MONEY Master the Game: 7 Simple Steps to Financial Freedom (74 page)

And then I ask, “Okay, all you know is what you see right here. How many people want to be long and stay long on this chart?” And about 60% will raise their hands, yes. And how many want to get off this investment and sell it? Then 40% or so will say get out. And I say,
“You 40% should never ever invest your own money in your entire life! Because you’ve got this contrarian bug,
and it’s the greatest way to ruin that there possibly is. It means you’re going to buy every brand—you’re going to buy things that go to zero and sell things that go to infinity, and one day, you’re going to die.”

TR:

That’s great, makes total sense. In fact, you say some of your greatest victories have been turning points, right? That’s what’s been different about you.

PTJ:

Right, the crash of 1987. I made my money on the day of the crash.

TR:

Okay, you have to tell me about that.
That’s considered one of the top three trades of all time, in all history!
Most people would be thrilled with a 20% annual return; you made 60% on that trade alone that month. Did your theory about the 200-day moving average alert you to that one?

PTJ:

You got it. It had gone under the 200-day moving target. At the very top of the crash, I was flat.

TR:

So you waited until it turned?

PTJ:

Yes, absolutely.

TR:

That’s amazing! I’m blown away by that one. So you don’t consider yourself to be a risk taker, and you focus on how to protect constantly and how to align with the trend. What’s the second thought for students?

PTJ:

Five to one.

TR:

Asymmetric risk/reward?

PTJ:

Exactly.
Five to one means I’m risking one dollar to make five.
What five to one does is allow you to have a hit rate of 20%.
I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose
—assuming my risk control is good. All you’ve got to do is just be right one time out of five. The hard part is that that’s not how we invest. The way that human nature is, we’re never really calculated about our entry points. We’re never really thoughtful about where we give in and what are we really risking.

TR:

And Paul, you are not wrong 80% of the time! Since asset allocation is so important, let me ask you: If you couldn’t pass on any of your money to your kids but only a specific portfolio and a set of principles to guide them, what would it be? I’m asking this to help people get a model of how the average person can look at investing through your eyes.

PTJ:

I get very nervous about the retail investor, the average investor, because it’s really, really hard. If this was easy, if there was one formula, one way to do it, we’d all be zillionaires. One principle for sure would be get out of anything that falls below the 200-day moving average. Investing with a five-to-one focus and discipline would be another. But here’s what I do know. You’ve got to go interview Ray Dalio. He knows better than anybody. If you’re looking for asset allocation, he’s the one guy who does it better than anybody.

TR:

He’s next on my list, thanks! Okay, let’s shift gears. You’ve had this phenomenal success in your life, you’re legendary, and you’re so humble about it. Tell me about giving back: What’s driven all of the amazing philanthropic work that you do? What continues to drive you to make a difference in so many people’s lives?

PTJ:

As a young child, I’d gone to this huge outdoor vegetable market in Memphis, and I remember all of a sudden looking up, and my mommy was gone. And when you’re four years old, your mother is everything. And this extraordinarily kind, very old, very tall black man came over and said, “Don’t worry. We’re going to find your mama. Don’t cry, we’re going to find her. You’re going to be happy in a minute.” He took my hand and walked me down those roads until, finally, he saw my mother, and she started laughing because she could see I was crying.

TR:

Wow.

PTJ:

You never forget stuff like that. God’s every action, those little actions become so much bigger, and then they become multiplicative.
We forget how important the smallest action can be. For me, I think, it kind of spawned a lifetime of trying to always repay that kindness.

TR:

That’s so beautiful, Paul; I see and feel the depth of impact of that moment on your life even now. You got us both on the edge of tears. Thank you. Last question for you: most people have an illusion that if they have enough money, stress goes away. Is it true? Does financial stress ever go away?

PTJ:

That day still has not come.

TR:

Okay. That’s what I wanted to hear.

PTJ:

The problem is, like anything, it’s never enough. Financial stress right now for me is that there are so many causes that I believe in. My financial stress relates to being able to give to the things that make me happy, that create passion in my life, and that are really exciting. There’s a huge conservation project that I’ve just discovered about a month ago that I probably can’t afford. The time frame on this is 100 years, at least. And I’m thinking, “Oh my God! If I went and bought this timber operation, and let that land heal, and restored it. One hundred years from that day—it’s going to be one of the most breathtakingly beautiful places! This is where God would have spoken to Adam; it has to be the Garden of Eden.” And I’m thinking,
“Okay, I can’t afford it, but I really want to do it. I better go out there and work my ass off, because it will be the best contribution I can make to someone one hundred years from now.
They won’t know who did it, but they’ll love that spot and they’ll be so happy.”

TR:

Thank you, Paul. I love you, brother.