Invest Like the Best with Patrick O'Shaughnessy - David Chilton - The Human Blitzkrieg - [Invest Like the Best, EP.39]

Episode Date: May 30, 2017

This week's conversation was especially fun. I have a long history with my guest, Dave Chilton, but this was the first time we'd met in person. I'd heard stories about him from people I work with for twenty years, so getting to finally spend time with him was a real treat. I'll let him reveal the connection. This episode will also be fun for listeners in the US, as Dave is one of the best-known people in Canada because of his famous book the wealthy barber and his more recent stint as a dragon on Dragon’s Den, which is Canada's version of shark tank. I called this episode the human blitzkrieg because of Dave's relentlessly positive style and curiosity. He has dabbled in many parts of the business and investing worlds. He is one of the most successful authors in history, has invested in dozens of interesting businesses, and is a Jedi master in the long-lost art of the phone conversation. We discuss business, investing, and writing. If you enjoy this conversation and have any aspirations as a writer, I highly recommend you check out the series of videos Dave and his son recently released called the Chilton method, which I will link in the show notes. I have no financial interest in this recommendation, and neither does Dave! He put it together in large part to stop people from calling him for advice. We discuss a few of the hundred plus lessons from his course in this conversation. As you'll be able to tell early and often, it is hard not to have a good time with Dave.   For comprehensive show notes on this episode go to http://investorfieldguide.com/chilton For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

This podcast is sponsored by CFA Institute, the Global Association of Investment Professionals whose mission is to lead the investment profession by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society. CFA Institute serves a global community of investment professionals working to build an investment industry where investors' interests come first, financial markets function at their best, and economies grow. The chartered financial analyst credential is the most respected and recognized investment management designation in the world.

The views expressed in this podcast do not necessarily represent the views of CFA Institute. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com. Patrick O'Shaunicey is a principal and portfolio manager at O'Shaunacy Asset Management, all opinions expressed by Patrick and podcast guests. are solely their own opinions and do not reflect the opinion of Oshamacy Asset Management.

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaunsi Asset Management may maintain positions in the securities discussed in this podcast. This week's conversation was especially fun. I have a long history with my guest, Dave Chilton, but this was the first time we'd met in person. I'd heard stories about him from people I work with for 20 years, so getting to finally spend time with him was a real treat. I'll let him reveal the connection. This episode will also be fun for listeners in the U.S.

as Dave is one of the best known people in Canada because of his famous book, The Wealthy Barber, and his more recent stint as a dragon on Dragon's Den, which is Canada's version of Shark Tank. I called this episode the Human Blitzkriek because of Dave's relentlessly positive style and curiosity. He has dabbled in many parts of the business and investing worlds. He's one of the most successful authors in history, has invested in dozens of interesting businesses

and is a Jedi master in the long-lost art of the phone conversation. We discuss business, investing, and writing. If you enjoy this conversation and have any aspirations as a writer, I highly recommend you check out the series of videos Dave and his son recently released called The Shilton Method, which I will link in the show notes. I have no financial interest in this recommendation,

and actually neither does Dave. He put it together in large part to stop people from calling him for advice. We discuss a few of the 100 plus lessons from his course in this conversation. As you'll be able to tell early and often, it is hard not to have a good time with Dave. You can find show notes for this episode at investorfieldguide.com forward slash Chilton. Now, please enjoy my great conversation with the wealthy barber, Dave Chilton. So Dave, thanks so much for joining me today.

Most people in my audience actually won't know who you are, which is unusual probably for you. I was at a speaking at a financial planner conference yesterday for the Royal Bank. here in Canada, which is why we're together, are able to be together today. It's 300 people in the audience, and I mentioned that we were going to be doing this, and that's all anyone wanted to talk about. So we'll start with an introduction,

which you probably don't need to do all that often these days. Could you just tell us very briefly why you are so well known throughout Canada? I wrote a book when I was very young. I peaked at a very young age. It's actually quite sad. When I was 25, I wrote a book called The Wealthy Barber, and it came out a year and a half later.

I thought it would sell 10,000 copies that went on to sell millions, and it led me into a lot of other initiatives in Canada. I became a dragon a few years ago on Dragons Then, which is our Shark Tank up here in Canada. In fact, it was the forerunner to Shark Tank and Kevin O'Leary is on our show up here, and Robert Herzvick was for years. In fact, I replaced Robert when I came on the show. And I did come down to the States for a few years.

In the early 90s, we put out a U.S. version of the wealthy barber. It did very well. Sold over a million copies. And I partnered with PBS and put out a two-part series. But I was burnt out, not literally burnt out as in falling on the ground, but I just couldn't get home enough. And so I decided to come back up. The second book never came out in the States.

The Wealthy Barber returns because of Dragonstam, I was too busy. But I love speaking in the States, and for two years I spoke down there exclusively around the 401k arena. And it was a lot of fun, and I love the U.S. people. So it's, yeah, I've had a charmed existence, no doubt about it. I'm not that sharp a guy. I've had one good idea in my life. Thank heavens I had it when I was young. That was the absolute key.

So we're going to cover so many different interesting areas. Maybe the unifying theme is kind of how to present a product to people, which seems to be one of your deep areas. of natural, instinctual expertise. But we'll start with The Wealthy Barber just because I've never heard it from you. Actually, you know what? I'm going to change my tact. I would love to hear the story

about how you first came to be involved with my dad and the Royal Bank. Oh, my gosh. Because I've heard this story from one side about 100 times. I carried your dad. I'm sure you did. You know, the funny thing is,

and your listeners will get a big kick out of this and they'll think I'm a complete idiot, which I kind of am. But I flew to Chicago to give a speech for Harris Bank. And I was on the road and I was truly exhausted. And I mean, I was exhausted. I got there.

I went to my hotel room. I opened my suitcase and it was empty. I hadn't put a single thing in my suitcase. Crazy. So I had to phone the woman who picked me up from Harris Bank and say, I don't know how to explain this without you thinking, how the heck did we hire this guy, but I don't have anything in my suitcase.

I need to go get toiletries and I need to get a suit. So she took me to a major mall. I got outfitted in the suit and they had to, of course, tailor it. And while I was waiting for it to be tailored, I went into the Barnes & Noble, and there was your father's book. And I bought it. And over the next week, I read, What Works on Wall Street? Well, I traveled.

And I thought, I like this idea. I like his communication style. I called him up. I didn't know him, obviously, and I said, I'm the wealthy barber from Canada. He'd never heard of it. And I said, do a little research. It's pre-internet, by the way. Not that easy to do a little research.

And I said, I think I can take this with you to one of the major financial institutions in Canada. And we can make something big happen. The first company did not seem overly interested, but Royal Bank grasped it right away. We dealt with their head of wealth management, Simon Lewis, their head of the mutual fund division, I should say, and he was enthused out of the gate. He met your father. He has a lot of charisma and he thought this was a good partnership and the funds launched not long after. I went across the country doing a lot of speaking, a hundred one year, a hundred speeches. Some poor AV guy had to listen to all 100. The same guy had to hear me a hundred times.

I mean, he wanted to shoot himself or me and your father would come up a fair amount too. And it was really a lot of fun. We enjoyed each other's company. He had a great sense of humor and the funds have gone on to become big players in the Canadian. a marketplace. And so, no, it was a great experience. I enjoyed the whole thing immensely. So, so what was the genesis for the wealthy barber itself? What got you interested in, in finance and investing? You know, I am, I don't look like a geeky guy, but I'm one of the biggest geeks you'll ever meet. When I was 14, 15, 16, I was reading nonstop on finance. In fact,

I tell this not to brag, I tell it because it shows what a geek I am. But when I wrote the Canadian Securities course, back in 1984, I didn't even study, I just signed up for the course and drove down two days later and wrote it to our Series 7 because I was so into all of that stuff. And I ended up the highest mark in the country. That's how geeky I was that I didn't even open the book. And so I came out and I was a stock broker and doing the normal stock broker type things, but not loving it. You know, I really much preferred education over sales. And I was drawn to the financial planning end more than I was the investment end at that point. And I gave a course on financial planning teaching teachers how to handle their money better, not to pass it on to their students, but for their own monies. And I enjoyed it immensely. And I used mostly humor and stories. I didn't go to the chalkboard. I didn't pass out a lot of graphs and charts and math oriented things. It was, Just open dialogue about how this isn't that tricky and a lot of its common sense. It resonated. I thought I was on to something. So I started working on a book.

This was when I was 24 called The Ultimate Guide to Losing Money. And it was a humorous look at all the mistakes people make with their finances and insurance, savings, and everything else. And I still like the book. I still have the rough of it all these years later. But halfway through, one night I was watching cheers. And I thought, that's it. I'll set it in a bar and I'll use fiction. And so I called it the wealthy bartender.

But for a book like this to work, it has to resonate. people have to buy into the characters. It has to really ring true. So I had alcohol and prostitutes and the whole shebang. I'm not a very good writer and it got confusing and jumbled. So I thought this isn't going to fly, but I'm close here and I shifted it over. It sounds funny to remember this, but on Thursday afternoon, I shifted it over the wealthy barber. That's it. You know, it's knocks more and it'll attract attention. People think, well, how could a barber become wealthy? And he became wealthy by applying good common sense techniques over a 40, 50 year period. And now he's teaching younger patrons while he cuts their hair. what to do. I remember all this vividly. I drove over to my mom and dad's house. My dad, brilliant guy, smartest guy I've ever met. You watch Jeopardy with him. He gets every question right. They'll say, when was the Battle of Hastings? And he'll say, well, they're going to say 1066. But recent archaeological discoveries placed it closer to 1068. Like, the guy's annoying. He really is. So I went over to see him, but he has no business instincts. He's never right. And I told him the whole wealthy barber idea. I said, what do you think of that? He said, I think it's stupid.

And I said, good. And I went forward from there. And I worked on the book for about a year. And it just kept getting better. My sister got involved. She's an editor for a living. So it made sense to involve her in the process. I'm not a gifted writer. Had very little experience at that time. And it was an interesting story.

You may have heard it before. I lost my confidence about five, six of the way through. You know, I thought I'm 25 who's going to buy a book from a 25-year-old. It's a different style. Will it catch on, et cetera, et cetera. And so I decided to send out the first four chapters to three very well-known Canadians in the financial space. And none of them liked the book. Interestingly, not one of them.

In fact, I would say two of the three. disliked it quite intensely. Wow, that was crushing. I mean, it really was. In fact, when I got the last of the three calls, it was probably the only time in my life I felt defeated. My optimism was way down. And then I did the smartest thing I've ever done in my life,

almost by accident. I gave the same chapters to the 12 guys on my slow pitch team. That was the target market, you know, beer swinging, illiterate Canadians. And they took the months to read it, of course. But they all got back to me and they all loved it. Every one of them loved it. They don't like that kind of book normally,

but they thought this was very interesting. It got them thinking. They were asking good questions. So I thought, hey, the target market loves it. That's all that matters. And also, their questions were so good, I started incorporating them into manuscript. We were doing major rewrites. I thought, hey, if 11 guys out of 12 want to know my Slopich team, most Canadians probably want to know.

And that's where it picked up in the importance of testing, something to this day. I use more than any writer, speaker, communicator, I know. And so we incorporated that. And by the time I had the final copy in hand, I knew it was going to work. I didn't know what's going to work selling millions and millions and millions, but I knew it was going to work. And then it came out. And you know what? It had a really interesting first year.

