The Prof G Pod with Scott Galloway - Prof G Markets: How Scott Manages His Money
Episode Date: August 21, 2023In a sweeping conversation, Scott shares the source of his anxieties around money, how he thinks about money and marriage, his approach to spending, and his financial plan for his death. Finally, he a...nswers one big question: is wealth worth the work? Learn more about your ad choices. Visit podcastchoices.com/adchoices
Transcript
Discussion (0)
Support for this show comes from Constant Contact.
If you struggle just to get your customers to notice you,
Constant Contact has what you need to grab their attention.
Constant Contact's award-winning marketing platform
offers all the automation, integration, and reporting tools
that get your marketing running seamlessly,
all backed by their expert live customer support.
It's time to get going and growing with Constant Contact today.
Ready, set, grow.
Go to ConstantContact.ca and start your free trial today.
Go to ConstantContact.ca for your free trial.
ConstantContact.ca
Support for PropG comes from NerdWallet. Starting your slash learn more to over 400 credit cards.
Head over to nerdwallet.com forward slash learn more to find smarter credit cards, savings accounts, mortgage rates, and more.
NerdWallet. Finance smarter.
NerdWallet Compare Incorporated.
NMLS 1617539.
This week's number, $400 million.
That's how much pickleball injuries could cost Americans this year.
Contact sports, mainly football, are estimated to cost $20 billion per year for high schools and colleges.
Ed, in college, I experimented with sex, drugs, and rock and roll.
Unfortunately, I was the control group, Ed. I was the control group. That's good. Ed, what's on tap for today? That's why you're here.
You're here for this intergenerational comedy. Exactly. So for this week's episode, Scott,
we're going to do something different. I'm going to ask you a series of personal finance questions.
And the idea is to get sort of a big picture understanding of your approach to investing,
specifically how you achieved economic security, how you kept it.
Be born white and male.
Let's move on to the next podcast.
And just, you know, all the lessons that you learned along the way.
So does that sound
good with you? Oh yeah. It sounds great. Yeah. No, I'm super excited about this. Super excited.
It was the wrong day to give up meth. I'm sorry. Go ahead.
Let's just start with this. What do you consider your greatest strengths and your greatest
weaknesses as an investor? As I've gotten older, I've become less emotional about investing. I
think I understand that the markets, essentially when a market becomes over-invested, the returns
go down. So if everybody wants to be an actor, the returns are going to go down and fewer and
fewer people are going to make a living there. And the things people are running from and don't
want to invest in like Florida real estate in 2010, that means the returns are going to go up.
And it took me, it sounds like a basic concept, but I don't think I realized that until
I was 40. And so I was always chasing the hot thing. And I was thinking, oh, these people are
smarter than me. And once something got hot, then I'd go in recognizing that's the wrong time to get
into something because word's out and everyone's already investing in internet stocks or Solana or whatever it is.
So recognizing that your emotions are a bit sort of your enemy and you should run into the fire
because I think the best returns I've ever had have been in distress situations with,
I made a lot of money in a Yellow Pages company. And you think like everybody goes to Yellow Pages,
stay away from it. Well, you're right. And everyone does stay away from it. And as a result, it has a difficult time
attracting capital, meaning it has to offer incredible rates of return to capital that
goes into it. By the way, on that Yellow Pages investment, did you purchase equity in the company
or you're talking about rates of return? Was it debt? How did you make money on the Yellow Pages?
A friend of mine brought a company called
Dex Media, which was the largest Yellow Pages company in America out of bankruptcy.
And I invested $4 million and then another $5 million in a later round. And I think I ended
up getting $15 or $20 back. And I served on the board there for four years. I really liked the CEO.
And he was trading at, I think, something like two times EBITDA.
And we all knew the yellow pages were going away, but it wasn't going to go away in 24 months.
And the business model was pretty straightforward.
Go to another yellow pages company, buy for two times EBITDA, lay off the majority of the staff, cut costs, and just make sure you're cutting costs faster than the business is declining and your EBITDA would go up each year.
And it's not a romantic business.
It wasn't fun. It's not easy to buy companies and lay off everybody, but it was consolidation and it needed to happen. And it was a good investment. Where I have really fucked up
is believing my own press. And when I started Red Envelope, I thought, oh, this is a great company. I was very emotionally
involved. I got into a war with the board. I spent too much time and money on that war and too much
mental energy. I should have just moved on. And I have in several points of my life been way too
concentrated in one asset, thinking there's no way e-commerce won't go to the moon. There's no way.
I mean, what I tell
people when you're young and you have your own business, it's impossible not to be concentrated
because you're kind of going all in on your business. And I understand that level of
concentration. But the moment you have anything resembling success financially, you want to start
diversifying. And so I was with an entrepreneur yesterday who has this amazing ad tech company.
It does 30 or 40 million in EBITDA, but it keeps plowing it all back into the business.
And I'm like, how much money do you have?
And he said, what?
