Prof G Markets - Rivian and Volkswagen’s New Partnership + Scott’s Tax Strategy

Episode Date: July 1, 2024

Scott shares his thoughts on Volkswagen’s investment in Rivian and why he thinks the electrical vehicle industry is entering the “Valley of Death”. Then Scott and Ed discuss JPMorgan’s tax management business and Scott breaks down different tax avoidance strategies he thinks more young people should know about.  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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That's how much U.S. Airlines collected in baggage fees last year. True story. Last week, I was arrested at an airport. I guess you're not supposed to yell, shotgun, before getting on a plane. That was the best I could come up with. That's the best. Do you know, I have not, true story.

I have not checked in luggage in, I think, 30 years. I'm all carry on. I will go around the world for a month and not. No, no. This is because you fly private. That's very different. There's a distinction here. No, even before private.

No, now that I fly private, I have like Sherpas. I'm literally like the queen of fucking England pulling up to the plane with cases of shit. But if I'm flying commercial, daddy doesn't check luggage. That's impressive. And I'm an outstanding packer. I can, I'm literally like, I have my Ramoa thing, a little carry on, and I can, and I got my podcast case. That's one of my few competencies. This is on.

Where do you put the podcast? I've been struggling with that recently. I know that I'm a famous podcaster. Well, Drew, our tech guy, is a genius. He gave me this little bag or this little – it's actually a really cute little green or gray case. And it's got everything in there, and it goes in my little duffel. It's outstanding. You're bringing it to Greece next week, right?

I am, and I'm going to be on a boat. And I keep emailing our travel agent saying, do we have Starlink? Which is kind of a business story. I think that's going to be the technology of 2025. Which we'll discuss in this episode. That's right. We will. But I take my pod stuff literally everywhere.

Where in Greece? We take off from Bodrum and then we go to all these different islands. Bodrum? Yeah, Bodrum and Turkey. Are you going to hit the new Scorpios there? There's a Scorpios in Bodrum? They just opened one up. I didn't know that. Yep. As of Bodrum. Yeah, Bodrum and Turkey. Are you going to hit the new Scorpios there? There's a Scorpios in Bodrum? They just opened one up. I didn't know that.

Yep. As of this year. Yeah, no. Unlikely. That place is a little too young for me. It's one year too young? Well, yeah. No, I like to go with those old men and young Russian prostitutes.

I mean, when there's people my age. People my age. Okay. Anyways, do you know how I tell if a woman's a prostitute right how's that she returns my eye contact boom that means there's money involved that means if they don't like look away in fear like oh my god he's looking at me that means pro that means pro or at some point that person worked for me and it's like oh maybe i should be nice to him because i need another job prostitute yeah i got a lot of those people out there one in and the same. Anyways, what's going on today?

Oh, wait, today we're discussing Rivian's partnership with Volkswagen, people's car in German, and JP Morgan's tax strategy business. Here with the news is ProfG analyst, Ed Ellison. Ed, what is the good word? Just want to remind everyone to follow ProfG Markets wherever you get your podcasts. If you're still listening to us on the Prof G pod feed, you're missing out on an additional episode every week. Last week, we spoke with Ryan Holiday about how Stoicism makes us better investors.

The week before, we spoke with Ray Dalio, and we've got some awesome new guests on the slate. We've got Aswath Damodaran coming up, and also Anthony Scaramucci, the mooch. So don't miss it. Go subscribe to Prof G Markets. Let's start with our monthly review of Market Vitals. Anthony Scaramucci, the mooch. So don't miss it. Go subscribe to Prof G Markets. Let's start with our monthly review of market vitals. The S&P 500 rose nearly 4%. The dollar gained steadily. Bitcoin fell about 8%. And the yield on 10-year treasuries dropped as inflation cooled. Shifting to the headlines.

YouTube is working on licensing deals with record labels to train an AI song generator on their artists' content. YouTube reportedly offered lump sums of cash to Warner, Universal, and Sony to encourage artists to consent to the deals after only 10 artists agreed to participate in the test phase for its previous Gen AI tool. The production studio A24 has closed a new funding round led by Thrive Capital that values the company at around $3.5 billion. The investment from Josh Kushner's firm gives A24 a valuation that is 40% higher than its

previous funding round, which was two years ago. And finally, SpaceX is rolling out a mini version of its Starlink device for $599. Service for the compact kits will cost consumers an additional $150 a month. SpaceX says it is looking to reduce the price of Starlink to make it more accessible to people without an internet connection. Scott, your thoughts? YouTube, I think it's a really good idea. What we're seeing is a lot of content creators are saying, Sam Altman, distinctive of your hushed tones and faux concern about the world. When it's clear LLMs are returning or ChatGPT is returning, when you say, give me an overview of today's business news, and it verbatim lifts two sentences from a story in Forbes, there's a problem.