It didn't do that well. It sold 25,000 copies, which is in Canada quite a good total, but nothing that would have led to anybody to believe it was going to go on to sell millions. It was partway through the second year, April, in fact, that the word of mouth hit, and it went ballistic. It started selling 25, 40, 50,000 a month. Well, no book had ever done that in the country's history, but there's a great lesson there for people creating information products. It often does take a long time to build the critical mass that leads to the word of mouth

that can be done overnight. And the conventional publisher's model of marketing things for. three and four weeks, probably not going to work. You've really got to stick with it. It's tough to rise above than always harder now than ever. People are getting information from all over the place. So again, to stay the course for a year and build that brand momentum and awareness, it's hard work, but if you truly have a good product, it'll pay off eventually. So, and then from there, it just went straight up. And it kept going stronger and stronger. I put out the U.S. version. I did the PBS TV series, enjoyed that immensely. And it just led to more and more things. And I ended up publishing

cookbooks, of all things, maybe five, six years later to women from Ottawa approached me. Almost stalked me to tell you the truth, trying to get me involved. And I said, no, I didn't want to get involved. I was too busy. But my mother eventually cooked recipes from the book and said, you should publish this. And, you know, when your mom tells you to do it, do it. And they sold millions. And so for years, I was spending a lot of my time there.

They ended up putting out kitchen gadgets, a TV show on the Food Network. They partnered with Hallmark on greeting cards, Costco, and frozen food. It became this gigantic enterprise. In fact, one of the bigger publishing-related enterprises I've ever seen in Canada or the States, huge success in the States on QVC. So it was really a lot of fun, but that took a lot of my time. It sounds like I've seen this fantastic online, I don't know how many part video course that you put together on how to kind of write and market a book, which I cannot

recommend more highly. It is stunning how many notes. I could show you the notes I've taken thus far. I've watched maybe half of them. And it's about books, but really like you said, it's more about information products, which I think a lot of the same principles apply kind of across the board. And so if anyone out there is presenting some information product of any kind, it's definitely worth your time. And I'm making no money from that.

Yeah. I'm honestly not. I donated all of my time and energy. I learned a lot about myself during that process, by the way. I did not realize how in my old age I'd become very obsessive, compulsive, very anal. I wanted to take three months to put that together. It took me 11 and a half because I tested it and retested it and redid it so many different times. Went back to all of our old notes.

Like I really got, I would say, almost over the top involved in that, wanting it to be the best. it could be. There's 175 videos. I'm thrilled with the feedback. It's been a lot of fun too. And going back through all the notes of your whole career and looking at all the testing you'd done and all the testing we'd seen others do, there was a lot of good stuff in there. And you see common themes and patterns emerged that I wasn't really even aware were there until we put all the data together. It was a lot of fun. It comes back to this idea of testing and almost a venture kind of iterative startup mindset you see that. Absolutely. By accident. Yeah. Just because it works, right? And your slow pitch team, maybe it gave you the first lesson and why you should do that.

We were talking before we started recording about institutional inertia and the power it has in every industry, especially the book publishing industry, but certainly investing too. And this active, passive thing seemed like a trickle. And now it's a wave. And things can change quickly when you reach that critical mass. How do you know, for example, with the wealthy barber, 25,000 copies? That's pretty good, by the way. 25,000 copies, how do you know to stick with it, right? How do you know, how do you have the confidence that you have a good product?

but I really didn't. Christmas came and my first year in the sales were actually slow and I decided it wasn't going to quite break through. I was still pleased with 25,000 and I didn't do a lot of marketing the next couple of months. I went and hit the road and started doing a lot of speaking. So I'm embarrassed to say I didn't really stick with it. I kind of did. And then the Canadian military bought a fair number of copies and I thought, okay, now we're up in the 40s. Maybe that'll kick in the critical mass. Not really. And even in RSP season, January and February, you're allowed to make the tax deductible contributions to RSPs, R401. case here in Canada, it didn't blossom. It went well, but nothing spectacular. But it's funny, when it clicked, it went straight up. So it didn't go in a steep linear fashion or even a parabolic fashion. It just jumped up in one month. And I'll never forget when it happened. And again, it's not because of this, but this was a good sign of what was to come. I went to Halifax to give a speech. And my book was not well-known out there. I'd done very little media. And I thought, you know, no one's going to come. In fact, I was quite nervous about the whole thing. I went to the hotel a few hours before I was to take stage. They had 600 chairs set up. I was actually stacking the chairs

and moving them to the side because I was so embarrassed about being a lot of empty seats in the house and 2200 people showed up for a financial speech. And I knew that night, okay, now we're hitting it. Now I still wasn't thinking millions, but I was thinking hundreds of thousands. You could just see something had clicked finally in the word of mouth and captured people and the brand name was getting out there and it went crazy. The very next month I think it sold 50,000 copies. What was the decision to self-publish it? That's the, we haven't even mentioned that detail. That's a very interesting question because there's a misconception in the marketplace that I self-published because I couldn't get a publisher. No truth of that.

I only went to one, and to his credit, he saw the potential and wanted the book. It was Feternary and White's side. I think that Simon & Chuster may have seen it too, so there may have been two. I wanted to control the special sales market, the corporate sales market. I know that's a weak spot for almost all publishers. I felt the book would do well with companies buying to give to their employees, for example. And sure enough, that it ended up being a huge market. In fact, in the States, we sold more books into the corporate sales arena than we did through retail.

So Bell South, Motorola, IBM, they all bought lots of books to give out to employees. In some cases, they would use it as a marketing tool as well. But in most situations, it was just given to employees. So I wanted to control that and that's why I decided to self-publish. And it wasn't as hard as people think to do that. I just read a whole bunch of books on it and just set out. And I'm still like that today. Like, I love controlling things and I love reading.

And so to try something new, I'll just read. And I'm not that talented. I just steal ideas from books. That's basically how I built my whole career. Stealing ideas from books. It seems like you have like a tremendous amount of personal momentum. Like you're sort of like a train on the tracks and nothing's going to slow you down. Well, there's a lot of truth of that.

And if you have a product you really believe can help people, you tend to be pretty driven to get in front of them. And, you know, I still to this day, all these years later and I'm old now, I get way more excited when I get emails every morning from people saying, hey, it's because of the wealthy barber. I'm retired today than I do because we strike a big deal and you make a lot of money. I've always been motivated by helping people. And I don't mean to sound corny, but I really have.

Like that's always kind of. what's driven me and one of the first things that drew me to Janet and Greta, the two cookbook sisters who wrote Looney Spoons and Crazy Plades and Eat Trinking Me Mary was their passion was to help people eat more healthfully. They weren't into the money. It ended up, they made almost more money anybody I've ever met in publishing, but that wasn't what their motivation was. They were all about helping people eat more healthfully, and I knew that we were kindred spirits on that front. And also it's that passion that drives you to get through the tougher times or to put up with the long hours and the travel, because marketing some of these things requires

to being on the road a lot. You know, going back to institutional inertia, You mentioned it's such an issue. It doesn't get spoken about nearly enough. I mean, a lot of the opportunities in life are because institutions do the same thing over and over and over again. And that's what creates the opportunity to come in and do something differently. But what I've learned, and I am changing the subject a bit, is it afflicts people, obviously, just as much. And that's why a lot of the fintech companies haven't done nearly as well as they were thinking they were going to do. You can't get people to switch.

They might even be at an institution they don't like. But getting them to switch over is very difficult. People don't like a lot of change in their life, especially with all the noise hitting us from all sides right now. So inertia is always a challenge, but therein lies a lot of opportunity as well. So we're going to come back to FinTech in a second, but I want to give just one little tiny example that I think illustrates the power of just looking at everything with a fresh set of eyes. So early on in the video series on books that you put out, you and your son put out, I believe, together, which is a neat, neat pairing, is a video on how you should take advantage of the dedication page in a book. So classic example of go open 100 books on your bookshelf. Every single one will say, for my wife, for Susan, for Laura, for Tom, for Jim.

Nothing ever interesting or exciting or with any sort of personality. And your point in one of the videos was, everyone reads this page. No one skips this over. It's this big white page with a little couple words on it. This is a great opportunity to make a splash, to do something interesting to show a little personality. I thought to myself, holy shit, he's right. No, you said all that very well, too, by the way. you really did. You're an outstanding communicator. But our early research told us that about 85% of

people read the dedication page. And most don't even read any of the earlier book stuff. In fact, most don't read introductions anymore. They go right to chapter one. And so you have to take advantage of it. And I mentioned in the course, there were a couple great ones we've been sent. One was a little sad. I'll leave it out. But the one was so funny, he said, I dedicate this to my two fabulous wives. I pray you never meet. But when you read that, you're already hooked. You want to keep going and you want to read more from this person. So there's a lot of examples like that where when you add up The little subtlies here and there, cumulical, they make a huge difference to the book. When you're writing nonfiction, you're trying to pull people in.

You're trying to change the way they think. If they like you, if they buy into you as a person, that's a lot of easier job. And too many books are boring, to be perfectly honest. That's one of the biggest problems with nonfiction. We're seeing too much material produce that's boring. And in these days and times of everybody having ADD, you better not go down that path. And that's why I believe in testing so much. A couple of other things just to throw out there and then we'll switch to fintech.

that again, I was just, he's kind of knocked me off my chair, like, of course, why would anyone do it this way? Put the damn acknowledgments in the back of the book and don't have a forward. And you said, why would you begin a book with someone's voice other than your own? It doesn't make any sense. And they're all half ass. It's so, forwards are bad. And so when we did all that testing back in the 90s in the early 2000s, over 90% of forwards tested poorly with readers. Why are we putting things in a book that over 90% of our readers don't like?

That's wacky. I'm not over 50%. over 90% didn't like the forwards. And you used a good expression when most of them are half fast. They are. The people, I've written lots of forwards, you don't want to write them. They're an inconvenience. So you write them quickly.

You often haven't read the book fully. And they're in a different style of writing. And then the editor's caught in a horrible position. The editor can't really alter it much because it's insulting to the person who provided it. There's a lot of challenges here. It duplicates things that are said later or contradicts. And even in some cases, things that are said later. You wouldn't have a music album.

And the first track on the album be a different artist. You shouldn't do that with books either. You're way better. you can get a big name instead of getting a forward just to get a cover testimonial. They do work. Cover testimonials, all the research crews, they're very impactful. Publishers are figuring out some of these things now. They're going with shorter testimonials on the back, for example, something that we've known

through our testing makes a big difference. But when I say publishers, if you grab that book behind you, they've got really long testimonials. Even I don't read them, and I tend to read everything. The acknowledgments to the back was one of my favorites in the whole course, because I've been saying that for 25 years, that when people open their book with acknowledgments to a bunch of people, I couldn't give a crap about it. It's just ridiculous. What a crazy way to open your book.

And then, as I said in the course, a lot of people say to me, yeah, but I'm hoping people don't read that. So you're opening your book with something you're hoping people don't read. Ridiculous. But in publishing, so many of those things just become the way they're done. And so you keep doing them forever, even when they make no sense. We are seeing some changes. You know, people like Seth Godin got involved in publishing and Tim Ferriss, et cetera, their

marketers. And they naturally did a lot of this well. They didn't need Dave Chilton's testing to help them. They all had their acknowledgments at the back. because they thought it was stupid to have them at the front. Still didn't write direct dedications in most instances, but most of the rest of the stuff, they did quite well. It's amazing how if you just look at things,

not in the way that they have been done, but just freshly, uniquely, almost with a silly mindset, you can come up with much better outcomes. No question about it. And also, if you, again, speak to the readers. So one of the things that we really started getting back strongly, I'd say maybe seven, eight years ago, maybe nine to ten, was how high a percentage of readers prefer short chapters.

And we saw the data coming back on that, and we thought that's interesting. And every year it's gone up. And if you're talking male millennials, a tough group to get to read a book, period, by the way. But if you're talking male millennials, they want short chapters almost across the board. And so give it to them. And I always said to the publishers, I'm not going to argue about this. If I have 92% of my data saying that they want short chapters, I'm writing in short chapters. Because you have to give the reader what they want.