I'm like, well, how much money do you have?
And he said, well, you know, technically on paper,
I'm worth 300 million
because I own 80% of this company
and I think it's worth about four or 500 million.
I'm like, how much cash do you have?
And he said, well, I own my home.
So I got about 3 million bucks in equity in that
and I've got a $1 million in cash.
I'm like, okay, so you've put 99% of your wealth at risk in one asset.
At every turn, you want to be doing secondaries, taking money out of the business, and diversifying.
Because here's the thing, Ed, you never know.
And one of the most amazing and wonderful things about the market is that nobody knows. And so if you,
you don't want to, you absolutely pass the age of 35 and never pass the age of 45, have all of your
eggs in one basket. You want them in a bunch of baskets and you want to diversify out of eggs and
get into cheese. I mean, you just want to, you want to move everything around. And my biggest or started my lowest moments professionally have been when, oh, Red Envelope is going Chapter 11. We had a longshoreman strike at the port of Long Beach. We can't get our shit off a ship. And what do you know, the warehouse is spitting out the wrong labels with the wrong addresses for the labels. And then Wells Fargo calls and pulls our credit line.
And this all happened within five days, these three things.
And we went from a stock trading at, I don't know,
eight bucks a share to zero in about two weeks.
And I, because I believe so much in the company
and was so invested in it, had, you know,
I don't know, 70, 80% of my net worth at the age of 40
in one asset, which was just stupid.
Did you ever sell?
Did you ever take out secondary? Did you ever sell your stock when it
went public or you just kept it all in there? Not a dollar. As a matter of fact, I kept investing
more. And so I had everything. And so when I went to Xero, I literally lost everything. And
I could talk myself into it again today. It was a great company. It was doing well.
E-commerce was hot. We were the only retail IPO of 2002. I managed to wrest control of the board away from who I
thought were incompetent venture capitalists. It all seemed like it'd be going well and lost
everything because a bunch of dudes in Long Beach went on strike and a piece of software started
malfunctioning at the warehouses. So biggest strength, I think I'm able to compartmentalize my emotions and be a stoic around investing. Biggest weakness is I didn't appreciate the power of diversity until I was older. take out secondary on profit or when you started L2, like when you started your other businesses,
did you have that lesson in mind that, okay, I've got to actually make some money here and I
can't just be trying to go to the moon with these companies?
It wasn't a market lesson. It was a life lesson. When my first son came marching out of my
girlfriend, it just dawned on me. It's supposed to be this wonderful moment with bright lights and angels speaking. And for me, I just felt so ridiculously nauseous. And not only because childbirth is disgusting, do not be in the room with your wife when you have kids, all right? I don't care what they say. I don't care what the pressure is. Get a pack of cigarettes, stay in the waiting room, and tell them to bring you the baby when it's clean and just stay out
of the room. Birthing is a gross experience. Anyways, beyond that, the reason I was so nauseous
was not only because of the birth itself, but because I realized I'd fucked up and that I was
40 years old and didn't have, given all my success, given all my blessings, given all my hard work,
I wasn't financially secure. And it was really humiliating. And from like minute one, when my son turned a minute old,
I felt like I was failing him. And that was like, okay, I got to get my shit together. And part of
that is stop swinging for the fence and slipping seven discs in my back. I'm swinging so hard
and start hitting singles. And from that moment on,
you know, I love this statement, but I think it was like Andrew Carnegie or one of the melons.
And I say this all the time. I got rich selling too early. So with L2, we raised capital four
years after we started the company. We raised 10 million bucks to put into the company and we did
7 million in secondary. And I took 5
million off the table, and I gave some of the other employees the opportunity to sell some of
their stock, but I immediately banked 5 million bucks. And my attitude was, well, let's hope I'm
wrong. Let's hope I'm selling stock too cheaply. And now at almost every turn when I'm in a company,
if there's a good offer on the table, a good financing, I move to cash a little bit and
I sell some. The first thing I do, if I invest in a company, I invested in public, this stock
trading company, if they do another round at a hugely stepped up valuation, I'll take my basis
up and then I'm just playing with the house's money. So for me, it was a life lesson and that
is, it was no longer just about me, it was about my kids, and I needed to start acting like an adult.
You said you didn't feel financially secure when your first kid was born. What was your financial situation like, and at what stage in your career were you at? Had you started profit? Had you started L2? Where were you? So I'd always made a lot of money. I always
worked hard, was in a position to take advantage of that hard work. Being born in 60s California,
got free education, came at professional age during the era of the internet and processing
power in the 90s. So I just had these massive wins in my back and never really appreciated that until
I was in my 40s. It was all about, this is just how fucking awesome I am.
I was very good at crediting my character, my grit for my success, not really appreciating
until I got older that I had these gale force winds at my back. But when that happened,
when I had my first kid, I was making $160,000 a year as a clinical professor at NYU.
I would do deals with hedge funds, sometimes make a quarter or a half a million dollars a year
and doing something else.
