We Study Billionaires - The Investor’s Podcast Network - TIP 050 : Current Market Conditions and Billionaire Chris Sacca's Favorite Book (Investing Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 50 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish, and Stig Broderson. Hey, how's everybody doing out there?

Starting point is 00:00:30 This is Preston Pish, and I'm your host for The Investors podcast. And as usual, I'm accompanied by my co-host, Stig Broderson, out in Denmark. And I'll tell you, folks, it's starting to get interesting out there. I know everyone that's following the financial markets could definitely agree with that because we're starting to see more signs that things are getting a little bit more sluggish in the economy. We've seen it pull back about 10 percent. And we've also seen some major shifts over in charge. China. I know we're recording this on a Monday morning. And just so everyone knows, it's the 24th of

Starting point is 00:01:01 August, 2015, when we recorded this. And last night, the Chinese market was down another 8%. So it's starting to get pretty ugly over there. I guess the Chinese government's saying that they're going to be pumping a lot of liquidity into their banks, which they're running into issues with that. So just a lot of things going on. And Stig and I are just going to sit down and have a candid conversation between the two of us as we're discussing what's happening. None of this, we don't know what we're going to ask each other. This is unscripted. In fact, Stig and I haven't talked to each other for about a week. And last time we talked, it was really not about finance or the financial markets or anything like that. We're actually talking about Korea. So it has nothing to do. We haven't talked

Starting point is 00:01:44 in a while. So this should probably be a good conversation. And these are the conversations that Stig and I have whenever we're typically not recording. So this will be kind of fun to do. After we're done having that conversation. We also read a book, and the name of the book is The Magic of Thinking Big. And this book was recommended by the billionaire Chris Saka, which we'll talk about that a little bit more in the second half of the show. So what we're going to do right now is we're just going to talk about the current market conditions and just kind of go from there. So my buddy Stig, let's talk about what's happening. What's your initial thoughts? What are you thinking? I'm not going to say that I'm surprised, but I guess one is always a bit surprised when

Starting point is 00:02:21 the market seems to be crashing down. I have a hard time figuring out. I don't know about you, Preston. I have a hard time figuring out how much China will influence the rest of the world right now. Because we can definitely see a lot of problems in China right now. And we can also see that the market don't react that well to the incentives that the Chinese government is trying to give investors as well as consumers. And I think that's really one of the, that's really highly unpredictable to see.

Starting point is 00:02:51 what's happening there. I think you can probably compare that to the 2009. Whenever the Fed were doing quantitative easing, we knew that something crazy would be going on, but we had no idea how the market would basically react to it. I don't know about you, Preston. So this is the, and I'm going to mess up some of the numbers here because this isn't something that I was preparing for in the show where I typically have like my notes to discuss certain points. But I read an article probably a couple weeks back. And one of the things that It was talking about in the article. It's talking about the world economy and you're talking about growth from like a world GDP perspective.

Starting point is 00:03:30 And the article said that typically when we'd go into a world recession, all countries were going into recession. 2008, 2009 is a good example of that. And I think that there's been about four or five examples of that since the 1970s. When that's happened, the GDP for the world was below the 2% threshold. The article highlighted that based on where we're at right now for 2015, we're pretty much approaching that 2% threshold for GDP growth. Something that was really interesting that the article highlighted was that China made up 30% around that figure, 30% of that GDP growth. So with them contracting so much, you're really getting into a position where China was such a major driver of growth. and basically that world income stream.

Starting point is 00:04:22 And when you see that contracting, I think that there's a major concern for people to have. And I think that the other thing here that a lot of people might not really realize is how these world economies are devaluing their dollars. It's not just their currency. It's not just China that's doing that. You have a host of other countries that are doing that as well. And I think for the United States, which is, you know, I mean, just such a huge place. in the world economy. As their dollar continues to get stronger, this is not going to be easy for U.S. companies to have a higher bottom line, which is how the multiples are traded on the

Starting point is 00:04:59 stock exchange. So go ahead. Steeke. I think it's really interesting what you said about China, how much they were accounting for the world growth. Because I remember years back, I read an article about the Chinese economy. And they were saying that, well, we're probably going to face some headwinds as we move forward because China is so dependent on Europe and they're so dependent on America. I should probably remember back then, you know, no one in America, no one in Europe, you know, had any money to spend. And if they don't spend anything, they're not going to, there isn't, you know, money flowing back to China, which in turn, what is happening now is that now they're devaluing the currency because they have to. They can't rely on the US anymore. They can't rely

Starting point is 00:05:42 in Europe anymore. So they kind of had to rely on themselves. So that's kind of what you're seeing, that yes, is a big problem for the States, for instance, that China is in recession or starting to decline. But I think the Chinese would probably say that we started it because our economy was, yeah. Absolutely. You're exactly right. Sorry to interrupt you. So I sent out an email to all of our email subscribers, just kind of talking through the high points of what's happening, It's kind of my concerns. One of the things that I want to talk about, so don't let me forget, is the spread between fixed income and equities, because I think that that's a really key point to discuss.

Starting point is 00:06:20 But in the email, I highlighted that I had made this video on YouTube back at the end of February talking about my concerns moving forward, and I really felt like that was a critical point in time for the market where it had reached an all-time high. And so I made this video and I explained why I thought there was issues. And I think one of the main reasons that I really started thinking that we were at a market top back then, which I'm just going to throw out there. It was three days off of the market top whenever the video was published. And you can see the date on YouTube. But the main reason that I made this video back then was because the Fed had stopped their quantitative easing.

Starting point is 00:06:57 When you went back, and I know I've said this on the show a few times, when you go back and you look at the amount of dollars that the U.S. Federal Reserve was pumping into the economy through quantitative easing from 2000. 2009 up until the end of 2014, the threshold of dollars that they were pumping into the economy almost had an exact correlation to the growth in the stock market. At that point in February, it really looked to me like there was a high probability that the Fed was not going to do any more QE based on what they were saying in the news, based on everything that was happening. Now, the one thing that concerned me whenever I was saying, hey, I don't think things are going to be looking any better from this point forward back in February. Europe was doing their version of QE, but you got to realize it wasn't nearly at the same

Starting point is 00:07:46 magnitude as what the Fed had been supplementing the world for five years with their quantitative easing. This is why I really felt like we were kind of at the top and that all this government manipulation that had been occurring up to that point was over and that you were pretty much at the end of that cycle. I kept thinking back to the Ray Dalio video that he had made where he's talking about how spending, and this is getting to Stig's point that he was making, spending, it works in this cycle. As long as that spending continues, the next person, the money that you spent goes into the next person's hand and they can spend more because they have now more in their pocket and it continues. Whenever I saw the Fed stop that QE, I really felt like that was the end of what I like to call the water wheel,

Starting point is 00:08:35 where it was spinning in one direction and it was slowing down and it was slowing down. And the Fed had pretty much said that they weren't going to be spending and putting that flow of money into the system anymore. And I felt like it was going to start basically rewinding itself and going in the opposite direction. So far, that thesis has been correct. But that doesn't mean that the Fed couldn't do more QE into the future. It doesn't mean that China could start pumping. I mean, I just saw an article on the Wall Street Journal before we started recording saying that China's getting ready to pump more liquidity into the system. So that does not mean that this thing is going to totally reverse itself.