And Forbes should be compensated. And I think that the kind of worm is turned against these guys. And what they're doing here, I think YouTube's doing here is they say, okay, and we haven't talked a lot about this. AI might offer a great new age of music production, but if it starts sounding a lot like Michael Stipe and you're not losing your religion, but you're losing your region, according to the LLM, they're going to get upset. And so I think them trying to license full libraries of content

such that they know anything it spits back is legit. I think this just makes a ton of sense. And I think it's the right way to build these models because from the get-go, these content creators are getting compensated or they sign their rights away to someone who's getting compensated.

And it's legal. And just some additional context, last week, Universal, Warner, and Sony all filed a lawsuit against these two AI companies, this company Udeo and this company Suno, for using their music to create this AI generator. And they're seeking $150,000 per work in fringe. So when you consider the number of songs that these companies have probably crawled, if they win this suit, it could just flat out put these companies out of business. And these are legit companies. They've raised millions and millions of dollars.

So I feel like what we're beginning to see here, that lawsuit in conjunction with YouTube beginning to make a licensing deal, it does feel like the precedent is being set. And that is if you're an AI company and you want to build a generative model, there's basically no question now you're going to have to pay for it. You can't just build these things for free. And we should remember that at one point that there was debate over that question. Like, you know, the argument from a lot of these AI guys was, oh, well, we're just, we're crawling the internet as the same way that anyone else would, you know, we don't have to pay

to use your content. But I think what we're beginning to see, as you talk about a lot, I feel like the algebra of deterrence here is taking effect. It seems as if these companies don't want to gamble with these copyright lawsuits. They'd rather just comply. And I think that that's a win for publishers. It's a win for creators. It's a win for journalists, all these different creators. And if they can negotiate some good deals here, this could be good for them. Let's talk about A24. This is Lauren Sanchez and a thong. And instead of Bezos, this is lauren sanchez and a thong and instead of bezos this is another guy having a midlife crisis and instead of lauren sanchez this is a movie and film production company and the best

way to become a millionaire is to get into media when you don't know what you're doing as a billionaire and i think i knew a guy who ran a huge credit fund and his partner bought a big film studio and he's like why is he doing this he's like he wants to go to the academy awards i'm like well at least that's honest this generally a24 is an amazing company they're the they're the best of a sorry lot this is a shitty business and a guy in venture capital shouldn't be investing in this business in my view and i think he's made he's probably i met him once i did a meeting with him he's such an impressive young man josh cushion you're talking about who's the founder of Thrive Capital. Yeah, Josh.

He's an incredibly impressive young man. And my guess is he's made a shit ton of money and he wants to have a good time. And he's convinced his limiteds that, oh, I know what I'm doing. We're going to make money and I'm going to go to the Academy Awards. I'm going to hang out. I'm going to go to, you watch. Within about six months, he's going to be at the Cannes Film Festival. And so I just see this again, almost every non-economic or irrational decision made in corporate America can be reverse engineered

to a dude either going through or about to go through a midlife crisis. This is the first evidence of the midlife crisis of this Kushner kid, but he should not be in this business. This makes no fucking sense. Let me get this. His limited partners, they think he should invest in software companies or tech companies at upscale. Instead, he's investing in a really cool, hot film production company that he's overpaying for, would be my guess. And I just, this smells to me like, okay, doc, increase my testosterone and my Cialis prescription. What do you think, Ed? I mean, the thing you have to remember about Josh Kushner, everyone says that he's this very low key guy. He lays pretty low. He doesn't really like the spotlight. He doesn't like the fame. At the same time, he's also married to a Victoria's Secret model.

His wife is Karlie Kloss. So maybe he doesn't like doing interviews, but I can guarantee you he likes actresses, models, and celebrities. So yeah, I'm with you. I don't think this was a normal investment. I don't think they care about the returns. This, to me, is his way of leveling up the friend group from hanging out with his brother, Jared, and kind of all of the lame, unfashionable, Trumpy people to, yeah, Leo DiCaprio, Tobey Maguire. Now he gets to go hang

out in California. And I will say he deserves it. I mean, he's an incredibly successful investor. They've gone from zero to $14 billion in AUM in, I think, around a decade. If there's one thing a good investor deserves, it's an invite to after parties for the Oscars. So good on him. Mission accomplished. I agree. But this notion that you said he doesn't like the limelight, I'll kind of, marrying someone or falling in love with someone doesn't necessarily mean, you know, you like the limelight or you don't like the limelight. I'll kind of, marrying someone or falling in love with someone doesn't necessarily mean, you know, you like the limelight or you don't like the limelight. He stayed out of the way. He didn't want to get involved with the Trump administration because he probably said it

won't, the brand of like fascist clown isn't going to age well. And so I'm going to create some distance. He was smart enough to go, I'm going to create some distance between me and the insurrection. I just, that's probably, that brand is probably not going to create some distance between me and the insurrection. That brand is probably not going to age well. But I mean, at the end of the day, you know what kind of person likes models and actresses, Ed? Scott Galloway. Men. Men like models and actresses, Ed. Good for him. Enjoy it. But just be clear, the LPs in that fund, you may want to skip that fund until they get back to the boring shit of making money. There needs to be an Academy Awards for SaaS companies, like the Adorkables or

something. There needs to be... I think it's called Cannes Lions. Actually, it's interesting you say that. I'm on the board and investor in OpenWeb, and they hosted a dinner. And granted, their clients are media companies, but I thought Cannes used to be where they give out awards for, you know, the best Coke commercial. And now software companies are hosting dinners and Yahoo and News Corp and the Telegraph are all showing up for these dinners. I thought, anyways, it's all, it's all changed. Anyways, what else is next? Starlink.