So I was making kind of, you know,
I was making good money, but it was inconsistent.
Did you own a home?
Sorry, did you have a home in that one?
No, I was in faculty housing.
I was in faculty housing at NYU.
But living in New York with current income
and two kids, I just, it's, no one's going to feel sorry for you.
But I'm like, okay, I need to make a million bucks just to keep my year, just to keep my head above water to live in Manhattan.
And that's when we made the move to Florida to significantly lower our burn.
And that's a key component of financial security is, quite frankly, is living below your means and figuring out a way to spend less than you make.
The other thing that really fucked me or where I really screwed up self-inflicted injury was divorce.
And that is I was very full of myself.
I thought I'm going to be a billionaire.
I want to move to New York.
I'm just this awesome guy.
I want to live this different lifestyle.
So I got divorced when I was about 33, 34.
And it was a tragically amicable divorce.
We got out of Yellow Pad.
I said, this is all our assets.
I'm going to give you 60% because I didn't want to have a lawyer.
My ex is a really high character, good person.
And I felt some guilt around the whole situation.
So she got
60%. And immediately, it's just karma. Immediately, it was 2000, the top bomb implosion had
happened. So I went from being kind of 33 or 34 and having probably what was 5 million in assets
as a married couple to a couple hundred thousand dollars as a single guy in New York. And divorce is ruinous
financially because inevitably it happens at the wrong time. It takes you off track professionally,
emotionally. And so it doesn't take just 50 or 60% of your assets. It probably takes 70 or 80.
And you become a forseller, a forseller of a home, a forseller of assets. You never want to
be a forseller. And then if it's an acrimonious divorce, you're spending money on lawyers. You're now trying to support
two sets of expenses and homes. So I would say that probably the best financial decision you're
going to make and the most important financial decision you make is who you decide to partner
with. Making sure that you find that you have a really strong physical connection with that
person. That's important too, that you share values. Where do you want to live? How do you want to
raise your kids? And then third, and people don't talk about this, what is each of your
approaches to money? And that is who's responsible for economic weight class. And my father,
who's always made a lot of money, ended up broke basically at 65 because he got married and
divorced four times. There's nothing like divorce to snatch defeat from the jaws of financial success.
So you really need to be thoughtful about not only picking the right person, but bringing a certain level of commitment and a certain level of generosity to try and make things work. Do you think that people should, that married couples should actively be thinking
about what life might look like
if they were to get divorced
or people who are about to get married?
Do you think people should sign prenups?
How do you think that people should approach marriage
from a purely personal finance perspective?
I think the most important thing
is just to have an open and honest conversation around
how much money do we expect to make?
What is the lifestyle we expect, each of us expects to have?
Who is responsible for fueling that?
Is it a joint production?
We expect to live in New York and have a nice life and maybe own a place and have two kids.
All right, that means we're gonna have to make a million dollars plus.
Are you, husband, expecting me, wife, to be responsible for that?
Am I supposed to be a partner at Goldman by the time I'm 30? Or am I was 26 because my girlfriend at the time had a
traditional job. She was working at Arthur Anderson, making 70 or 80,000 a year, and she
paid for our rent so I could start a business. And she was totally down with that. And then when I
started making a lot of money at profit, you know, it was all hers. I mean, we were in it together. The team is really
powerful when you're on the same page financially, but you got to get on the same page financially.
You know, these conversations are difficult to have early. I think everyone should have a prenup
and a postnup or whatever it is. Young people aren't going to do that. It's just, you want to talk about, you know, a boner killer. Okay, let's imagine us getting divorced right now. So yeah, everyone should do it. Most aren't going to do it. I don't think it's practical. But I think if you have assets, you have to have a prenup. And it just makes things easier. It's just like, okay,
this isn't working. We don't have to go to war with each other. This is what everyone's getting.
You know, it's really, those conversations are hard. I think they're important early though.
I think they make you feel closer. I remember I was very much in love with a woman and we were
thinking about getting married. And I just told her just in a conversation i said this is exactly how much money i have you know i was
already divorced it was and i this is how much i make this is what i'm worried about this is where
i hold stock these are my businesses this is how the businesses are doing and she was a second year
resident in surgery and she's like well this is how much money I think I'm going to make. And it just made us closer. It just made it feel a lot more transparent around we're thinking about
building a life together. And in a capitalist society, finances are really important. And
I would encourage everybody, even if they don't understand investments or finance,
to make sure they have a baseline level of understanding. Because one spouse doesn't want to disappoint the other if they're not doing
well in their investments, so they don't tell them. Then there's an unwelcome surprise.
And one individual has incurred huge stress keeping shit, playing hide the ball around
how much their stocks are down or that they don't have as much money as they thought. And the other person feels lied to, you know, just,
they always say the key is communication. You should once a month sit down and say,
this is kind of where we are financially and what's happened. We'll be right back. Thank you. privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into
your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored
by AWS, wherever you get your podcasts. Hello, I'm Esther Perel, psychotherapist and host of the podcast, Where Should We Begin,
which delves into the multiple layers of relationships, mostly romantic.