Starting point is 00:09:08 I think there's a lot of momentum behind this. I think there's a huge amount of momentum behind this. But that doesn't necessarily mean that it can't be undone because we're at that point where you haven't hit critical mass, I don't think. But I think you're getting there quickly. So a lot of things to talk about. Go ahead, Stig. Yeah, I love what you said, Preston, about spending.

Starting point is 00:09:29 Because spending that could be monetary. That's what you've seen in the stage with QE. That's also what you've seen in Europe. You've seen that in Japan for so many years. But it could also be fiscal. Now, everyone started doing fiscal policy, which basically means the government starts spending more money. Everyone saw that during the crisis,

Starting point is 00:09:46 but no one saw that to the same extent as China. I don't know if I'm going to mess up numbers here, but I think I remember from the book we did from Professor Koo, that while it was 5% GDP, the package that had, they implemented in the, in the States in 2009, I think it was 17% in China that the government was just, you know, sending into the economy just to keep it floating. And the interesting thing that happened back then was that there was a few economies of saying that this could lead to a bubble, but then you

Starting point is 00:10:20 have much more people, including economies, that would be saying, we need that right now to, to sustain yourself during this crisis. We simply need that. And one more thing I just want to point out is that in China, you can't just let capital flow like you can in the States, for instance, or in Europe. Like, if you have money within China, typically that would be invested in Chinese assets. It's simply not possible just to invest in everything else. And that also creates some of the bubbles and could also burst the bubble as we might be seeing right now.

Starting point is 00:10:55 So I saw a comment that Jim Rickards had, and I really thought this was a great comment. and he was talking about how basically the world is paying for all this leveraging that they've been doing, which, you know, you watch the Ray Dalio video, he talks about these 75-year cycles, these de-leveraging cycles. And the way that everyone's paying for this is they are devaluing their currency. And I think that you're truly going to see that during this next downturn, whenever that is. We don't know. But whenever that is, that's how you're going to be seeing a majority of this being paid for is through the devaluation. of currency. And that was something that Jim Rickards had said. Now, what I, I want to throw this point out there because I found this extremely interesting. In the email that I sent out to people,

Starting point is 00:11:40 I was kind of giving them some ideas for this, this is for all the email subscribers on our list. I was telling them some of the things that I'm really excited about with this downturn and where I think people can do really well. And one of the comments that we were talking about, which, you know, sparks huge debate amongst people is gold. And one of the people emailed me back and they said, you know what I just recently saw. I saw billionaire Stanley Drunken Miller took 20% of his portfolio and has invested it in gold. And that was just recently released in his last filings for his, I think it's Duquesne Capital Management. And I found that to be extremely interesting. And just so you know, Stanley Drunken Miller, we are huge fans of Stanley

Starting point is 00:12:23 Drunken Miller, not just because he's from Pittsburgh, but because he is a fantastic macro investor. He was George Soros' brainchild whenever he broke the bank of England. You want to read about an interesting guy and somebody who's a really strong macro thinker. Look up Stanley Drunken Miller and you'll be very surprised at what you find. But there's a guy, there's a billionaire who took 20% of his portfolio and put it in gold. And this is just recently, like in the last month or so. So kind of an interesting play. Just want to throw that out there to listeners that like gold. I know a lot of the value investors absolutely hate that play, but that's fine. I'm just throwing this out there as a general statement for everybody.

Starting point is 00:13:08 And Preston, I think we all know that when something crazy is happening in the market right now, that is something that you can take advantage of. So I'm actually curious to hear about what is your take on this. Do you think that as a value investors, we should just kick back and enjoy that some of these encourages that we have been looking at for a long time that might be within our reach and start buying them up at some point of time? Or do you think that we should look at

Starting point is 00:13:35 other asset classes? I know this is an extremely unreasonable question for me to ask and you weren't prepared for this, but what would be your response to that? I don't think it's unreasonable at all. In fact, I like the question. So this is where I see things. Okay.

Starting point is 00:13:51 I really think that people that do not have a firm understanding of macro right now are going to have a rough time. And I know I've been saying that for a while, but here's the reason why. So this is a currency issue. This crash is a currency issue. So if you don't understand how currencies work and how they play with other investment vehicles and securities and whatnot, you're going to have a rough time with this one. That's my opinion. I could be wrong. Now, that doesn't mean that I don't think that the junk bond market is probably going to be the catalyst that makes this thing tumble. But I think that where people are really going to get devoured is they're going to lose their buying power at the end of all this.

Starting point is 00:14:34 And the reason that they're going to lose their buying power is because like the federal government for the U.S., the only play, the only play. And this isn't me saying this. This is the Wall Street Journal saying this. The only play is they have to devalue the dollar. That's the only way that they can somehow get out of this. and that's just not the U.S. because everybody around the world is in a very similar situation. Now, China has a little bit of interest rates to play with. They can bring those down. Europe does not. Most other countries around the world do not. But don't get me wrong.

Starting point is 00:15:06 I mean, I think China's going to do both. I mean, you're seeing that right now where they're adding liquidity. I don't know if they're doing something where they're buying back some of their fixed incomes like doing the QE thing. But I wouldn't be surprised if they did that in combination with lowering interest rates. So getting to Stig's question. So what you have seen over the last year is you've seen commodities absolutely get murdered. And I mean murdered. What are they off? 40, 50 percent and some commodities even worse than that.

Starting point is 00:15:36 So the thing you've got to understand about commodities, and this is my personal opinion, I look at commodities as if they are a currency in some cases, like oil, for example. And you heard Morgan Downey say that when he was on the show. He says oil is like a currency. totally agree with Morgan. It's a little bit more complicated because you're dealing with a supply and demand piece of it that you're not typically dealing with with currencies. But here's the thing. With Fiat currencies, that's how they're going to solve this problem. They're going to expand that and it's going to devalue versus it's always relative to something

Starting point is 00:16:08 else. It's going to devalue itself. That's why I think commodities are going to be an extremely strong place because they've been getting punished because that's where all this is smushed, in my opinion. The U.S. isn't wanting to devalue their currency because that, you know, destroys the buying power of the U.S. citizens, although it does induce GDP growth. But they can't keep interest rates that low and do QE forever. They're realizing that, hey, the longer we keep things this way, we're creating a bubble for ourselves. So you've got all these pressures, enormous pressures, just pushing up against the U.S. dollar right now. And so I think there's a concern there. I think there's a major concern there for the devaluation.

Starting point is 00:16:47 the dollar moving forward into the next year, I think that the Fed is going to have to do something to devalue that currency, even though they say they're going to raise rates, which would make it even stronger. So I guess I'm saying, I don't buy it. If they do raise rates, it's going to be 25 basis points on the overnight federal funds rate. That's going to be it, which is going to pretty much make no difference at all. I think banks will then undercut that because they're flush with cash and it won't really even make a difference at all. I'm worried about the psychological impact that that might have. But a lot of things going on, I'll be watching commodities extremely closely.

