We Study Billionaires - The Investor’s Podcast Network - TIP 100 : Cold-Calling Our Audience and what we Learned Studying Billionaires for 100 Shows (Investment Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 100 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, hey, hey, how's everybody?

Starting point is 00:00:31 doing out there. 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 Seoul, South Korea. And we are so excited to bring this episode to you because it has been a very long time that we've been doing this. I can't believe we're on episode 100. Stig, any initial comments? No, I think it's crazy. Like, it's almost two years, Preston. Like, what happened to time? When you think about every everything that goes into doing one of these each week, which for anybody that doesn't do this, there's a whole lot of extra work behind the scenes that occurs after each one of these are recorded. So to think we've done that 100 times is a little insane to me.

Starting point is 00:01:14 But we're so thrilled to be on this episode. I think we have some neat stuff to line up. So here's how this episode's going to go. The start of the episode, Stig and I are going to talk about the top two things. And I've got my own list and Stig has his list, that the top two things that we learned from doing 100 episodes of this show, after that, we're going to move into a segment where we talk about the top two things that we've learned in the stock market and just investing in general by doing this show for 100 episodes. And then we're going to just start cold calling different people that shot us an email that said

Starting point is 00:01:46 that they wanted to ask us a question or get on the show. So let's go ahead and just kick this thing off right from the top. And Stig, I'm going to throw it over to you first and say, what was the number one thing that you could say that you learned from doing 100 episodes of this show? I think one of the two things I really want to highlight is that understanding the analysis behind the conclusion, I think that is so important. And I think before we started the podcast, I was really fast to jump to conclusions. Because I guess in the way today, that's how we also read new articles. Like you have a journalist that's saying this is the conclusion. It's somewhat easier to digest. And you would just feel, yeah, that's the takeaway. So it could be stock markets go up and down or the dollar would appreciate or depreciate against the euro. But I never really thought too much about how did they come up with the conclusion. And I think that after speaking to so many brilliant people and hearing their

Starting point is 00:02:48 analysis, I think I learned so much about it. And perhaps the best example I can come up with is that we talk with four people about oil. Actually, we talk with more people that have four interviews that really stands out. So we had one with Raoul Powell, and he was bear on oil. And he said that his analysis was that it was because the dollar would appreciate. Then we have Gail Twerberg, he said that because of the emerging markets, couldn't afford a higher oil price. That was why she might look at a new normal, or at least she was definitely not bull on oil. And then just you follow, look more at the debt situation in the oil industry. And luckily, we also had someone that said something else, and that was Morgan Downey, the author of All One of One.

Starting point is 00:03:33 He was bull on all because he looked at the gross prospect for global demand, the production costs, together with the global old reserves. So what I'm really going to say here is that you shouldn't read or you shouldn't listen to one of these interviews and say, this is a smart guy. He says that all is going up or this is smart women. She says all is going down. What is the analysis behind it and do you agree with that analysis? And that's all up to you. So I think that was probably one of the most important thing I've learned. I'm curious to hear, Preston, what your take is. So I like your point because what I find myself doing just in like normal interactions with people during the day after you've done 100 episodes

Starting point is 00:04:16 and you talked like all these brilliant people and you read all these books and like I see myself in just the normal engagement just constantly saying, well, this is this is maybe what is and I could be definitely wrong. Like there's a strong chance. I'm probably wrong. And just like I see myself acting that way, which is totally different than my personality whenever I first started doing the show simply because of the point that Stig said because you just, you've been proven wrong so many times that you almost feel like there's

Starting point is 00:04:51 a guarantee that there's something that I'm missing. And I think that I can't put a value on that, but having gone through. this in such a public forum in such a public way. You really have to eat your crow so much that I totally agree with you. I didn't have that as one of my top two, but after you said it, Stig, yeah, I totally agree with you. That one's huge. It's not natural for you to do as a human being because you keep asking why. And in a way, asking why is sort of offensive in many ways when the people are saying XYZ, but you should actually be asking why. What is the analysis behind that conclusion.

Starting point is 00:05:28 And what you're saying, it's so like, you know, 100 episodes ago, if I was saying something to somebody, it was because I wanted them to agree with me. But I think it was maybe more ego-based where I was wanting them to agree with me because they would make me feel like I was smarter because I knew something more than the common person. And so it was more of like this convincing role where I was trying to convince them of my point, where now it's the exact opposite where I'm like trying to say, well, you know, this is my opinion, but there's a really good chance.

Starting point is 00:05:56 I'm wrong and it's not right just because of all that experience that we both went through with all this. So I love that. I think that's a great point. Okay, so here's my first one. And I wrote this down. And you know, we were having dinner in Omaha with Jillian Zoe Siegel who wrote the book Getting There with Warren Buffett.

Starting point is 00:06:16 And her and I were having a quick conversation. And just to throw this out there, Gillian was really instrumental in getting us the interview with Jesse Itzler, who's the billionaire founder, M. a basketball team owner from the Atlanta Hawks. And, you know, Jillian said to me in just a real short comment, she said, you know, it's all about your connections in building that connection with other people. And I could tell she just really sincerely meant it. And, you know, the thing that I really got out of this show for the last hundred episodes is that it really is. It's all about this connection that you build with all these other people and not just taking from those

Starting point is 00:06:58 people, but more importantly giving to these other people and giving them a platform to present whatever their idea is, giving to our audience, giving everything that we have given on this show, whether that's through information, knowledge, or whatever, has come back to us in some way or some fashion. And it's been just a total win-win. And that connection that we've developed with our audience with our guests that have come on the show. It's something that I really can't even put into words, but it's something that I've learned to really have a deep appreciation for and to always, I guess, really try to find that win-win situation in anything that I'm doing. Because when it's not this win-win where I'm giving away as much as what I'm receiving,

Starting point is 00:07:41 it's just, it's out of balance and it just doesn't work right. And I don't really know how else to describe that other than that's something that has been one of the most profound things that I've learned through doing 100 shows. And I think it's a really great point, Preston, and this is really a new dimension we have to our show that we were meeting people in real life. That was something that we didn't do the first year. And I think that has really kept me motivated in doing it, because you can actually see the impact, like in people's faces.

Starting point is 00:08:11 I mean, you might get downloads or YouTube views or whatnot, but it's completely different actually meeting people. I kind of have a piggyback, and I hope that this isn't taken as a, as a lot of, a second because it kind of has to go with the same thing. But I was watching a real vision video interview last week. And they brought on this gentleman, his name is Don Yeager. And he is like the head editor for, you know, these sports magazines. He's interviewed some of the most famous sports coaches of all time. And this gentleman said something that totally relates to this connectedness with the people that you're surrounding yourself

Starting point is 00:08:47 with. And I just love this quote. He said, look at the time that you spend with the top five people in your life. If you had to say, you know, Stig would be the one person that I spend a lot of time either working with on email or on video, recording or whatever. So he'd be one of my top five people. And then, you know, as I would go around, I'd say this other person, my wife is obviously another one of the top five people. And you'd name five people that consume your most time out of your day.