$599 for a mini Starlink you can put in your backpack. Every year we do a predictions deck. Mia pulls together a deck. And then I roam the planet talking about predictions for 2020, you know, name it. And some we get right, some we get wrong. And every year, we predict a technology for the following year that'll be in the news a lot, create a lot of shareholder value. I think in 2021, it was voice. Then we said our technology for 23 that we predicted in 22 was

AI. Then in 23, we predicted 24 would be the year of GLP-1. It's shaping up, and I don't want to commit to this, but it's shaping up that I believe the technology of 2025 is going to be SpaceX's Starlink. I told you I'm going on a boat next week. And what's interesting, this is a big purchase. I'm going with a family. It was still a shit ton of money. And I didn't ask anything about the boat, but I called the broker and I had one question. Does it have Starlink? And at that moment, I thought, wow, I am now making huge purchase considerations

based on this technology. And I thought, okay, that means, I mean, so quick lesson, right? And this is the kind of first construct of my brand strategy class. All strategy comes down to clearing three hurdles, and I call it the hurdle test. The first is, is it truly differentiated? Like, is your product really different? Is it really? And that's hard. Brand is synonymous or shorthand for differentiated. The second is, okay, that differentiation is irrelevant. So at one point, the Haas School of Business was considering calling itself the

Internet Business School. That would be highly differentiated. Yes, it would be relevant, right? Does anyone care? And differentiation and relevance are in constant combat with each other because whereas Ferrari is highly differentiated, it's not that relevant. Very few of us are in the market for a $550,000 electric car, whereas Kleenex is highly relevant. We all need it, but it's hard to maintain that differentiation. So these two things are in combat with each other. But say you find something that is truly differentiated and is relevant. Well, Tesla seems to be differentiated and it's relevant. People are interested in EVs. Okay. The third hurdle, is it sustainable? Can we own it? So back to Starlink, it's differentiated. I mean, you get a call on a plane on FaceTime video, it's crystal clear. Is it relevant? Oh yeah. I mean, we're going to try and do these pods next week. I need serious broadband, highly relevant. And then is it differentiated? And this is why I think this thing is going to be the technology of the year. 60% of all currently orbiting satellites belong to SpaceX. Almost two-thirds of all... That's just crazy.

So even if someone says, this is an amazing business, we got to get into it, we're Boeing, whoever it is, we're Amazon, we have Deep Pockets. To figure out a way to get the Falcon X heavy rocket or whatever it is, the launch capacity to get these satellites into space, that is a moat the size of the Amazon. Anyways, this latest version, $599, this is a 10x better product at substantially lower price. I'm intoxicated just thinking about it, but I really wish it was you that had come up with this, not this fucking weirdo that has 78 children now. Anyways. What did the yacht guy tell you? He said, oh, we have outstanding... It was the yacht broker. They're like,

we have outstanding internet. I'm like, okay, what does that mean, boss? To me, that sounds like you won't have it if he's unwilling to tell you. He's dodging me? Yeah, he's not telling you the word Starlink. I'm being ghosted? He's treating me like every woman I've dated in my 20s and 30s? No, I'd really love to get together, but I'm busy.

That's exactly what's happening. I'm super busy, but I'd love to get together. By the way, I just want to credit Starlink for giving us the story of the year. And that is, Starlink was gifted. Last year, it was delivered to this Amazonian tribe in Brazil who had never had an internet connection before. One of the last great remaining civilizations without internet. Within nine months, all the girls were addicted to social media.

A quote from Sainama Marubo, 73 years old. She told the New York Times, quote, When it arrived, everyone was happy. But now things have gotten worse. Young people have gotten lazy because of the internet. They're learning the ways of the white people. The last great community, and we just had to come in there

and fuck it all up with a Starlink. It's the story of the year in my view. Yeah, but they're connecting the world, Ed. We'll be right back after the break with a look at Rivian's partnership with Volkswagen. Fox Creative.