Starting point is 00:17:24 I'll be looking at the futures prices whenever those go linear with the current spot price, one year out, two years out, whenever that starts going linear. That's whenever I'm going to be really maybe taking a position. And you're starting to see that get close with oil. Sorry to talk so much, Stig. Yeah, so I'm actually curious to hear about this because when you see these commodities, they might have dropped like in half over the last eight months. And like intuitively you would think, well, that's probably temporary.

Starting point is 00:17:52 You will see that it will increase in price again. So your aim right now, Preston, is that to maintain your or protect your principle? Well, I guess it always is for all investors. But is that like if you can come out of the next, say, two years with zero percent with the knowledge that we have now here in August 2015, is that really the goal? Or do you think that now we see some interesting place available in the market where you can actually profit from the hectic market that we're seeing right now? I might be wrong, but I think a zero percent return over the next year would be pretty darn good compared to everything else. And I think that's how people got to look at it.

Starting point is 00:18:32 It's like, hey, it's always relative to something else. And so, you know, I took a very bold play back in February when I made that video where I moved a significant portion. of my portfolio into cash. And you know what? It's done fantastic because the dollars, in the last year, the dollar's gone up 20%. So I couldn't be happier with the decision I made. That was a bold play. I didn't know if that was actually going to pan out.

Starting point is 00:18:57 It's easy for me to talk about it now because it was a really good decision and it worked out. If it didn't work out, you know, I'd probably be one of those people not talking about it too much. The thing that I'll tell you is I think protecting your principles is extremely important. I think that commodities are going to be a great play in the future. not today. I mean, I'm still riding this dollar wave.

Starting point is 00:19:18 Why would I get off that thing right now? I mean, it's the Fed saying they're going to raise rates. You know, how much longer this thing can run? I don't know, but you better believe I'll be getting off of it when it does. And I really think that I don't know, but I think that the play is going to be commodities at that point. I think that the equities are going to really have a rough year. I really do. And I hope I'm wrong for all the people out there that are holding equities.

Starting point is 00:19:43 But I think it's going to be a rough year. You got this thing spinning in the opposite direction. I think the only thing, now, this is an interesting discussion. I want to talk about spreads. Okay. So now that the market has contracted, okay, now you got everyone kind of run into the cash play, which, in my opinion, might be a little too late, depending on how things shake out. Well, I want to take that back.

Starting point is 00:20:06 I don't want to say it's too late. But I want people to have an appreciation for this. So there's a spread, the difference between fixed income and equities. So as equities went down, the yield goes up. Okay, the lower that stocks are, the higher return you can get. So whenever the market was at 18.3 and I was a little worried, the yield was at like 3.7% or 3.6 or somewhere around in there. Now that it's contracted 10%, your yield now bumps up to about 4%, or maybe 4.1 or something like that. So the yield's gotten higher.

Starting point is 00:20:39 Now here's the thing. everyone's piling into fixed income because they're scared and they're piling into the 10-year treasury. So now everyone moves into that. The price in the 10-year treasury goes up and guess what happens to the yield. The yield goes down. So now you're looking at a spread between fixed income and equities that's around 2%. You're looking at a difference between 2 to 4% between fixed income and equities. So the larger that that spread gets, the more volatility that you're going to see as traders jump from one asset class to the other because there's a disparity there. When you look at crashes in the past, when you go back to 2008, that spread was pretty much

Starting point is 00:21:14 non-existent. It was at parity with each other. It was around 5% or whatever. It actually started becoming inverted where fixed income was giving you a higher return than equities. You're not seeing that right now. You're actually seeing equities still 2% higher than fixed income. That's a concern for me. That makes me feel like, hey, that trade between fixed income and equities that back and fourth could continue and persist, which could really eat people alive. And as you get out here, let's say you get out and you go into cash, that equity market could come back because there's still that spread that exists where you're getting 2% higher in equities. That's my concern for people that are moving into cash. But this oil thing, and we've got to talk about that next,

Starting point is 00:21:57 is this oil thing is a major concern. We've brought it up in past shows, but we need to bring it up again. But before we do that, I want to throw it over to stick because I think he has a comment. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

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Starting point is 00:26:09 That's Shopify. com slash WSB. All right. Back to the show. Yeah. So I'm really curious to see what's happening now because I kind of been waiting for what we're seeing right now. I think the last week the market dropped something like 6% or something like that.

Starting point is 00:26:27 I can't remember the exact number. But I think the interesting thing is what will happen next? I mean, what will happen in the next few weeks? Because we have seen, you know, we've seen this bull market, the long-term trend has been the bull market. Then we've seen that's somewhat declining market, not really a lot more, if anything, has stacked that market. And I was just waiting to see what the catalyst would be.

Starting point is 00:26:50 One catalyst is that could be the Fed raising interest rate. That's something that we also call it in the podcast. Another thing could be that for whatever reason, say it's China or something completely different, you will see a drop in the market. How will investors react to that? I mean, because we have to remember this is a stock market. There's a lot of psychology involved. I'm really curious to see if the market really starts to decline how much, I mean, how much psychology will be there or if it's just like a short dip. So the email I sent out this past weekend for all the people on our subscription list.

Starting point is 00:27:22 the name of the email is, is there blood in the water? And so my conclusion in that email was that there was not blood in the water. And the reason why I say that is because you're not seeing any defaults. I mean, you are seeing some defaults, but not at the magnitude that would cause this thing to really have a catastrophic collapse. So because I don't think that you're seeing that yet, I mean, that could happen next month. It could happen next year. I don't know.

Starting point is 00:27:46 But until you start seeing that large amount of defaults, I think you're going to see extreme volatility. That's my opinion because of this psychological piece. Everyone saw it have a huge 500 points on the Dow on one day is crazy. That's a huge number. We haven't seen stuff like that since 2008. And I remember the summer of 2008, the market was all over the place. That thing was swinging three, four, five hundred points a day up and down all over the place. I think you're going to see something similar to that. I could be wrong, but that's what my expectation is. So with that said, that volatility is up and down, and that has the tendency to really break things. I think of it kind of in the context of about a year ago I had some issues with my heater.

Starting point is 00:28:32 And I was up in my living room and I heard this like really strong vibration. And it was really loud and obnoxious. And I said, that doesn't sound right. I walk downstairs and I go in and I see my heater. And the thing is just vibrating like out of control. And so I immediately turned it off. And so I had a fan that was going bad. And that's the, I see so many similarities between our physical world that we live in and the market where extreme volatility going up and down at very large swings like that.