But in this special series, I focus on our relationships with our colleagues,
business partners and managers.
Listen in as I talk to co-workers facing their own challenges with one another
and get the real
work done. Tune into Housework, a special series from Where Should We Begin, sponsored by Klaviyo.
We're back with ProfitG Markets. I just want to go back to that feeling that you had when you had your first kid. You did not feel financially secure. When did you first feel financially secure? Do you feel financially secure now? And what do you think it takes for people to feel that way? I don't. I passed nine figures a long time ago,
and by any objective measure, I'm financially secure and I have huge financial anxiety.
It's just something that's hardwired into me. When I was a kid, the biggest source of stress
in my life wasn't my parents' divorce. It wasn't that my father was absent. It wasn't, you know,
I had wild insecurities. It was that we didn't have, you know, I had wild insecurities.
It was that we didn't have, my mom and I didn't have money.
And it was like this ghost following us around everywhere
telling us we weren't worthy.
You know, every time, you know, I'd lose a jacket
at elementary school in the fifth grade,
I'm like, oh fuck, I'm,
this is gonna be the most horrible evening
because I'm gonna have to tell my mom I lost my jacket and jackets cost $33 from JCPenney's and we don't have that money. It was really, and I think this is how the majority of the world lives. You know, they just are very worried about money. And I am always financially anxious. And when I lose money in the market, I'm just always thinking about money. And I think that's part of the reason I am wealthy now
is it's always on my mind and everything's a trade-off this notion that you're just
that rich people try to present that they're just carefree and I hate it when people say oh you know
I never really think about money I'm just trying to build a great company they're thinking about
money every goddamn moment and if you want to have a lot of
money, if you want to be good at money, then guess what? You better be thinking about it all the
goddamn time. That's like saying Roger Federer doesn't think about tennis. You know, it's just,
you need a certain level of basic financial literacy and you should be thinking about it a
lot. Because I can guarantee you, when you don't think about money, you're going to find out you have less than you thought. And I'm not saying have a neuroses about it. I'm not saying
be obsessed with it. But if you have real financial aspirations, if you want to be in the top 1%
financially, and I did early, I'm like, that's it. I'd really like to have a nice life. I'd really like to be good for
the world, but I am gonna have money. When did that happen for you? When was that, did that
trigger moment occur? My mom and I were like financially insecure, but we were never hungry.
So it wasn't, it was like, it was motivating, but it wasn't scarring. Where the scarring started
was when my mom got sick. And I remember I was in my second year of business school, didn't have any money. I was totally broke. I was driving a 1984
Honda, had borrowed money to get through a year of grad school, second year of grad school.
And my mom called and my mom is not an alarmist and said, you need to come home right away. I'm
really not doing well. And she had just gotten out of the hospital, I think about a week before
for what was her first mastectomy.
She'd had breast cancer that would recur and then recur a third time, a metastasis in her stomach.
But I went down there.
I got on the first plane down there.
And I walked into our condo where she lived.
And it was dark.
And she was just in a terrible state.
I mean a terrible state.
And it was just in a terrible state. I mean, a terrible state. And it was frightening. And so I started calling nursing back to a hospital. They wanted us to call an ambulance.
And I'm like, well, then where does she go?
And they go, well, she's probably going to have to go to county.
And it was just like I was trapped.
And I remember at that moment, I'm like, okay, I'm a 27-year-old male.
The only person in my life that matters is my mother.
She took great care of me, really sacrificed for me.
And now I've been called to care for her, and I can't.
And it was just so humiliating. It was like, God, I'm just failing on a cosmic level here. I can't take care of my mom. And that was
really like, okay, this is time. I really got to get my shit together. And the other side also
involved women, quite frankly. And that is, I noticed early on that guys who had their act
together professionally and had money had a broader selection set of mates than they deserved.
And I wanted to be in that category.
So the motivators for me around money have been one, growing up without it, and two, women.
Specifically, I wanted to take care of my mom and I wanted to have a broader selection set of mates. And I noticed that guys with fairly mediocre characters, but parents who
had homes in Aspen and Palm Springs seemed to get more than their fair share of women. I mean,
I just connected the dots pretty early. And I know how crass that sounds,
but I wanted both of those things. Have you ever been in significant debt?
Some student debt, not a lot. I mean, it was always manageable. I got
Pell Grants and I borrowed some debt undergrad. But when I went to school, it was so inexpensive,
you didn't have to take on a lot of debt. I borrowed, I think I had a total of like $20,000
debt by the time I got out of graduate school. So that was pretty manageable.
You know, bought homes, but the debt was always cheap. I never was in a position where I had too much
debt. What I did do is debt has a bad name. In a low interest rate environment over the last 10
years, I have borrowed on margin and levered up on stock purchases. So if I have a million dollars
in stock, I would take out two, three, $500,000 on margin because I could literally borrow money
like 1.5%. And then I would invest it in a massively diversified basket of stocks.