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Volkswagen is investing up to $5 billion in EV manufacturer Rivian. It's poised to be a mutually beneficial partnership. Rivian lost $39,000 per car in the first quarter and could use the cash. It'll also be able to leverage the manufacturing might of the second largest carmaker in the world. Meanwhile, Volkswagen will gain access to Rivian's EV software to help it tap into the electric market. Shares of Rivian soared more than 50% in after hours trading on news of the partnership, while Volkswagen shares slipped about 3%. Scott, what are your initial thoughts on this partnership? I think this is so interesting. The first is, I think it's a great

idea. They both bring something to the partnership. Rivian is a really cool brand. It's a really beautifully designed car. I imagine it has some software and battery technology. So they bring some IP, call it, and some brand equity to Volkswagen, who's probably looking to get from letter E to letter H as quickly as possible in EVs. At the same time, there's just no getting around it. And the reason why I still believe Tesla is going to go down 50, 70, 80 percent, automobile manufacturing is a shitty low-margin business of scale, emphasis on scale. Basically, what automobile companies do is they come up with one kind of platform, and they figure out the tooling and the manufacturing

and the assembly line and the factory, and it's really expensive. It's like a billion-plus dollars to create this platform. And then it's about how many cars can you push, shove through that platform. So the SUV platform at Volkswagen produces the Touareg, which is a Volkswagen branded, the Q7, which is Audi branded, and the Cayenne, which is Porsche branded. And the reason why Volkswagen works is it can shove through all of this production, different brands, different finishes, different positioning through one SUV platform. And those are the only guys that survive. They can really push volume and scale through the platform. In the beginning of the 20th century, there were 100 automobile

brands. By 1949, basically, it was the big three. So this is consolidation. And I would imagine this is date before we get married. If this goes well and they like each other, they'll take an increasingly large stake. But the insight, and again, it goes back to the Kushner thing. This is all about a guy in his 50s and the decisions he's making right in his 60s. I think Bezos is actually older than me, think the newsroom thought, we're precious, we're doing important work, long form journalism, someone should fund it just because we're so awesome. And I think they were expecting him to fund it indefinitely and just pay for them to play in journalism. And I think he said, no, you guys either figure out a way to make money or we're going to start firing people. Because he's realized the moment you kind of say to your kids, oh, you're so cute.

I'll pay your rent. Now I'll pay your mortgage. Now you end up with dependents the rest of your life. And I think he said the same thing at Rivian. He's like, okay, what's our path to profitability here?

And they're like, well, we could. I just want to make it clear for our listeners. So Bezos, he doesn't directly own Rivian. It's Amazon, right? Yeah, exactly. So Amazon invested in Rivian back in 2019, and they bought around 20% of the company. They've been diluted down to around 17%. But that's the basis for this. Sorry, continue. Usually you find in every board or in any organization, there's kind of one or two people making all the decisions. I got to think when Bezos has a view around Rivian, they're really inclined to do that. And because he has so much credibility and obviously controls a huge stake here, I would bet he's just kind of said as the deepest pocket, Amazon, look, we're not

going to continue to hemorrhage money like this. I think they only had about nine months of capital left. So they needed to find a solution. And there was probably two solutions. One was named Jeff Bezos and the other was, you know, fill in the blank, and it ended up being Volkswagen. And I think the same thing that's happening in the Washington Post was like, sorry, folks, you're either a company that works here or makes me much sexier to the world. I think he was considering even buying the Washington Commanders at some point, or he has now the third biggest three-mass yacht in the world. And the Washington Post

doesn't make me any sexier. Rivian a little bit, but it's not worth the money. You guys either need to get profitable, show me a path to profitability, or we're going to partner with Volkswagen. I actually ordered a Rivian. I'm really excited about it. I got it in foam green. I'm going to be an Aspen. I'm going to put Leia, my Great Dane in the back. I'm going to cruise down into town and they will love me, Ed. They will love me. I'm also going to put a bike in the back, but that I will never ride, but I want people to think I'm outdoorsy. I'm just going to make a prediction. You keep saying you're excited about this Rivian. I think you've been saying that for maybe at least two years, I want to say. I don't think

this Rivian is ever going to arrive. You don't think it's ever going to be delivered? No, I don't think you're ever going to do whatever paperwork is needed to have it arrive at your house. I don't think you care about getting a Rivian. I don't know. For some reason, that hurts my feelings. I'm not sure why. I was actually thinking of ordering it and then auctioning it off for charity water. And then I thought, I'm not that generous. I want the option to have the Rivian. I think something like that's going to happen. You're never actually going to earn a Rivian, but you will continue to be excited about it. That's my plan to wait for the ask answer. Anyways, the fact that they can't make it, that means this is it. I mean, I think Fisker just went

out of business. I believe that Tesla is going to hit a wall, but I've been saying that since the stock was at 15 and it's not 160 or something. But I would bet that Rivian becomes the next SUV that's shoved through the Volkswagen platform. Just to give some color to how far this company has fallen, it was worth, when it IPO'd, it was worth $130 billion. Jesus. I don't know if you remember, but everyone was obsessed with this thing. Everyone was saying it was like the best new car company. It's going to compete with Tesla. It's going to solve climate change. It was actually more valuable than Volkswagen at one point. We said many, many times that this was ridiculously overvalued. It's now worth around $15 billion. It's fallen 90%.