Starting point is 00:29:04 That has a tendency to break things. And it has a tendency to break things because people are leveraged and then they get called. And then it has this compounding impact. And I think that's the concern as we go into more volatile times where I think, the market could jump because of that spread that's existing between the two and four percent. You're going to have people jumping asset classes that are changing their mind because you've got fear in the market. You've got this psychology piece. And I think that's the thing that people really got to be concerned with moving forward. But I think the real catalyst, and we've been saying

Starting point is 00:29:35 this, is the junk bond market. That's the thing that's when you start seeing those defaults, what happens, you've got to understand this from an accounting standpoint. This money isn't disappearing. When the market goes down 10%, it's not like the money disappeared. The money went into a different market. The money shifted over into fixed income, shifted into cash accounts, shifted over into maybe a foreign market that had better opportunities. That's what's happening here. It's not like the money is poof. It's gone. Now, whenever you have defaults, that money is poof and it's gone because basically people default on their promise. Okay, credit is a problem. And don't ever forget that. And our money supply is made up of two things. It's made up of

Starting point is 00:30:20 real dollars, which is our monetary baseline. And it's made up of credit. A majority of the money is credit. And guess what? Credit is a promise to pay in the future. So when you break that promise and you can't do it anymore, poof, it's gone. It disappears. The money's no longer there. And when that happens, people write that asset price off. Let's say the asset was $10,000 and it's sitting on your balance sheet and it's listed, it's a promise. Okay. That thing is no longer worth $10,000 and you have to write it down onto your income statement and guess what?

Starting point is 00:30:54 It disappears. It goes away. It doesn't show up on somebody else's income statement or balance sheet. It's gonzo. Okay. That's when you start to see this thing unravel because the defaults increase and as that spending cuts back, it unravels itself. All right, Stig, did you have anything else?

Starting point is 00:31:11 I know we've mentioned this in the previous show. it didn't look like Stighead anything. I know we've mentioned this in the previous show. The thing I'm really paying a lot of attention to is the oil industry with these low oil prices, now below $40. Oil's now at like $39 here on the 24th of August. That is going to be an issue as all these oil companies need a much higher price in order to turn a profit, and a lot of them are highly leveraged.

Starting point is 00:31:39 I look for that to be the spot where you're really starting to see cracks in the dam, moving forward. Like I said in the email that I sent out to all of our subscribers, this can sometimes take numerous quarters to play out. That doesn't necessarily mean that it can't happen in the third quarter of 2015. But what I want people to have an appreciation for is sometimes defaults take a long time to play out because the companies can pull off their retained earnings on their balance sheet and kind of live off of those for a few quarters. They can go into more rounds of funding to keep themselves alive with preferred stock, with bonds, with, you know, credit, whatnot. So be careful. I guess that's what I'm really telling people is be careful, protect your principle and just

Starting point is 00:32:21 be aware that this thing could run longer than you might think before you have kind of a meltdown. But there's something coming and it's coming quickly. Go ahead, Stig. I'm really curious to see the old industry as you were talking about. Well, I'm always curious to see what's happening in the old industry, but you're talking a lot about defaults. Now, if you look at the oil industry right now and especially the major players. We haven't seen any defaults. We have seen a lot of layoffs. We've seen a lot of strategic changes, which is basically just a fancy word of saying we can't spend as much money. So I guess we have to lay up more people. I'm curious to see what will happen, as you're saying, if we can't keep refinancing our debt.

Starting point is 00:33:03 Because if I think back in 2008, I mean, this was also a debt issue, a different debt issue, but it was somewhat similar in terms of you could see that some of these companies couldn't refinance their debt. Okay, so we were going from a situation, as you were saying, Preston, where like we can still at least retain the illusion of liquidity and the illusion of having these assets back and suddenly they're just gone. And what's happening in this situation, this is why President is saying this can happen so fast, is that you'll see a chain reaction. This can go really fast. If you have one company with bad debt and you're saying, well, that wasn't as strong as you thought, then we will look at all the other that issued the same type of debt, the same kind of junk bonds as President is talking about. And I think that's really when you'll see the market tipping, especially all business. Like perhaps we need to adjust the capacity in your oil business.

Starting point is 00:34:04 Perhaps we have that point of time. And that is something like this that can help making the industry more fitting in terms of demand side. Hey, so I want to throw something out there. So this is my personal opinions. And everyone knows that I've been a bear with oil since, what was it, November of last year. Yeah, you have definitely been more red than me because I've been bull over since, I guess. No, and we talked about this on the podcast. I want to say it was early November.

Starting point is 00:34:35 I saw a chart that had the supplying demand of the supply of oil, and it was grossly out of whack. And that for me was a huge selling point. I sold out of all my oil positions back in that time frame. I'm very happy that I ended up doing that. It ended up being a great decision. But it was a little scary at the time because oil was still extremely high. great price. I felt like everything looked good back then, but that's applying demand. On the commodity of oil spooked me. Now, here's my opinion today. At the end of the summer of 2015, I think oil

Starting point is 00:35:09 companies are going to continue to get punished for a while. I think six months to a year, I think they're still going to be getting punished. And here's the reason why. So when you look at oil, particularly for the company, they lock in future prices in order to guarantee certain prices and yields and earnings that they want to get, they've locked in a lot of those future contracts that they're still exercising to this day. So if you went back a year from now, right now in August, let's say back in 2014 of August, if you bought an oils contract for a year later, guess what? You would have been able to buy it at probably $100 a barrel, would you say Stig?

Starting point is 00:35:52 Somewhere around in there? Let's just say $100. Okay, I don't know what it was, but I'd be willing to guess that these companies locked in a price per barrel of $100 a year ago. So as they pulled out of the ground right now and the spot price is $39, guess what? They're not getting $39. They're getting $100 if they locked in that futures contract. That's really important to understand as you think about these oil companies moving forward

Starting point is 00:36:16 is because as those future contracts run dry, which I think is probably going to be happening for a lot of them, and especially come around like the October, November, time frame whenever the oil price started really contracting, I think a lot of these companies lock in their price a year out. Some probably a little more than that, but I'd say a year out's probably pretty conservative to say. So as that time frame dwindles down and you get near around, let's call it Christmas time frame, the price per barrel around Christmas of 2014 was, what would you say, stick around $70? I mean, I'm really trying to pull these off the top of my head. But let's just say it was a lot less than 100. It had really started pulling back, and I see Stigs looking

Starting point is 00:37:01 it up. So the price started pulling back. That's going to be the best case scenario that these companies are going to be able to get on the price per barrel as they move forward. So here's my concern with oil companies. As those oil futures contracts start dwindling down and they're actually having to start to rely on the actual spot price of what it's trading for on the open market. They are going to get punished. That's my opinion. I could be wrong, but my expectation moving forward is that oil companies have darker days ahead, and I think that those darker days could maybe be to the tune of six months to a year. Once you start to see the oil price start to recover, I think that they're still going to have earnings calls where they're continuing to get punished

Starting point is 00:37:47 and that they're still having a difficult time turning a profit. And remember, folks, these things are traded, these companies are traded off of multiples of their earnings in the short term. I don't care what anyone says. They're trade off a multiple of their earnings in the short term. And so if we expect that earnings to continue to contract, which I totally do based on what I just said, I think that they have a lot rougher time moving forward. That doesn't mean that I don't like the price of oil as a commodity play. I like that a lot. In fact, I'm getting ready to make a move on that. I'm watching it very closely. But as far as oil companies, I'm staying away from them for a longer period of time because I think that they have a lot more pullback, if you will,

Starting point is 00:38:28 because of the earnings that I expect them to have a very difficult time to have. That's my opinion. You might be missing a big opportunity because they have pulled back a lot, but I think they even have more to go. But that's my opinion. I'm curious to hear what Stig has to say. Well, President, first of all, I have to say that you're probably smarter than I am because I've been holding on to my oil positions ever since we discussed it.