And that's dangerous because you're levered. But what I found is in a low interest rate environment,
leverage was a real feature because you're essentially getting free money
and the market was going up. So all you needed to do is beat it by one and a half percent. So I don't like to, you know, all debt is not bad. All of
these financial or personal financial advisors will say all debt is bad. It's not. Leverage is
an amazing thing if you diversify against it and you can borrow money at a real low cost. Now you
want to be really careful with it and want to make sure you're diversified and be ready to lower your leverage quickly. And you're upping your risk. But borrowing against my stocks
and against assets for me, I could have paid all cash for my houses. I didn't. I was able to borrow
money for 2.25%. So I always borrowed the maximum amount and I put it into the market, but I
diversified like crazy. When did you buy your first house?
When I was 28 in San Francisco, two years out of business school, I bought a house for $285,000
in Potrero Hill, San Francisco with my girlfriend. And I was, I had just started profit and she was
working at, I think Arthur Anderson. And I think we borrowed the money for the down payment
from her parents, which was like, the down payment was like 60 grand. What is your approach? What is
your philosophy on buying homes? It's sort of a big topic among young people right now. Do you
think young people should be buying homes? Should they be renting? What percentage of their net
worth should they be spending on the down payment?
What's your approach to home buy? It's situational. And I look at it through the lens of someone
who was able to kind of buy homes and ride what has been this unprecedented increase in the cost
of housing or increase in real estate prices. So I think my advice is a little bit tainted. Buying homes and real estate has been really good for me. If you're living in a part of the nation that's been hit hard and you feel like there's an opportunity to buy a home and you have the down and it's not going to place a huge amount of stress on you in terms of the monthly, I think buying a home not only has economic return, but has great psychic return. And a decent way to aggregate wealth is to get to know the local area, find, scrape together the money
for the down payment. There's very few assets you can lever up kind of four or five to one
and that are tax advantage. And then fix up the home. Hopefully you or your partner has some
skills. And then two years later, sell it. And up to a quarter of a million dollars or 500,000 is tax-free
in terms of the gain and then wash, rinse, and repeat. It's like a decent strategy for building
real wealth. But having said that, I mean, you live in Brooklyn, Ed? Where do you live?
Williamsburg.
You live in Brooklyn? I mean, how the fuck are you going to buy a home?
Yeah.
I mean, I know how much money you make. You're in the top 1% for whatever you are,
14-year-olds. For your age group, you're in the top 1%. And you still can't buy a home in Brooklyn,
or at least a... I would imagine starter homes there are like a million and a half,
two million bucks. I don't even know what they are. Probably higher. Yeah. Okay. Two to three
million. And you need to be really thoughtful about taking on seven figures of debt at your age. And so what I would say is, unless you're smart enough to be born with rich parents, you want to do the math and you want to find people who can help you do the math and say, does it make sense for me to buy a home? What kind of financial stress is it going to put on me? Because a lot of people now will say, based on the Kay Schiller index, that you're, in a lot of cities, better off renting. They say
the tri-state area of New York is a better place to rent than to buy because the yields are so low
that you can rent it for less than the cost of the mortgage payment, right? But I think these
are one of those decisions where if you don't understand how to do the math, you need to find
someone who does and make a really informed decision. So I think it's situational, but there's also real advantages to renting, slamming the keys down on the kitchen counter and heading to Las Vegas to be a blackjack dealer, open a cigar bar and date strippers.
That's what I see for you.
Good.
Bright future.
You've also been very active in alternative investments. I mean, you talk about psychic income
on your house, but you've also bought a lot of real estate purely for the investment benefits.
And you've done a lot of angel investing. You've invested in a lot of private companies.
When did you start getting involved in that stuff? This is a good story. In 1997,
Kleiner Perkins invested in this wedding registry
that would be on the internet called Dell and James. And the CEO was this very impressive woman,
I don't remember her name. And we had done the brand strategy, I think, for Dell and James to
profit. So Kleiner called and said, this is amazing news. We're going to let you co-invest
with us in this round. I called my partner. I'm like, oh my God, Kleiner Perkins is letting us
co-invest without fees.
And so we scraped together every nickel we had. Maybe it was even earlier than that. Maybe it was
96. It was like a quarter of a million bucks. And we put it into Della and James alongside
of Kleiner Perkins. And we're waiting to get a 250 million back, you know, because everything
Kleiner Perkins does has got to turn to gold, right? They invested in Amazon and Google.
