0:00 You know, these days around 62% of Americans invest in stocks. And if you look at the S&P 500, it's nearly doubled in the last 5 years. So, you would think everybody's getting rich, right? Well, you would be dead wrong. Okay. Wall Street has a little nickname for most Americans. They call them capital donors because 75% of regular people actually lose money investing in stocks and they just end up making rich people richer. Right now, the wealthiest 10% of Americans own nearly 90% of the entire stock market. So clearly, there's a massive difference between how regular people invest and how rich people invest. So today, we're showing you how
0:46 rich people really invest in stocks, from the basics to the billionaire playbook. Welcome to Alux, the place where future billionaires come to get inspired. All right, so let's start off with how regular people invest in stocks because in order to understand why the wealthiest 10% of Americans are so successful at investing, you need to get a grasp at how investing looks at every level of wealth. So like we mentioned, around 75% of retail investors who are just regular people buying and selling stocks by themselves actually end up losing money in the long run. This is because they think they can outsmart the market. But as they almost inevitably find out, you can try to pick your stocks, time your trades, and get ahead of trends by trusting random people on
1:32 Reddit. But picking stocks isn't as easy as it looks. The truth is, most retail investors buy high when everyone's hyped and sell low when the panic finally sets in. That's why Wall Street bros call regular people capital donors. Over time, they basically just end up donating their money to the professionals on the other side of the trade. But, you know, that isn't the case for everyone. Most people treat investing like gambling. But, there are plenty of regular investors who do manage to build real wealth through the stock market. And that's where we're starting this journey, okay? With the basics of sound investing and then all the way up to the advanced strategies of the ultra rich. All right. So most people will start their investing
2:18 journey with blue chip stocks. These are the Apples, the Microsoft, the Coca-Cas of the world, companies with massive scale, global presence, and a history of surviving just about anything the market throws at them. They're not flashy, but they are reliable. So the strategy here is simple. Instead of constantly trading, you let your money sit in companies that continue to grow, earn profits, and pay dividends year after year. Just buy, hold, and let it compound. That's the foundation for how everyday investors actually win in the market. Seriously. Okay? If you had just bought Apple 5 years ago and held on to it, you would have doubled your money. But here's the thing, all right? When you put all of your money into just one
3:04 company, even if it's a solid one, you're still taking a risk. If that company underperforms or gets hit with a scandal or just gets left behind by the market, your portfolio takes a full hit, too. And that's why a lot of regular investors think, why own just Apple when you could own a little bit of every major tech company? Well, enter index funds and ETFs. Now, these will let you do exactly that. Okay, you're buying tiny slices of hundreds, sometimes thousands of companies all at once. Most people get into index funds and ETFs through their 401k or Roth IAS, which means they also get the tax advantages that come with retirement accounts. And here's the best part. Just like blue chip stocks, you don't have to do
3:50 anything fancy. Again, the strategy just comes down to buy, hold, and let it compound. It's low effort. It's low cost. And historically, it's high reward. This is one of the few investing strategies that actually works for the average person. Not just in theory, but in real life. Now, even with index funds doing a lot of the heavy lifting, some regular investors still take things one step further. They start thinking about how their money is spread out. And that is where diversification comes in. So instead of putting everything into a single stock or even just one type of fund, many people like to spread their investments across different sectors, regions, and asset classes. Some domestic stocks, some international
4:36 ones, maybe a few bonds, or a real estate investment trust in the mix. The goal here isn't to chase higher returns. No, it's to make sure all of your eggs are not in the same basket. And that's a really smart move because if tech stocks drop, maybe healthc care holds steady. If US markets stumble, maybe international ones will pick up the slack. Over time, diversification helps to smooth out the bumps along the ride and keeps things more consistent. It's simple, it's stable, and it gets the job done. Blue chip stocks, index funds, ETFs, and diversification is where things usually top out for the average investor, right? They work, but there's a reason the wealthiest 10% of Americans own nearly 90% of the entire stock
5:21 market. Their strategies are a lot more advanced and a lot more powerful. So, let's see how millionaires invest in stocks, shall we? But here's the twist. The first move millionaires make is actually the same one that causes most retail investors to lose money. They pick individual stocks. But the difference is they're not chasing hype on social media or trying to swing trade their way to a Lambo. Millionaires do it with strategy. They look for companies that are undervalued or poised for serious growth or pay out consistent dividends. Some of them follow a value investing philosophy like Warren Buffett. Others try to find the next Amazon before the rest of the world catches on. Either way, they're not just buying what Reddit tells them to.
