The Pomp Podcast - 286: Bill Perkins on Investing in Natural Gas

Episode Date: May 4, 2020

Bill Perkins is an American hedge fund manager, film producer, and high stakes poker player from Houston, Texas. He specifically focuses on venture capital and energy markets. In this conversation, we discuss the energy markets, universal basic income, how investing is a psychology test, why Bill plays high-stakes poker, and what the big idea behind "Die with Zero" really means. =============================== Pomp writes a daily letter to over 45,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at www.pompletter.com

This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Bill Perkins is an American hedge fund manager, film producer, and high stakes poker player from Houston, Texas. He specifically focuses on venture capital and energy markets. In this conversation, we discuss the energy markets, universal basic income, how investing is a psychology test, why Bill plays such high stakes poker, and what the big idea behind his new book, Die With Zero, really means. I enjoyed this conversation with Bill, and I think you guys will as well. Before we get into the episode, though, I want to quickly talk about our sponsors.

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also don't forget I write a daily letter to over 45,000 investors about business technology and finance I break down complex topics into easy to understand language while sharing opinions on various aspects of each industry you can subscribe at pompletter.com, pompletter.com, or go click the link in the description. All right, let's get into this episode with Bill. I hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his

guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I have Bill here with us. As I was joking with him, he is sitting on a boat in beautiful blue waters, and I'm sitting in New York City trying not to get COVID-19. So, thanks for doing it. Both have the same goals, just different locations.

Absolutely. For those that don't know you, let's just start with your background and kind of where you grew up and then how you got into finance. Okay. So, I grew up in Jersey City, New Jersey. I went to school in the University of Iowa. And right around my fourth year, I'm a five-year graduate uh my godfather goes you know basically gives me the uh what the hell are you going to do with your life kind of talk which i was kind of delusional um you know i knew i didn't want to do engineering i went to school for electrical engineering but i knew i wanted to make money and i saw the movie wall street and i thought this was a way to like leverage my time and make a bunch of money so i said i want to go into stocks he's like uh i don't know anything about

stocks i know this commodity firm on the exchange floor do you want to go take a visit bring your resume etc take a visit so long story short i show up my resume they take my resume they tear it up they throw it on the ground you don't need that here they walk me around and i thought i had a job i didn't have the job like there was apparently somebody else vying for the job so i used to come down to the exchange for three days waiting like can i get a job calling can i get a job can i get can i get in get in waiting downstairs to get hired and i finally got hired as a peon like assistant assistant assistant peon and you know i worked my way up from there yeah and so uh when you first got started did you go right into uh the energy market or were you doing something else

so i worked for a company called refined energy that was in the uh crude oil back then there was only crude oil gasoline right those pits where they were at and uh and and uh heating oil diesel and so i was a screen clerk for that firm that's where i started right and that's where i started learning about commodities and options etc working at different firms on the floor yeah and i guess one of the big leaps i think that every trader wants to make is i want to go from working for somebody else to eventually starting my own stuff um and kind of what was that transition like uh because you made a you were at a couple different places and then eventually went out on your own but kind of what drove that that was like a there was a meandering process right like i i i needed

to learn i needed to stumble i was in brokering over the counter which i hated although it was lucrative but i really hated it um and then i got offered to run an options desk in houston as they were deregulating natural gas and needed traders to basically manage risk so i i i swore i would never go to tax texas like leaving the upper west side to go to texas was like friends were like what the hell are you doing but i would have went to siberia to trade you know i really really wanted to be a trader i really wanted to be a master of my own fate i really wanted to eat what i killed not dependent on people's moods but dependent on my ability versus the markets and so i left and through a long process you know developed a name for myself either good or bad right and

worked with eventually when Enron went under um my friend John Arnold was going to start his his fund and I was like well if you pay me this percent I'll come work with you you know it was two young guys trying to take on the world and we started off four people in Centaurus starting this natural gas trading shop and then that firm became you know long story short the most successful commodity hedge fund ever aside from Rensselaer in commodity trading right just a ridiculous run he called him rich and retired and then I started my own fund got it and when you guys started that was it something where you were managing personal capital at that point? Was it, you had a couple LPs and that really gave the confidence to make

the jump or did you guys start and then have to go raise the money before you can actually start trading? So one of the craziest things about Centaurus, as successful as it was, is that I didn't have a dime of my own money in the fund, which the logic at the time, which I now know is totally false, was that, listen, it's okay to have no money and a job or a lot of money and no job, but no job and no money is pretty bad and so the idea was if we blow up and you have your money in here you know that's a bad thing and so we didn't do it but you know looking back i was so young i was like i could easily recover from this i should have taken the risk right and so john started centaurus with eight million dollars of his own money and the investors that said they

gonna put the money in day one they didn't show up but after we posted 170 or whatever 300 return they started knocking on the door right and then you know the next year whatever and they kept knocking on the door to the point where it got to the point where john was kicking people out uh and and not letting people in like we he was able to get to the point where he he was able to choose the partner he wanted it i asked a very well-known uh um hedge fund manager i said uh how do you guys raise so much money and he said we don't and i said what do you mean he goes we don't do the returns raise the money right just people come and find us because they want the returns right it's very path dependent too it's unfortunate because you know no one bats a

thousand a lot of people have you know bad year or whatever a good thesis great bet would do it it 100 times out of 100 but if you have that bad stub year or that bad first year you just it's almost impossible to raise money right and so that's the bad side about raising outside capital you know for sure and then talk a little bit about when you actually went out on your own um kind of why go out on your own and what were some of the things you learned as you did that um i thought you know that i was avoiding FOMO partially right when when Centura stopped uh Greg Whaley, who now runs Copperwood, and I were going to partner together, right? I being the second most successful trader at Copperwood and a bunch of other all-stars.