So I feel like we kind of won that prediction. We also talked about the burn rate. So let's just go through the numbers here. Operating cash outflows last quarter were $1.3 billion. CapEx for the quarter was a quarter of a billion dollars. So total cash burn of $1.5 billion, losing roughly $40,000 per vehicle. As you mentioned, at that burn rate,

the company would be out of business by the beginning of next year. They had nine months of runway left. So it was in an extremely dire situation. People are saying that this Volkswagen investment was a lifeline. I think that's often hyperbole. In this case, it's completely true. If no one had come in, if Volkswagen hadn't come in here,

this company would have died, which makes me think, why didn't they just buy the company? Effectively, what they've done is they've peed on this thing and no one else, that's it. No one else, any other dog or acquirer is going to go, oh, Volkswagen's here. That's really good. So what they've bought is essentially an option. And that is, rather than saying,

okay, for them, Volkswagen's market cap is $58 billion. And this is one of the biggest, best-run automobile companies in the world. The fact that Rivian was at one point

where twice that gives you a sense for just how batshit crazy it is. Right now, what is Rivian's market cap? It's $12 billion. They would have to come in and offer probably $13 or $14 billion to take this thing private. Instead, they come in at $1 billion. If the stock goes way up, good, they've made a bunch of money. If it comes down, they buy the whole thing. They couldn't give 25% of their outstanding equity to Rivian shareholders to buy something losing money. So this is a chance to date, get some technology, work together. And if Rivian, you know, the stock goes from, it's at 1458. If it goes from 1458 to five, they'll step in

and they'll take the whole thing. Do you think that this is the beginning of a huge run-up for Rivian? Like does this renew your excitement for this company? Or is this just kind of like softens the landing? It happened. Rivian stock, I was even looking at this thing, Rivian stock popped about 20 or 30% in the last few days. It went up, it was trading at 12. It went up to 16.

So what was that? It was up 30 or 35%. Now it's down to 14.5. I would be shocked if it wasn't. I mean, I guess you could say that some of that pricing, it was at 10 bucks pretty recently, was that fear about them coming into a cash crunch. And now that's sort of been taken off the table, or at least they kicked the can down the road. But this thing still has a $12 billion market cap for a company that's hemorrhaging money. This is how fucked up it is. This company's worth $12 billion. Ford Motors were $12.3 billion. That's crazy. And Ford is a profitable company pushing out a ton of cars.

Any long-term predictions for the EV market? You mentioned Fisker went out of business. So did Lordstown Motors. So did Proterra. Three different EV companies that went bankrupt in the last two years. EV sales last quarter in the U.S. also fell 7%. Is this kind of the beginning of the end for not EVs, but EV startups? That feels right. I mean, what is it that curve or the Gardner curve, I don't know who invented it, where there's growth, excitement, froth, hysteria, and then disappointment, realization, valley of death, and then consolidation,

the weaker players get swept off the deck and then it comes back. It feels like we're entering the valley of death, and that is companies are either going to go out of business or need more capital. I mean, there's been a bunch of electric EV kind of truck companies that have really struggled. And I think that as a whole, I mean, I think the market was only up three. The market for EVs was only up 3% year on year. But as the Chinese enter the market, bring the prices down, as it becomes more accepted, as the charging station infrastructure is built out, supposedly one out of five charging stations

are working right now. I think that this market, it just feels to me like the whole world is headed this way. We'll be right back after the break with a look at tax harvesting. Autograph Collection Hotels offer over 300 independent hotels around the world, each exactly like nothing else. Hand-selected for their inherent craft, each hotel tells its own unique story through distinctive design and immersive experiences, from medieval falconry to volcanic wine tasting. Autograph Collection is part of the Marriott Bonvoy portfolio of over 30 hotel brands around the world. Find the unforgettable at AutographCollection.com. Food insecurity still affects millions of individuals around the world. Find the unforgettable at AutographCollection.com. From building urban hoop houses to producing custom seasoning for food banks, Nestlé and their partners actively engage with local communities, listening to their needs and working together to find innovative solutions.

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tells you which leads are worth knowing, and makes writing blogs, creating videos, and posting on social a breeze. So now, it's easier than ever to be a marketer. Get started at HubSpot.com slash marketers. We're back with ProfitG Markets. JPMorgan Chase is on a mission to take share of a growing business, tax strategy. The bank has attracted more than $15 billion in assets under management in its tax-advantaged accounts known as SMAs or separately managed accounts. Unlike a regular account, these accounts offer personalized tax management advisory.