It makes it more likely they'll finish the book and word of mouth the book and enjoy the book and everything else. All these are things the publishers have and embrace because a lot of times they don't even know them. If I want to speak to a major publisher and I talk about these things, they're always going, that's interesting, that's interesting because they don't task. You've got to reach out to the readers and get as much feedback as you can. One of the themes that I'm really intrigued by today is in all businesses, all industries, this man plus machine dynamic. And you've talked a lot about sort of a quantitative empirical backbone to strategy or tactics

that then get delivered kind of with a human touch, with a narrative, with jokes, with stories. It's an interesting combination that's starting to kind of pop up everywhere. No, I agree. And it's key. I mean, you do have to have the substance, the data, the research, but you have to deliver it in a way that people enjoy taking it in. And humor can certainly help. Stories are a key part of it. I mean, people want a beginning, a middle and an end. They want character and conflict. And doing all that is a real skill. But most people could be better out if they put a little work in all. Your dad's naturally gifted in that area. But please take that part out and edit that. I don't want him to say, you call him and say, you call it.

You called me naturally. Is he going to hear him? I said that. But he is. He's a storyteller. And so he's one of the few money managers that you can put in front of a crowd. And they love hearing him. A lot of the money managers aren't too good.

Although that being said, I maybe shouldn't say that. In the last few years, there have been a number of very, very good communicators on the money management front. So let's switch to kind of investing in finance. So your book probably more about personal finance financial planning than investing. Which is funny because investing is more of my passion. but I wrote on financial planning. So why? Well, I thought people needed help.

You know, I really did. The first book, by the way, said almost nothing new. It really didn't. I tried to take the conventional wisdom of financial planning and repackage it in a more palatable way because the vast majority of people weren't going to read a financial planning book. They thought they were dull. They thought they were intimidated. They thought they were math oriented.

And I said, no, it's really four, five, six basic things you have to do. And I'm going to communicate them in a fun story with some give and take and some humor. And we're going to take the math out. And you'll grasp this. and it seemed to work. The only really unconventional opinion I had in that original book was, I don't like budgeting. I've never felt it to be very impactful.

I think people are better just to take the 10% or 15% right out the top of their paycheck. I think actually what does work I talk about in the second book a lot, are spending summaries. For whatever reason, when people keep track of everything they've spent over the last 60 days, they tend to alter their behavior going forward subconsciously without even putting much effort it. But anyway, it was very much conventional wisdom,

just repackaged in a story format. And I thought it needed to be done. So I didn't write it because it was much of a passion, although it was, but investing is where I've always been more passionate. I mean, I read everything I can on it. I love the field. But it's an interesting one because you read all this and I'm not sure it benefits you that much.

So you're in your late 20s, early 30s, and you've got a massive slug of dough from the success of the wealthy barber. So what was your mindset then? Did you kind of switch to, okay, now I am an investor and start to think about how to put that money to work? What was that transition like? Yeah, for sure. I mean, no way I anticipate making that kind of income at that time. I mean, it was a bit of a shock, truthfully. And so, yeah, I did all the basic things first because you didn't want to be hypocritical.

You want to do all the things you taught. But after that, I put a lot of effort into trying to invest my money well. And I gave a lot of it away, truthfully, I've always been into that. I live a very humble life. In fact, I think your listeners would be quite fascinated by just how humble. I live in a 1,300 square foot house that includes the basement. And it's one of the most poorly built homes in Canada. Like when it's windy, the whole thing shakes.

I had a buddy come down from Sarney one day. He was going to do some fix-ups for me. And I wasn't home. And I get there and he's there. And I said, what do you think of my house? He goes, it's shit. I said, you know, I might want to be a little bit more diplomatic. And then he takes me up to the front room and he says, there's no insulation in this room.

This is Canada. And I said, it's not cold here because the house is so small. It never gets cold. And he said, but your walls are freezing. I said, I don't walk around the house like Spider-Man with my hands on the wall. I don't care. So I live in this little house. I have a little tiny cottage.

I didn't have a nice car. When I first met your dad, I was still driving a beater. And then I eventually bought a nice car. But for the most part, I live a very humble life, not because I'm a minimalist. I don't like stuff. You know, it's not trying to make an environmental statement or anything else. I just don't like stuff. I like living a quite simple life, and I think that's been a big help too.

But, yeah, on the investment front, I tried to be well diversified at all times and think long-term and do all the things that I preached, made my fair share of mistakes. I had one big home run, which certainly helped. And all of that's been a lot of fun. I've learned a lot about yourself investing, too. I mean, a lot of what your dad teaches and preaches about how hard it is to stick with a plan, especially an investment approach during the tough times. It's so true.

My father is an interesting investor. He is done very well because he is oblivious. He pays zero attention. I mean, none. So he puts his money into a long-term growth fund or an index fund, and he looks at it once every 26 to 27 years. Like the thought of opening a paper to read about this. And his argument is very interesting. He said, well, I can't figure out where things are going anyway.

And he argues nobody else can either. And I believe in capitalism. And to some extent, buying into equities is a bet on long-term capitalism. I'm leaving it alone as long as I possibly can't. But it's actually quite amusing. I mean, I tell a story in my second book about him putting, I think it was $25,000 international fund and coming back to me years later and saying it's down to $7,500. And I said, that can't be right.

The markets have been fairly good. Well, he had 7,500 units. And he actually had like $110 grand or something. He's going, well, I've done well. I said, yeah, the master investor here. But I made a joke in the book, you can learn a lot from this guy who knows so little. As crazy as that statement sounds, because he does stay detached. He's not going to get emotionally involved.

He's not going to get out at the wrong time, et cetera. He just leaves it. He's the guy that people say is not out there. People always say nobody actually does this and leaves it forever. Well, he's been the guy who has done that. I'm really jumping all over, but your listeners will find this one interesting too. You know who's done really well. I'm sure it's in the States as well.

But in the last 25 years, I call them the accidental winners. Are a lot of older people who 20 and 25 years ago decided they wanted to go as safe as they could, but stay involved in equities. So they bought into utilities and bank stocks in Canada. and those types of things. They wanted the steady dividend flow. Well, of course, they've had great capital appreciation in this declining interest rate environment. They've actually outperformed all the people who were pursuing growth.

So we have a fair number of people I cross past with who have incredible amounts of money now in retirement because that was the investment approach they took. And again, those stocks have roared along, even though that wasn't their intention when they bought them. Tough to do poorly with Canadian banks. It's amazing how often this pops up in investing that things that seem exciting turn out to be terrible returns. and things that seem boring and dull turn out to deliver the best results. No, it's absolutely true. You know, it's one thing I've always said, and again, I'd love to get the comment from some of

if you're a more esteemed guest, but I don't think risk reward do walk hand in hand at all times. I think a lot of times when markets have collapsed, the risk is very low and the reward is very high. They are delinked, and those are the times, obviously, you're looking to get involved. And I was lucky in 2009 to get involved in a couple situations where forced selling, had driven the stocks way underneath their intrinsic value, even based on the challenging economic times and the collapse, they were way underneath where they should have been. You know, I have a couple of colleagues.

That's all they do. They only buy when you've had a lot of force selling. And now lately we haven't had much because you've had steady rises in markets. You haven't had many economic pullbacks. But traditionally every few years, you see something come along that forces a sale of a stock. It could get booted out of an index. Could be something relatively small like that. Or it could be that it's in a number of different stocks because it produces an income.

And then they cancel their dividend fully. And those funds have to get rid of it because they're by mandate. only allowed to invest in stocks that produce an income, well, all of a sudden, it's at four. It should be at three because they cancel the dividend during tough times, but it goes to 110. And these guys, that's all they do. That's the only way they invest is they look for those situations,

and boy, they've done well. So thinking back again to that kind of first period when you did so well after the wealthy barber and through now, what has your investing philosophy looked like from start to finish? Has it changed a lot? You mentioned stocks, sounds like individual stocks in 2009, which implies some sort of research on individual names versus index funds.

What's your general take on investing philosophy, inequity specifically? Yeah, I mean, a little, I've never used a lot of options. I've never used leverage. You know, I've always stayed away from that. I've had a broad base of index funds in most instances kind of riding those forward and keeping the cost low. But I have done a fair amount of individual stock picking, not trading.

This would interest people. I've taken a couple very large, extremely speculative positions, which would surprise people as the wealthy barber. But again, in the context of my overall net worth, it's been a reasonable thing to do. But even if I showed the numbers, people go, great, that's pretty aggressive. It's surprising.

But I love due diligence. I love research. And I've thrown myself in all three of these situations to it. And two of the three have gone very well, and the other one went okay. But again, it's a little bit inconsistent with what I teach and preach certainly. But remember, I'm trying to help people

who are building their retirement plans and those types of things. I don't deal a lot with the affluent. That's not my market. place. So yeah, it's been a little bit all over the place, but I think what you'd expect, like relatively secure, safe stuff. Can you pick one of those three and tell me what it is and talk about the due diligence process? Well, the one was called Pan Ocean and it was an oil company in Gabon, Africa. And a colleague of mine, a fellow, your dad knows very well, called me up and he said,

you should look at this. It was at $3. And he said, I think it's worth like 20. And I said, okay, I'll look at it. Then I went to five. And I'm thinking, I missed the boat. And he calls me and this is his exact word, he said, I did a thorough due diligence on this, load up the truck. That intrigued me. So I started buying at five. I did a lot of due diligence, and it took me a few months. And while I was doing it, it went up to eight. By the time it was at eight, I was convinced it was worth $30, $40, $50.

And that the market had completely missed this. I think because of Gabon, Africa, they were feeling there could be nationalization or major troubles. We'd done a lot of homework on the political setup there and felt it was a risk, certainly, but not that big of one. And I kept doing the research. And it was one of those few situations or rare situations, where the stock price never caught the story.

So even when the stock went from 8 to 11 to 15 to 18, the story had improved enough that we felt the stock was worth 40, 45, 50. It got taken out of 58, about a couple of years after we got involved in it. And there was three of us that did a fair amount of investing. I owe the other guys for getting me involved, almost badgering me to get involved. But once I got involved, my due diligence is borderline crazy. Like I will call the political officials in Gabon. I will call the Canadian consulate people.

I will call brokerage firms and convince analysts to look at it for me. I'll do all that. I'm involved in one now. It's a penny stock. And I've had five people do thorough due diligence. They don't even own the stock. But they're intrigued by the story and I get involved. And it's over in Mongolia.

So I've spoken to ambassadors to Mongolia. I got through to the IMF through a colleague as they were looking to put a loan package together from Mongolia just a very few months ago. So few people are going to do the kind of due diligence I do. But I don't do it a lot. So I'm talking once every few years, I'll find a situation I think is extremely intriguing, and then I'll go to this obsessive, compulsive due diligence approach. But it's been pretty successful. You know, I mean, so far, so good. I just wouldn't want to do it full time. Is it an EMP stock? Is exploration production oil stock? No, the oil, the oil company actually was producing. The Mongolian stock is not in oil. It's in gold. And it's an exploration company. So I'm just fascinated by deep diligence of any kind. Like when people ask me what I do, I basically say, I just do research on whatever might be in, front of me right now. That takes a lot of time.

Well, you and I are quite similar. I know from following you on Twitter, we have a very similar mindset about reading and everything else. And I love doing the research. Like when I was on Dragonstain, I did my own due diligence, which nobody could believe.

There's no dragons and shark anywhere in the world do their own due diligence. I took four months a year to do it. I took off from everything, speaking, working, everything. I went home into due diligence and all the Dragon Stand deals. Loved it.

Man, was that a good learning experience and humbling because you reminded how hard business is. And I was also reminded how lucky I was. I had a lot of luck in my life. I really did a lot of things fell in. I have fantastic parents. Never sick a day in my life.

Like I do all this traveling. I always feel 100%. I can't figure it out. I drink all this diet Pepsi and I eat nibs, little liquor's things. I don't know how I feel so healthy all the time. But even with the book, a lot of things kind of fell in my way. Like if I hadn't done the testing with the guys, it may not have turned out the way it did. And so I've been quite fortunate.

But going back to the due diligence, I'm nutty. So did you know anything about the energy industry prior to? Nothing. So where did you start? Like, I really like this detailed process. I went out and got books on the energy. energy industry on Gabon that don't even relate to the energy just on the Gabon. What's the political setup?