6:07 They're researching fundamentals. analyzing earnings and studying long-term trends. It's a much more focused, disciplined approach to stock picking. But here's the thing, okay? Even the best stock pickers can help predict the future. That's why millionaires don't just try to make money. They focus just as much on not losing it. And this is where derivatives and hedging strategies come in. So, one of the best examples of this is Mark Cuban. Back in 1999, after selling his company to Yahoo, he ended up with a billion dollars in Yahoo stock. But he knew the.com boom wasn't going to last forever. So he used a strategy called an options caller. So first of all, he bought something called a put option. This gave him the right to sell his
6:53 Yahoo stock at a fixed price. No matter how low the stock went, he could still cash out at the price written in the option. Then to help cover the cost of buying that, he sold something called a call option. This gave someone else the right to buy his Yahoo stock from him at a fixed price, even if it went up. So basically, Cuban gave up the chance to make more money if Yahoo stock went to the moon. But in return, he guaranteed he wouldn't lose money if it went down. When the dot bubble burst and Yahoo stock came crashing down, he didn't lose a scent. All because he planned ahead. Millionaire investors use strategies like this to keep their money safer. Sometimes it's to protect a big investment like Mark Cuban did. Sometimes it's to protect their overall
7:40 portfolio in case the entire market takes a hit. And you can even use these strategies to earn a little bit extra by collecting payments in exchange for agreeing to sell a stock later. Those are strategies to protect yourself from risk. But not every investor is trying to play it safe. Some actually thrive on risk and they use it to their advantage. And that's what margin and leverage are for. So it works like this. Okay? Imagine you want to make an investment. You've got $1,000 and you borrow another $1,000. Now you can invest $2,000 in the market. If the investment goes up, you win almost twice as much because remember, you have to pay back your loan with some interest. But that also means
8:26 if it goes down, well, you lose more than twice as much. It's a high-risk, highreward strategy, and it is not for everyone. But when you use that borrowed money, well, it becomes a powerful way to grow wealth even faster. But here's the thing, a lot of wealthy investors are busy running businesses, managing teams, or growing other parts of their wealth. So, they don't have the hours to watch the market. At the same time, putting their money into index funds just doesn't cut it. So instead, they put their capital into a hedge fund. Now, a hedge fund is basically a private investment firm for high- netw worth individuals and institutions. It's managed by professionals who use advanced investing strategies, and they're often aiming to make money in any market, not just when things are
9:14 going up. Hedge funds come in all shapes and sizes. Some focus on buying and shorting stocks. Others look for specific events like mergers, bankruptcies or regulation changes. And the biggest hedge fund in the world is Bridgewater Associates, founded by billionaire Ray Dalio. Now Bridgewater makes macro bets on global trends like how interest rates in China will affect oil prices or how inflation in the US might impact corporate earnings in Europe. They look at entire systems, not just stock tickets. However, there is one category of hedge fund that is especially wild, and that's quantitative trading. Now, these firms don't rely on gut feelings or market commentary to choose their stocks. They rely on math,
10:01 code, and massive amounts of data. Take Renaissance Technologies for example, founded by former mathematician Jim Simons. Now, Renaissance uses algorithmic models to make thousands of trades per day. They look for tiny inefficiencies, patterns in price movement, volume, volatility, things that happen over and over again in ways most people would never even notice. And then their algorithms buy and sell their stocks for them. Like for example, one quant algorithm might notice that when a certain tech stock rises by more than 1.5% in the first hour of trading, it tends to dip slightly by the afternoon. And so the algorithm automatically shorts the stock for a few hours and then exits when that pattern plays out. Another algorithm might notice that when
10:47 satellite images project monthly rainfall dropping by 2% over the American Midwest, fertilizer companies have massive surges one week later. So it analyzes the satellite data to try and find that signal as early as possible. This isn't done by a person staring at a screen and reading the Wall Street Journal. No, it is done by machines running around the clock making split-second decisions based on probability and statistics. And the returns, well, for certain funds, like Renaissance's Medallion Fund, we're talking 66% annual returns before fees year after year. It's the world's best performing hedge fund, which is why even most millionaires can't get in. All right, so by now you've probably noticed