Starting point is 00:09:17 And then you've got to ask yourself this hard question. is that person, or each, as you evaluate each of those five people, are each one of those people taking me higher and taking me to the place that I want to go? Or are those people a drag on my goals and my aspirations? He said, then once you identify that and you look at those five people and that connection is what I'm really getting at with these top five people. And man, I'll tell you, that was really profound for me, listening to that interview. and just hearing that because it's so true. And you know what? I felt really blessed whenever I thought about that audit in my own life because all the

Starting point is 00:09:58 people that I've been able to surround myself with this through this podcast are just absolutely just having a profound impact on my life. And so for the listener out there, I would challenge you do this audit and think of it in those terms and then act on it and just, you know, take it in the direction you want to you want it to go. So that's, that's my first point. Perfect. I think my second point is actually related to this. This is a cultural thing because whenever Preston and I started the podcast, we didn't have like a nice business plan or anything like that. It was more, I think people would be shocked of how little structure we had whenever we started. And it was more like, we both like Warren Buffett.

Starting point is 00:10:42 Let's talk about him. I mean, we never even. came up with the idea, let's study billionaires or reading books or anything like that. But I think what it had turned into, and this is probably what I have enjoyed the most recently, is that I realize that I'm not alone. And I don't know if that sounds pathetic or sad or whatever you want to say, but it's just down to me. In Omaha and also the TIP event I held in Denmark not long ago, how many people that either work or have been working in the financial industry, like everyone was just sick, I'm tired of it.

Starting point is 00:11:18 And they just feel, yes, I am not the weirdo here. And this is actually kind of fun because when you're working in the financial industry, you kind of know that everybody hates it, but like no one speaks too much about it. And even though them they do, I mean, they're still going on and doing the same job from, you know, 60 hours a week anyway. So you kind of feel like there's not consistency between like the action and the words. But I just felt like I was kindred spirits because apparently it was okay to feel that it was okay to make money, it was okay to be a capitalist,

Starting point is 00:11:49 and it was okay to be interested in stocks, but it was not okay to mistreat other people. And I've really felt a strong connection, again, to your point, Preston, the strong connection with other people that felt the same way. I'm not saying that we're starting a movement or anything against that. I can just feel that it just seems to me like we have a niche within the financial industry that wants the same thing as the financial industry, but just doing it differently. So the second point that I have, Stig, comes down to just one word and that's balance.

Starting point is 00:12:22 So we studied all these different billionaires. And, you know, I was watching a video with Jack Ma, just this last episode that we did. And I was, we were, you know, I don't know if anyone, if you go to our show notes, we put up different videos that we found, that we find on YouTube or whatever of like an hour long interview with the person that we're studying. I find them very useful. A lot of the times I go back and watch all these videos to learn even more. And so I was watching this interview with Jack Ma. And the thing that I love about Jack is just how candid he is and how honesty is. And so the interviewer asked Jack, he said, you know, what have you done wrong?

Starting point is 00:13:01 Like, what mistakes have you made? And he said, well, man, I've made tons. He said, but the main one is that I've just really neglected my family, my wife, he's like, I mean, it's just a huge mistake. He said, if I had to do this all over again, I definitely wouldn't go down the same path that I went down. And I mean, you're hearing this coming from a guy who has a net worth over $30 billion. And he says, my wife tells me all the time, I'm not married to her. I'm married to Alibaba.

Starting point is 00:13:29 And just hearing that, it emphasized the point that I've been noticing a lot, but maybe not talking about a lot on the show, is just how out of balance so many of these different billionaires that we study are with their lives and what they're actually focused on and maybe what's important and what's not important in their lives. Because for every decision that these guys are making, they're making a conscious decision to not do other things. And in almost all these cases with some of these guys and some of these women that are making these decisions, just because they have enormous success in one area, call it financial

Starting point is 00:14:07 success, that might mean that they're a absolute total failure in other areas. of their life because their time is being so consumed in this other area and this other location that they're focusing their attention that there's this total neglect in another area. And I think it's really important for people to realize that. And so it really comes down to what Tony Shea talked about in his book, which was, you've got to ask yourself why. So if you want to be polarized, and that's how I'd like to refer to it, let's say you

Starting point is 00:14:40 really want just enormous financial success at like epic levels, okay, like multi-billions or whatever you come up with, you know, you have to ask yourself why. Why is it that you want that? Okay. And then after you answer that, why, you might even want to ask yourself why a couple more times and get to the root of what it is that's driving you in whatever direction it is, whether it's financial or whatever. And so you have to ask yourself, okay, well, if I'm going in that direction, and that's what I really want, what is ultimately going to be. And, you're going to to be the price or the sacrifice that I'm going to have to give up in order to have that thing that I really desire or that I really want. And then you have to ask yourself,

Starting point is 00:15:20 is that worth it? And that's something that I totally did not know 100 episodes ago, that after you read all these biographies of all these billionaires. I mean, it really starts to stand out. At least it did for me. And I really wish that we would have talked about that more on the show. But I find that to be such an incredible learning point after studying all these people that you've got to have balance. So I want to finish this off with a quote, that comment off with a quote from Warren Buffett. And somebody asked Warren Buffett, he says, what do you measure, what would you say is success at your age? Because you've pretty much accomplished everything. So what would you say is success at this point? And he's, how old is he? He's like 86 or something

Starting point is 00:16:06 like that. He's around that age. He's turning 86 soon, yeah. And he said, you know, the success at my age is that the people that you want to love you actually do love you on their own accord. That's how I would major success at my age. And, you know, for me, that quote is really profound. And it really kind of comes to this point of balance and really kind of doing that audit on yourself of what's really important. So that's my second point. Wow, I'm really happy you said that person because one thing that I thought a lot about the previous 100 emails is how much to focus on stock investing because that was really how we started this. And I don't want to say that it hasn't been interesting learning a lot more about stocks. But I think the biggest change for me has been reading all these books and all the life experience.

Starting point is 00:16:58 I mean, that has really done the trick for me. Yes, I know how to read balance sheets better, but that's probably not going to change my life. Yeah, it's funny. You know, I didn't even think about that as I was making this list. But what I was really learning really wasn't anything about like stock investing. I was really learning a lot more about like myself and what's important in my life. And you know, what's funny though is I think that some of these lessons as I then apply them to investing as far as balance and thinking of things in terms of, you know, balancing out. and just you can kind of equate a lot of this stuff back to investing.

Starting point is 00:17:38 Like your top five. What are your top five people in your life? Well, what are your top five picks that are going to have a huge impact? And where are the risks located? And I mean, the correlation between this stuff is amazing to me. But all right, let's move on to the next one because we want to get to the phone calls. All right. So the top two things that the market has taught us in the last 100 episodes.