And according to one JPMorgan banker, quote, it might be the fastest growing piece of asset management over the last 18 plus months. The growth is not just at JP Morgan, however, it's industry wide. Assets and separately managed accounts have increased 30% year over year in 2023. And asset managers say 45% of assets are now subject to tax management. That's up from 33% in 2022. So Scott, tax avoidance is becoming increasingly popular from the numbers here. And to be clear, this is different from tax evasion, which describes illegal tax strategies. We're talking about legal tax strategies, tax avoidance. So as someone who works quite a lot with tax lawyers, could you describe what some of those tax avoidance strategies actually are that wealthy people are using today? So first off, this is a key component

of obtaining and maintaining wealth, is tax, we call it tax minimization. We have an entire chapter in the Algebra of Wealth on just, it's going to be near impossible for someone to become economically secure, much less really wealthy, unless they have a pretty strong grasp of taxes. To not, I mean, you're driving, you're driving towards economic security. Do you want to figure out which toll booth

is two bucks versus seven bucks? You know, you just got to figure this shit out. You got to understand how to get through this toll booth as inexpensively and as quickly as possible. This is why I think young people need to talk about money. You need to understand taxes. I mean, I just did the math. When I was living in New York in 2010, I just had a couple of kids and I was doing the math and I thought, okay, we make a lot of money and I feel broke and I don't like it. And so we sent our kids to was, no joke, $14,000 a year at that time versus $58,000 at First Presbyterian. And everything was cheaper. I was going to save the income tax savings was 13%. And I did the following, and I was very disciplined about this. I took the majority, not all, but the majority of our lifestyle savings. And I took that 13%. I did the math and said, every month, I'm going to take 13% of my top line income and I'm going to pay

taxes to me. And that is, I'm going to invest it. And it changed my life economically. So thinking about taxes and how to minimize your taxes. I mean, it's like the guy, Huizenga, who passed away, was the founder of Blockbuster and I think ended up owning the Miami Dolphins for a hot minute. When he was doing ads for Florida, he used to say, it's not what you make, it's what you keep. He's right. And what people don't focus on enough, they focus so much on how much they make, they don't focus on what they keep.

Anyways, tax minimization is about what you keep. So there's some very basic strategies. The first is geographic arbitrage, right? Moving to a low-tax state or establishing residence in a low-tax state. The second is just being thoughtful about timing of sales. And that is you really don't want to be in any asset less than a year because the top tax rate for the short-term capital gains, that's assets you own for less than 12 months, is 37% versus I think it's 22.8 for long-term capital

gains. So anything I buy, almost anything investment I make, I assume I'm going to hold longer than 12 months. Now on the flip side, if there's a loss at the end of the year, I think about taking those loss. I harvest losses. Could you just describe how tax loss harvesting actually works? Okay, so whatever it is, stock's gone down 50%. You sell it on December 30th, you paid $10,000 for it, it's worth $6,000, you sell it at the end of the year, you get a $4,000 tax deduction. You recognize the loss. And now there's funds that whenever anything's down, they sell them right away. And they have to wait a certain amount of time to buy back in, but they're constantly harvesting losses, which juices the returns. So being really thoughtful about tax minimization is just hugely important. I mean, I'll give you an example. Vox is going to owe me a lot of money. I did this strategy or did this agreement with Vox who distributes this podcast where they're going to give me a lump sum of money in May of 2025. And because that's current income, which I hate, 37%, I'll lose 37% of it right away. I'm going to do something, or we're talking about doing

something called the installment method. Now, what is that? They can pay me over six years, which they like, because it saves them cashflow because it's a sizable amount of money. We pick an interest rate, I don't know, call it 7%. And over six or seven years, they pay down. I'm basically loaning them the money they were owing me, say it was $100. I'm loaning them 100 bucks and they pay it off over six or seven years like a mortgage. And they pay me 7% on it. But here's the fun part. Because they're paying it off over seven years, I'm getting 7% on the pre-tax income. So for the first, whatever it is, three or six months, I'm getting 7% on $100. Whereas if I sold it all or I just recognized the gain with a 37% tax rate, I'd end up with 63 cents and I would need to get 10 or 12% on an investment. The biggest

tax loophole that has increased my wealth is our tax system. Our tax system really loves real estate and it loves entrepreneurship. So I would start companies, small companies, and if they had less than 50 million in assets, which any company I start does, you can either invest in it or start it in the stock you get. If you hold onto that stock for more than five years, the first $10 million or whichever is greater, the first $10 million or 10 times the initial investment is tax-free.

So when I sold L2, the first $10 million was tax-free. When I made an investment in a small company that went up dramatically, the first 10 times my dad in San Diego, but I spent four of the five days in LA working on an original scripted drama on big tech based on the book The Four written by Scott Galloway, I can write off all of my expenses. You can shove a lot of expenses through a small business because you'll find most of your life, at least if you're an entrepreneur, is somewhat related to business. Who really gets fucked is the person working at Goldman or working in a law firm or working for an employer where every year they just get all of this reportable income that's top line and then it's all current income and it gets taxed in a high tax state. You are now at a point, Ed, where you're going to start paying 30%, 35%, 40% tax rates because there's really no hiding your income. So the key to tax

minimization is to figure out a way to save enough money as an earner such that you become an owner because then you can get long-term capital gains. Think of yourself as a stock, and that is every year, the stock of Ed Ellison goes up, call it 150 grand in value. Every year, you have to pay 40% tax on that. Whereas if you manage to save money and you buy 150 grand worth of Amazon stock over five or 10 years, and it doubles, it goes up 150 grand, unless you sell it, it is growing tax deferred. So at the end of the day, the kind of the ultimate rich person's tax avoidance strategy is the following.