And basically, the company
went out of business like nine months later. It was a zero within that. My first VC investment
went from a quarter of a million dollars to zero in about nine months. And what you realize is
nobody knows. There are some people that are smarter than others. You're better off investing
in Berkshire Hathaway than some joy bag of donuts thing, but no one really knows. But my advantage
that I've leaned into is that because I advise a lot of these funds, I get a look at a lot of investments and
they'll let me invest alongside of them. Now, I never go all in on anything. What I do is say,
okay, this looks cool. I can add some value here. So I'll invest 2%, 3%, 5% of my net worth in this alongside of you. And I'll go on the board or
I'll help, I'll be an advisor and you're going to give me additional equity. So effectively,
I'm investing not only without fees, but with negative fees. I'm getting better,
I'm getting to a certain extent, I'm getting better economics than the investor.
That is my advantage. So I lean into it. And even Goldman Sachs, who manages my money and wants to put me in private equity funds
or their funds, I say, what are the fees?
And they say, well, it's like $220,000.
I'm like, well, why would I pay you guys fees when I can invest in very similar investments
at no fee or negative fees?
And Goldman, being good fiduciaries, they say to me, you should absolutely do that.
They don't try and sell me on their funds.
They take the responsibility to me really seriously. But that is my advantage. And so you want to think to yourself, what is my
advantage? And if the answer is none right now, then just low cost, vanguard, diversified index
funds and ETFs. But over time, you might develop advantage. I really understand,
I don't know, food trucks. And I'm going to buy a food truck and I'm going to lease it out to
somebody. I just understand the economics. I understand, I don't need this capital. I can
lock it up where you can go into more illiquid investments that should have a higher return.
I'm a small investor. Well, then you should probably be investing maybe in micro-cap stocks
or micro-cap funds. Everyone has at some point advantage, and you want to those high return investments. You're being generous. It was accidental. I didn't have a plan to figure out a way to position myself to get advantage investments. I positioned myself to try and do
something I was good at, build a business, work hard, try and create financial security,
and then just do the course of, I mean, Ed, I'm 35 years older than you. So if you were to spend
35 years working as hard as you are, being as successful as you are, and the rest of the team
were to do the same thing, over the course of those 35 years, you aggregate a series of relationships with companies and people that will provide opportunities.
And the key is recognizing opportunities and taking advantage of them.
But I didn't, by any stretch of the imagination, I thought I was going to make all my money starting and selling companies. And I have made a lot of money from starting and selling companies. But where I've made actually more money is that along the way, I do work for a hedge fund evaluating a company. And they say, we think we're going to take the company private. And they say, well, would you be interested to go on the board? I'm like, yes, but I want additional equity. All right. And then I'll say, I'm only going to do this unless I can co-invest. I'm not interested in going on a board and just
collecting some money and free dinner once every three months. I want to be able to co-invest.
I have elbowed my way into deals. I've called the CEOs of companies that are going public.
I know I have a public profile and I call them and I say, I love this company. Can I invest in
the IPO? And most of the times they
don't return my email, but some of the times I get a call back or an email back saying, so-and-so
is a fan of the show and a fan of yours, and you can invest. And let me be clear, that is privilege.
And in some instances, it's probably unfair, and I absolutely take advantage of it.
And it goes back to the same reason if you want to be successful professionally,
economically, romantically, you have to be willing to endure rejection.
Failure is usually in isolation.
Good investments in victory are in the agency of others.
You know, the majority of really stupid fucking mistakes you make are individual mistakes.
And the majority of great decisions you make, I find, are crowdsourced.
And you want to
trust your gut, but you want to save yourself from yourself. And the way you do that is before
you double down on something and put 10 million or half your net worth in something because you're
so excited about it, you call some people and say, this is what I'm thinking of doing, because it's
very hard to read the label from inside of the bottle.
We'll be right back after a quick break.
Support for this podcast comes from Klaviyo.
You know that feeling when your favorite brand really gets you.
Deliver that feeling to your customers every time.
Klaviyo turns your customer data into real-time connections across relationships with their customers during Black Friday, Cyber Monday, and beyond.
Make every moment count with Klaviyo. Learn more at klaviyo.com slash BFCM. Thank you. you find quality candidates fast. Listeners of this show can get a $75 sponsored job credit to get your jobs more visibility
at Indeed.com slash podcast.
Just go to Indeed.com slash podcast right now and say you heard about Indeed on this
podcast.
Indeed.com slash podcast.
Terms and conditions apply.
Need to hire?
You need Indeed.
We're back with Prof G Markets. What is your approach to spending? How much do you spend?
How much is appropriate? Did you spend a lot? As a young person, I mean, you talk about,
you know, that feeling of one, you want to pay for your mother's health care bills.
And two, you see the dudes whose parents have the Aspen house and the Hamptons house, and
you want to be a part of that.
I mean, how has spending played a part in your life?
Purely discretionary.
It's totally flipped.
When I was younger, I always lived below my means. But when you're young, you can have a lot of fun without money.
You know, beer and dating and college football is a lot of fun, and it doesn't have to be that
expensive. Spending time with friends is a lot of fun. I lived for one summer at UCLA off of,
I literally lived off of Top Ramen, bananas, and milk. I needed $3,300 by the end
of the summer to pay off my fraternity house bill and tuition. Otherwise, I wasn't going back for my
junior year of college. And I had a job changing beer taps in downtown LA. And I thought, okay,
if I spend like, I think $110 a week total, including my apartment, including food,
including everything, I can save $3,300.