Starting point is 00:18:01 And just for some context, we started recording, I want to say we started recording in like November 2014, October 2014, something like that. Yeah, I think what I learned about the markets is the significance of macroeconomics and the insignificance of macroeconomics at the same time. So please let me elaborate because this is, that must seem like a bit odd. But to me, macroeconomics has always been very complex. I mean, even as a grad students, I like micro a lot more, it just made more sense to me. Now, after 100 episodes, and we have slowed to transition into more macro for one reason or the other, I feel like an entire new world is really open for me. And now, I do want to start up by saying that I still don't look too much at macro when I pick stocks.

Starting point is 00:18:53 So I didn't do that when I started that. Don't do that today. and if you're only looking at micro, I think you'll probably still do well. Now, I think that you might want to look at macro as something that can enhance your ability to cope with the micro piece because you need to remember

Starting point is 00:19:14 that micro still operates within a macro framework. And I don't think I paid too much attention to that before. So micro really has to do with everything about the firm And macro, that's really the surrounding. So we talked about inflation, we talked about debt levels, we talked about interest levels. But remember, the company still has to work within that. So let me give you a simpler example. When you estimate the normalized earnings, you need to have a good understanding of the business cycles.

Starting point is 00:19:45 It's really hard to understand business cycles unless you want to include the macroeconomic piece of it. So what should you do? I mean, what makes more sense to you? It's not for me to say that micro is better than macro. You just need to think about if you're in the same position as most other people and you might be confused about all this macro stuff, if you are still interested in individual stock picking, and I can feel that most people that's still most interested in individual stock picking, focus the predominant amount of time on the micro piece. But make sure to have the macro piece in the bag of your head. Make sure that you understand. the cycles that you understand the concept of debt levels. You don't need to help me degree of that, but if you have a good sense of the framework, I think you will understand the business a lot better that you analyze. Curse to hear, Preston, if you want to piggyback on that. I know that you're bigger on macro than I am. Yeah, so I'll tell you, so that was my approach absolutely 100 episodes ago. I definitely kind of look at things a little bit differently after everything that I've read, all the people we've interviewed. Let me explain it like this. So

Starting point is 00:20:52 you know, I was a former attack helicopter pilot. And whenever you're flying a helicopter and you're supporting somebody on the ground who comes into contact and they want you to shoot the helicopter, that's usually not a easy process because your sight picture of what you're seeing is completely different than the guy who's on the ground who might be getting shot at. So how this handoff occurs, if somebody wants you to shoot something, in an attack helicopter, if you said, oh, I see a red building in front of me. Well, from the helicopter's vantage point, it might see 100 red buildings out there. Okay. So my site picture is really big and really

Starting point is 00:21:36 robust whenever I look across the landscape. But the guy on the ground, his landscape is really kind of small and very superficial at what he can see. So when you're conducting that hand off that discussion from the ground to the sky of where the target is and where you need the fly and where you need to go, it starts off with the big picture and then it slowly works its way down to the small picture. So it might sound something like, hey, there's a big river and it runs east to west. Do you see that big river? And the answer would be, yes, I see that. And the guy on the ground would say, I'm to the south of that river. And you say, oh, okay. Now, You see the three big open fields with trees that run north to south and you would describe that and you would do that handoff.

Starting point is 00:22:27 You say, I'm in the middle field and then you'd slowly work in. You see the center mass of the field. I'm on the east side of that field. And so as he's talking that big picture to small picture, you can slowly gain this understanding of what's happening. I see financial markets the same way as that discussion. I really think that whenever I look at the, let me just do the same thing from a financial standpoint. Let's talk about the U.S. stock market specifically, not the bond market, not the commodity market. Let's talk about the stock market in the United States because over in Europe, it's different than in Japan, which is different than China, which is different than everywhere else.

Starting point is 00:23:06 But let's hone in on the United States. A price to earnings ratio in the United States on the U.S. stock market today in August of 2016, a Schiller P's around a 26, 27, something like that. So that means I'm probably going to get around a three and a half to four percent return if I buy the market at the current price. So then I would look at that and I would say, okay, well, that's pretty expensive. I'm not getting a lot of yield there, three and a half percent for my money. And you've got to realize, I own a business.

Starting point is 00:23:36 So if I'm going to take that money and invest in maybe a new product or a new thing that I want to create inside my business, do I think I can do better than a three and a half percent return? Yeah, I do. So why in the world would I tie my money up in U.S. stocks, just that specific market? Remember, it's all relative to what I'm comparing it to when I could maybe go and invest my money and get 5%, 10%, 15%, by investing it back into an asset that would be organic to my own company that I might create. Okay. That's just one, that's just one comparison. So then I walk the dog further. Well, then I could invest in a 10-year bond and get, you know, one point whatever percent return right now. And who wants that? Well, I don't want that. I don't want to invest in nothing return. Okay, that's how I see. I see 1% as a nothing return relative to what I could do with that money. So as I'm walking the dog and I'm thinking about a big picture down the small picture, I start with the macro landscape. What's my return across the entire?

Starting point is 00:24:35 entire market. Now, could I go find an individual company in there that might give me a 7% return, 8% return? Yes, I could. Could there be risk in there because I don't know the underlying details of it? Absolutely. So I know that was a really long response and it's a lot longer than what I wanted to give, but I think it's important for me to lay it out the thought process of how I start really big with the macro landscape. What's the big return of the overall market? Let me narrow it down into an individual pick and then have a deep appreciation for the idea that central banks and the amount of lending that's created into the entire macroeconomic ecosystem of all this money that's out there contracts and expands. That is a fact. And if you think that we're at a time as debt and credit,

Starting point is 00:25:24 is it a max and it's starting to contract, your red flag needs to go up. From a max, macro standpoint. That's how I think about things before I go and I just invest in a small cap company that might be undervalued. I'm concerned about those bigger waves, those bigger movements. Okay. So that's, I agree with Stig, but I guess I'm definitely more influenced by the macro landscape and the overall valuations of the market just because I think credit plays such a huge part at this. And I think if credit's contracting, it's going to have a big impact in a major way. I'm really happy they were saying that, Preston, because I remember whenever we started the podcast, I've got so many emails saying,

Starting point is 00:26:03 you and Preston always seem to agree. Why is that? And lately, I haven't got so many of those. So perhaps we are actually providing it more interesting show. And I think is especially on the metro side that I don't, I don't want to say I disagree with you. I just think I'm putting less weight on it. Like I see the same reflexes as you're doing.

Starting point is 00:26:23 Yeah, it's really a question about weight. Yeah. Okay. So my first point that I have for this one is, I think what the markets taught me is that we're in completely uncharted and unprecedented times. I didn't necessarily knew that 100 episodes ago. And I mean, this is going to sound really bold because I definitely think that markets are free and open in the sense that anyone can go and buy things. But I think that they're being heavily, and I mean heavily influenced by government.