You have a lot of stock in Amazon and you never sell it. You just let it increase in value and then you borrow against it and you never recognize a capital gain. And you can even write off the interest on the money you borrow. Now, at some point you got to pay that back. So what do you do? You pretend you want to spend more time with your father and you move to Florida. And then when you sell that stock, it's taxed at a much lower rate. So it really is, you really want to learn about taxes and understand tax policy. Because if I had been paying, again, that 13% that I was disciplined enough to reinvest every year in stocks that grow tax-deferred, changed my life economically. And these strategies are out there, and it's important that you know them. income from sweat who are earners as opposed to people who own or invest or own real estate, trust your instincts. It's yet another transfer of wealth from the entrance to the incumbents. I think that's something that a lot of people would criticize you for, which is,

you know, what we talk a lot about is the fact that the ultra-rich, generally speaking, are not really paying taxes. Wealthiest 400 families in the US paid an average effective tax rate of 8% in the past decade. You talked about the buy, borrow, die strategy where you have a huge asset base and instead of selling and registering and having to pay taxes on those sales, you just borrow against it and you keep on doing that

and you can do that at an extremely low rate because you're so rich. There are all these different strategies which you use. And so I think a lot of people would say that you're being hypocritical because you're arguing against this and talking about how it does screw the young over, but at the same time, you're also doing it. So what would your response be to that criticism? I understand the criticism. The question is, is anyone at my funeral going to say he paid more taxes than he was supposed to? What a great guy. Be clear.

I am going to vote for people who restore a progressive tax structure. Why? If your job in a capitalist society is to make as much money as you can, and it's your job to minimize your taxes to protect yourself why would you vote for someone who's going to increase your taxes because i want a healthy america and i want an america that makes the same forward-leaning investments in the middle class that were made in the 60s and 70s and 80s that benefited me. And so I want to see the same opportunities provided to people your age that were provided to me. Having said that, I will absolutely, I'm not going to disarm unilaterally. I will take advantage of every single tax loophole. Now,

now that I feel a little bit defensive, I'll say the following. I recognize my privilege. I got to a certain number and I decided anything above that I was either going to spend or give away. And my personal code around this is I look at my spending every year and I give away that or more every year as a self-imposed tax. Over the last four years, I think I've given away approximately somewhere between $17 and $20 million. And I think a virus that infects America is hoarding. There is no reason to have more than $100 million. I just can't rationalize why any individual would need more than $100 million. Do you want to build a dynasty? Well, guess what? Your kids are probably going to be fucked up. That's not good for your kids. I'm not saying it's bad for them. Make sure they have some money and they can buy a house. But there's no evidence of building dynasties as any good for anybody. Once you have the nice house, the second house can do amazing things, take care of your parents, take care of your kids, give money away.

Why do you need more money? You don't. And it's a society telling you that your worth is based on a number that keeps getting bigger and bigger. You need to get off that treadmill. So spend it. I think it's great. And give it away. And that's what I do. But be clear, along the way, I'm going to minimize my taxes and try and increase my wealth. And above a certain point, I'm going to either spend it or give it all away. And that's another tax loophole is a donor advisor fund. And that is a DAF. If I think I'm going to give away $10 or $20 million, I put it into a DAF and immediately, immediately, or just stock, I'm going to give this away. It's been designated that I'm going to give it away. And immediately, I get the tax deduction without giving it away right away, and I can borrow money

against it. I mean, essentially for every dollar that's donated in philanthropy, the government loses like 72 or 73 cents. So really what we have here is kind of people, rich people deciding what are our social priorities and the government not gaining from it, not, it doesn't replace government spending because they don't get the, you know, it doesn't help the government. But that argument doesn't really work in your favor here because that is something that you're doing. I think, I mean, I, and by the way, I just want to be clear, I'm with you. I would be doing the same thing, but I just think the critics would say, well, why are you deciding where that money goes? Why are you spending all this time? If you believe that you don't need that much more money, why not just hand it over

to the government? They need money. They need to build infrastructure. Why are you deciding that it should go to this charity and doing all this work to minimize the taxes such that you don't have to pay it to the government? I understand the argument, but the idea of just sending Uncle Sam, first off, I don't think they'd let you. I mean, maybe they would. It just would feel weird to send money to the treasury. And what I do is I say, okay, my two big charities are Teen Depression and right now Vocational Programming for young men and women. And those are two things I'm really passionate about. I think those add social good. I don't create large organizations or offices. I just sign them a check. I inspired my Mackenzie Scott. I don't want my name on shit. I gave a bunch of money to UCLA and Berkeley for a vocational program. They said, do you want to call it the Galloway thing?