Is it tribal? What are the risks? I was doing all this. I would go to the economist database and I would plug in Gabon and every single article on Gabon for the last five and 10 years. I would read. I've done the same thing with Mongolia. But the Mongolian one, I would say I bordered on nutty.

Like I would say if I told you everything I've done, you'd say you might need to get to a doctor. Because it is, even the company, I talked to the CEO and the CFO a lot. They're going, this guy's crazy. This guy's crazy. It's actually pretty funny how much work I put in on that. But it's done very well. I have to tell you how I got involved because your listeners will find this amusing. The Gabon stock did so well.

And so one of the two guys that got me involved in that is a broker. So I sent him some money and said, hey, good for you. And go ahead and manage this. And it's your discretion. And it didn't do great. And one of the things he bought me was this little company out in Halifax. And it was primarily a coal company at the time. I didn't do any due diligence on it at all.

And then it wasn't doing great, and I had some cash, and I started doing due diligence, and I didn't like it, to be honest with you. And sure enough, it went down a lot. But it ended up splitting into the coal company and this little itty-bitty gold exploration company. And that's when I started doing my homework on it and realized that it was a very good opportunity. The market had mispriced it and went from there. Tell me the couple most interesting things that you learned about Mongolian gold exploration. Well, it's freezing cold there. That's what surprised me. For some reason, I thought in the desert between Russia and China was going to be quite warm most of the year.

but it's the coldest of all the winters. But the big thing I learned is that their fiscal situation is so out of bounds. It's crazy. I mean, that ratios like you can't believe, but the absolute amount of money involved is relatively small because they're a small country, three point something like a million people. Because they have this bounty of natural resources sooner or later. Things are going to go well there. It could be later.

Traditionally, this takes a long time to play out in countries. But when they ran into the problems on the fiscal front, you don't know how this is going to turn out. Are they going to be more tempted to nationalize? Are you going to have issues with contracts? And there have been lots of ups and downs there. with the political establishment dealing with the companies on the foreign direct investment front and mining. So these are things you have to be very wary of. And they're more likely

to be problematic when you have these fiscal issues. And so I had to do a lot of research on what was the IMF likely to do. What was the world banks involved in going to be, where they're going to kick the can down the road, which was fine with me because this is relatively short-term story. I think that we're involved. And so that kind of research is not easy to do. There aren't a lot of places you can to find that out. And I just reach out. I just phone anybody I possibly can. So I'll phone the major accounting firms because you know they're represented there. Well, yeah, finally, I found one guy at Deloitte who knew somebody. And then that person knew somebody.

And then all of a sudden I'm talking to a guy who says, yeah, I'm dealing with the IMF on that. And I can't tell you certain things, but blah, blah, blah. And then, you know, this is how you do it. And it's, I do it all by the phone. I don't do any of this due diligence to email. So I do all my reading online or I get books. And then all of my stuff is phone, which is a little bit unusual. But I just find I get so much more out of the conversations, the back and forth that you don't get.

in email because people are busy and they're distracted, they're doing other things. But when you're on the phone, they tend to be more in the moment. So I've used that extensively. And again, I'm not doing a lot of these. I've done like three in 25 years where I've gone to this crazy level, but they have been crazy. I think I'm going to call this episode the human blitzkriek. Because that's what it's like. You know, it really is. I wasn't kidding when I said that the CFO and the CEO just laugh. They think it's very funny. I think they think, how do we end up with an investor who's going to end up knowing more about the company than we do? And I didn't have much background in geology either. Like I've had to learn a lot. lot about all of that and the different types of rock formations and this type of thing. And you're

trying to find people who you can work with as the data comes out so that they can help you make sense of the big picture and all of this. It was fairly easy on this stock early because I didn't know what it was worth, but I knew it was worth way more than it was trading it. And so I had a big margin of safety that way, even though I couldn't get much certainty. It's getting trickier because it's done quite well. And it's done well. You've lost some of that. And you're trying to figure all these things out. So it's fascinating. How much time would you estimate you spent on, let's say, the Mongolian name, just the one stock? What's the name of the stock? I can't tell you the name of the stock. I've spent hundreds of hours. Hundreds. Yeah. That's awesome. Yeah, for sure hundreds of hours.

Like there's no way that it's not hundreds of hours. I don't want to sit back and wonder if it's a thousand, but it's hundreds of hours. So this concept of deep due diligence is so interesting to me. And we'll use it as an opportunity to flip to Dragon's done a little bit. So funny. Actually, literally, yesterday evening, I'm getting out of the car at the hotel, and Herschivik is right in front of me. Oh, that's funny. So I thought, wow, this is a weird coincidence, right? I'm talking to Dave tomorrow. So can you describe how you got involved with Dragon's Den?

I mean, really, for anyone listening, it's just Shark Tank. It's Shark Tank, yeah. There's no difference in format or, and it was the original, right? So Shark Tank was a bad. It started a year before a shark tank, and then two of the guys came down from Canada. And I got a call from them, I guess, seven, eight years ago, unfortunately, one of the original dragons passed on. and they were asking myself, but they were asking tons of people to audition. I had no interest.

I was busy traveling. I'm a pretty low-key guy. Like, I live a very quiet life and I passed. But then when Robert left the show to focus more on the U.S. and his security company doing so well, they asked again more aggressively, will you do it? And I said, I'll think about her for a few days. And actually decided against it. Then a colleague of mine who works at the CBC or did at the time, I think she was trying

to be motivational, but she said to me, you should try this. You're not young. That's kind of rude. And she said, you know, it's something new and something different. And do it for year if you don't like it, then go a different route. And you know, that really hit me. And I thought that actually makes sense. And even though I was busy at the time, that was going to be the challenge juggling all of the different

involvements I had. I thought it was a good idea. And I loved it. I really did. I learned a lot from it. Like if you throw yourself in and you do 25 due diligence or 55, 75 due diligence and you get to know the entrepreneurs and see what they're up against and you're going into the stores and looking on shelf to see what the competitive landscape is, et cetera, you can't help

but learn a ton. And you can, by the way, use a lot of what you learn in one field and move it over. In fact, I think I've been of help to a lot of the entrepreneurs. through lateral thinking and stealing ideas from one area and bringing it back over to another. And it was a great experience. But the way I was doing it, to do all my own due diligence, but also to close that many deals, it was overwhelming. And a couple of the other dragons said to me the first year, you're not going to be able to

keep this up beyond two or three years. And they were right at the end of the third year. I couldn't do it anymore. So I either had to change my approach or leave. And I couldn't change my approach. By then you had a reputation for being the guy who was going to be directly involved. And I didn't want to lose that. And so I decided to pass on it going forward.

And I've missed it. I mean, it was fun doing. How much when you're making the decision to make an offer or ultimately invest, did the original pitch matter in your interest and your decision to invest or not? That's a good question. I think it changed from pitch to pitch. Certainly the chemistry you have with the pitcher and do you believe in them, you're trying to assess a lot of things. I know this sounds very basic, but one of the things you're asking yourself a lot is can this person get the meeting. Are they that person that can get the meeting with the distributor or with the retailer?

You're constantly wondering about that because that's a certain skill. on its own. And so I think in some cases it mattered a lot, but in other cases, by the time you've done the due diligence, you've learned so much more that the original pitch is a small weighting in your decision. So I would say that varies dramatically from pitch to pitch and from deal to deal. So you ended up investing in 20 something? 22 in the show, yeah. And that's actually investing. That's not diligence. No, no, that's writing the checks. That's writing the checks. So could you pick one and use it to describe the process of how that show actually works? Because I think everyone watches it, certainly this is my perspective, too.

and someone gets a deal and they walk out and they're happy and okay they're off to the races. But there's a whole, it seems like there's probably a whole underbelly that. No, it's true. That's very well said by you. People see that part and then later they see the update, but the real works in the middle. Right. It's all the due diligence here, initial involvement and what you can do. So we had to pitch my third year from Nona Piaz.

It was a balsamic vinegarette company from Whistler, BC, husband, wife team, lovely people. Very good product, not great packaging, but lots of other positives. And I loved that Arlene Dickinson on the show love. that she ended up not going forward with it for whatever reasons and I did. And we did a long due diligence and again, the due diligence process here is a lot of work because you're taking their product. We tested it with 32 different people. So we're giving them the product. Would you be buying it again? What are you using it on? You're trying to learn as much as you possibly can. Which flavors are going over well. In many instances you're only going to get one or two skews in of your line to a store.

You're trying to figure out which ones have the most potential. And it's not as easy as, well, I like that one the best. And so to most others because there may be a competing product that's similar to it. You may be better to go with a second or third choice, depending on the competitive landscape. I had my daughter drive down to the states and go to all kinds of stores, take pictures of all the competing products on shelves, trying to work backwards in their pricing, could we hit the margins, all of these types of things. But the interesting thing about this particular one was they had great sell-through in their BC stores.

So they had figured out the hardest part of this business. It's not getting on-shelf. It's getting off the shelf. That's the hardest part of the business. Their in-store sampling was working. That really intrigued me. And I called up the female. of the two and I said, why aren't you expanding to stores? Like the hard part here is getting off the

shelf. You're doing that. The easy part's getting more stores involved. We haven't got the right broker. We haven't got the right distributor. Well, she was one of the most charming people I'd ever dealt with. Australian accent, very funny, very outspoken. I said, forget the broker and you're doing it. You go to every meeting on your own and I think of all the decisions we made, that was our best one because she can sell. And she goes into these meetings. They love her. They love the product. We replaced the packaging. Did the same type of crazy approach to the packaging that I've described, the amount of testing we went through, the alterations, the consumer feedback. I mean, I think that the two entrepreneurs aided me by the end of the packaging issue.

But now I would think they would say that was a good learning experience. Like it was just nonstop until we got it right. The packaging is great. They've entered the states. That's going very well. This is a good story. Jimmy Patterson, one of Canada's wealthiest five or ten individuals. He owns all the billboards.

You can probably see some from here. He just came in with over a million dollars in our next round. And so it's an exciting story. So one of the threads throughout my conversations has been this notion of permanent equity, and very specifically in the smaller business realm, where the business models are straightforward. Often the products are very easy to understand. There's not a lot of complexity like you might encounter trying to dig apart a, you know, RBC stock or something like that.

And people seem, this really is something. And maybe it's shark tank and it's dragon's den and how I built this in the podcast world, this idea that so much can be outsourced now. so many people seem to be in this entrepreneurial mindset today. So is that what appeals to you now as someone that's off Dragon's Den and owns pieces of 22 businesses? Well, it's actually 29 because I kept going. When I left the show, I invested in a number of other ones.

And I kept going with the due diligence for about a year. And then I really did hit the limit. And you're right. You've seen more people look to do that. And I think you nailed it when you said they can figure things out. In my case, I do it because I can add value. If I buy Royal Bank stock or if I buy, you know, a U.S. bank, I can't change the value situation at all. But in Canada, I can introduce these people to the major distributors.

I can take them to the UNFI. I can even introduce them the people I know at Whole Foods in the States, whatever. That's an unusual opportunity. Plus, all of your experiences can help you strategically to guide them and so on and so forth. But the trade-off when you do this is the time involvement is very high. So it's not just a check you're writing. It's you're involved. And you have to be able to make sure you can honor all your commitments and still do the things you're doing outside of the private company.

the investing. And so I found that part quite tricky, frankly. And because I wanted to honor those commitments, I let a few things in my own business life slip a little bit. So again, striking all these balances is not easy. But if you said to me, Dave, all that matters is money. Forget everything else. You have to invest only to make money. That's how I'd invest. In smaller businesses. Small businesses. That's how I would, I do 100% small businesses of all I cared about was money. Now, again, you'd have to juggle the time demands. But if you know what you're doing, that's a great spot. And I'm talking the kind of things you describe. I'm not talking private equity partnerships, investing companies doing $86 million that you may merge or borrow against the lay out of the

employee. No, I'm not talking about a thing I think. I'm talking about roofing companies that are looking for some extra cash or about to sell to management. You're going to finance and take some that kind of opportunity for people who want to do the due diligence and like that is phenomenal. But again, you also don't have a lot of liquidity. So you have to recognize going in that these are going to take quite some time to play out.