They're all all-stars at Copperwood. You know, he was going to start the fund. And the bottom line is Greg and I could not agree on control, risk limits, et cetera, right? Like Greg's a military guy. There can only be one captain, right? And so even though we're great friends and we still talk a lot, it was better for me to go away. And the reason why is the pooling risk in commodities. You know, guys wanted me to stay for, you know, having my set of neurons and my way of thinking to help the fund.

But I was like, listen, you can have your best year ever and I can wipe you out. Right. Because if I have a bad year, I trade such a big, you know, big book, big style. You kind of want to be insulated from that. you think you want me but you don't want me you know and we can always talk shop right so you still get my neurons right but you you don't you don't you don't have the risk and so that's the way it went got it and then when you went out on your own uh you went right to um to all the energy stuff or were you trading other commodities as well no it's just to trade what i know right like it would be hard it would be very very hard press for me to raise money

outside of you know what i have been doing then it's pulling teeth raising money so we were able to get you know a big check from one institutional investor uh a fund of funds and and we're still small teeny teeny fun but and a couple other friends and family and high net worth individuals for sure and then as you've uh grown i think you're also doing venture capital investing now as well a little bit yeah I do that through through my own entity right I have enough capital to be like I guess a medium-sized family office and so I have a lot of in-house expertise that I've hired over the years to attack certain certain problems deal with certain issues and so I have a CIO I have you

know capital to deploy and i love solving puzzles so i've been doing that um kind of on the side but it's not on the side at the size we're doing it you know i say it on the side because my primary job is trading natural gas and trading trading energy but you know we rewrite what i would consider somewhat significant tickets you know when i go into you know a publicly listed stock and i look at how many shares i hold and i'm like oh wow we're in the top if they listed us we'd be in the top top 10 right of shares you know and so and when we come into our private placement you know we're able to write the tickets that people are looking for and the sizes right they don't want one single investor to control it but they're looking for half a million two million to

five million blocks you know we're able to write that ticket so it's it's gotten pretty serious you know it's always serious right but it's gotten it's significant the unfortunate thing is is though we do have a limited pool of capital and there's lots of great things yeah for sure let's talk a little bit about what's going on in in the energy natural gas world obviously things have been absolutely chaotic haha to say the least kind of what are you seeing in the market and how are you guys thinking about what's what's going to transpire here coming in the future right like the the two things the two things that we're kind of is the demand destruction going on

from response to COVID-19 versus supply destruction from crude oil shut-ins and rigs being dropped right and so we have these opposing forces happening right and it's chaotic right like people We're looking at power burns and supply getting turned back from LNG versus shut-ins versus nobody's doing anything. Our general thesis right now is that we used to be extremely bearish at the front of the curve, but we've tempered that because of the rig count and shut-ins and prices. right nothing cures high prices better than high prices and nothing cures a glut better than a glut right and so those play you know the problem with our view is is that there's a lot normally we're very like our our our error rate right we'll say is a half a bc of the day if anybody knows that's a billion cubic feet a day uh for example the united states is producing about 93 bc of the day

right so that's where we want to be in our error rate like now our error rate's like two bc of the day three like it's very hard to to pinpoint a single variable how much how much is production going to be from a within two bc of the day how much is you know how much how much is demand destruction right now within a bc of the day i don't know you know and what will be in the future Those are very hard to predict. But if you have an overwhelming, overwhelming cumulative factor like supply declines, we believe as time goes on at this low of a rig count, the supply decline will overwhelm all other factors as we get further out. Right. And so we have this kind of like very nuanced view of the world as time moves forward. yeah i was gonna say i don't know too many people who i've heard say that before so maybe describe like explain that a little bit more as to what you mean exactly by that yeah let me let me uh

i guess if if you had a i love bathtub analogies but this is if you had a bathtub right and it's about to overflow right you're like oh my gosh there's nobody using this water it's flowing into nobody's drinking it it's all flowing into this tub and this tub is gonna overflow and the drains are this big right and then at the same you know at the same time you're like the drain gets a little bigger and the flow keeps going down down down down down down down down down until there's no flow right so in the short term maybe some spills over the sides and we have a price crash right but over the long term we can see the water's going to stop and the drain is still there right and it's going to get very you know it's going to be very bullish water right like where's

water right and so that's the way it is in natural gas is that the faucet of natural gas is is slowing down and the drain is staying the same or maybe getting a little bigger and so how that plays out over time is is complex right like will will will it overflow before you know what i mean like is it going to overflow in the short term or not or it's going to just be okay right and then as we get into the high demand periods of natural gas, which is really the winner. And as we go further in time, you know, we need to start worrying about running out of water, right? There's no water in the tub, right? And so that's kind of, I hope that analogy helps, but that's kind of the way we're looking at the market right now is what is the overwhelming long-term variable and what's going

to happen in the short term? Yeah, no, that makes a lot of sense. And I guess how much of that are you focus just on the united states versus a lot of the things that are going internationally with saudi russia and kind of a lot of the stuff that they're trying to uh to manipulate you know over time you know the u.s used to import natural gas it still does in in everett right up in uh up in boston but the over the years we've gone from importing to exporting seven and a half going up eight to 10 DC every day, right? So that's a significant number. So that has forced every single natural gas trader to pay attention to what's going on in the world. We used to love our market because it was a niche market that was complex enough that the average person couldn't

figure it out. But you could if you built a fund and built in resources, right? There weren't that many variables. And now there's this extra variable of what's happening internationally. Are they going to basically turn back all the LNG that we're shipping to them, thus complicating our situation here? So we're very much aware of, you know, we build AI ship models and tracking models of fundamentals in Europe and also try and figure out what's going on in Asia and that black box, tracking ships, et cetera. because we need to know okay when europe says when the price of european gas goes below the us gas as it is right now we need to know how many cargo is going to wind up at our doorstep thus putting pressure on the price right and so we've all been forced to go to school very quickly on international markets yeah it's super interesting and i guess as part of this um