And I did it. And you know what? I still had a nice summer. You know, when you're,
when you're, whatever I was, 2021 at UCLA, living in Los Angeles, you can have a nice life and not
a lot of money. Until the age, and then I had student debt, I was always starting companies.
I'm comfortable not spending money. Once I sold my first company, Profit,
once I then sold L2, and then the bull markets, I kind of flipped my complexion around this,
and that is one of the reasons I moved to Europe is I want to get really good at spending money.
My reductive analysis after molesting the globe for the last 30 years is that America is the best place to make money and Europe is the best place
to spend it. I have no desire to give a lot of money to my kids. Most of the kids I know of rich
people are fairly fucked up. So I'm going to give them enough money such that they can do anything
they want, but they can't do nothing. That's a famous Buffett quote. But I am really into spending
money right now. I spend a lot of money not on things, but on experiences. And I've got my kids
for a few more years. I'm in a great relationship. I'm healthy. My job is not that taxing or
stressful. I love what I do. I like the people I work with. So I am spending an absolute shit ton
of money. And I fly private. I go to the
nicest places in the world. I invite friends. I'm now taxing myself between 100 and 200% a year.
Every dollar I spend, I try and give away one or two dollars a year because I now rationally know
I have a lot more money than I need. But I spend $200,000 to $400,000 a month,
and it's worth it.
I'm just loving the shit out of it.
I love capitalism.
I love making a ton of money.
I love spending a ton of money.
I love giving away a ton of money,
and I don't think there's anything wrong with it.
I think it's wonderful.
I want to grow the economy.
I want to pay people well.
I want to enjoy the shit out of this.
The world offers so many amazing things with money. It offers so many amazing ways to transfer time and money to other people insecurities around money would just be a waste.
So I am in the spending part of my life and I am enjoying the shit out of it.
Are you spending, when you say, because you have a lot more money now, but are you spending more
as a percentage of your income than you were as a young person? No, because I've built up an asset
base. So I'm still actually, I think my net worth is
actually still growing because I've got that base and I had some big wins and got very lucky.
But I'm, I mean, I'm spending more in a month than I would spend in a year, just
five, 10 years ago. And I'm spending more than I would spend, entire decade of my 20s, such that I can feel okay
about myself. Every year I look at the amount of money I spend, and I give that between one and
two X that away. I want to add value, right? And I was very non-philanthropic growing up.
I didn't spend a dime or a minute of my life helping others. And it's just kind of dawned on
me that I haven't really added a lot of value other than the bullshit capitalist notion. Well,
I create jobs and I'm productive. That's such horseshit, right? That just means you're part
of the capitalist society. Okay, there's some value there, but there's not a lot.
So I'm trying to catch up. But at the same time, I'm not going to sacrifice. I don't need to sacrifice. I just do, oh, there's Formula One in Las Vegas in October. Let's book it. Let's book it. Oh, you're going to be in Aspen is I'm going to be dead soon and I can't take it
with me and I don't want to give it to my kids. I want to give it away. Why wouldn't I start giving
it away now? And why wouldn't I just spend the shit out of it and enjoy it? I mean, I hear myself
saying this stuff and it just sounds so douchebaggy, but I think capitalism, you know, money is a
wonderful thing. You can save a lot of people a lot of time and
energy. You can do a ton of great things with it. You can enjoy it. Your family can enjoy it. You
can do wonderful things for your friends. It's just, it's a ton of fun. And why would you work
this hard and get this lucky and not really enjoy it? You know, we spend a lot of time talking about planning for
retirement. That's a big topic in personal finance. But then another crucial part of personal finance
is planning for your death. So how do you think about that? Do you think about your will often?
When did you decide, come to this conclusion about giving your kids money?
What are your thoughts on what to do with your money when you die?
Well, as soon as I had my first kid, I took out a $5 million life insurance policy because I realized that if I died, I mean, my partner and my kids would be okay.
But I always thought if I die, I want them to be sad, but I don't want them to be scared.
And at that time, I didn't have enough money that if I passed, they would be fine. It would be stressful for them, right? So I got life
insurance. And then once I sold Profit and then sold L2, and then some of my investments started
hitting, I did what most people do. I got a lawyer. I have a trust. I'm trying to be smart
about it. The hard part is trying to figure out, assuming you'd pass away,
and by most actuarial tables, I'll pass away probably 20 years before my wife does.
So I want to make sure she's fine and never has to worry about anything.
And then you set up the trust and the questions get really hard really fast. Like,
when do you want your kids to have access to this money?
I mean, I can already tell my youngest, like, if I give him a bunch of money at 21, he's going to have a Range Rover and a cocaine habit.
So is it 30?
Is it 40?
What happens if they get sick?