11:33 a pattern here, right? The more money you have, the more complex and powerful your strategies get. For millionaires, hedge funds are the next level. You get access to institutional-grade strategies that require teams of analysts, physicists, engineers, and models more complicated than a NASA launch. But even a hedge fund has its limits. At the end of the day, the fund chooses the strategy. The fund decides the risk. They even put limits on how much you can invest. And sure, you can go to another hedge fund, but they're not doing your taxes. They're not building your estate plan. They're not optimizing your portfolio for long-term family wealth. At a certain level, even hedge funds don't cut it anymore. But that's where
12:19 the family office comes in. This is how billionaires invest in stocks. Now, a family office is like a private wealth empire. It's a full-time team of investors, analysts, tax lawyers, estate planners, and legal strategists, all working for a single individual or family. So, imagine having your own personal hedge fund, private equity firm, and tax optimization machine under one roof, playing the market for you. That's what a family office is. And apart from doing everything else a hedge fund already does, it goes way deeper. So, let's talk about some of these strategies, shall we? We'll start off with private equity. Now, this kind of investing means buying into private companies, startups, growing businesses, or even entire takeovers before they're
13:05 listed on a public stock exchange. Now, obviously, you're making a bet that the company will grow. That way, you can either keep its profits, sell it down the line, or the way to make the most money, wait until it becomes a public company. Billionaires do this all the time. Take Jeff Bezos for example. He invested in Google back in 1998. Peter Teal turned a $500,000 bet on Facebook into over a billion dollars. Even Elon Musk got on Stripe long before it went public. The catch, of course, is that these deals are locked behind closed doors. You need massive capital and the connections to get in. But when you're wealthy enough for your own family office, that's pretty much a guarantee. Now, next up is tax loss harvesting. one
13:50 of the smartest ways billionaires keep more of what they earn. So, let's say one of your investments goes up and another one tanks. No matter how wealthy you are, it does happen. But what most people do is hold on to the loser, hoping it bounces back. But not billionaires. Instead, their family office would sell the underperforming stock, which technically counts as a loss that they can then use to cancel out the gains they made on another investment that did better. When it comes time to pay taxes, this means you pay less in capital gains taxes. That is tax loss harvesting. If you do it well, and family offices usually do, it means less money goes to the government and more gets reinvested. All right. Now, this next one might sound like a meme or something, but it is real and
14:38 billionaires swear by it. It's called the buy, borrow, die strategy. Elon Musk is notorious for this. He's got a bunch of shares in Tesla, but here's the thing. All right, he's been holding on to those since basically the start of the company. So, if he sold them, he would have to pay a huge capital gains tax. So, instead, this is what he does. Let's say he's got $100 billion worth of Tesla shares. He never sells them. Instead, he takes out a $100 million loan using his shares as collateral in case he doesn't pay the bank back. He pays a small interest rate, but he gets to use that $100 million for anything. Investing more, buying real estate, even just funding his day-to-day life. And those $100 million are not taxed as
15:25 income. Then when he dies, the stock passes on to his kids and the capital gains tax bill. Well, it disappears thanks to a rule called the step up in basis. So basically, you buy the stock, borrow against it, and die without you or your heirs ever paying tax. It's controversial, sure, but it's completely legal, and it's one of the most effective wealth strategies the ultra rich are using today. Now, billionaires, they do sometimes decide to part ways with their stocks, but when they do, they don't sell them, they donate them. Not out of pure generosity, though. At least not entirely. You see, when you donate appreciated stock instead of cash, you avoid paying capital gains tax and you get a tax deduction for the full
16:11 market value of the stock. So, whatever income you do earn, you pay less tax for it. This is why Warren Buffett has donated over $50 billion in Birkshire Hathaway shares and why Mark Zuckerberg and Bill Gates have given so much Facebook and Microsoft stock to their own foundations. That's what giving looks like when you're thinking in terms of billions. In the ideal case, the value of that stock goes to actual charitable causes though, not just the tax benefits. So, there you have it, my friend. That is how rich people actually invest in stocks. But here's the thing, investing is not how people get rich, it's how they stay rich. So, if you want to learn the wealthb buildinging strategies of the 1%, be sure to download the Alux app. Hundreds of
16:57 thousands of people have already started changing their lives with it, and we'd love to have you on board. You can check out the Alux app by scanning this QR code on screen right now, and you'll get a special 25% discount on your yearly plan just for sticking with us until the end. With that said, we'll see you back here next time, Aluxer. Until then, take care, my friend.