Starting point is 00:38:52 basically since we launched the podcast, and I actually added to my portfolio in oil sense, too. So I don't know. People should probably listen to you and not to me. Stig, I only talk about the things that I do right. I totally agree. Oh, yeah. I'm, I'll have to repeat myself, but I'm definitely still on oil. And there's a few reasons to this.

Starting point is 00:39:20 I don't think, I think that at some point of time, you're definitely to see a rebound in all prices. But first, I want to talk about a concept of anchoring. And this is actually like a behavioral finance concept that we'll be discussing in one of the later books, but we have written by Daniel Kahneman. Because Preston was saying before, yeah, so the oil price back then was like really high.

Starting point is 00:39:44 You said something like 100 bucks or something like that. Now, I think that's really curious, because I remember I was looking into, as always, oil back in, I think it was back in 2013, and they were talking about like this low oil price of only $100. Like, would it really be possible to have such a low oil price of only $100 for such a long time? And, you know, that makes a lot of sense why you've been saying that, because before then, I think it reached a peak of $147,48 or something back in 2000. and just before the crash.

Starting point is 00:40:20 And that would make a lot of sense. And back then, there was a lot of indications that the economy was really going well. Everybody was saying that. So we have a lot of anchoring terms of what is a high oil price and what is a low oil price. What I'm really looking at is what is the marginal cost for these oil businesses.

Starting point is 00:40:39 Now, the reason why I'm doing that is because we know that the world needs oil. I would recommend everyone to go back to and listen to Mug and Downer, which we did a few episodes ago. He's much smarter when it comes to oil than Prest and I combined probably. Oh, yeah. But what he's talking about is that we need to look at the marginal cost. Since the world needs oil, we can't live without oil.

Starting point is 00:41:03 We can't sustain a very low oil price for a long time because no one can produce at that price. That means no one will supply it. Then it will become more demand. And then the price will definitely increase. And I think that's really interesting. What you see now is that a lot of companies, back then when you had a very stable oil price from like $90 to $100,

Starting point is 00:41:26 you actually had that for several years, which is quite unique to have such a stable oil price within a so much small spread. You will see a lot of producers, especially in the U.S., within shale oil, shell gas, starting to produce a lot of oil, because now it was subtly safe, it was perceived safe, because there was somewhat high and stable oil price. So they were supplying and again, there's a lot of supply. That means that the oil price was going down.

Starting point is 00:41:55 Now, what you also saw was that as always, when you look at the oil industry, you have to put up a lot of cash in terms of capital expenditures. When you're exploring oil, you have huge, huge cash outlays in terms of setting everything up. When you're done with that, you actually have a somewhat a much lower marginal cost for each barrel that you're producing. Now, the total cost for that barrel might still be $90, but it's not $90 once you have set everything up. And that means that you have a lot of these producers. It's still profitable for them to produce at, say, $60 or $70, even though that the total cost per barrel is, say, $80. simply because, you know, these costs are sunk.

Starting point is 00:42:42 We're only looking at what does it cost right now per barrel. I'm sorry, I really came out attention there, Preston, but I guess that's my take on oil. So in summation, Preston is bear. Stick is bold. As always. It's going to be changing here soon, though. You've got to realize I'm only going to be a bear for so long.

Starting point is 00:43:03 And I'll tell you, I'm getting really close to that point where the commodity, and I think it's really important people understand that the commodity versus oil companies for me is two totally different things. When I look at the commodity, I'm starting to get really excited about potentially buying into the commodity. Like I said, I've got major concerns about the oil companies still. Now, here's something that I really liked about Sticks Point is he's talking about what's the cost to pull this stuff out of the ground because I know it's higher than $39 as of 24 August. and I totally agree with him. I think he's exactly right. Here's why I haven't taken, knowing that he's right on that,

Starting point is 00:43:43 this is why I still haven't taken a play on the oil commodity. These companies, and I think you need, you have to understand the context and the history of this. So back in 2008, when the price per barrel got up to $150 a barrel, these oil companies were making profit hand over fist because of the fact that they were selling it for $150, and it was probably at that point in time, I'm costing them, let's call it $60, $50 to pull it out of the ground.

Starting point is 00:44:09 And we're talking globally. I know the Saudis can probably pull it out for $25 or $30 a barrel or whatever the case is. So when you talk about that collective price and let's just call it $50 or $60 and then they're selling it for $150, the margin there is enormous. So what happens when you have a lot of margin? Well, you get a flood of interest. You get a flood of companies that want to start producing oil because they can come in and be profitable even if they pull it out of the ground for $90 a barrel. That's exactly what you saw.

Starting point is 00:44:39 Okay, that's exactly what you saw after the crash up until this point in time. You got a flood of people all pumping oil, all competing in this market because of that former price of $150. So what happens when you have an oversupply of companies and in an under demand, or not much of an underdend, demand has gone up from that point of time, but you've got to look at it in terms of the number of people that entered a market were so much more exponential compared to the increase in demand. When you get that offset, that's what drives the price down. I mean, it's just simple supply and demand. So that's where we're at today. And now what you've got is you've got this death spiral of competition where no one wants to give up their market share. And that's why they're continuing to

Starting point is 00:45:21 produce and continuing to produce because they're going down with the ship. And the last person standing is the one that wins the fight. And then they're going to gobble up and eat all the the companies that weren't able to sustain their price. And that's why I said in the email that I sent out this past weekend, that the companies that are able to produce at the cheapest price that have the safest books or the most conservative books and that didn't highly leverage themselves through all this are going to be the ones that are last standing and they're going to buy up these cheap assets. And then I think you're going to see this supply and demand invert itself going into the next cycle. And that's a really good thing. If you own

Starting point is 00:46:00 the commodity of oil because that means that if they produce it $60 or $70, you're probably going to see the price above that point because of the lack of companies that are now in the field. And that's why I think that I'm going to become an enormous bull, but it's not today. But it's fast approaching. So I just want to throw that out there. I want to say one thing, Preston, you know, the minute you're saying that you pull on oil, you know, I'll be all over it.

Starting point is 00:46:27 that must be a good time doing this for someone like me. But yeah, I think that the commodity is going to be a fantastic play, especially if the Fed does have to devalue its currency, which I expect in the next year. Who knows what's going to happen? That's, I think, all I have for the current market conditions. I felt it was really important to talk about this as things are really developing here. We're really thankful for all the email correspondence that we're getting from people in the audience

Starting point is 00:46:56 It's just giving us amazing handoffs. I can't thank people enough for some of the information that they're sending me. And it's so awesome to be able to take those emails and then talk on the podcast to everybody else so that everyone can benefit from the messages that you guys are sending. And also on the forum as well, everyone on the Warren Buffettforum.com. If you go there, you can talk with people in the community. It's amazing how smart our community is. I feel so blessed to be part of this community.