like what would change your mind about the thesis on where natural gas is going now are there certain things that you guys are looking at is either um kind of flags or um or things that you're like hey if x happens then we would actually change our thesis yeah i mean we're we're we're we're concerned about the level of like you know most of these things are highly educated guesses right so you know i've gone from bearish to front to mildly supportive right with with massive error right it baked in there and you know i would look at okay we're measuring the supply every day and is it is it declining at the rate right and that's one of those slow boiling frogs you don't know because it's noisy you have to get a bunch of data we're looking at how quickly

the u.s opens or doesn't open up this is going to keep opening and shutting up right affected the demand equation we're looking at international prices like what's going to happen with these lng these ships and these turnbacks right we have a count and media reports but it could be bigger right we could say looks like it's two and a half bees a day but what if it's five right and so these things are things that in the short term we're watching for the long term the biggest thing is rig count if you don't have rigs drilling you can't um you can't overcome the declines so i think i don't know if people know this but when you drill a natural grass well you have this high production and then it starts to decline pretty steep right and so we have to we have to find 18

i think it's 18 bcf a day 16 18 bcf a day i don't have the number exactly just to stem declines right so we need rigs out there running just so it doesn't decline and so when you take the rigs down more than 50 which we've done uh you know in three weeks it's just amazing how how much we've stop drilling and ship you know stop that stop frack crews going out producing gas that over time becomes just an overwhelming factor so the main thing i look at every day is what a rig counts doing what a rig counts doing you know and then i i do further research how long does it take rig counts to go up versus down right because it's easy to drop a rig we're dropping rigs how long does it take to get the crew back out back on the pad etc and then and grow it and so

every day that i see the rig count drop and stay at this level the more bullish i become the back how much of the rigs going down is driven by like covet 19 social distancing stuff versus the economy uh and the actual prices dropping and so then it becomes unprofitable i think it's i think it's 99.9 percent um prices a response to prices and what's going on in oil so we have a lot of the natural gas produced here is produced by associated uh gas associated gas basically you're drilling for oil and gas comes out with it right and so the oil is a higher price product and gas is kind of the byproduct right to the extent that you know they're flaring gas into Permian and Bakken right and sell these liquids well lo and behold oil goes to crap you

know you don't get that free bribe product the gas flowing right and also so you have a lot of those rigs dropping right and a lot of balance sheets impaired by companies that drill both for natural gas and oil and so they're dropping rigs right they have to get them they have to lower their budgets they have to survive they have to tighten their belts etc and so that activity that's what's driving, you know, the dropping of the rigs. COVID is the indirect cause, right? Because there's no demand. Yeah, for sure. And I guess part of this is just like you're trying to calculate, you know, how quickly can you get the crews back out and get the rigs back up and running? There's also this calculation of like, they can say the cities are open or the states

are open, but actually how long does it take for consumers to start, you know, demanding or consuming right and it's got that answer yet yeah and we we can measure real-time demand right like so we were able to measure a real-time electricity demand real-time you know we can see power burns every day every minute um so we're tracking the demand pretty well right it's hard to forecast like it can kind of get worse but we're tracking it pretty well and have a reasonable idea of what the bottom is right new york city's completely shut down but it's the the power demand is down 11% so we kind of know right um so the main thing right now is like okay when does this faucet become a problem right when does the supply issue become a

problem right now it's not a problem not a problem at all as a matter of fact is the exact opposite we might we have too much gas but that switch is gonna flip and when it flips uh given the current circumstances if we stay on this path it it could be violent to the upset yeah and so what it sounds like you're really um kind of highlighting right now you've got a surplus from a supply side demand has gone down a little bit but because you realize you've got the surplus and demands down people are actually uh shutting down production supply uh incoming supplies almost slowing and so when that demand comes flying back there could be a a moment in time where people are caught without enough supply

and that's where the problem would come in yeah like people are just cutting cutting their production and associated production so you know these guys you know also the cost the break-even cost in a well has changed right if you look at the interest costs uh you know drilling is a leveraged business right and you know there's been studies done in the marcellus like what are the break-evens at different interest rates but if you look at like the cost of capital for for the drillers they basically have doubled on average so i i don't know if the the price break evens you know get you what you want the supply you want and so that that's another thing i'm looking at but generally right now you know i say there's things like there's tweezer trades where you have

to be really accurate and really nuanced and you know every single little detail and there's sledge hammer trades huge macro thing is happening you don't need all the details you have enough room hour you just pile it right and i think the further we get in time this goes from tweezers to sledgehammer right for sure um let's switch gears a little bit uh you um you not only spend a lot of time obviously paying attention to the markets and and uh and trading but uh you also uh play a lot of poker and kind of where did that fascination come from uh and really it looks like you just enjoy it. It's like, when did you kind of get into poker? I think I got into poker or any kind of wagering on the floor, right? It's a very, you know, locals and traders around,

it's a very degenerate type attitude, right? Like they're playing the house generally, but that feeling, that emotion of like taking risk, they're risk takers. And so I have that gene you know that risk-taking gene that degeneracy and i just kind of got into that you know of being able to let go and take risks right and and and be able to get lucky and then as the stakes got higher and the money i was like wait a minute i need to stop trying to get lucky and actually try and be the house just a little bit and learn poker and just get a little bit better but i do i do love poker because you you play with very interesting people it's a social game right it's a competitive social game that you use your math skills and your cunning

and intellect but you're also interacting with some very very interesting people you get to meet some interesting people and characters uh playing poker for sure and i guess as part of that like at what point did you make the switch from probably playing like games with friends and more kind of what i'll call the amateur levels to um consciously saying hey i want to go play in the bigger games i want to go play in the tournaments um whether they're public you know publicly available or private like what was that kind of uh ambition i think it's the same delusion i had as being a trader right like it's totally delusional right to go i'm gonna be this multi-millionaire trader and i'm gonna go to wales and i'm gonna do x y and z i like happen