Starting point is 00:27:00 entities at this point, a lot more than they ever have been in the past, strictly speaking from a central bank standpoint. When you look at the treasuries and the central banks of all these countries around the world, I think that you see enormous amounts of buying specifically on the open market from government entities, buying up public companies and buying up public and private debt more than you've ever seen in the last hundred years. And I think that that is grossly manipulating the way a lot of people see things right now, a lot more than you've ever seen before. And I think that whenever you look at all these billionaires and people that have really kind of struggled over the last, really the last six months, you've seen a lot of people

Starting point is 00:27:51 struggling with what's going on. And that's whenever you see in the central banks really kind it completely changed course. They're not even making any sense. We have unemployment lower than we've ever seen it. Like, I don't even know, you know, I don't know what it'd be, but I'd be willing to guess decades that you've never seen unemployment, specifically here in the United States as low as you've seen it. And yet, the central banks continue to keep interest rates at nothing. And what I think you're seeing at this point is, in order for capitalism to work, you have to have a boom and a bust. That is a core fundamental element of capitalism. If you don't allow the bust to ever occur or you're as a government manipulating that to the point where you are just creating enormous bubbles and support for deadbeat companies to exist, I think you're starting to step away from the idea of a free and open market.

Starting point is 00:28:50 and you are destroying the premise of what makes capitalism work. And so that's something that I've learned in the last hundred episodes that I didn't nearly have the appreciation for that I have today. Yeah, Preston, and it's definitely going to be interesting to see where we are around episode 200. I can't wait to see that. And it really resonates with my second point here, what I learned about the market. I think what I really learned is patience.

Starting point is 00:29:20 And I think this is really interesting because in a way we probably have been following the stock market more intensely than we used to because we are doing a weekly episode and we get a ton of email traffic and everyone is asking about the stock market. And I remember I was quite worried about that whenever I started because I thought back at the first time I bought a stock and I was checking the stock price like 16 times that day or whatnot. So I was just thinking if we're doing this person, I will be checking. You know, stock prices all the time and I'll get so many inputs and I probably be overtraining. And I think if anything, all the people that we talk to and all the, anyone from the audience who is contacting me, I don't know how you feel about it. But I've just think that really shows how patient you need to be because you'll get an email saying it's going up. You'll get an email next day to say it's going down. You really get really humble in terms of your own ability to predict what's going to happen.

Starting point is 00:30:25 So I would like to call it patience and not analysis paralysis, but you really feel like I can't act on all these impulses. I need to be very specific of what I want to do. And I think the first time we really talked about the overvalier stockma was back in February 15. and I think the doll was probably like 182 and what is it today like 185 or something I mean it's the 300 points that could just move in a day right it's literally just been flat well it has been volatile but you wouldn't have made any money if you just invest in then so I think that's definitely something learned and in continuation of that

Starting point is 00:31:05 I see a lot of investors that come to me and they realize how important it is to invest and they realize it's important it is to take care of their own financial situation and they know I'm kind of familiar with the concept of opportunity cost

Starting point is 00:31:23 but what that transitioned into is that I need to be 100% invested now and I just want to warn everyone about that approach because I really applaud everyone out there saying I need to do something about

Starting point is 00:31:40 personal finances I want to grow in portfolio. And the thought about having money in your portfolio that you're not investing and you're thinking, I'm losing so much because they're not investing in stocks right now, I think that's probably not a good strategy. So I think I'll flip it and say that now is a good time to start investing, at least investing in the sense that if you look at the stock market right now, if you follow our advice saying it is overvalued and you're still psyched about the stock market.

Starting point is 00:32:15 This is great because you can learn so much about the stock market before you potential lose a lot of money. I mean, if this is the first episode that you're listening to and you're saying, so sticking press and keep saying that you shouldn't invest in the stock market and you think, hmm, I should probably just revisit that in like four years whenever I hear someone saying now it's a good time, that's probably the best decision. not to come back to the stock market, but just stay out of it. If you're not excited about the stock market and learning about the stock market

Starting point is 00:32:45 when it's overvalued, you probably won't have the patience and the passion for stocks so you can actually profit when the stocks are trading lower, at least not in the long run. So I think that was my second point I learned about the markets, the previous 100 episodes, patience. So the reason you saw me smirking and laughing back here is because you literally were reading like my exact notes for my second one. So this is what I had written. This is what I had written for number two. And we didn't talk about what our two things were before we started recording. So this is just completely off the cuff. I wrote patience isn't something you can teach someone or talk about.

Starting point is 00:33:24 It's something you need to experience firsthand to have an appreciation for. And so then he's, he talked about February 2015. I had written that as my note in the next line about how I started moving into a pretty strong cash position in February of 2015, which is what Stig just said. And, you know, from that point in time till now, which has been about a year and a half, since I moved into that strong cash position, the market has gone up 1% in that time. In that year and a half, the market has gone up. It's at like 18.5 now in the summer in August 14th of 2016. And I moved into cash when it was around 18,200, 200, somewhere around there is whenever I moved to a pretty heavy cash position.

Starting point is 00:34:15 And here's where this comes to this main point of what we're talking about, is the patience part of it. It has been excruciating for me to sit on my hands for that long. It really has been. This has been brutal. But whenever I look back at the decision, the decision was actually so far, and I have, I think I need to really emphasize that point so far has been a fantastic decision for me. The dollar has gotten how much stronger between now and a year and a half ago? So relative to every other currency, man, I'm killing it.

Starting point is 00:34:48 I'm absolutely murdering it being in the dollar. The other thing that's been nice is, you know how much risk I put up in order to have that return or just basically protect my principal? I had no risk, really. There was no downside potential at all with that while I sat in that position. Whereas if I was in stocks, a lot of people out there would argue there's a 20 to 40% downside risk sitting in that market right now with where it currently sits. So even though that didn't happen, that was the risk you were basically putting up

Starting point is 00:35:23 against it in order for the upside versus downside during that period of time. So I'm very happy with what's happened. I'm just, I guess I'm very happy with the performance that I've had, even though it's been like nothing to the risk. But at the same time, it's been really, really hard. And it's been hard because of exactly what Stig's talking about is because you pretty much talk to anybody out there. If you're not doing something, they're looking at you like you're crazy. They're saying, well, you got to do something. You got to do something.

Starting point is 00:35:52 And you know what? I love Charlie Munger's quote, don't just do something. stand there. And what a profound statement. And I think he really emphasizes that point when you get into overvalued equity markets when you're at the top of a credit cycle. That's when you see Howard Marks, billionaire Howard Marks and these guys really adjust their sizing of their portfolio allocation to protect their downside risk and protect their principle. But you know what? You have to have patience and it's something that has just been excruciating for me to experience. But absolutely the number two thing that I've learned.

Starting point is 00:36:30 Preston, also think it's counterintuitive for us because we identify ourselves as stock investors. And if you would identify yourself as a runner and you're saying, yeah, you know, I'm a runner, but I, you know, don't run. And people would be like, yeah, he's just, you know, making up excuses or whatnot. But now you're actually saying to yourself, I'm a stock investor, but I don't invest in stocks. That's completely fine. That's a part of being a real stock investor that you always look the opportunity costs that we also tossed upon before. 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.

