I have a co-worker convinced it is better to borrow from a 401k since you are paying yourself back vs getting a loan to buy something.
I checked and the 401k was making 20 percent for the year.
bank loan was like 7 percent.
I say if you borrow say 10k from the 401k you are losing about 800 bucks.
you lost 1150 ish in interest you made vs paying 300ish in interest in a loan.

am I not thinking about this right?
my co-worker says it is better because you paid that 10k back to your self instead of a bank.

You are right if your 401k goes up.  You have unplugged a strong performing asset and replaced it with a weak performing asset.  If your 401k goes down bigly, and you borrowed from it, you would come out ahead.  Problem is, I don't know which way markets are going to move in the future.
It is more about market movements than it is who gets the interest.

Another consideration is if you borrow from your 401k and get laid off or quit you may need to pay the balance immediately to avoid penalties.

It also depends on what you're borrowing it for.  A rental property or a business?  I'm good with it.

Also, borrowing $10k when you have $20k is a different story than borrowing $10k when you have $1m.  I realize it's the same amount of money lost/gained, but that built up base is gone for potentially 5 years and you have nothing growing in your retirement.

I've done it 4 times for other investments.  Not humble bragging, but I'm in the top 1% of 401k amounts for my age after all that borrowing.  My point is that I can be done successfully.  I have not done the math on whether bank money or my own money was the better move though.

Another problem is people reduce or cancel all 401k deposits while they're repaying their loan.

So really, based on those factors and the ones already posted, it depends.

Which option is better for him financially depends on the details - interest rate of each loan and the 401k rules he has to follow.  Then the market gets it’s say.  

My guess would be that which option is better will be determined entirely by how the market performs during the repayment period.  
If the market does great then he misses out on profit on the loan balance and the loan will likely be worse.  Market tanks then he misses out on the decline and his payments are reinvested at lowered stock prices.  

Absent major life events that you can’t plan for the best choice is most likely to not take a loan in the first place.

another issue with pulling from your investments is that while you are repaying yourself, you're missing time in the market. And historically time IN the market > timing the market.

my buddy does it but he buys rental properties with it, and it's worked for him. I won't do it, I'd sell shit off and beg/borrow or work OT or something rather than take money out of my retirement shy of a legit emergency

thanks for the insight.
I don't think it is a major chunk, just someone convinced them to do it this way because you are paying yourself back instead of a bank. and can't get their head around the loss of gain in the market vs paying for a loan.

As has been mentioned, unless you’re  borrowing from the 401k to invest in a business venture that you are projecting will make you a higher return than what it’s doing in the market, then there is no way I’d pull from it.