They're often not saleable. So you've got to wait for them to be saleable down the road or you've got to take a dividend stream, whatever. But the tradeoffs are worth it. it if you want to put the work in. Were there any negative screens or negative checklist items when thinking about or assessing a business where if you saw X, Y, or Z, no, matter how much you love the founders or whatever the situation might be, you just said, no, I can't do it because I've seen that movie before. You know, that's one of my favorite questions. I've never been asked that.

It's a very bright question. And I'll tell you, there were a couple. Number one is that if you noticed right away in the due diligence process that the founders had very weak attention to detail, I walked. I walked. So we had one company that we all quite liked and the three or four of us went in I started the due diligence

and there was two spelling mistakes on the packaging. I couldn't get past it. I ended up handing over the due diligence to somebody else. I'm not even sure if the deal ever went through because attention to detail

is everything. And people talk too much about the grandness of the idea. It's about execution and you have to be fanatical in the detail front. So that part definitely scared me but the second thing is

and you see this on Shark Tank less but you do see it is that a lot of the entrepreneurs had no plans on the marketing front whatsoever. So again, they come on, they've got a fairly good product, maybe even unique. They've got to position it though. That's expensive. They've got to, how does it rise above the noise? How do they educate that it is in fact different from everything else? They have no plans on those fronts and it's expensive to do that. Their margins weren't to allow it.

And you could just sense the math wasn't going to work. And so those types of things. I'm still at the end of the day. I mean, I'm still very much a numbers guy. I mean, I always have been. I'm worried about the people and the chemistry and do they have the skill set, but you've still got to have the numbers work. So we see some where it was all go, but there wasn't enough there in the gross margins to make all the things happen on the marketing front you're going to need. So I'd say those two areas scared me off a little bit. I'll tell you a funny one, though, is we meet a lot of people. I see this in real life all the time.

I forget the den where they come to me and they say, this is my idea. And I go back to them two days later and say, well, you know, what about these two companies? They're doing a similar thing. They say, where did you find those? Google. Like, what the heck? How do you take a business and you're starting up? You're putting all this research and you don't Google.

Like, that's just weird. And if I had seen that once, I wouldn't have brought it up. I've seen it 20 times. We had a guy come on Dragon's Den. I don't want to make fun of the guy. I'm not going to tell you precisely what. And it was pretty cool. And we were all, all five going to go in for blah, blah, blah, blah, blah.

That night I'm back here at the Royal York. There's two meat products exactly like it. I found them on Google. The guy never Googled. That's weird. But you do see a fair amount of that. It's too bad, by the way, that more entrepreneurs don't have a grasp of basic accounting. Do you remember the book?

You're pretty young, but it was out maybe 20 years ago. And I think it's still around called The Accounting Game. It was about a lemonade stand. Great book. And it walked you through all the basics of accounting. should be mandatory reading for entrepreneurs because you know one of the reasons why some of the deals don't go through on Shark Tank and Dragon Stent, you get wrong answers. And people say, ah, the Dragon didn't close the deal or the shark did.

Because you got wrong answers. When you actually get the accounting, the gross margins weren't what they said they were. They were much lower and couldn't carry the distribution costs. It couldn't carry the marketing costs. And a lot of people aren't intentionally misleading you. They just don't have a good fundamental grasp of accounting. You mentioned marketing and maybe sales, maybe we'll bundle those together as often a weak point where people are product people or service people, not so much distribution people.

Are there some overarching lessons that you've learned that you'd be willing to share just on the correct marketing or sales mindset, things that work, things that don't, what you should appeal to in people to differentiate any sort of product kind of generically speaking? No. How's that for a horrible answer? Because I really do find it varies dramatically from type of product to type of product, maybe even from specific products. So, for example, there's broad lessons I've learned in the food business.

It's very difficult to do out-of-store promotions that have a positive ROI. And therefore, if your sampling programs current turn a positive R-A, you're in big trouble because that's about all that's left. You can do some discounted, but then you train the customer to only buy on discount, especially where you're from in the States, you see a lot of pantry loading where somebody goes on 30% off a sauce and then people buy nine bottles. And they wait for it be 30% off again. You never get the return to the conventional margin.

So all of that's tricky, but it varies definitely from sector to sector. You see it in tech, by the way, a tremendous amount. I'm from Waterloo, which is, you know, the Silicon Valley of Canada. We have so many bright people where they're pitching you on tech ideas. And again, there's no marketing plan whatsoever. And of course, what's the answer? It's going to go viral. The word of mouth is going to be so strong.

We won't have to do any marketing. Well, how many ideas do you really see that are able to follow that path? You have to have some way to get out there and cost efficiently create the attention. So my daughter has an online jewelry company that did quite well. It's first year called Speechlust. But the first year of a lot of those businesses is easy because you get so much PR. If you have a truly good company, a unique idea, you can get the Huffington Post and Shad Lane and all these places to write you up and you build momentum.

But sooner or later, you have to figure out how do I get a CAQ, a client acquisition cost that's lower than my lifetime revenue, not easy to do. In a competitive landscape, it's not easy to do. Facebook advertising is very expensive. I know very few people, by the way, who are able to make that work effectively. It's very difficult. So every situation is different. And again, a lot of the people aren't even thinking these type things through.

So we come in as an investor, and that's one of the areas you have to focus on because you're not analyzing as much as you're initiating it. You've got to put it in place. Can we make the math work going forward? And if you're going to have to be very involved in that, you have to get more than what capital would get. So if I'm putting in $200,000, I can't just give back what the capital deserves because I'm also going to end up putting all the time in helping you in the marketing front. So the deals are often a little bit complex and tough to strike. What I thought you were going to say was some combination of like narrative and motivation. So going all the way back to some of the advice in the online course on books is when you're writing the introduction to make it short, page and a half, and basically use it as an opportunity to answer the question, why are you the author writing this book?

Which then I would pour it over and say, why are you the chef making this sauce? Or why are you the- I love it, but it's so much harder to communicate outside of the book. If it's a sauce, you've only got the packaging to drive that across. Now, you do try to do it because narrative is everything. And you're doing it in your PR too. and you're doing it on your website, but let's be honest, forget all the hype out there. Who's visiting a sauce company's website? Like, it's like all these people say, we've got to get a great social media campaign going for our barbecue sauce.

If I ever follow a barbecue sauce on Twitter, shoot me. Okay, like, come on. So much of that is overhyped to the end degree. So doing it on pack is very difficult. In a book, of course, it naturally lends itself to that type of thing. Going back to that, we are jumping over, but I think that was one of the most important piece of advice in that whole course, based on our empirical evidence. A short intro is a huge asset because, A, B, people like them, readers like them. It forces you to answer that question. You better have a good

answer for that with all the media you're going to do. But also, it's a great thing to put in your press kit is that you just put it out there. It's more effective than the press kit itself. A part of me than the press release itself or anything else. That has been a huge plus for the people we've pushed to do it. I've actually taken that core idea of writing effectively an introduction for everything I do now. So it let's say it was, it could literally be anything. What is my motivation for doing this? Very interesting to me because that's the thing in the whole course that we've had the most feedback on. Is that, and look at you.

It's interesting. And the reason why is because it's kind of like a negative screen for me. If I'm having trouble pulling together like a paragraph long, you know, so-called introduction on something, it makes you realize really quickly like, I actually don't care about this. No, that's actually a really good point. Yeah, I'm not going to do that though because I think that I would realize I don't care about a lot of things I do.

Like if I wrote an intro on why I golf, I really probably couldn't come up with a single good reason. It takes too much time. It's very expensive. I'm frustrated when I'm on the course. Those are not particularly good answers for why you're doing something. But that's all about enjoying it and a feeling more than rational reasons. I don't enjoy it.

This is the funniest thing about golf. I'm the happiest most upbeat person you'll ever meet, except when I'm golfing. It's just odd. It's really odd. It's a funny game. It's the only thing in life you can practice a lot and not get better. But no,

that introduction part, I mean, I really am quite proud of that. It sounds corny because of the number of people over the years who I think that's helped. It's changed the rest of their book. Because when they've written a page and a half about why they're writing it, it's made the rest of the book better.

And I've often said on stage, if you don't listen to anything else, I say, listen to that part because I've got enough empirical evidence to prove it's a difference maker. And you're taking it over to other areas, makes sense. But again, going back to the conventional product, it's tough to get out there. My daughter did a wonderful job with that, by the way. If you go to speech last after we've done this interview and read her story, it's one of the reason she did well. Because when she reached out to the media, she said, what do you think I should say in

my press kit or my release? I said, don't say anything. Send them that story. You nailed that. just put it out there and let it work wonderfully well. Because people, they want to know that you authentically are doing this for non-monetary reasons, that you have a passion, that you want to make a difference. Or even if you're doing it for monetary reasons, say it.

Be bold about it, be upfront, but rapid and humor, you might get away with that too. Yeah, it's, it kind of ties back to several other points you've made. If you ask yourself why you're doing something, if the answer is clear and you've got your internal compass pointing north and it's obvious that you're interested in it, then some of those other things fall into place. So the attention to detail, as one example. Like, if you really care about something, it's a great way of orienting yourself.

And I went back and read my own introduction in my book. Frankly, you know, it was pretty depressed as I'm reading it because I'm thinking to myself, and I've told this story before, but, you know, when I wanted, I wanted to write a book. I wanted to know what the process was like, and I was fascinated by investing, and I wanted to write sort of a summary book. I was 26 as well when I came up with the idea. And the publisher told me, well, you know, kind of like you said, who the hell are you, and what's your platform and why would anyone know who you are by this book?

And I didn't really have great answers. And their suggestion was, well, make it targeted for millennials, so call it millennial money. And just to be bluntly honest, I don't really care about any particular generation over any other one. I'm interested in investing. So I wrote an introduction and then two early chapters, which I think are fine and, you know, make some good points and are important for young people. But it wasn't what was my burning passion. And so I reread the introduction. And I thought, man, that does not pass the Chilton text.

Well, I'll make it feel better because I heard a worse of last week. I talked to guys very well-known. He's been tremendously successful in his career and he wants to write a book. And so he phones me and he asks me 15 questions and they're good ones. Like he's a sharp guy and his last week goes, just one more thing. One more thing. I said, what do you think I should write a book? He asked me all these other questions.

I said, I've never had that question at all. And he goes, no, I don't have a clue what I should write about. I said, I'm not sure this is a good idea. I'm not sure this is a good idea. He just wants to write a book. You have to have a message that you're eager to deliver. you think you can come at from a different angle. You know who got burned by that, by the way,

was big publishers. They went out to a lot of the people with platforms that had major followers on Twitter or through their blogs and said, you need to write a book, you've got a ready-made audience. Fair, but the books weren't very good. You know, they really weren't. Now, some bloggers did a great job.

In fact, it's interesting. A lot of bloggers have written good books in the last five years because their blogs have served as tests. They've seen the feedback in the comment sections. And so they've learned what works, what resonates, what doesn't, et cetera. So they're quite good.

But a lot of them were passionate enough to put it all in book form. You have to admit, you read more than anybody I know, we're seeing too many books that are stretched out. They're not really books. You know, they're probably, they are. They're long posts or their 20 and 30 pages worth of a book. And where you see that, if you go into Amazon criticisms, so many times you read too many examples, too many examples. Take a step further.

Why? It's because there wasn't enough there. And it doesn't mean the stuff that was there wasn't fantastic. It was great. It could even be life-changing, but it wasn't enough to stretch out to 260 pages. That's why I think we're going to see more short books. We're starting to see that, you know, zero to one, that type of thing. I think we're going to see more of that.

And that was a very good book because it made you think. At the end of the day, it's one thing I love about a book. If you read it and you don't agree with it, you disagree with it, you find parts boring, whatever. If it makes you think, that's a great achievement for many author. When you're reading a book, there's a book on the nightstand behind us that I think we're both just about to start. And you're encountering that problem, too many examples, but you're intrigued by the general ideas. How do you handle that? Do you quit the book?