to do it right you know my i i'm i'm geared to do it i have you know slightly elevated chance of being successful but I don't think I'm that special right I just think that I have that motivation and a delusion like you gotta have that delusion to try and so I think I had that delusion in the beginning like I want to try I could be I could be that guy I could you know I could beat this guy I could win a lot of money I could win a tournament how hard can it be type of thing you know and you know through the school of hard knocks you figure out it's it's very hard but if you're persistent you can get better and better and better and better it's like a game of golf you're always getting better right you can always study and be better for sure uh what's

your favorite game that you've ever played um in terms of like no limit hold them or like on i think like the televised uh we used to play this game where it was called uh not the wild card but they would have these televised things where they would bring somebody in and give them a chance to play against sharks. Right. And you'd sit there and they got to keep the money they won. And I really love that concept that I really love playing on the shows. And I, you know, it changed people's lives. You know, I really love those televised poker shows where people who wouldn't have the

needs to play in those games get a chance and get people money one it's great for the game brings out awareness and two it's i just love rooting for the NFL i i love that and uh it also brings in the uh the whole element of there's everybody out there thinks they can uh beat the people on tv right whether it's basketball poker or anything else and so give them a shot what they can do yeah yeah the only one where people just will not go do that is in boxing they just they just know they will get their ass kicked right but like I say it's like you know they still write the checks whether you get your ass kicked or not so when we were kids we used to joke all the time and say how much money would it take for you to stand in the ring with Mike Tyson for 30 seconds

or not even fight back just for 30 seconds well how much money would it take yeah yeah that that is that's one of those punches are pretty severe you know absolutely uh one of the most asked questions that i had people no one really wanted to tweet they were all like dming me this was they said ask bill to tell the wildest poker story that he can that he's never told before i said i don't really know how i'm gonna ask them that other than just flat out ask them so you got any wild stories you've never told before wild stories i mean i can't because my kids might see this I can't. I mean, there's a story I want to tell. It involves me.

Can you make it PG? I mean, ugh. It involves me, Dan Bilzeri, and Sam McGee, a bunch of interesting ladies at his house late at night, and I just can't. I can't. I can't do it. But I guess let me give you a second one. I mean, the other wild ones are really just money swings

swings for people just doing ludicrous things right like just you know sending out all in three six off you know shipping it in two hundred thousand like what's going on here like i'm clearly not rich enough you know like that type of thing but the true story would have to be my daughters have to be a little bit older before it's all out all right that's fair enough fair enough. As you kind of think about investing on the venture capital side, also a couple people were interested, you know, poker is you're playing a multifaceted game, right? It's not just the math of the cards. You also are making decisions without all the information. You're playing off of other people at the table. And it's very similar to venture capital investing,

where you've got to make those decisions without all the information. You got to have some confidence. You got to have some probability understanding. Like what are some of the lessons that you've learned uh from poker that you've brought over on the investing side that uh that you think would be helpful for others i think that uh bankroll management is very important for like in the professional poker space uh risk you know i mean you know they're very similar right in terms of risk reward limited information you know sometimes uh you know the market can be you know it's when you put on a position in the market it's not like oh i'm right i did all my homework and then the trade goes my way right there's mr market who goes oh no we're gonna

be idiots and jam it up in your face or you know make make this trade riskier for you you know what i mean so you got kings and a guy's jamming all the time you're like does he have aces this time right you know limited information you just have to probability weight things risk management budget management bankroll management all these things go back and forth and i always say it's easier for a poker player to become like a vc or a commodities trader than a commodities trader explain that more why do you think that i just think that um the the the school of hard knocks some poker in terms of bankroll management managing your risk manage your emotions is the main thing like when when people say you know at traded what does it take to be a trade i said at

the highest highest level it's a psychology test right because nothing changes you just react to the market it's like do you do the right thing you know are you thinking correctly are you making the right? Risk-worth decisions. Or when you have a bad day, are you chasing, are you doing something other than just what math, risk management, and fundamentals tell you to do, right? Are you making excuses? And, you know, poker trains you not to be results-oriented, not to, you know, go on tilt, right? Not to act out of boredom or et cetera. It's all about the money, et cetera. And those skill sets translate well into trading, right? You're going to carry that over because it's your own role and you've been dealing with that.

As a trader, you come over to poker and you're like, whee, you know, gamble, gamble, you know, stuff like that. And so I just think that those lessons, if you learn them in poker, translate very well into investing, right? Very well. And in times of like market chaos, like we're seeing right now, like what are the things that you do to kind of control those emotions or control your psychology to make sure that you actually are thinking clearly and making sound decisions? I try to come out of appreciation. Like if you take everything away from me, like I have my health, I'm able to love my kids. you know i have love and i give love you know and so i come from appreciation like where i came from where i've been and what i have no matter what you take away right i can at least breathe right so once i detach myself from the ego of you lost the money or you did this or what are people

gonna think i i can think clearly right i can start doing analysis like okay the market just dropped i don't know 30 if i and i'm buying company x y and z okay so let's say i thought they were going to pay me ten dollars a month for for 30 years but now these first three years going to be zero what's the change in the mpv right so that's a rational thought right like okay we're not going to have the company's going to survive it's just not going to have revenues for the next three years but it's going to survive how did that change the mpv and if if the market's down 30 and the mpv should be down 17 i can rationally think that this is a bargain right i should be buying and there were actually many you know we ran that exercise right it's a sledge

hammer exercise but we ran that exercise on a bunch of companies that were we are not going bankrupt right may have impaired sales right uh clearly you know and the market punished them on you know was an overreaction and it's like we're a buyer and there were certain companies like no it's not going to survive it may not survive this is actually a sale this is actually a sale right without a bailout or a so-and-so like it has debt due it's over levered this thing should collapse right and and that's a sale and so being able to like remove what's happening to me you know and stay focused outward focus on the problem it is is what i try and do you know and and knowing that hey i'm i'm really really lucky like i live in the united states of america

high infrastructure you know even at my worst worst worst scenario where i'm waiting tables or something like i'm okay right and so once i remove that like panic about me what's happened to me and what's happened to my money, then I can focus and start making right decisions. Yeah. How do you think about the dislocation right now in the market where it seems like stocks are relief rallying, if not really rallying, but the economic data we keep getting is going down, right? 26 million Americans unemployed, 4.8% contraction in Q1 for the economy. It just seems like the underlying data and the actual reality on the ground is way worse than the stock market, which seems to just be going in the opposite direction.

