wings and accomplish their dreams.
  • Employees may not want to deal with HR, finance, fulfillment, generating leads, legal, and other aspects of owning a business.
  • Understand the risk of being an entrepreneur and adequately assess it.
  • The CEO did not have the typical entrepreneur story of being bad at school and knowing they had to do something else.
  • Track your net worth to increase it.
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Tracking Your Net Worth

  • Track your net worth every week or quarter to decrease the cycle.
  • Decrease the cycle of tracking your net worth, especially if you are the sole provider in your household or a solo business owner.
  • Tracking the cumulative amount of your bank accounts is one of the single greatest things you can do to increase your net worth.
  • Make it a habit to track your net worth every day.
  • Use dashboards from big commercial banks to pull all your accounts together.
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Section 1: Tracking Net Worth

  • Tracking your net worth is essential to improving your financial situation.
  • Use an Excel sheet or a financial tracking app to keep track of all your assets, bank accounts, and investments.
  • Update your net worth daily to get a pulse on the flow of money and identify areas where you can decrease expenses.
  • Actively decrease your expenses as much as possible to plug the holes and decrease the outflows of money in your life.
  • Pay off high-interest credit cards or high-interest loan debt first to increase your net worth.
  • Dollar cost average all of the money that you make in excess of your expenses into the S&P.
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Section 2: Understanding Risk, Volatility, and Return

  • Understand the difference between volatility and risk.
  • Something that goes up and down a lot is not necessarily risky, it's just volatile.
  • Words matter, and how you describe things matter.
  • Understanding the definition of words can help you put better concepts and frameworks around your thought process and make better quality decisions.
  • Tie yourself to an acquisition channel and find a new way of acquiring customers that the business you're currently in is not doing.
  • Build a team underneath you that can do the thing that you just learned how to do to become a rainmaker and be paid the most in every business.

Watch the video on YouTube:
Why I Used To Be Poor? Misunderstanding of Risk, Volatility, & Return - YouTube

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