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Starting point is 00:40:54 trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. You know, if you would ask me last fall, if I thought it was going to go down in flames, I would have kind of looked at you like, yeah, I think maybe it might. I was really kind of leaning in that direction. I don't know what I would have said the odds were, but I would have said there maybe 50% or higher. And that didn't happen. So I was very surprised.

Starting point is 00:41:29 And I think that, you know, I see it from the same vantage point right now. But who knows? It goes back to this patience thing, man. You just got to put it out there. You got to know that it's expensive. You got to just go back to your basics. What's the yield? The yield's like nothing.

Starting point is 00:41:44 The upside's definitely not worth the potential downside for me. I'm just going to continue to sit here and be patient and look like a boring lameo is my approach. So, all right, let's do this stick. Let's start calling some folks. Okay, so we're going to do this kind of live. You know, we might get a, we might not get an answer from some folks. Who knows what's going to happen here. Okay, so the first person we're going to try here is Knit and Sharma.

Starting point is 00:42:17 Is this Nick? This is Nick. Hey, guys, how are you? What's going on? Awesome. Having you on. Oh, my God. I can't believe I'm here.

Starting point is 00:42:27 Awesome. Good to see you both. All right, man. It's a fire away. All right. So good to see you both finally, right? I'm so excited. And let me start by thanking you guys, which I do quite often on Twitter.

Starting point is 00:42:41 So what a fantastic podcast. I am so amazed that I have learned so much in the last one year. And being a rookie in investment in world, This is amazing. I love listening to you guys and how much I appreciate that you guys have contributed to the community of rookie investment. And of course, experts also. I was just reading your executive summary for Alibaba and it was fantastic. I can't wait to buy the book and start reading.

Starting point is 00:43:12 Alibaba is personally close to me because that was my first investment last year. Nice. Yeah. And I remember when it went down in 2015 December, and I keep listening your thoughts, value investment. Keep, keep, if you believe in the company, if they're being right, keep holding it. And I'm really surprised and happy with the results they have in the last one week. So, yeah. So here's the thing that I didn't realize about Alibaba.

Starting point is 00:43:40 So I went after reading a book, I went and started playing around on the site. And the thing that I found kind of amazing, and I kind of picked up on this from listening. to some of the video interviews with Jack Ma, where he's talking about, you know, this isn't like Amazon. This is, this is me trying to open up a world market. If you want to buy something in China and have it shipped to America and then upsell or mark up the price of something, you can do it. So I went on to their site and I'm looking through, I mean, right there on their top page,

Starting point is 00:44:09 there was cell phone cases. And they were selling like nice cell phone cases for like, I don't know, it was like 15. No, it was more than that. It was like, maybe 70, 80 cents for like one cell phone case, but you had to buy them in a lot of 100. Yeah. So it was almost like if you want to sell Chinese products in the U.S. or anywhere in the world, you can do it, but more on a micro small business scale opposed to like big Walmart. Like that's how you think of like doing business with China is you got to buy, you know, 50,000 lot of something in order to do business over there. But no, Jack Moss truly trying to open it up through the Alibaba site for small business to small business internationally.

Starting point is 00:44:54 That's what I didn't really get until I played around on the site. I totally agree with you. And let me tell you my personal experience with Alibaba. It's not mine, but my wife. And I was reading the summary and I read about the company and the vision of Alibaba was to support small businesses and bring small businesses together in China through e-commerce. And that was a fantastic, fantastic vision rather than focusing on big things. things like Amazon or Walmart or other companies. And Alibaba haven't just changed small businesses in China.

Starting point is 00:45:26 My wife, she started a small business from home. She's a software analyst, but on her part-time, she makes some cosmetics products. And at Christmas time, she wanted to buy a gift back for her consumers. And she went to Alibaba. And we were a little skeptic, even though the company is so big, you're not going to believe this. We contacted people. the vendors or the suppliers. And we got such an amazing response of the best customer service.

Starting point is 00:45:54 They were giving us free samples. And the product was delivered within two weeks. And it was more than a perfect product. So we were just amazed. The Alibaba is also helping many small entrepreneurs or businessmen in around the world. Long story short, I'm just going to end with this. I remember reading an article. I don't remember the whole thing.

Starting point is 00:46:16 But this guy in U.S., I think in Texas or somewhere, started a million dollar business from a drone business, making his own drones. And all he did is bought paths from Alibaba, put them together like we all do with Legos, and he started his own business. It's pretty amazing. Again, I didn't want it to talk about Alibaba.

Starting point is 00:46:36 I was just reading it, and I was just amazed with that. So thank you for that podcast. I would actually like to talk a bit more about Alibaba. Sorry about that name. Perhaps we can transition to other companies as well. But I think one thing I really liked about the book was how he was aiming to build trust, how important trust was, especially in a country like China, where I don't want to offend anyone when I says that China is probably known for a lot of knockoffs.

Starting point is 00:47:02 But Jack knows this and he's saying that he's actually losing five of that product called the Handbag whenever people are buying something that's fake. So he's actually rotating his personnel around different departments. they won't get too connected to people. He's actually having a former cop running the operations to be sure that it's trust all the way through, that no one has been exploited. I was curious to hear like a first-hand experience from you. How do you experience the trust not only out of Babel, also companies general in Asia,

Starting point is 00:47:36 and how do they build trust? And what are the warning signals that you see? A really good question, stick. So I'm born and raised in India, Delhi. being an Asian and Indian and Chinese markets are really, really different. But when it comes to the small businesses and street businesses, it's pretty similar. So I'm always being skeptic if I buy something in my own country. The trust thing, I think when my wife and I was looking to buy something from Alibaba,

Starting point is 00:48:06 so the brand name definitely came up. And even though he got a really bad, the brand got really bad media attention, attention and reading on your executive summary, Alibaba used to have great connection with Chinese government and the relationship went bad. And in China or India, when your relationship goes bad with the government, that's a pretty big deal. This is not like US. You know, it's a pretty big deal because it's a lot of bureaucracy. But I think his image as an individual, like Elon Musk for Tesla, that speaks a lot. Even Jeff Bezo doesn't have that for Amazon. Amazon, up that everybody in U.S. knows what Amazon is, but not many people know what Jap is. Go ahead.