Yeah, I think usually when you have scenarios like this where the government comes in and intervenes, it drives the wealth gap, right? And so I think that the current rally, broadly speaking, is asset inflation, right? And so there is a massive effort to inflate the value of assets, and you just can't fight that, right? And so that's where you're going to see this stock is up or doing X, Y, and Z or doing well or getting these funds while this guy is unemployed, et cetera, right? And so those who own stock X, Y, and Z do well or bought it at the dip. This guy still doesn't have a job, right? And so you see that divergence in – unfortunately, in times like this with the government action, it usually drives a wealth gap that doesn't help close. yeah it feels almost like uh it reiterates the point that the stock market's not the economy

it's just the central bank actions um or representation how do you think about the bailouts and that government intervention kind of the the next step of that i i'm generally uh i i'm not on the camp that the government should do nothing but what the government is doing I am generally 100% against you know I am there's a lot of companies that you know a lot of people have the idea like if this airline fails then we won't have an airline and and that's just not true right when you're when somebody goes boss with their house the house doesn't disappear just a new owner shows up right that guy disappears and so you know with the airlines these owners that created this highly uh leveraged position right spent all their capital buying back

their stock didn't think about like you know the robustness of the stability which is okay i'm not even going to mock that it's okay if you want to do that but you have to accept the risk when something goes wrong in a levered scenario you go bust you don't get your executive bonus you get fired new management comes in bondholders get smashed they should have been paying attention and the equity guys get wiped out but the airlines are still there and somebody will gladly come in put in some capital and run it run it right and so what we've done is we've removed that right we remove that punishment and i'm against it i would much rather have all that money just be direct deposits into the individual's pockets right which actually helps close the wealth gap

And then let that money trickle up into whatever investments or whatever is out there, right? But now we're flowing money into concentrated pockets of businesses and industries, right? We're picking winners and losers and letting them distribute the money as they see fit. Yeah, it feels like what I know about you, I think that you're very much kind of the United States is the best country in the world. And we have a significant advantage around the American dream and kind of that belief that like, we're all entitled to move up in the world. But it feels like when you start to take away the impact of risk taking, right, the actual negative side effects of when you take risk, and it doesn't work your way, you change the incentive structure, right? And it almost feels like you start to create this social safety net or corporate safety net that really almost incentivizes more bad behavior, more over leveraging if you know someone's going to bail you out every time. Yeah. And also, like, it hurts other guys and other competitors who don't get picked. Maybe I have Joe Upstart Airlines and I'm like, hey, the leverage ratio is pretty crazy.

And their customer service is shit. And you're building up your customers, right? I don't know what airline you are. I call it Spirit Clips. Not Spirit because a lot of people hate Spirit. but you know what i mean but and you're like great this is my shot to take over like i'm going to get those slots at newark and i'm going to get those slots at iah and my airline's going to grow but here comes the government with 7.8 billion dollars or 72 billion dollars you know it's a that airline

that airline that airline and you get squashed while they get rewarded right and so not only does the incentive structure change it just solidifies incumbents right who probably shouldn't be there right and just it just it crushes the american dream for a lot of people a lot of people don't realize like there's people organizations entrepreneurs upstarts right coming out to compete who are not getting the billions of dollars right and now it makes their job even harder almost impossible in certain cases, right? You're almost in a situation where the government's playing kingmaker to some degree, right? They're picking winners. And the other data point that I saw recently that just blew my mind was there's a lot of workers that are asking to be fired from

various companies because they can make more on unemployment with the stimulus kind of beef up in the unemployment insurance than they will at their normal job. And it feels like that's just one, not something that i ever would have uh thought was possible but two it's kind of sad to see right where people are literally saying hey fire me from my job because i literally can make more money on unemployment than you're paying me to actually show up here yeah that that's that's interesting you know um i'm a fan of like some sort of floor uvi right i'm i'm i'm at the point where i think that survival just basic survival should not be dependent on a job right all the land is taken there's no living off the land and farming and all that kind of stuff so you're kind of forced

into the structure where if you want to survive and eat you have to have a job right and i think a lot of people culturally say yeah but of course but it wasn't that way right that's not how america started you do not have to go work for somebody okay in order to survive most people work for themselves right went out went out in the west settled grew their crops whatever that that is gone you can't do that and so there's this force element to work like you must work or else you cannot survive right and i think that should be eliminated right and i'm not saying peace should be lavish. I'm saying like at the poverty level, right, where you can survive. I think that work should be for thriving. That being said, these levels of unemployment, you know, where I'm paying

you, you know, I don't know if that's an indictment on unemployment or what they're paying their employees, but I think that's a little bit absurd. Yeah, to me, I think that was the part that I took away from it right was uh the fact that um the wages that a lot of folks uh that are obviously asking to be fired it has to be so low right it's not uh you know fifteen dollars an hour type thing um you got to be talking about people who are probably making you know eight to ten bucks an hour uh in today's environment um you know it's just it's sad frankly right but but that's yeah and those are people that like hey i would rather work on my play or my theory of physics or whatever it is they could work on if they had some if their survival was taken care of right

if you if you knew you were going to survive you know i think that would unleash a lot of creativity and entrepreneurship uh out of the populace and not force them to work at mcdonald's versus working on this brilliant cure for x y and z that's going to take five years right and so um that that's the crushing thing like people are missing about like uh having a floor and take eliminating work from survival is you actually unleash a ton of risk-taking and entrepreneurship and you unlock the creativity of many people right there's so many people who are in soul-sucking low-paying jobs just because they got to buy ramen noodles and beans And if they had their ramen noodles and beans taken away, they would say F you to that job. Right. And work on whatever they were working on, which I think society would benefit.