Starting point is 00:47:23 It's awesome. So, okay, that was a long discussion. That was a whole lot longer than I thought it was going to go. But let's quickly talk about the book that we read here. And I've got a little story to kind of kick this one off. So I'm a fan of Tim Ferriss. I think he has some really unique content. It's really enjoyable to listen to some of the things that he does.

Starting point is 00:47:42 But he brought a guest on his show, and the guy's name was Chris Saka. I'm sure everyone out in Silicon Valley knows who Chris Saka is. He's a billionaire. His net worth is just around $1 billion. And Chris was one of the initial investors. and Twitter, Instagram and Uber. He's one of these guys. It is really kind of more of a creator, I would say.

Starting point is 00:48:00 He owns his own venture capital company, and the name of the venture capital company is really quite funny. It's called Lowercase Capital, which I love. I love that. He seems like he'd have a great sense of humor. But whenever he was talking with, and I want to throw something else out before I go, he's going to be going on the show Shark Tank. So if anyone watches the show Shark Tank and likes that,

Starting point is 00:48:24 he's going to be one of the guest sharks, I think, in this coming season. And he's very outspoken. I think he's going to be a really fun guy to watch. But when Tim Ferriss was interviewing Chris on his show, Chris Sacka made the comment that one of his favorite books that he had ever read was the book, The Magic of Thinking Big, by David Schwartz. So when I heard that, I immediately wrote the book down. I was like, we are going to read this book.

Starting point is 00:48:50 So that's the book that we're going to be talking about, the magic of thinking big. And before we start talking about the book, there was a quick story that I really loved on this interview that Chris had mentioned. Tim Ferriss asked, Chris, he said, what is the one thing that you look for whenever you're interviewing somebody that you're getting ready to invest in their company? And Chris said, well, you know, when I first started off, I was, you know, I had all these different metrics that I was looking at, the finances or whatever. And I think Chris is a really smart mathematical genius. I think I read somewhere where he was in college well before the normal kid graduates. But he said that what's happened to him is he's evolved in his thinking of where he invests. And one of the key factors that he looks at whenever he invests in a company is whenever the people that come in and make the pitch, when they come in and they say, and they speak with this confidence and they say, well, when the company is at $10 million, this is what's going to happen.

Starting point is 00:49:50 And whenever we have, you know, 100 million subscribers, this is what is going to happen next. And when they're talking in that context of this is what's going to happen. For him, that's like one of the most prominent things that sticks out for him to invest because these people will not only have the confidence, but they can see it happening. They know it's going to happen. He said whenever somebody comes in and they say, well, if we get to 10,000 subscribers then, or if we could just raise $100,000, we could do more marketing, for him, that's like, like, hey, get out of the, get out of the room. I love that.

Starting point is 00:50:36 I think that that is so true. And I think it speaks to volumes about the, basically the thesis of this book that we ended up reading, the magic of thinking big. It's all about believing in yourself and not just believing, but knowing. that you're going to do whatever it is that you're setting out to do. And I think that that's a really important thing for people to understand. And it really gets to the heart of why I think Chris Saka has been so successful. And then just, I want to throw one other thing out here if you're not familiar with Chris. The Wall Street Journal said that he's possibly the most influential businessman in America.

Starting point is 00:51:09 Since that time, he's been on Forbes's coveted Midas list amongst many other things. So this guy is definitely an up and rising star on somebody that you're going to want to pay close. us attention to. So with all that said, let's go ahead and talk a little bit more about the book. We're going to kind of breeze through this quickly. If you guys want to get our executive summary of the book, it's about five pages long. Just go to our website, the investors podcast.com, and you can sign up for our mailing list. We do not send any spam. We send out the executive summaries. And from time to time, I might send out my update on where I think the market is and what I think good investments are. So if you guys want to get that, go ahead and sign up on our list.

Starting point is 00:51:46 But let's go throw it over to Stig and he can kind of kick this off. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA

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Starting point is 00:55:27 I need to use that when I'm speaking to my students. He's saying that unsuccessful people, they have this buck called exorcitis, that they're making all these different excuses not to be successful. And one of the most, he had like a few different partners, but the one that spoke most to me, that was the one about excuses. And he was saying that one excuse, that's time. People saying, I don't have time to do this and I don't have time to do that. And he actually kind of turned the table on this one. I really like that. He's saying that, you know, when you wake up in the morning, I can't remember he said Bill Gates, but let's just say Bill Gates. You know, Bill Gates, you know, he's the richest man in the world, he has 24 hours. No, you might be your college students,

Starting point is 00:56:16 but you also have 24 hours. It's completely up to you how you want to spend your time. And if you want something done, why don't you schedule it? Why do you keep talking about doing something? Because nothing will really happen for itself. Why don't you schedule and get it done? What gets planned gets done. And he really talks about this perception of time and how successful, people have a different perspective on time. He's saying that for one thing, you should never, ever work with a person that's saying he has plenty of time.

Starting point is 00:56:51 That's the worst thing you can do. And he's saying if people have plenty of time, then they won't do anything done. If you want something done, give it to a busy man. So I got a comment on this because this is like one of my biggest pet peeves. I cannot stand when people say,

Starting point is 00:57:08 oh, I just don't have enough time. Like, that drives me nuts. I think that's one of the biggest excuses in the world is I don't have enough time. Whenever somebody says that to me, I'm immediately like, it's like an insect repellent for a bug. Like, if somebody's, if I'm around somebody says, oh, yeah, I just don't have enough time or I just didn't have enough time to get around to it. Like, I almost immediately turn them off and, like, do not even want to have a conversation with them. I know that's probably harsh and mean, but it's probably just my own pet peeve. But, yeah, I, you know, I started off in the military and just kind of like crazy hours, not sleeping very much.

Starting point is 00:57:51 And I guess I gained this appreciation for how much I can possibly get done in a day. And so whenever you see people that are just, you know, not really accomplishing too much in a day and then they have the nerve to say that they don't have enough time, it drives me wild. I obviously don't say anything. I just keep my mouth shut. But in my mind, I'm thinking, you have probably more time than any person on the planet. So it's kind of ironic to hear you say that.

Starting point is 00:58:15 But I guess that's me being very negative, and I'm going to stop that. But go ahead, Stig. I see you have something to say. Yeah. So I think this is really a question of priority. Because what people are saying when they're saying, I don't have enough time,

Starting point is 00:58:27 is that they're saying, this is not important enough for me. Yeah. And for me, that's, that's, completely fine. I mean, I think it's okay. People say this is not a priority for me. Now, my pet pee, if anything, is that if something should be a priority of them, and they make the excuse that they don't have enough time, I think that's really hard for thing. Because I think that we all have been sitting with someone, probably over a glass of wine or

Starting point is 00:58:54 a beer, whatever, and there's someone saying, you know, I have this great idea and I think I could become a millionaire if I did this. And so I would just be saying, no, I don't you. you pull a trick on that one, he was saying, ah, I don't have enough time. Now, what I'm hearing is that it's not important enough for me to become a millionaire. And if, I mean, if that's his point of view,

Starting point is 00:59:16 I mean, I think it's completely fine. But that's, but that he should probably just be honest with himself saying, this is why I'm not going to be a millionaire. I'd better what's, I don't know, rerun of match tonight or whatever I'm doing. And I think that's completely fine. I'm not saying that, you know, become a billionaire.