Do you jump ahead? I jump ahead, but it's a great question because I find it annoying. Yeah. I do. I actually really do find it annoying. And what kills me is that the editors aren't saying to the writers, I don't mind if use a lot of examples, but it's because it should be. It's right.

It's coming at it from a different angle. You can't have the exact same example, basically, with a different city and different names. And we see that a lot. Like, that's a major problem with nonfiction writing. In fact, even among some of our more successful nonfiction writers, people a lot more talented than I am, you see that a lot. Too much. But yeah, I think that book, by the way, looks like it's going to be very,

good, but I'm not even going to read that book. I just said it there so that when you came in, you think this is one short guy. This is a smart. Smart guy carry that book with me wherever I go. You know, hey, I'll tell you something, you'll be excited by. I've noticed on planes lately, more people carrying books again. I've really noticed that. And I think that what's happened, this is a theory, is that the Internet is so big now.

It's wacky. And so people are wondering where to turn. And they know the books are curated. I mean, somebody has said yes, whether it's an agent publisher, both, and somebody's put some money into it. And so it may be worthwhile taking a look at. The other thing that's really held book sales, podcasts. The podcast listener is the book buyer. Could be audio books, but they are the book buyer. They're information junkies. That's why they're listening to podcasts. You and I talk before doing the taping about how podcasts are wonderful because you can listen to them while walking,

while working out, while doing other things in your car. And same with books on tape. That group and a lot of millennials, I took a shot at millennial men earlier, but that top 10% of millennial men buying a lot of books now, buying a lot of books and podcasts have played a huge role. I mean, where are you hearing about your book? Well, it's interesting. I used to do insane diligence on books. And I would, I would spend as much time finding my next five books as reading those five books because I didn't want to kind of have all these false starts. And I still have tons of false starts. And I quit books very quickly. I think that's a key to being a good reader is quitting and moving on. Sort of like your testing approach. No, but I agree with that.

Working. Keep, keep moving. Some cost of 15 bucks isn't a big deal. But what happens is happened was so in addition to the podcast I have this email list that people kept asking me for book recommendations because before I had kids I was reading like 150 books a year and so I would centralize it I said here join this list and I'll send you the ones I liked this month every month this is probably three years ago and now that's a huge it's a really big number of people that that get that email and that has now become the source of all my books so they get back to you yeah so I get probably at least a hundred a month and usually it's someone that has put considerable thought into it. They'll say, you know, I know you've read this, this and this because

you've sent them to us. Have you read this one? Here's the reasons you'll like it. Here's what you'll get out of it. People are incredibly thoughtful about that. So I've got like a, I've got like a force of research people sending me books. So I've actually spent very, very little time. Apart from when I, there's some weird esoteric topic like Gabon in Africa or something that I need to go do the research myself. It's all inbound. Same thing with the podcast for the most part. That completely unhelpful advice to all of us listening because we can't duplicate it. So really, thank you for sharing that with us. Here's some information that you can't do,

but that I'm in a position to take advantage of. Do you read Amazon reviews? Less and less. Okay, so that's exactly, so we did a lot of testing because I was doing the seven Amazon videos. Less and less is the answer we get from everybody. And it's not, by the way, it's not just because they think they're gameed, although we certainly get that, it's because they've just gone a different route.

One thing we heard a lot was the big book buyer is saying, same thing you did. I'm just going to spend the 15. get the book. Sometimes it's less because they're buying an e-book. And they're Amazon Prime. They pay nothing for shipping. So they buy three. They ended up liking two and they're not going to do any due diligence. And it's very interesting to listen to you talk about that because you were consistent with what we learned from all the outreach we did. But podcasts are huge now for where people buy books. They trust the host. And so you've been on for how many episodes have you had?

This would be 39. Yeah. And you're doing very well. People like you. They've warmed up to you. If you were to come out now and say, you should read this book. It's one of my favorites. They're buying it. They're not doing further due diligence. And so it's interesting. I talked a lot in the course about the mention from credible sources now is one of the biggest things to push people over the edge. And the interesting thing is that person doesn't have to be in your field. And so if I write a personal finance book, I could get a rock star who people liked and

trusted. And he says, this is a personal finance book that really helped me invest in money. It's going to sell me a ton of copies. So I think the publishers are behind the curve on that because they're not doing outreach to people with big platforms who have a high trust factor. Those are one of the better sources that you can get on top. One of the definitions of brand that I like a lot is, is time saver. That if you trust is a time saving device.

And so while I get a lot of inbounds, there are probably six, seven, eight other readers that I follow, who I've found by searching for them where I've aligned with them. I know that what they recommend and put on their reading page on their website or whatever, there's a high degree of probability that I'm going to like it. So I trust their brand as readers. I'll give a couple examples. guys like Shane Parrish, a guy named Kevin Simler, a guy named Venkat Rao. These guys have these... Bencat Rao, that's one of the great names of all time. All time. I would have been a

movie star if I'd been given that name instead of Dave Chilton. But that was an interesting phrase to use. You trust their brand as readers. So if they were necessarily recommending a restaurant, not as much, don't care. But because your, you know, your history has been aligned in what you've liked, it makes perfect sense. Do you trust the Amazon recommendations? No. That's interesting, because I've had pretty good success with their recommendations. And I've tended to buy a lot lately. interesting. You haven't had that day. No, I mean, I'm sure that there's been examples where they pushed me something and I've liked it. But I just feel as though I'm always in some field. Like, I'm always studying some field. And normally when I do that, so many books on Amazon

will be all the same covered ground. So if customers also like this one or they're recommending this one, it's like you said before. It's like all the same stuff I just learned in another book. I read an awesome book, had a guy in a podcast named Alex Mozad about the platform business model. Yeah, yeah, it was a big book. Yeah, big book. Modern Monopoly's was the name of the book. And I was so intrigued by this business. Like you, I like tearing apart business models and understanding kind of value drivers and the value chain, et cetera.

And I loved that book and I thought, wow, I could actually read a lot more about that. It was a very thorough. It was awesome book. But I went and read the next one. I can't remember what it was called. And if that had been the first book I read, it was probably pretty good, but it was so repetitive that I just didn't need to read it. Well, that's three things there. Number one, the one thing I like about the Amazon recommendation,

stuff is that they always are recommending the wealthy barber to me. So they always say, you should read the wealthy barber. I said, that's good. They know their audience. The second thing is most authors' second nonfiction books aren't very good. Now, there are exceptions, no question. And sometimes they bounce back with number three lessons learned. But they're very repetitive.

And they put their passion. They put their 20 years knowledge into that first book. And there's just not enough left, frankly, to create a great second book. And they maybe set the bar high if their first book was good. but we've seen some pretty extreme examples where first books have been great and second books have been horrible. Like I took 20 years between books for that exact reason. I want to come out with something completely fresh and you stay back.

So that's an interesting one. But going back to your talking about your colleagues recommending books, I keep thinking as I just mull over. That's where I'm getting most of my books now. It's from people saying you should read this. Yeah. It's just word of mouth. It's taken over. And it's always been right up there.

But I used to say radio and all. It's when people tell me you should read this. You know another thing is that I'm seeing, though, that's a weakness. I find the second halfs of a lot of books to be weak. Not in all cases, but they're drifting. The first half is stronger in the second half. Do you ever find that? Yeah, it's like comedies, like movies.

Well, movies, come. I mean, remember the wedding crashers? Yeah. I mean, the first half is one of the greatest movies ever. Ever. And if you watch the second half in isolation, so actually don't watch the, you watch the second half, you go, what the heck happened? That was horrible.

So inside baseball, so having been through the, you know, traditional book publishing world, when I sat down with the editor, she said, well, okay, we'll go through the chapters. It's got to be 224 pages. I said, 224 pages. Why? Who cares? Can it just be the length that gets the point across? No.

I can't remember the details. Something with the contracts with the retailers, a certain length book, it's a certain price point. There's better margins for them or whatever the reason was. But a great example of a completely perverse incentive. So basically you're telling me, if I've got 100 pages of great material, I need to stretch it to twice as long. It's ridiculous.

Backload it, right? So the second half of the book is going to stink. No, it's absolutely, and you do see it. I mean, you can actually see that happening. But, but people are breaking away a little bit. So you've seen some thinner books come out with higher price points, 2995. And the public has not balked at it. The assumptions weren't right. And I think you're going to see more of that. People just want good books. And if it's good, that 2995 versus 2295, it's not that material, to be honest with you. I mean, do you really think much about price with the book? Never. And it's funny because people say, oh, yeah, well, he's doing really well. But our research says that most people don't think about price of the book. There are exceptions. I'm not saying everybody, and I'm not saying every type of book. But it's surprising how infrequently people base their decision on pricing.

I'm curious what you think about this since you've looked at it from the other side so often. So I like to think about pricing power as one of the most interesting components of any business. And it's so weird that most books are the same price to me when obviously the range of quality is so massive. So why hasn't there been more? Like if I wrote an awesome book, right, that I felt could get past that first year of PR, marketing, et cetera, and have word of mouth and really be a great product, why wouldn't I, why wouldn't I charge $40 or something much higher? I don't, I never understood why that's a case. I think you could charge a little bit higher, not have it effect much. I don't think the elasticity would be too damaging.

But I do think if you started going right out, it might be a problem. Although, you know, we have seen as people go way, way, way out. And they try to turn that into a marketing tool. And so we just saw a book on macroeconomic investment. income out at $150. That was its list. And he's not discounting. And he's basically saying it's worth it.

And, you know, he's such a select group of people who are going to buy this big, thick book on complex macro investing strategy. I bought it, of course. And, but, yeah, so, I mean, you can do some of that. But I think the industry has it right that sometimes there can be a price sensitivity, but they've overstated it. It's not between 1995 and 2295, for example. But it may be if you go from 2295 up to 40, the thing is now with Costco,

marking up books very little in their area, their footprints diminishing on book front, but they're still big players. And with Amazon constantly discounted, the conventional retailers, the Barnes & Noble, there aren't many left or chapters in Canada, they're the ones that are saying, we've got to be a little careful here because if we start matching and doing it off different price points, we could be able. So all of it's a little tricky. And the book business is, by the way, very tough right now. There's no question about it. But I still say the biggest reason it's tough because most people don't market their books. You know, they don't know how to get out there and create demand. Or write a book that's the appropriate length.

Exactly. Exactly. Not filled with filler. Not exactly. So we talked about client acquisition costs a little bit, which is a good bridge into fintech. So this is an area that I think both you and I have spent a lot of time thinking about exploring. It seems like such an obvious place where you could create some fantastic products and services. And yet I think a lot of these businesses have had a really tough time. So I'd love to hear your take on kind of the industry in general or the overall movement, the fintech movement. And as an investor, an operator, kind of where you might fit into that landscape.

Well, I mean, remember you heard the expression a lot of few years ago, the fintech revolution. You're not hearing the revolution part too much anymore. The fintech consolidation. Yeah, exactly. It's the fintech consolidation. I mean, I put a tweet out a few months ago saying fintech 2014, we're going to crush the bank's margins and then fintech 2017. We just like to announce our new partnership with bank X. And it's so much like that.

I mean, the banks have such a huge advantage with cost of capital. But more importantly, that's the one that gets the attention. But more important, they have a client base. And I think that the surprise I've said. scene is that nobody is partner with general insurance companies because they have client bases, huge client bases. And I thought they'd be bigger players going in and partner with the lending platforms or the robo advisors. You've seen very little of that. There may be a reason that hasn't come to me. In general, it's a tough business. It really is. We talked about inertia earlier.

And people may complain about their banks, but more or less, they're happy where they are. And the margin suppression is strong. And there's very difficult times building up any kind of barrier to entry. So if you go in and do well, somebody else can come in quite quickly. So I'll give you a good example of how that can really hit you. If you look at the lending platforms and you've got so many in the States with the lending club, et cetera, and you look at all of them. What happens is they come in initially and they're getting back, say, 4 or 5% off the loan, somehow, some way.