For sure. What's your thoughts on like all the quantitative easing and kind of the central bank's response to a lot of this just in terms of it seems like they could just print and print and print and there's no end in sight. i am generally against it um like i said it favors rich guys like me right guys who have assets and houses you know when you devalue money they got you know you value assets right and you know i hear arguments like on twitter it's like yeah but it helps the poor because their debt is lower i'm like their wages don't go higher okay their wages are not going higher okay and everything they buy is getting more expensive right and their debt is still the same it hurts the poor 100 the poor don't have three hundred thousand dollar mortgages and two hundred thousand dollar mortgages and and inflation adjustments in their paycheck right

right nobody's getting the guaranteed cpi adjusted wage right and so it's just terrible You know, and I think like if it ever gets to the situation where the world goes violent over the wealth gap, I'm going to be like, don't blame me. I was against, you know, I was against all this inflationary crap that hurts the poor, right? I just think it's, I just think it's terrible. It's just plain terrible. Yeah. And part of, you know, what last year or so I've really kind of pounded the drum on that I think is so interesting is like every single person that has any degree of wealth that I talk with or any amount of assets, they all understand this. Right. And what's very quickly become obvious to me is there's this big education gap as well. Right. Because the bottom 50% or so of Americans who can't afford the $400 emergency payment or whatever, you know, whatever the stats are, they actually don't understand how money works. They don't understand that all that quantitative easing is stealing the wealth, devaluing their savings and things like that. It's the people who have the assets, they get it, right? And whether they agree with it or not, they understand how the game works. And so they're going to position themselves to be protected, to benefit, et cetera.

and it almost feels like uh the system is dependent on a big portion of people not understanding how it works to some degree oh oh yeah there's there's a couple good quotes i forget who said it but if people knew how the money how their money worked they would you know i mean they'd kill the king right they'd kill uh it there is i am actually shocked at how financially illiterate um the public generally is right if i say net present value and people like what the fuck are you talking about net present value you know what i mean like you know like simple things like i i it's not like they don't have the math skills they do because you know you had to learn these things it's just that this is not taught it doesn't seem to be a priority uh and it's so

important to like even just your daily life like should i have money in this bank account in my savings account while i have credit card debt like this is a very simple thing right like you don't carry 24 you know you don't pay you know i mean to have cash in the bank you can use your credit card for anything you want another cash withdrawal you can take it out at any time but there are so many people friends of mine that i'm just like what are you doing you know what are you doing you're you're paying to have money in the bank they don't get it and so i don't know it's just sad it's sad like i think a lot of my discussions like people are you know i get into like these twitter battles i love twitter i'm addicted to twitter uh and people like why why they're like

why are you arguing with this troll like why are you doing x y and z and the reason is is that there are other people reading that discussion and i want them to learn i want them to know right? And so as long as we can have a civil conversation, I can hopefully help somebody else to go either investigate further or learn about what's going on and dispel the myths that are getting thrown around. For sure. You live a fun life. Talk a little bit about kind of the lifestyle stuff and kind of how you've structured your life to enjoy it now rather than, you know, kind of working every single day inside of a normal office yeah like uh you know the great thing about technology is is that you know people talk about remote work and i've been remote

for a while right and so everything from the applications we build in-house to other trading applications i have on my phone so the good thing is is that i can be anywhere and work from anywhere the bad thing is is i can be anywhere and work from anywhere right so it's it's a double-edged sword um but you know my favorite thing in the world to do is travel um so that's there's a kai basha on that right now and you know i spend most of my time trying to change what my office looks like right i'll go to tokyo or go to st petersburg or go to europe you know that's kind of all on hold right now and so i'm in the virgin islands where you know at least i can be on the water uh you know and you know i'm out here with all the other boats i gave you a little look

you know i'm hanging out here if you can see that do you see that yeah of course yeah and so you know that's i just kind of go where i like it just try and be at peace the water and the animals and sea life it's it's i'm at peace here for sure and then you've got this kind of idea, I know you got a book coming out over the summer, but die with zero, right? Maybe kind of explain what that concept really means and kind of how you put it into practice. Well, so independently, I've been thinking about like the utility of money and what it's for, right? You spend hours of your life in exchange for money in order to do things, to have experiences. The first experience is survival, right? You want to survive. You want to feed yourself,

shelf their health whatever and then the other is other experiences that you want to have whether that's putting your kids to college or going on a trip or buying baseball cards or going to a show right we're all working in order to exchanging hours of life in order to have other experiences okay and so it stands to reason that if i go to work to acquire money to have experiences but then die i just wasted hours of my life right like i just why did i go to work for money that i'm never going to use and so you know it quickly said in my head that you want to die with you want to die you want to use all your resources before you die and i'm not the first person to think about this economist called full life cycle hypothesis or full life cycle theory basically

rational people will aim to die with zero okay and then the other part of it that i stuck into it that i was thinking about is is that you know as i've seen people in my life my dad my grandmother and other people age right and then when you look at the data your ability to extract positive life experiences you know have experiences declines as you age i can tell people the memory of playing football right now is greater than actually playing football right now for me right and so that will happen with all experiences including sex like you'll be at a certain age you're like wow that was a great time back in my 30s but trying to have sex then might be like i don't want to break a hip i don't want to you know i mean like whatever