Starting point is 00:48:49 No, no, no. So I agree with you. And I think that that might be one of the main reasons why Jack Ma is maybe able to get away with this maybe bad blood with the government because of the fact that he has become such a huge international business superstar at this point. Alibaba's become such a big name that I think if the Chinese government starts getting too heavily involved with it, everyone's going to call it for what it is. is. And I think that he kind of got so big that it doesn't even matter at this point is kind of my opinion. So after I went to the site, I looked at the stock ticker, obviously, and kind of like looked at the numbers and the P.E's like at 100. But I think this is important for people to understand,

Starting point is 00:49:31 even though Stig and I are like hardcore value investors, we also understand growth in the potential there. So whenever I'm looking at the Chinese market, like I think that that site's going to be mammoth. You give it another five, 10 years, that thing's going to be huge. Like much bigger than where it is right now. And I think that Jack has a vision, an international vision, much more so than maybe

Starting point is 00:49:55 even some U.S. big name companies. And I think he really knows how to go after that cultural difference better than U.S. companies can. So when you look at it from that vantage point, I think that it's a company that I'd be very

Starting point is 00:50:11 interested in potentially buying after the credit kind of contracts whenever that. I mean, who knows when this is going to happen. But I think whenever you see maybe a real tight contraction, that might be a company I'm very interested in looking at and maybe taking a closer look at down the road. But just not today just because of, I think, where the macro setting is. And Stig and I had a conversation on that before we gave you a call. But kind of where the macro setting is right now, it's just not something I'm ready to step into. But I'm watching that company really close. I think it's very very promising in the long run. Yeah, I agree. All right. So throw us your question real fast,

Starting point is 00:50:48 then we've got to, unfortunately, we've got to call someone else. Perfect. I know I emailed you earlier. I'm going to reduce to two questions because I know you guys are busy. So let's start with a value question. I like to title this as a value question. So why didn't both of you tell me your one breakthrough moment in your life? And I know there are many of those, right? But one of them put you at the path where you are right now regarding investor podcast or regarding what you guys do, successful, right? So what was that one thing? And let me give an example for me. I just became a father and I'm pretty sure you know that. I've been posting my daughter's pictures on Twitter. And that's my motivation to be a better person and be successful. So I'd like to know your

Starting point is 00:51:37 breakthrough moment. I don't know if this would be a breakthrough moment for me. But what I would say that really helped me kind of achieve at a different trajectory was a simple idea. The simple idea was this. If I want to do anything in this world, you name it. You want to be a great stock investor. You want to be a great, you know, basketball player, whatever it is. Find the number one person in the world at that thing and just study them relentlessly. Get every single book you can on the person.

Starting point is 00:52:11 person, watch every video you can on the person and just continue to study them, read all the stuff that they read. And I think when you take that approach, you're kind of setting yourself up to achieve at that same level because success really does leave clues in a major way. And I think that when a person kind of takes that on, it's important not to just study the subject, but to study the best person at the subject. I think that's the thing that I think gives people breakthroughs. I think for me, it was in the spring.

Starting point is 00:52:41 of 2013 and I don't want to say it was how to win for instance and influence people. I think I've talked about this moment perhaps once or twice, but to elaborate, I was reading two books in spring 2013. I changed the thing and changed life in Bruns Tracy and how to influence people by Dill Karindy. And it was not just so much that those books was just amazing. I think for me was also a question about timing and a question about I was ready to improve myself. And the thing is really, you know what we're saying, that you can't help a person that doesn't want to be helped? Sometimes it's the same with the one person you are. You might be sick and tired of your life. It might still not be in a place where you feel you can really change

Starting point is 00:53:28 it. But when you feel that you're mentally ready, see your floss and be open about it and start sharing with other people, I think that was really a life-altering moment. you. It was a process. The process of figuring out that you can't just blame other people and you can't do anything by yourself. You simply need to stop blaming other. The only thing you can do is to change yourself. And this works almost like magic. When you start changing yourself, just wait and see what happens to the people around you. Perfect. Thank you. Thank you both for that answer. That was amazing. My last question, and you can go crazy on this one with your imagination. How will you see investment in 20 years from now? And I'm more interested in your

Starting point is 00:54:13 views about the role of artificial intelligence in the future of investment, especially when Elon Musk think that when the artificial intelligence will take over, we all will be housecats, according to him. So I want to know your views. The algorithms, the technology, all the banks are already investing a lot of money in artificial intelligence, and they're putting a cover story, like it will reduce the pressure and the hours for the analysts. I think they will all lose job in the future, but I want to know your view about the future of investment. Well, one thing's for sure. Whatever I'm about to say will be wrong. So I'll start off with that. I like that. Go ahead. You know, I'm just not intelligent enough on the AI stuff to really talk at length at that.

Starting point is 00:55:05 I guess I'm a little skeptical of AI kind of taken off within a 20-year period of time. You know, I use this as an example. When you go back and you watch the Back to the Future 2 movie whenever they got to 2015 what it was going to be like. and that was 30 years of what they thought the future was going to be like for 2015. And you look at where we're at right now and where they thought it was going to be like back then. And they missed the mark so far. So, you know, I kind of think a little of that might be going on. Maybe I'm wrong.

Starting point is 00:55:38 I don't know. I do think this over the next 20 years, I think that I really think currencies in general are broke in a major way. I think a lot more broke than what the world really realizes at this point. I'd say that that'd be the one thing that I would say the Peter Thiel book, where he said, what's the one thing that you know that no one else in the world knows? I would say that that would probably be the thing that I would answer that question with. I'd say that global currencies are broke in a major way, and we have to do something to fix the monetary baseline of global currencies.

Starting point is 00:56:15 And so I see that playing out in 20 years. I don't know how it's going to play out. I personally think that, I mean, it has to be done with one of two ways, which is a precious metal or a cryptocurrency. But I think that that is coming to a head. And I just don't know what the timing of that will be. But I do think that that's within a 20-year period of time. And I think it's going to be a very interesting event that I think a lot of people aren't

Starting point is 00:56:40 prepared for. So I know that that kind of steps a little bit away from the technology side of things. but that's maybe in a realm that I maybe understand a little bit better. Yeah, AI, that was not the question. I didn't know what I was expecting, but I think it was a really interesting question. And to be 100% honest, I have nothing intelligent to say about AI. I don't know if I have anything intelligent to say about investment the next 20 years, but I would like to give it a shot.

Starting point is 00:57:08 I definitely think that it will be cheaper and better to invest for most investors. I think the increased focus that we see right now on the customer experience, I think that's something that we'll see a lot more of. And when as a customer experience, you might say, well, we have that in the 50s. Whenever you were high net worth client, you would drink champagne and be entertained. I mean, you still see that today. But for the common investors, I think you will see a big change. And I think it will be a lot cheaper to invest.

Starting point is 00:57:39 And I think you have better options. And there might be because I've been so much into the podcast, but I think something like quant investing is something you will see more of. I don't know if we'll happen in terms of an ETF or that, but I think the whole idea about you can actually make really good returns in the stock market using somewhat of a formula. I think that's something that would resonate with more and more people. And in any case, the returns will be, in comparison, I'm not talking about way around the business on anything, but the returns will be better because it will be cheaper. It's just more efficient

Starting point is 00:58:18 due to the technology that we have today. If you look at how an ETF is structured, that would simply not be possible before, well, kind of happened. It's just not technically feasible. So that's also a change that you see in the financial industry. And kind of going at Sticks point there, I think you see with blockchain tech, as well. You could get into equities performing more like a currency, I guess, where, you know, you want to start a new company. You have a great idea. You can just come up with 100,000 shares. You release them on the blockchain and you're able to basically, the equity, the company is going to trade a lot more like a currency. And so you're going to see these, I think you're going to see currencies and you're going to see equities and commodities and all this kind of stuff really kind of merge itself a whole lot more through blockchain technology and the next. next 20 years. And I think that that's something people really don't understand at all, but they're going to have to start understanding it if they're going to be competitive in the next 20 years, I think. Thank you. That was really good answers. Thank you.