Do they have access to it before that?
Or do you just throw up your arms and give it all away?
Because everybody talks a big game about cutting their kids off when they're out of college. And then you just see how hard it is for young people now.
And what if your kid wants to do something wonderful like going to social work or become
the country manager in Malawi for the Peace Corps as the head of the Peace Corps we were talking to?
Like, wouldn't you want to afford them that opportunity? And why have you worked so hard
if not to make your kid's life easier? So there's a balance there. And I don't know if I've got the right balance. I'm working through a lot of these issues right now. But I'm kind of coming to the fact that I want to give my kids enough money such, I know they won't want for anything. They'll have housing. They could get a good education. But I also don't want them,
I don't know, the kids who just have a lot of money, I don't know if it's good for them.
I think they need to have a sense of drive and grit. I always say if I had what my kids have,
I wouldn't have what I have. And so it it's like this is a big question we have in our
household a lot how do you instill that sense of grit and we try to do it with sports and summer
jobs and things like that but i don't know i just might snort it all up my nose and that might be
the way i spend it all that's good and so i asked profiting media the company, if they could ask you any question about money and investments,
what would they want to ask you? One of the main ones was, is it worth it? Mia said,
has being rich lived up to your expectations? Patrick, our producer said, how much of this makes you happy? Um, you know, I've, I see you have
worked so hard. I mean, you say that you live a, you know, stress-free, not too taxing lifestyle
from my view, I feel like you work very hard. Um, and that's something that I want to do as well.
It's super important to me,
but when is it enough?
How do you reach that conclusion that, yeah, this is worth it,
and also reach the conclusion,
okay, I don't really need to do this anymore?
Do you think you'll ever reach that point?
Everything I do now,
there's a guy named Barry Rosenstein who
ran Jana Partners, a hedge fund. I would call him a friend and maybe even a mentor. And I had lunch
with him once and he said something really profound or something that resonated with me.
He said, life is three buckets. There's the things you have to do. So when I'm in town,
Ed, and I say, Ed, I want to catch up about your career. You have to meet with me. You have to do
that. There's things you want to do. Hey, Ed, the whole team is going to T me. You have to do that. There's things you want to do. Hey, Ed,
the whole team is going to Tulum. You want to do that. And there's the things you should do.
A coworker at Prop G is getting married. You're not that close to them, but you go because you
should do that. You should invest in the relationship. You're not really excited
about traveling to Short Hills, New Jersey for a wedding, but you go because you should do it.
The wonderful thing about having some economic security and where I am in my life is I have
taken the should bucket and I've eliminated it. I only do want and have to do. And my entire
professional life is things I want to do. And there's some components of do you have to do,
but I love what we do here. And that is such a gift. I really enjoy it. And I spent a good three decades of my life not doing things I love because I wanted to get economic security. Is it worth it? This is what's worth itally work through the math and those demons go away.
And that is a huge source of comfort. In addition, I can take my family and another family to World Cup and we get to share these amazing experiences together that money lubricates. And of that $300,000
a month I spent, I spent $100,000 on travel and experiences. Because what I want is a series of experiences that make me feel closer to my family and my friends. And it exposed me to all the amazing things the world has made me happy, and it has, is I'm able to take care of people who mean
a lot to me. I'm able to cement those relationships by doing these extraordinary things. And so that
is just immensely rewarding. And also there's a certain amount of reward and a feel of achievement,
a feeling of masculinity that I'm able to be a great provider and that I'm able to give money away to organizations that I think are worthwhile. It makes me feel strong. It makes me feel, you know, it makes me feel like a masculine, like I've achieved brought me a lot of reward. I mean, happiness is an emotion. You can get happiness or a sensation. You can get that from Netflix or THC. What it's brought me is a series of experiences and absence of stress that makes me less neurotic, less anxious, and has been an amazing opportunity to do amazing things that make me feel
closer and deepen some of the relationships I have.
This episode was produced by Claire Miller and engineered by Benjamin Spencer.
Our executive producers are Jason Stavis and Catherine Dillon.
Mia Silverio is our research lead and Drew Burrows is our technical director.
Thanks for listening
to Profit ReMarkets
from the Vox Media Podcast Network.
Join us on Wednesday
for office hours
and we'll be back
with a fresh take on markets
every Monday. You held me in kind reunion
As the world turns
And the dove flies
In love, love, love, love. Well, that's why we built HubSpot. It's an AI-powered customer platform that builds campaigns for you,
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.
Thanks to Huntress for their support.
Keeping your data safe is important. However, if you're
a small business owner, then protecting the information of yourself, your company,
and your workers is vital. In comes Huntress. Huntress is where fully managed cybersecurity
meets human expertise. They offer a revolutionary approach to managed security that isn't all about
tech. It's about real people providing real defense.
When threats arise or issues occur, their team of seasoned cyber experts is ready 24 hours a day, 365 days a year for support.
Visit huntress.com slash vox to start a free trial or learn more.