it is and so not only is there hey you should aim to spend all your money before you die you have to get the the timing right right you know you don't want to go hella skiing at 90 you probably want to go hella skiing between you know 30 and 50 right and i'm just using extreme examples right and there's always outliers so i don't want to get into that but i'm just saying on the whole right there's a season for you to do different activities and making sure that you allocate your resources properly within each season is important you know and i've been saying it a lot lately i said life is like texas right you got to get the order right in order to get the most points right in order to get the most the fullest life so anybody who's like hey i'm

gonna wait till i'm 90 to go hike kilimanjaro and then go to see petersburg and do whatever they got it wrong right that money was meant to be spent now and a lot of people actually do that and what happens is what you see is those who save save too much people's net worth keep growing into their 70s and 80s and it's like what are they waiting for right for sure in that sense um i think you recently turned 50 years old right what's left on kind of your bucket list or what are the things that you say hey you know these are the things that i want to do in the next 10 years right so i i try and break them up in categories um and i actually have a beta version one of like bucket your life because each time bucket matters you know one of the things is like

as writing this book and thinking about it like holy shit i need to listen to the same things i'm talking about right like not be the fat coach on the sidelines like you know i mean like it was all out of shape you know but it's the coach that was me right and so I'm like wait a minute I gotta spend time with my daughters these are the activities I want to do etc these are the places I want to travel uh things I want to investigate projects I want to work on charities I want to help or problems I want to solve you know I've kind of put them into those buckets and so travel was way number one for me which is really you know nobody's gonna play the violin for me I'm super lucky, but I'm like, oh, you know what I mean? Like not being able to travel is a

pressure. So now I'm like refocusing on personal relationships, helping people and charities and helping solving problems, you know, research projects and just learning, you know, and loving and keeping contact with my personal relationships. So it's been a great quiet time to actually do that with family and be forced to be stuck in a house you know and being with two teenage girls in a house it's it's not easy but every day I'm like this is great you know yeah we had a blowout battle screaming and yelling and then crying and then yelling and then whatever but like this is great like I'm gonna look back one day and be like this was the best of times and so I'm just learning to live in gratitude right now and then I'm planning when this opens up to really really

travel like really burn it and travel and you know learn other cultures and go to places i haven't been and visit some places that are high on my list that i that i love have your daughters got you on uh on tiktok yet have they pulled you in any of the dance videos i mean they're they're on tiktok they're doing dance videos they do not want me on it they they i used to be a cool dad to them but now like it embarrasses them they're like all my friends follow you on instagram i can't stand it they're always saying something you know you know teenage are like anything i do wrong or that's like not cool or my girlfriend's boobs are showing or whatever they're like ah you know your dad's girlfriend you know whatever it is right and so they they hate it they hate

that there's a book coming out and i might be more recognizable it's just it annoys them well the worst part is probably all the girls probably say stuff that are their age and then the guys all probably love you right they're like I want to do that stuff yeah they don't like it like they have you know I thought like a lot of their guy friends they like kind of want to meet me or say hi or whatever at that very instant I'm cool they like it but it still annoys them they're like no don't come because everybody's going to want to talk to you and they want it to be about them they feel as if i'm ruining their high school experience you know and i don't want to ruin their high school experience you know it's kind of weird you know but uh it's the way it is you

know look we all been in high school and uh pretty much anything can ruin it right like literally anything could uh could throw it off yeah yeah and so i'm trying not to ruin it i'm trying to protect them raise them well whatever probably doing it like 70 wrong but i'm there you know what I mean like I'm there absolutely it's not the battle all right man listen where where do you want people to go in terms of sending them to either check out the book when it comes out or or find out more about what you guys do on the investing side yeah I think I mean I don't know if our website's been updated for smallventuresusa.com for investing you know but that's where you know a lot of people like who do I talk to I'm like you know they follow the links

whatever you'll get to the right person to to get the deal through and then die with zero book die with zero book.com for the book but unfortunately or fortunately maybe because bookstores are closed right now um and that's a significant portion of book sales even though you know the online isn't making up for the you know the amount that's gone from physical sales But July 28th, it's coming out, and you can pre-order, and I appreciate it, you know. And I think you will appreciate it, too, because a lot of people are spending a lot of money, you know, whether it's the state, your insurance, or yourself, to extend your life for three months in a hospital bed with a low quality of life. And I'm like, you know, that's kind of backwards.

Take all that money, put it in the good health years, create memories, have those memory dividends with people, and really live a full life and fuck the three months in the hospital. I don't remember where I heard this, but I adopted it as a life motto years ago was anything worth doing is worth overdoing. And if you think through everything that you do in your life, if it's worth doing it, it's absolutely worth overdoing it to some degree. Yeah. And I think like living your life to the fullest is definitely one of the

things you want to do while you have your health, you know, for sure. I wrap up each conversation with two questions for you, and then you get to ask me one. The first is, what is the most important book you've ever read? Wow. Wow. This is a – I'm going to tie it with two. The Four Agreements is probably edging out your money or your life.