Starting point is 00:59:20 Awesome questions. Nick, I'm sure we could talk to you for at least another hour. We're going to try to get a couple more people on the call. I totally appreciate your time. Thank you so much. I was really excited and this is amazing. Thank you. Thanks, Nick. Thank you. See you. Wow, that was an awesome conversation. I loved it. That was so much fun. Okay. Hello.

Starting point is 00:59:47 Derek. Hey, what's up, man? Hey, this is Preston. Hey, this is stick. Okay. Hey, so we're live on the show right now. So go ahead and fire away your question. I think you said that you had an intrinsic value.

Starting point is 01:00:01 You wanted to talk intrinsic value. You read Peter Lynch's book. Here, let me see what else I got. Go ahead and just fire away. Yeah. What do you got for us? I was able to look at your website a little bit, and I saw some of the best.

Starting point is 01:00:12 videos you made were actually, you know, broke it down a little bit, a much easier way to understand. I guess my first question is I did the first one that I've ever done with the calculator. I did it for Apple, because that the only stock right on it. And I guess I noticed that if the growth is like really, really large at the beginning, it seemed like it was really hard to judge how accurate it was. On this one, when I calculated it, I was getting a average book value change of 30%. And that was within 10 years. Yep. And I think it's just because five years ago, they grew a lot and that was slowed down. Exactly. So let me talk about this a little bit. So when you're trying to figure out the value of a business, intrinsic value, it's really kind of

Starting point is 01:00:59 difficult to do any type of intrinsic value on a business that doesn't have stable and predictable earnings power. Okay. That goes for a company that's growing really fast. Or it goes for a company that's growing really slow and or even into the negative earnings category. So, and this is why one of Warren Buffett's key tenets are one of his top four rules is stability. Because when you get that stability and you have something that's very predictable, like they earn $1 per share this year, next year, it's $1 per share, the year after that, $1 per share. You're setting a precedence in a standard that the company is in a stable market. there's not a lot of competitors that are changing their earnings power, and they're consistently

Starting point is 01:01:45 demonstrating the ability to earn at the same level each year. And when you do that, you have a little bit better predictability of what they're going to be able to do into the future. That doesn't mean they can do it. It just means that maybe the probability is a little higher that they can do it. And when you can do that, then you have that stable earnings power, what you're able to do is you're able to make a better assessment by adding up those future cash flows and then discounting them back to today at an appropriate rate.

Starting point is 01:02:14 So with Apple, it's a perfect example of a business that was growing over the last 10 years like crazy. I mean, just like a weed they were growing. And so the earnings, the earnings growth that Apple had five years ago, six years ago, was astronomical compared to what it is today. In fact, when you look at the top line of Apple, the sales that the company has, not their profit, but they're very top line of what they're bringing in before any expenses or taxes or anything like that. That top line is actually decreasing, I believe. Is that right, Stig? Apple's top line has gone down a little bit just recently in the last quarter. So that

Starting point is 01:02:55 would imply that their earnings are not even growing at this point. They might actually start contracting as we move forward. So when you look at the company and you're trying to figure out that intrinsic value, I would tell you, if you're using data over the last 10 years to figure out what that value is, it's going to be drastically warped compared to their earnings power moving forward into the future, simply because they're not going to be growing like they have been. So that's really, really important as you're doing that intrinsic value assessment. I guess one thing I thought about, too, was I looked at doing it for, like, the last five. And I got, like, an eight point, is about eight point five, which to me is a lot more

Starting point is 01:03:35 realistic for the next, you know, five to ten years for a company that size, just because, I mean, that's like, that's pretty, that's good, but it's not. If I was going to figure out what their earnings would be for the next 10 years, I would do one of two things. I'd either take today's earning power and just use that across the next 10 years. I wouldn't, I wouldn't give them any growth at all because I would want to lowball this. If anything, I want to definitely give them a lower estimate of then what you think is actually going to happen because you want to have that margin of safety kind of build into your numbers.

Starting point is 01:04:09 So I might even take their current earnings and take 10 or 20% off of that and use that number into the future to do my assessment just to build some margin in there in case they actually start to contract a little bit moving into the next thing years. What would you do, Stig? I'm curious how you would approach that. I don't think it's too long ago that Todd and entered, I think, from Berkshire. They actually bought Apple, which is something a lot of people were surprised about. So you're definitely not alone on that one, Derek. Like Preston, I wouldn't look too much back at the high growth and say that would just continue. And the thing in highlight is a very important point. The important point is that it's really, really hard to predict the future. And

Starting point is 01:04:51 how we usually do that is to look at the past. Now, that's very often a very bad approach, especially if it's a high growth company. Because you said before, Derek, you were looking at something like 30%. It's probably not but the size Apple has today is almost physical and possible for them to grow 30% over the next 10 years

Starting point is 01:05:09 like every year. So you raise a good question. What should you actually do? Well, the first thing to look at is really the current earnings and especially the current cash flows. And if you look at a company like Apple, you will see they have very, very strong cash flows.

Starting point is 01:05:25 And I think that's really interesting because even though you see that the growth has slowed down, even declined, you can still see that they have really strong cash flows. And this is where it really depends on you as an investor. Do you understand the business well enough? If you don't think you can reasonably understand and predict what the earnings will be the next 10 years, actually without really looking at the previous 10 years for a company like Apple, then you probably shouldn't be invested in the first place. So I know that this is kind of an unreasonable thing to say to you, Derek, because you are basically

Starting point is 01:06:01 we're looking at 10 years and you're saying, well, that's the data I have. That's what I know they can do. How can I, by any means, estimate what we'll do the next 10 years? And yes, that is super, super hard. But that's really the challenge. So I think what I would do, we actually have two calculators in there. I think I would use the discounted cash flow calculator that does not include book value to analyze a company like Apple, partly because Apple has grown so much, but also because Apple has really rapidly the previous four years signed into buyback stocks, which is kind of messing up the first calculator that you brought up. So I'm sorry for the lengthy answer.

Starting point is 01:06:41 For those of you are saying, he's talking about different calculators, but I'm sure if you go into our site, we'll make sure to link to them. You can see what I mean. Yeah. And Derek, I completely agree with Stig. I'd be using the discount cash flow calculator, not the book value one, to do that assessment. To be honest with you, most of the time, I'm using that calculator more than the other

Starting point is 01:07:00 anyway, the discount cash flow one. I want to highlight one thing that Stig had mentioned there in his response where he said that Berkshire Hathaway recently took a position in Apple. I've heard a lot of emails from people on this, a lot of talk on the forum, and this is the one thing that I keep telling people. Yes, he took a position in Apple, but you have to put it in the context of his overall portfolio allocation. He took a $1 billion position in Apple. So a lot of people would hear that and say, oh my God, that's a lot of money. But in relative terms, it's really not. If you look at the market capitalization of Berkshire Hathaway right now, this is off the top of my head. I don't know what it is, but I'd guess it's $350 billion. That's what I would guess his market cap is.