They're either charging the client that or they're adding it to the cost of the money and they're taking it up front. If five or six of these actually start really doing well and the consumers turn to them with great regularity, then someone comes along with the hotel model and says, come to our site and we'll shop the market for the best of these. why is that important? Because then you've got a major capital provider comes in and says, we don't have to do any marketing anymore. These guys are doing it for us. And they just come in and they undercut the loan prices and take that four or five percent.

That's inevitable. You've seen it happen to Britain. That's going to happen a lot more than people think. It hasn't happened much yet because these guys haven't gotten as much traction as we thought they would. I mean, certainly their overall numbers are reasonable, but they stalled a little bit. You've seen actually a reversal of growth. Again, their cacks are fairly high. You think with the client acquisition cost early on, you tend to get them going

lower and lower as you build knowledge and efficiencies, but then they head back up. You've got the low-hanging fruit taken off. It's a more competitive landscape. And all of this is very tricky. Robo advisors are the one I've studied most carefully. I started looking at that seven, eight, nine years ago. And they're an interesting, I don't love the expression robo advisors. I think they're more robo-acid allocators. There's really not much of an advice function woven in. I haven't looked at the actual templates of the questionnaires lately, but boy, they were bad early. Also, I'll give you an example. You'd have some millennial go there, and he would have 26% of his money put in bonds and 74% in equities. And meanwhile, he'd have credit card debt. They forgot to ask

that in the questionnaire. He's got to paying 21% and he's earning two. And I didn't see that a few times. We saw that a lot. The other thing is a number of them assumed that people when they're saving in a retirement vehicle up here in Canada and RSP, they were therefore saving for retirement. But a lot of the millennials saving a retirement vehicle were building a down payment for their home and going to use our home builders, our homebuyers plan and therefore had a much shorter time horizon. That all has to be factored into play. I found that with a lot of the upper echelon millennials and defining that as people who are well informed on the investment front, they look at the Robo Advisors and say if it's 25, 35, 35, 45, 45 beeps, I think I can do this on my own.

Now, you may come back and your dad may come back and say, yeah, but will they? Some of these will. Some of these people are actually quite disciplined. It's only an annual rebalancing. It's not a huge burden to do it. And you say, yeah, but the Robo Advisor gives you tax loss harvesting. That's fairly complicated to do in your own. Well, yeah, but they're all inside registered vehicles. R.S. Or in the case of the state's four or three, it doesn't matter. None of that matters. And so it's a tough sell for all of these. And I think my opinion, I said this to you in the phone a while ago, is none of it's going to matter because AI is going to come down the pipe in the next two, three, and four years. And this is all going to seem so primitive that it's going to be relevant.

I've seen the first good one early stage. I mentioned to you two young kids came up and met me in Detroit. And they showed me an AI approach to financial planning that was actually quite stunning. They scraped your credit card information, your social media, your calendar, your bank statement, then you had to answer a lot of questions, and they gave you a comprehensive financial plan, but also an ongoing involvement. So when they had me fill it in, I go back to Kitchen of Waterloo, and a couple weeks later, I get an email saying, you're usually headed Costa Rica this time. Do you want us to get the currency? And here's the best three options to get it. I thought, that's interesting. It is. That's interesting. They told me that they said, do you have a will?

And I said, yes. And they said, say no, say no and see what happens. Well, three weeks later, I get an email saying, did you get a will yet? And I said, yes, because I didn't want to keep bugging me. And the computer comes back and says, you wouldn't lie to a computer, would you? And I thought that was funny. And, you know, and the first joke they made when I sat down was it said, Are you married? And I said, no. And the computer back came back and said, I'm attached dot, dot, dot, dot to the wall.

I thought that was actually pretty funny joke. And so they're trying to make the onboarding a more pleasant process. But then they mesh it with all this. And then the machine learning, watching your behavior that are learning as they go, they were on to something. But again, typical, they said, we're not selling. We want to be, they sold a month of partnership. Yeah, exactly.

But I mean, it's so tempting when you're young to get these crazy offers. I mean, you're talking tens of millions of dollars in some cases. I don't know how you can turn that down, especially so many of these young kids, they have the justified confidence. They'll somehow be able to do it again. And this way, they've got security for life. But I do think that that's going to cause a lot of upheaval in the financial markets going forward. I mean, you're in an interesting space in the markets. I mean, you're seeing so much now, the smart beta and all these different types of things out there.

But it is tough to outperform the markets by enough to justify fees for anybody. It is just very, very tricky. and all of a sudden this surge in the interest in passive investing. I was wrong. I predicted that about 10 years ago and it didn't come. It took a long time, but now you can see it's got a lot of momentum. It'll be interesting to see how high that number goes. From the inside looking out at the kind of passive active shift, it is unbelievable in the past.

I would even say in the past 12 months. Obviously, it's a trend that's been pervasive for a long time since the early 90s and then crescendoing kind of right now. Maybe it's not crescendoing yet. It's unbelievable. It is a tsunami. just taking out active assets, regardless of the variables that normally would be key considerations, the relationships, the strategy, the performance. It's just entire boards or entire individuals or entire family offices saying, that's it,

we're opting out, don't want to explain performance anymore, we're just going passive. And I know the cost I'm paying as low. Yeah, I may be paying a high multiple for the S&P right now, but I can pay two beeps on the way in. And it's amazing. And I wonder how much of just simple, pure, broad exposure to your point about better, on capitalism is the basic equation here. Well, I mean, you're so well spoken and you're right about it being a tsunami and you used a number of examples, but the one that really hit me was when you said family

offices because I know three or four who've exited all active money management in the last six to 12 months. And it's not just that they underperform, but they were underperformed by 300 and 400 basis points per year for an extended time frame. The opportunity cost there is gigantic. And they're saying, much like I said in the second book, there are definitely going to be active money managers and approaches that can outperform the market. We have no doubt about that, but we can't pick them ahead of time.

That's the bigger issue. And so because we can't pick the ahead of time, we can't take the risk that we're in that 80%, 90% or whatever that underperforms. But more importantly, we're in that 30 or 40% like we've been that underperforms dramatically. The opportunity cost isn't worth it. We know passive's not perfect because it's a bit of the momentum play. The standard poor is expensive. We get all of that. But we've analyzed it all and the tradeoff is worth it.

And over 15 and 20 years, we're comfortable that the dramatically lower fee will more than make up for any of the negative. they're probably right. You know, in a lot of cases, they're going to prove to be right. They have proven to be right over very extended time frames. But I wonder what triggered this last 12 to 24 months where the inflection point was hit and it's just racing up. And now it's feeding off itself because, of course, all the switching over is creating all the media attention and all the media attention is creating more switching over.

I think part of what's happened is you've had a number of people start analyzing their own portfolio's performance more carefully. They've actually started looking back relative to. different benchmarks, a relative, what if they've gone to the Vanguard funds, whatever, they're saying, holy smokes, this is just too big a difference. What I find fascinating about it is kind of the performance angle, obviously. And we've got a neat chart that shows the role, basically plots the index in rolling quartiles, five-year periods of performance relative to all active managers.

And it's not, you know, it's not always in the median or the top quartile. It's all kind of all over the place. In the trailing five-year performance of a cap-weighted index versus active, managers has been just about as good as it's ever been. So it is a combination of everything, right? It is the perfect storm to use that overused it. Overused cliche. No, but you're right. Their relative performance lately has been phenomenal. And therefore, the fact that people are paying more attention to expenses and everything else, it really has heightened it. And you wonder if, again, we're setting ourselves up for a time when the markets will pull back and you wish

you had a different approach, et cetera. I mean, you guys are in a hot spot. Like you're in a different area there where you're like an index in a lot of ways and you've got active mix. How do you describe what you do? So it's fairly unique, right? So we are not smart beta for sure. Smart beta would be something that takes a market, a beta approach and tilt it towards some ideas. So that could be value, momentum, low volatility, quality.

Those are kind of the big four that people talk about. We think, as you know very well, knowing our process, that using factors to build sort of quantitative mindset with a fundamental portfolio construction is a very powerful combination. If you can do the research right, this is very hard work. It takes a lot of time and many years to get it right. But that the real sort of your point about can you out earn your fees and costs associated with active trading, we really think that that equation is only possible. And by the way, smart beta is all launched by academic papers that tend to be free of any real world frictions of any kind, fees, trading costs, etc. So everything looks great on paper, right?

But often the implementation isn't even what was reported in the paper where it's a best decile portfolio or a best quintile portfolio. It's a much broader exposure. So you're being sold on one set of data. The real thing is very different. So our take has always been use these ideas, understand why value investing works, for example, and then use a unique portfolio construction process that really doesn't scale in the same way that a smart beta sponsored by BlackRock might scale.

So from a business standpoint to your point about deep diligence, the motivation. The motivation of the sponsor or the portfolio managers are very important variable in all this. And so if something can accommodate hundreds of billions of dollars, it makes me scratch my head as to whether or not I should be interested. So we describe it as empirical rules based, based on tons of historical research, but a more fundamental-like portfolio construction. And where do you think you guys top out on how much you could have in one of the funds? I mean, obviously it depends on the strategy being, the strategy is being put into play.

But where do you think you top out? Yeah, so, I mean, it's a good rule of thumb is I'll use the large cap as an example, which is obviously a high capacity space. Maybe it's $20 billion in large cap across the board. And normally that answer would be $100 plus billion for most large cap managers. And why is that? Because you're turning the portfolio over regularly, let's say, annually, and therefore you've got to make sure the liquidity is there and everything else?

Well, it's just the fact that we're willing to buy relatively smaller names within the large cap space. So if you're buying a $10 billion stock and you've got positions that are 4% of the portfolio, you just start doing the hypothetical math and say, well, okay, if I'm at 4% weight, it's a $10 billion stock, I don't want to own more than a very small percent. You know, we're not an activist, right? We want to own very small percent of the shares outstanding. And so there's just an upper limit there. And then trading impact can become an issue that's much more of an issue in small cap, certainly down to microcap where there's some really interesting things. So it's just smaller, right?

It's just a smaller capacity. How do you guys avoid being front run? So we randomize kind of everything. We don't do anything on a completely set schedule. and we've gone through interesting exercises where people say, because we're fairly transparent, but here's what we do. That's one of the things I like about it. Here's the factors, right? It's a PE ratio. Everyone says, okay, a PE ratio.

It's shockingly hard to replicate someone else's PE ratio. There's 20 different ways you can do it. It can change through time. You go to Bloomberg and FACSET and Yahoo Finance and ask for Apple's sales number and you'll often get three different answers. So it's actually harder, I think, than people would think to, replicate a process. We don't publish our, we're not like a smart beta index that publishes the rules. So there's, there's transparency, but it's transparency without, with it being very hard to replicate would be the way I would put it. Have you found the most of these types of

strat, not just yours, the people that are in your competitive landscape have missed out on some of the big tech stories because any factors probably kept you away from them? Totally. And that's back, that's why you have the underperformment, not you guys, because I mean, your numbers are actually quite impressive, but why in general you've seen a lot of active underperformance is that they have any value metric. They've missed out on the Amazon's of the world, and that's really what's taking the exchanges where they are. I think value is the interesting story here, value biased managers, you know, huge names like a

Jeremy Grantham or. I love him. Fantastic. Me too. But people that are dyed in the world value investors would never have bought the names that have led this market. And you look at the top five names by capitalization now in the entire world, and value keeps you out of those names.

continues to. So if you're underweight, Google and Facebook and Amazon and Microsoft and Netflix and all these companies, it's been very difficult to outperform. That was less of an issue when those were, you know, smaller stocks. Now those are the five biggest stocks in the world. And so their performance is literally the most important to everyone's results. That's an index fund investor. And I am fascinated again by individual companies, even though I, you know, we don't, we don't do fundamental work on deep work on individual stocks. It's all empirical. quantitative work. But a company like Amazon fascinates me. And I just can't help but think, you know, they've created this chorus of profits don't matter, that you should be plowing back all your cash flows

to growth. And that's worked out really well for Amazon, but by definition, that can't work out well for everybody. But this mindset is pervasive. And this tech mindset, I wasn't around as an investor in 1999. And from all accounts, this is still nothing like that. But it sure seems interesting to me. I wouldn't say it's nothing like that. I mean, I do think you're seeing some signs now that's a little bit like that. But think how hard it is to compete with Amazon, you're competing at times with the nonprofit. Yeah. I mean, and not only that.