so one is a financial book and one is like holistic approach about life so the four agreements is number one that's my number one recommended book and your money or your life which kind of started the fire movement uh you know financial independence to retire early i don't i don't know if you've heard of that but um that book completely changed the way i look at money and personally and also professional right and led to further discoveries and questions etc right and so and it it it's why i went into trading it's my understanding of leverage you know not leverage just of money but leverage of time right when i when we got when somebody makes a lot of money all he's doing is like his time is leveraged one minute of my time is like

one hour of that guy's time right and we're just exchanging time and so that understanding that concept and how money works allows me to you know really you know really really changed my life and the four agreements is just like really changed my life have you ever seen the movie uh in time with uh justin timberlake yeah i thought it was okay it could have been better i love the concept though so um that's basically it right it's like the concept was spot on but uh the action was you know it was all right yeah they could have done the story better or whatever but the concept was brilliant it was great i was really looking forward to it and you know your money or your life it's a little didactic because it's really trying to hammer in the point and

change when you're trying to change people's cultural views and what they've already or you know what they've accepted via osmosis and everything around them you have to be didactic you have to be repetitive because they won't get it. So, but still, that book is a must, must, must, must, must, must read. Awesome. Um, aliens believer or non-believer in some sort of intelligent life out there? I, I think, I think the answer is believer, but we'll never know. So, I mean, if something's, you know,

a billion light years away you're not gonna know right even if it's 500 light years away you're just never gonna know right like and so yes i have this kind of almost religious belief that it just you know the numbers just are so large that it must be but the you know the idea that you're we're gonna get in contact or capture so even if they were sending signals it's like you know very very very very unlikely you're going to grab them or get them etc so i don't know i guess that's an unsatisfying answer yeah it's good i actually almost forgot to ask you uh thoughts on bitcoin that was another one that everyone wants to know what were your thoughts on bitcoin i'm kind of ambivalent i'm actually long at proxy because i'm along this company this company i

I bought the stock, very teeny company called Silvergate Partners or Silvergate Capital, SI, on New York Stock Exchange. They actually had good results today, or at least. Silvergate Bank? Is that what it is? Yeah, yeah. That's the one, SI. Simple as SI. And they basically have a platform where they're one of the niche players where they provide lending to institutions, trading Bitcoin, clearing. and they're now starting this product to offer them some leverage because they need to have both Bitcoin and cash on every exchange that they trade. And so, you know, banks are all about capital efficiency,

so the leverage product may work. And so I'm like, you know, I'd rather be long the shovel maker than the gold miner. You know what I mean? Like, I think Bitcoin can, you know, I'm not, I was once long it, It went up to $17,000, and then I ran some calculations, and I was like, well, it would be impossible to redo the blockchain, right? And then I did some calculations, and I was like, well, if you bought this amount of money, right, if you spent this amount of money on servers, you could rehash the block, right, at this value, right, in this time. And that just kind of gave me a sense of this thing is overvalued when back then when it was $17,000, right? and you know it's an adoption phenomenon it's a marketing thing is will people keep and believe

in bitcoin and will it grow and i i really don't know you know i hear arguments for yes i hear arguments for no but in the meanwhile i'm like well this is a bank these guys are trading it it's not going to get hurt it's very conservative it's making revenues off of bitcoin you know not by you know if the price goes up that means more people are trading they'll make more money if it if it's volatile goes up and down they make more money because people are trading in a fee-based business i'd rather be on that side and be long so i'm quasi long pick you know look and especially if it's a hey i don't know it's actually a pretty um pretty rational position to take alan the ceo silvergate's been uh been on the podcast and uh is you know credit to him i think back in like 2013

13 or 14 he really saw the opportunity and kind of moved that entire bank into let's be the the player here um because the large banks won't be and it's proved to be a a pretty good decision for them obviously yeah it's great and it's like you know it's like it doesn't matter what it is if it's beanie babies right like it's like i don't care where beanie babies are going i'm still making money servicing the beanie baby crowd right until until it goes away or you know it stays around and so i i like i like what he's done he's a visionary maybe he's a believer in the price will go up and that would be great for his business but they are a niche player where other people just don't want to deal with all the kyc and the bullshit and they don't want to get involved

into it right and so i i think it's great yeah it makes sense what uh what one question do you have for me to uh to finish this up um why did you get into podcasting and do you still like it uh i've told the story on the podcast before but uh i had um i had some kids come to me who basically were like hey you should do a podcast and uh i i'd listened to a couple of podcasts but knew nothing that went into it uh literally was like i my mom always said you know i had the face for radio giving me a hard time but uh why the hell would i do this and we recorded a couple episodes and released it and it was immediately people started listening i was like wait a second you're telling me that I can go sit in a room, talk to somebody, just have a microphone there

and hit publish. And like everyone else gets excited and I don't have to like sit and write and then like edit, you know, my writing and like all of the work that goes into publishing, like much more, um, kind of higher production stuff, uh, especially when you're writing. And so for whatever reason, I was just like, well, let's do another one. Let's do another one. And, uh, here we are, I think we've done like over 280 of them, uh, in about a year and a half or so. and um i enjoy it because it's it's two things for me and i always said like it's very selfish right so first is you and i probably wouldn't talk unless i had the podcast so there's this element of like i get to meet a lot of people who are kind of tangentially related to what i do

and obviously i learn from them i can ask them questions and and all of that so that's super valuable to me and then the second thing is uh as i've started to do this i just began to realize is like, you could go on CNBC, and all of the ideas you have in your head, they may give you five minutes, right? And that would be like a long segment, or it might give you two. And it's not, you know, to pick on CNBC specifically, it's just all of those kind of television formats. They're very hits driven around kind of salacious comments. It's very, you know, cutting up a lot of different segments. And so you still have a lot of time to explain your ideas. And I think these kind of longer form podcasts really allow people to share their ideas in their words without

being interrupted and explain what they mean right it's one thing for you to say hey you know i think that the money printing is not a good situation okay what does that mean and when you explain it you get the context and it ends up being much more valuable content i think for people uh who really are just trying to learn so i enjoy it and uh i'll keep doing it until one day i wake up and it's not fun and then i'll just be like all right guys that was a good run see ya yeah yeah well that's great that's great and i i totally agree with you like i've been on cnbc before and it's just like what blurb headline thing can you get out and you you when you don't explain and give context like you know people twist it right like i'm against the money printing oh he's against

helping americans you know no so yeah i get it and i appreciate you and the other podcasters for doing this getting out there it's super entrepreneurial and it's awesome for sure so we will we'll send people over to go check out the book and I appreciate you doing this yeah anytime hope everybody got value out of it