Starting point is 00:59:34 is the best thing it can ever happen to you and that's what you should aim for. I'm just saying that if financial security is something that you're striving for, you need to prioritize that because that will not happen by itself. It's actually just very simple. I like that point because, you know, it's not about making a lot of money, folks. It's not that at all. It's about accomplishing things that you want to accomplish, you know. And so when, and I know we're probably talking to the wrong audience here because, you know,

Starting point is 01:00:03 based on the comments and the emails we get and the forum and all that stuff like our audience are our achievers. I already know that. But I think you guys get our drift and you know what we're talking about is that's such a great point in this book is when you catch yourself. And I know I can be guilty of this at times when you catch yourself saying, I don't have time for that. Are you really don't have time or is it just not a priority? And I think that's a great point that Stigbergs up. My next point is what I call change your thinking, change your life. And the reason why I came up with that title is because that was actually one of the first books, if not the first book I read. It was Brian Tracy who wrote that about somewhat of the same concept. I mean, don't get me wrong. It's not like I'm saying there's anything wrong with this book that David Schwartz wrote. I think it's amazing book. But I also think it's a question of where are you in your personal development when you first stumble across a book that asks you all these essential questions. I mean, how prepared are you?

Starting point is 01:01:03 to look at yourself and think, I might need to change something in my life that's not working as it should. And basically, change your thinking, change your life, which is a great book. And also the magic of thinking book is saying is that you should visualize it. That's the same thing as Preston talked about with Chris Sackett just before. He's saying that you should imagine that it's already happening because when you do that, you come up with different answers, you come up with different solutions to the problem. And one example that is a very neat could be a job interview. I think most of all have been to a job into you.

Starting point is 01:01:40 And this is probably not that fun. But if you visualize yourself being in that job, already having the job, you will also respond as if you were, say, stock analyst, not as someone who would like to become a stock analyst, but someone who's already is a stock analyst and then respond to recording to that. I think that was one of his main points, what I really liked. It's not just a question of thinking. You know, please don't make that misperception before you potentially read the book. It's not like if I just think this, then it will happen.

Starting point is 01:02:12 I mean, you need to do a lot more. You need to take action on this. But everything starts with thinking big first. So I think it's really important for people to have an appreciation for the confidence piece. So you can think it all day long. but if you actually don't believe it and you don't have confidence in what you're thinking, then it's totally worthless. I know that's hard.

Starting point is 01:02:34 And so, like, there's a bunch of books that complement this one. One book would be Think and Grow Rich talks about this. Another book is the power of your subconscious mind talks about this where through repetition, let's say that you want to accomplish something and it's a very lofty goal. And you say, I'm going to accomplish X. And you say, I have confidence. I can accomplish X. but deep down inside you might not necessarily believe that.

Starting point is 01:03:01 I think one of the best ways to go about that is to consciously think about that every day, at least once a day, and tell yourself, I have 100% confidence I'm going to be able to accomplish this. I actually use this technique myself. And when you say that to yourself every single day, every single month, and you keep saying that, you'll be surprised at how you actually start convincing yourself that you can actually accomplish something. And I think the repetition piece is where a lot of people fail to actually exercise this appropriately. So that's something that I think is extremely important and something that I think a lot of people miss that key point of the confidence behind saying, hey, this is going to happen, visualizing it. And then actually putting the action to it, which Stig is talking about, which is a completely different animal. You know, if you're a go-getter, you're the person that's just going to make things happen. and you have that confidence like, hey, there ain't anything that's going to stand in my way from

Starting point is 01:04:00 accomplishing this. Those are the people that are actually the ones that are able to do it. So it takes a little bit of, you're definitely going to change the way you think. But the more you do this and the more you do it on smaller things and gradually build up to bigger things, you're going to be surprised at what you're able to do. The last point I want to highlight is having the right habits. And basically, I think that's something you need to include. I mean, you can't just, as we talked about before, just. think and then things will happen. You also need to take actions on that. And clearly depending on

Starting point is 01:04:32 whatever your goal is, you will take different actions. But one action that they all have in common is the right habits. And that's also something Swartz is talking about, something that we stumble across both with Napoleon Hill, which row thinking grow rich. We also have stumbled across that with Tony Robbins. And basically, you know, this is so simple that you might even think, why would anyone read a book about this, but it's actually just so powerful. So one example could be that if you want to accumulate a lot of wealth, well, what should you do? Well, you should probably start by setting aside something from your paycheck the same amount

Starting point is 01:05:10 every month. I mean, that might just be a simple action to take. Well, if you want to lose weight, well, you should probably start eating healthy in the morning, have that as a healthy habit. But perhaps if you know you're always very tired in the morning, I know I am, make your healthy breakfast the day before. I mean, I know this might seem like silly examples, but we need to follow up think big, or the magic thing and big, by these actions. And he's saying, don't worry about what you can and tates and substitute all those worries with actually doing it. And I think that was something that spoke to me too.

Starting point is 01:05:47 That was definitely a habit I personally have to break. I need to plan everything because what's his plan gets done. So I think it's important. You can think really big. And I think that's the point of this book is go after that thing that you think might be just completely out of your leg. Go after it. Think in that direction.

Starting point is 01:06:05 But for a lot of people, you can think really big and you can also think small at the same time. And you can train yourself. And I think that's what Sting and I are really trying to get at. If you're not comfortable of just thinking about accomplishing something huge in your life, you can still have that goal and simultaneously try to do something small to start bridging that gap, to start training yourself and get in the habit of thinking big and learning how to basically train yourself to think in an appropriate way to accomplish big things.

Starting point is 01:06:35 That's what he's really getting at. There's one final point that I want to highlight that I really liked in this book. And there's a chapter, it's chapter 12. It's called Use Your Goals to Help You Grow. So I use this one all the time. Whenever I come up with a lofty goal, I start telling me. people about it. And the reason I do that is because I put momentum behind myself to actually follow through with that. Because if I don't follow through with it, people are going to be like,

Starting point is 01:07:00 that guy talks about doing things and then he never does it. And so I think that you actually have a big advantage by talking to your family. Maybe it's people that you feel a little bit more comfortable with initially and then going from there, maybe being a little bit more adventurous and talking to people you don't know. And tell people about your goals, these lofty, big ideas. And tell people, big ideas, talk about it. Start making it real because when you start talking about it, people are going to be looking at you to actually follow through. You're going to be much more likely to follow through when you have 10 sets of eyes looking at you saying, hey, I thought you were going to do that thing. I used, I'm telling you, I've used this in the past and boy, does it work.

Starting point is 01:07:41 It definitely keeps you motivated and keeps you moving in the right direction. So that's one thing that I wanted to highlight from the book. Tons more stuff in this book that I think is great for a person who's maybe just starting out. I think this book would be great for somebody who's maybe in college, getting ready to graduate. If you're a person that's accomplishing big things already, you might find a lot of the information to be kind of stuff you already know. I thought it was a good book.