At times. It's full of sharp, sharp, sharp people. And that makes it very, very tricky. But you wonder how much of the success of those stocks. And they've obviously done some wonderful things at the company level. But you wonder how much of the success is because of the popularity of the index funds. As the money's pouring into the index funds, they're forced to buy those stocks. And to some extent that pushes them up higher and makes them even more.

momentum plays for those types of investors. I mean, all this seems to be feeding off itself to some extent. It's very hard to give a firm answer to that. I think that's a compelling narrative. I don't know how true it actually is because at the end of the day, the active money is still making relative pricing decisions. For sure. And it's still a bigger pool. Right. Although maybe not, for long. What is the percentage that you think of all the invested capital equities that's passive right now? Is it 15 to 20? No, it's way higher. I mean, if you had Googled it a year ago, that's probably the answer you'd get. I mean, I've seen estimates north of 40 now, which is really remarkable. How high can it go before in your mind it's problematic?

So actually the episode that was released today, Tuesday, the day that you and I are taping was with Michael Mobison. We spent the first part of our conversation talking about this equilibrium point. Obviously, you need some active one, one, two set prices, two to provide liquidity. And there's a very famous book in our circles anyway called Efficiently Inefficient about how prices need to be efficiently and efficient to motivate some active players to come into the market. it. Or at least they have to have the perception of being efficiently and efficient. Yeah, there's a good buddy in mine who nobody knows who he actually is. I'm privileged to know who he is. He's a blogger who probably is the most talented financial writer in the world

website called Philosophical Economics. I don't know if you've ever brought us. I'll go there. Oh, it's fantastic. So he did like a theoretical kind of walkthrough of how much active does the world need. And his conclusion was a shockingly small percentage, something like 5% of the overall market. Now, I don't think I agree with that, but I've seen a lot, I've seen point estimates sort of between 50 and 75% passive, 25 to 50% active. And I think people are almost always wrong about those things. So it's probably higher. Well, we could be there relatively quickly depending on how things play out. I'm concerned, by the way, that you aired the Mubison interview today. Do not air mine close to his. The difference in our intellects is just too dramatic for your listening

audits to be able to adjust to. You need to go down to me slowly. Stick some people in the middle, like your dad. He's in the middle of us. Closer to me, tell him, than he is to Michael. Yeah, I promise I won't do you back to back. So have you ever thought about operating a business yourself as a founder? Yeah, especially in fintech. And I looked at it very carefully. In fact, that was my original plan to take in Canada, the brand power of the wealthy barber and do some things.

So, you know, I'm 55. And the last two years, I've looked at that seriously, the thought of managing 15 to 20 people and building a team, et cetera. It's not as exciting. I'd like to slow down a little bit. I'd like to be off the road. And so I'm not sure if I'll do that, but I haven't ruled that out. I mean, I'm still looking at a couple ideas. There's got to be great opportunities in the insurance field.

You know, it's such an opaque field and so many people are confused by it. I was looking at one of your policies, one of the U.S.'s policies, an equity-based annuity. A couple weeks ago, I had all the documentation sent up me from somebody down there. I couldn't understand it, and I have a background on that stuff. So the average consumer has no chance. I'm not even sure the actuaries could understand. You probably have to have three of them working together. There has to be some opportunities there.

And that space has intrigued me. And so I'm still looking at it. You know, I have more energy and more excitement about ideas and opportunities and things I want to do than I've ever had. You know, that never changes. I may write again. I wouldn't write on finance again. You know, I think having been out there for 30 years and done so many interviews, people probably heard enough for me.

I've heard enough of me. And I think that it may be time to write in a different field. And I've got a couple ideas in that front. And, you know, who knows what I'll do next. Like, I'm not sure. It's nice to kind of be winding down on some of my high-level involvements and have some time Like this summer, I'm hoping to golf a fair amount for the first time in years. And I don't think that's maybe wise, but I'm hoping to do it.

And it's good. And I like doing this kind of thing. You know, I like sharing ideas and getting out. I've been really privileged in my life to meet a lot of my friends' kids as adults. You included today. I really enjoy that. And I'm amazed how many of the kids have turned out to be much better than the parents. And you're a prime example of that.

Much sharper. We're going to keep that one in. We'll cut the other one. We'll keep that one in. Exactly. Exactly. What is the most, the single most memorable day of the same? whole journey for you. If you had to pinpoint one day and tell me what happened that day, what would it be?

You know, it's funny. I think that that day of the speech in Halifax I mentioned would be up there, but there was a day when we published Looney Spoons. The sisters did an interview on an Ontario-wide a CBC show and they sold out every single bookstore in the province. Everyone, we got calls from dozens and dozens and dozens of bookstores, Costco, everybody. And I knew like that time when you know you have a hit, that's exciting. Like that was such an exciting day. And I don't think I'll ever forget that day. Like the book had maybe been out for a little bit and sold a few thousand copies.

And when that happened, I said to these guys, it's going to be hundreds and hundreds and hundreds of thousands. They sold 850,000 cookbooks in Canada alone. That doesn't count the QVC and all the success south of the border and all the things they did down there, partnerships with Readers Digest. I mean, it was unbelievable. But that day you knew it was going to come. And who does a radio interview and sells out to every single bookstore? Like it was nuts. So that's one I'll really remember.

I spoke at Carnegie Hall. once. That was really cool. What was the occasion? It was speaking to a dentist conference. And how they even got in there because it's very tough and they don't normally book out for conferences. So I'm not sure how that played out. But that was, I think it was a dentist conference, but it was exciting. I mean, that was obviously a big thrill in my life. And even the first time you go to New York on business. And that's really cool. I mean, you grew up in that environment. And of course, you guys were in Connecticut. So it's not a big deal for you. But going down from Canada to meet with publishers and talk to PBS.

The first night the PBS show aired it aired in Detroit in San Francisco and did well as a pledge vehicle. And that was the hardest work I've done in my career. People often say, what was the hardest thing you've done? Red eyes are hard because I do a lot of them, but nothing was harder than working for PBS. When you have to go on and beg for money and the phones, like, it's live to go. The phones are right behind you. If they're not ringing, it's a reflection on you. Like, you want your mom to call.

Like, I was not above getting my parents to phone from Canada to those phone banks in San Francisco or Tallahassee, wherever you were. Those were hard work. And you flew every day. You switch cities every day and pledged another vehicle. and I did it three weeks at a time, three times a year for a couple years. So that's a lot. And I found it hard. But I'm very excited that I think that the course, the two shows on PBS help people.

And the second one was on 401Ks exclusively. And a lot of companies used it to educate their employees. So I'm lucky. I've had a lot of moments I've enjoyed immensely and very few low moments. I've made some mistakes. You know what I've been weak a little bit is I've been a tad lazy on contract negotiations. And I've made a couple mistakes. I've been a big one with PBS.

I didn't think the show was going to be a huge hit, so I didn't pay a lot of attention to what happens if it is. And when it was, I was obligated to do all this touring. So I've made lots of mistakes in my career. I continued to. In fact, I did an interview with a university student a while ago, and she asked so many good questions. And then at the end, she said to me, have you ever made a mistake in business? And I said, are you kidding? And she said, no.

And I said, oh, my God. I've made like thousands. Like, not hundreds. I made thousands of mistakes in business. It's the same when people say that have you ever made a bad investment. And they're quite serious when they ask you. I think, what do you mean ever made a bad investment? I've made lots of bad investments.

This is very tough stuff. I just recommended a book about a military philosophy that you can apply to business, which is basically Blitzkrieg, but popularized in the U.S. by a fighter pilot named John Boyd, which is a biography you should read if you have, and it's phenomenal. It's called Boyd. And the basic idea was the only useful information is finding out you're wrong. That all you should do if you're trying to grow and learn is find stuff that you're wrong about,

because that will create sort of the pocket for you to grow into. So failure is the only way to get better. It's so true. And you know, the funny thing is I mentioned the three stocks that I'd done, the Blitzkrieg due diligence on. The middle one, I found a lot of people who told me I was wrong.

The stock got up to $10 to $13 for an extended time frame. Most people I found told me I was wrong. And here's the bizarre part. I believed that they were right and I was wrong and I didn't sell the stock. And it went all the way back down to $3.75. which is above what I paid for it, and I sold it. It was the strangest behavior I've ever been involved with. I often look back on it.

It was only a decade ago, and I think, how could that happen when 12 or 12 people said, no, here's why you're wrong, and you're going, I think they're right. And you don't sell the stop. Strange. Like, human reactions are odd. The endowment effect. You don't want to be wrong. Yeah, you're right.

I mean, there's an omission there that you're wrong. But I think the other thing is there's some wishful thinking. I mean, a lot of very successful people in life have talked about one of the keys is that you have to see things the way they are, not the way they wish you that you wish that. There's so much truth of that. And I think sometimes I'm quite good at that, but clearly there I was horrible at it. In fact, if I told you the full story, it's too long for the podcast, it's even worse than that. Like, I mean, they were sending me some pretty good documentation and thinking and grids saying, this is not well done by you.

And I'm thinking, yeah, yeah, good point. I didn't sell the stock. Like, it's so strange. It really, it really is. But, you know, that's life and you learn to live and laugh at those things. And I did learn from that one. In fact, this one that I'm involved with now that I told you about that I've done, the crazy due diligence on. I'm constantly now playing my own devil's advocate. I'm trying to prove

I'm wrong. And so I'll set out and get in touch with people and say, I'm wrong here. Show me why I'm wrong because I've learned from that last lesson. So my closing question for everybody is to ask what the kindest thing that anyone's ever done for you is. Wow, that's an interesting one. I've been treated exceptionally well in general. Everywhere I go, people will say, you know, the book made a difference and whatever else. But I think early in my career, I reached out to a number of people and said, you know, I don't know what I'm doing. I'm going into self-publishing. Can you spend some time with me? And not a single person said, no, not one. You know, Andrew Tobias, remember Andrew Tobias? Yeah, sure. Great guy. I found him in New York. I sent him my book. I said, do you mind reading it? You're my hero.

Didn't like it. Got back to me. That's fine. Didn't like the book, but gave me a couple tips and just handled himself like a true gentleman. And I always think of that. And what a difference it made to me and all that. John Templeton gave me the cover endorsement for the wealthy barber in the United States. Cool. And listen to this story. I phoned him and he picked up his phone. And this is actually a funny story.

I was like 27 and he picks up his phone and he says, John Templeton speaking. And honestly, I was like, holy shit. What are you going to say? I was ready to go through the whole process of begging to get him on the phone. I said, like John, John Temple speaking. Why is he answering his own phone? And then I gave in the pitch, what a great guy. So kind and nice.

And he said, I really like that idea of using the story. Send the book down. I got something. back from them, I bet you a week later. Said I read the book cover to cover, really liked it, agreed with all of it. But it was fantastic. So I mean, people in general have been exceptionally, in general have been exceptionally nice to me. And I've really, I've never been sued. I've never sued anybody. I've never had any major conflicts. You know, I've just kind of tried to keep it light and loose. And I'm not very money oriented either, which I think is probably a good thing.

I think people who are all around money tend to get in a lot of conflict and have a lot of those issues. And I like learning and, you know, I'm always happy. You ask your dad. He's never seen me in a bad mood. I'm always in a good mood. Thanks. Thanks for all your time. It was as fun as I knew it would be. Yeah, thanks a lot. Really appreciate it. Hey, everyone. Patrick here again.

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