I'm like, no. In 20 years, they're going to find out I said things that are upset. I don't want my kids to be embarrassed. Respect. I don't want my name on anything. I think it's... Anyways. But yeah, if the notion is I should just send money to the government that I don't technically owe, no, I don't do that. But I do try to pay it forward and impose a 100% consumption tax. My big aha moment was my number, if you will, kept getting bigger and bigger and bigger. At one point, I thought, when I sold L2, I thought, well, I could start a private equity fund, raise a shit ton of money, and maybe in 10 or 15 years, I could be a billionaire. And I just

like the sound of that. Scott Galloway, billionaire. That just felt sexy. That just felt right. And then I remember a moment, which is personal. I won't go into it. I remember like, why the fuck do I need to be a billionaire? Like, who am I trying to impress? I need to impress the people who I love and love me. And the way I do that is a set of shared experiences and spending more time with them, which is not going to happen if I get on a hamster wheel to try to get to a billion dollars. And also, you have to take a lot of risks with the money you have to get to a billion. So I said, I just need to get off this fucking treadmill. And it's hard to get off it, Ed, when your whole life you're trying to get to a bigger number

and you keep getting shot in the face and going to zero and finally you're back and then you go down and you go up. It's just hard to get off that treadmill. But be clear, no one's going to disarm unilaterally. Rich people aren't stupid. They're not going to start cutting checks to the government. What we need to do is elect people. And I do this. I spend money and I work and I canvas for people who are going to restore a progressive tax structure, have an alternative minimum tax on corporations who have the lowest tax rate since 1939. Their taxes used to be 1% of GDP, excuse me, 2.5% of GDP, now they're 1%. And also have an alternative minimum tax on very, very wealthy people such that no matter what loopholes they manage to invent, they pay at least 20 or 30% of their income. But tax strategy, the tax codes count from 400 pages to 4,000. And those 3,600 pages aren't there

to help out the middle class. They're there to fuck the middle class, not intentionally, but to say, to have thoughtful conversations and then do things like opportunity zones, which by the way, I've invested in. Here's a good one. Put a million dollars into an opportunity zone fund.

And they've designated a bunch of low-income areas. And if you invest in an opportunity zone, and they've designated a bunch of low-income areas and if you invest in an opportunity zone and that is a warehouse in reno that amazon just leased out which i invested in i invested i think i invested five million dollars five million dollar tax deduction in seven years i'll have to pay that taxes on that but i get to invest with five million in pre-tax income for seven years, and any gains on it, if I hold onto it for 10 years, are tax-free. And they couch it as helping low-income neighborhoods or whatever. No, it's not. It's a tax loophole for rich people. These are everywhere, Ed. These things are everywhere, and they're even more present

in real estate and among corporations. If you own commercial real estate, you can depreciate the property 2% or 3% a year. If you own Apple and it doubles, you can't depreciate it. You can actually depreciate commercial real estate. If you own an asset in real estate and it goes up, it doubles in value from a million to two million, a piece of commercial real estate, you can do a 1031B exchange. And as long as you roll it into a similar asset class, you don't trigger a capital gain. If you sell Apple at $100 a share and you've made $50, you get taxed on it. So real estate, very effective lobby, hugely tax advantaged. And what are we doing? Trump raised the limit on trusts, where if I put money into a trust, it grows tax-free. And then my kids inherit it. Which is probably the thing that you

accrued while you were alive. Yeah, but he's fighting for the working people. Yeah. So look, the tax code has been weaponized by the rich and corporations. I want to be clear, I will fight hard to change it, but no, I'm not going to disarm unilaterally and just cut a check to the government. Just be clear about your position. You want to get rid of the loopholes, but so long as they exist, you will use them. Yeah, 100%. Which I think is a fair position. The way I think of it, it's like, it's a lot easier to pay 20%, 30% taxes if so is everyone else. But if you look around and these other rich guys are paying 8% or nothing, a lot of them are paying nothing, it's a lot harder to do that.

Let me just put it this way. If Team England finally calls me up in the finals against Germany and Berlin, because I actually have a pretty good foot. I don't know if you know this about me. And I get fouled in the last minute of the game or someone knocks me over in the penalty box, I am so falling to the ground and pretending I've torn my ACL and trying to win. I am so flopping. I'm going to try and win, Ed. And if that's unethical, fine. I'm unethical. But I'm going to play by the rules of the game and do my best to win. Full stop. Let's take a look at the week ahead. We'll see the unemployment rate for June and the minutes from the Federal Reserve's latest meeting.

Do you have any predictions? Well, that was my prediction, was that Starlink is going to be the technology from SpaceX is going to be the technology of 2025. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon.

Mia Silvera is our research lead and Drew Burrows is our technical director. Thank you for listening to Profiteer Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday. You have me In kind Reunion As the world turns And the dove flies In love, love, love, love