Starting point is 01:08:06 It read kind of fast. I can't really say that there was a lot of stuff in here that I hadn't read in other places in other books. But for the person who maybe not a big book. reader, maybe hasn't read some of the other books that we've talked about. This would be a great book for you to get motivated and start moving in that direction. So we enjoyed it. It was good. Stig, did you have anything you wanted to highlight? Just a general comment about the book? No, well, I think it was a neat book too. I actually think that we've mentioned this when we're

Starting point is 01:08:35 talking about thinking of grow rich, which was basically the first sort of, you know, don't have any excuses. If you want success, it's up to you. And what you see right now in the literature is that you will see a lot of the same points. And that's also the same as my president saying that if you haven't really looked into this, it's definitely worth the read. If you read like four or five different books from Brian Tracy, Chen Robbins, all these guys, I don't think that you should, you don't have to go out and buy it. It's a lot of the same points. Yeah, I wouldn't be surprised if David Schwartz was highly influenced by the book Think and Grow Rich. You could see a lot of parallels in the writing and some of the ideas. But okay, let's go to a question from our audience.

Starting point is 01:09:16 And this week's question comes from Pramu. Hey, Preston, Stig, is Pramu here, and I would just like to start off by thanking you for providing such a valuable podcast worldwide. You know, I'm 17. I'm living in Australia. I think it's great that you guys are able to simplify most concept down so that, you know, anyone with sufficient knowledge could really follow along, which I think is actually brilliant. So my question to you both is that Warren Buffett has accumulated nearly $68 billion

Starting point is 01:09:39 and has returned about 20% in a very long run of investing. Do you guys think that for the next great investor to be called the best they ever was and the Eclipse Buffett, they would need to accumulate a greater sum of cash, aka in total net worth, or return a greater percentage or rate of return in a similar or longer span of time investing? Or do you guys, in fact, believe that it's a mix of the two? And my second part to that question is that do you guys think that there is someone out there right now, like possibly a Ray Dalio, let's say, or have we still not found the next

Starting point is 01:10:12 great investor who will be able to produce such great results over time. Thanks for your time and keep up the good work with the show. All right, Pramu. So, an interesting question. It's something that we've thought about ourselves a little bit. And I definitely think that you're on track there. I think somebody would have to have a similar return yield or dollar threshold. That's the hard part with the inflation piece. You know, if the next person emerges 20 years from now, you've got to account for the inflation. And that's where it's kind of hard for. to compare apples and oranges for a lot of people because they only think in real terms of the dollar. So that's where it might get a little bit tricky. But I think for the most part,

Starting point is 01:10:51 you have, and this is a part that I think a lot of people don't realize, is Carl Icon, I think his return, his annual return is actually higher than Buffett's, but his net worth is significantly lower. And he obviously hasn't been getting that return for the same duration as what Buffett's been getting. So there's guys out there that are very high. very good investors. I think Warren Buffett soaks up a lot of the attention and a lot of these other guys kind of go unnoticed, which I think is a little bit sad because they have some amazing insights and some amazing feedback. But I think a lot of people just whitewash it and only focus on Buffett and think that that's the only way to invest. And I think something interesting

Starting point is 01:11:32 to talk about is if somebody had a net worth of $50,000 versus $20,000, you would say, yeah, there's not all that much of a difference between those two people. And really, that's kind of what you're getting at with these billionaires. I mean, Buffett, he's worth, you said $68 billion today. And Ray Dalio, he's, you know, I want to say $16 billion or something like that. There's other people in there that are in the hunt, and they're not really that much far behind them. And so I think it's really important to really give a lot of those people some attention in the respect that's due because they've accomplished huge things. They've added tremendous value to the world.

Starting point is 01:12:10 It's a good question. I don't necessarily know who the next person is going to be, but a lot of it's going to come down to how well people play this next downturn, because this one's an anomaly, in my opinion. But go ahead, Stig. I don't know what exactly the right equation is to determine who will eclipse Buffett. For one thing, it's a question about return. And it's actually interesting to see that a lot of people are having great long-term results.

Starting point is 01:12:35 I'm thinking the Gentleman Simpsons, which was the old manager at Geico. I think I actually had a similar record to Warren Buffett. So it's really interesting because one thing is like the return you can get. Another thing is how much can you beat the market? I think it will be really hard to compound for anyone 20% over the next, say, five years. I think that would be extremely difficult. There has been times clearly Warren Buffett is somewhat older. So he would have like both times when it was really hard and all the times where it's really easy to compound that.

Starting point is 01:13:09 So I think that's something to look at. But real return is definitely something and also how much it be the market. So for instance, you would have 17 years with Dow basically didn't move it at all from 64 to 81. It's really, real hard to make 20% if the market doesn't move. And then you have all the periods where it compounds with like 10, 15% for everyone, just holding the market. So I think it's really hard to have this on the equation. I think what Warren Buffett has done really well, and that's also why he's made so much money by picking stocks,

Starting point is 01:13:43 is that it's not all about picking stocks. It's also about having the right leadership skill and having the right organizational skill that you can set up something like Berksda Hellerway, that you can compound your own money, but you can also compound other people's money. I think there's a lot to it. And then just a final point about here before we had to talk about the next Warren Buffett

Starting point is 01:14:08 is that Warren Buffett had the huge advantage of not having any money at all. So since he didn't have any money, it would easier for him to compound two. So you might have like the next greatest investor, but he's very unfortunately to have inherits $1 billion. He can't compound the same rate, even though he might be as skilled as Warren Buffett. So it's hard to come up with the equation and there was a long way to, to say I don't know. Yeah, I think that Warren Buffett, I know me personally.

Starting point is 01:14:37 I'm attracted to Warren Buffett more because of his morals and because of him as a person than I am of his ability to pick stocks. And I think that you'd find a lot of value investors that would probably share that opinion. And I think that's one of the reasons why he's looked at with such a strong eye, not just because of his net worth, but because I think a lot of people genuinely respect him for the way that he runs his businesses and just interacts with. the community. And I agree with Stig. I think when you look at Ray Dalio, it's kind of hard to

Starting point is 01:15:08 really understand his approach where Buffett talks about the simplicity of his approach and his shareholder letters and all those kinds of things. So that adds to the allure, if you will, of Warren Buffett. So I don't know if we really answered your question very well. Probably not. But I think that it was fun to talk about it. So hopefully everyone in the audience enjoyed that. But if you have a question and you want to get your question played like Pramu, go to ask the Investors.com and you can record your question there. And if you get your question played on our show, we'll send you a free sign copy of our book, the Warren Buffett accounting book. So we want to thank everybody for joining us this week. If you'd like to receive our executive summary of the magic

Starting point is 01:15:44 of thinking big, make sure you go to our website, Theinvestorspodcast.com and you can sign up for our emailing list, which we send out two emails a month and we do not send any spam. So great to have you on there. Thank you so much to our community for everything you guys do for us. And we look forward to talking with you guys next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. www.com.

Starting point is 01:16:12 Submit your questions or request a guest appearance to The Investors Podcast by going to www. www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network. and must have written approval before commercial application.

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