Starting point is 01:07:42 So if you would do a comparison of that position to his market cap, you're at like a 0.3% position of his overall company. 0.3% of everything Berkshire Hathaway owns is in, Apple. No, it was just a follow-up. I completely agree with you, by Preston, because watch Berkjahe Halleigh really buy. I mean, Apple is one of the top companies in the U.S. in terms of market size. Where else can they just put in a billion dollars and get some of that juicy dividend and get some of that cash flow? I mean, well, clear there are other companies than Apple. I'm not saying that, but Apple is trading like a single digit price of cash flow. I mean, how many companies in the U.S. of that size, can you do that with? Well, there are probably a few handfuls, but they actually done the same

Starting point is 01:08:31 thing in many of those. So this is not like an Apple investment. This is just as much as strategic investment in terms of how they allocate in capital. So I just want to completely support your argument there, Prest. Yeah. And Derek, if I was told, will Apple outperform the S&P 500, I would say yes. I think over the next 10 years, I think it will outperform the S&P 500 over the next 10 years. I just don't think it's going to be by a huge margin or anything. What other question? We've been talking forever. Go ahead. I'm so sorry. Yeah, no, that's awesome. I mean, personally, I just thought that, you know, they had just been getting hammered so bad with just bad publicity. It really, what they had been doing had really changed a whole lot. So I think, I mean, from my

Starting point is 01:09:18 perspective, it just seemed like the price was low enough that it made sense to them to go for it, even know it's, you know, they're newer. Because I noticed if you're going back 10 years, there's not a lot of companies that have really, really consistent data for that far back. Yep. From what I've done, just from looking at that today. So that's going to be, it'll take a minute to, you know, figure out what, where to look for more places like other companies like that.

Starting point is 01:09:44 And you're exactly right, Derek. You're exactly right. When you go back and you look at most companies, the 10-year data is not a perfect line. and that's where this really becomes an art. It really becomes an art at this point where you're making these judgments. And that's why Buffett, he says, you know, it's not an absolute number. Whatever you come up with, that's not a precision kind of thing. It's an estimate.

Starting point is 01:10:07 And you've really got to kind of look at the business and have a firm understanding of understanding the direction, their vision of where they're taking the business in the next 10 years and kind of understanding how they're going to hit those bottom line figures that are going to continue to hit those marks into the future because that's how the company's valued is into the future, not on past performance. And so as far as like the discount cash flow calculator, I haven't looked at that one yet, but is that one that easier to use if you have, you know, say you're trying to break down a company that doesn't have as much, you know, as much of history, that one that you can use

Starting point is 01:10:46 just a little bit, you know, it's easier to do it with less, with less history. Is that because you want as much can get, but if it's not, you know, but if they haven't been stable for more than five years, it's hard to look at it beyond that. I guess I would tell you this. It really doesn't matter. It doesn't really matter. So like the Apple example is a perfect example of you got all this data, you got this 10-year data, but moving into the next 10 years, I would tell you that the past data is not that

Starting point is 01:11:17 useful, but it gives you kind of a benchmark and kind of an idea of where to kind of start shooting from and where to kind of aim your target into the future. I was going to say, I mean, like, I would totally agree with that. I think where they are now is completely different than where they were five years ago. They're so large that there's no way they can grow, you know, at the rate that they were doing. It's just not possible. Yeah. But is there, so are there other methods of looking at companies they're in a similar a position that maybe, you know, they started out really high growth and now they're starting to level off, just kind of looking at where they're going to go.

Starting point is 01:11:53 Is there other ways to tell you like that besides doing it? Yeah, I love this question because I think a great example of a business we could talk about would be Tesla. Okay, so whenever I look at Tesla and I look at the electric car market size that it could potentially become, I think that the current car market for electric cars is minuscule. It's like nothing. And I think that the potential for this moving into the future would be actually fairly big. I think that there's a lot of growth potential.

Starting point is 01:12:23 So how would you do that? Well, I would look at what's the overall car market size today. And then what's the market cap of Tesla? I would guess, again, this is off the top of my head. I would guess Tesla's at a $30 billion market cap. It looks like Stig's looking it up. So he'll correct me if I'm off. But I would guess they're at $30 billion.

Starting point is 01:12:42 So that's close. I'm going 33. Okay, all right, good. So I'm three billion off. So I would guess that they're around that point. So they're at $33 billion, okay, is their current market cap. If I was going to look at a Ford or something like that, I would guess Ford would be at $50 billion. Toyota, I know, is huge.

Starting point is 01:13:01 They're probably at $155 or $150 billion or something like that. There are three times a size of Ford. When you look at the size of all these car companies, you have to ask yourself, well, how much more of that market can Elon Musk basically take with Tesla. I think he could get as big as a Ford, but it's going to take him a lot of years to get there. So you can see how much of a premium people are paying on the price. But I think what's important is when you're looking at the future of how much he can grow, that's how you're kind of doing this analysis and you're kind of thinking of things. You've got to think of things in terms of big picture first. How big is the whole car market

Starting point is 01:13:36 in the world? How much of that do I think he could take? How much of it exists for the price point that he's currently building cars for and where's he going into the future? Is he going into the $15,000 to $25,000 car market? I don't know. That's something you'd have to do some research on and then see how big that is. But that's how you're doing these assessments. That's how you're doing this analysis as you're moving forward. Then you have to ask yourself, am I willing to put my neck out on the line to own this one company that's stepping into this space because I think that he is so much more superior and owns all the intellectual property as far as the battery technology, the electric car technology, all that kind of stuff

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Starting point is 01:17:47 All right. Back to the show. Yeah. And I think I really have you brought up the discussion, Derek, about the calculator and which one to use and which number to put in. I think, and this is really not to say that you shouldn't use the calculator. I think it's definitely a good thing. I think this is think about the collaboration between you and the calculator, in lack of better words. When you're talking about methods, Derek, and talking about, should I use this, should I use that, I think the investment should more or less be screaming to you. I think if you are too concerned about what the intrinsic value is and it's not obvious, I think that's a red flag.

Starting point is 01:18:29 And I know that we touched upon this a few times in terms of what is a value pick, what's a growth pick. And in that sense, a lot of people would say something like Tesla is definitely a growth pick. But think about this before user calculator. Can I buy the estimated cash flow at a single digit? Is that possible? And does a lot of things need to happen before that is so? And if the answer is no, you probably shouldn't go for it. And I know we didn't talk about this with you.

Starting point is 01:19:04 It was recording we did prior to the conversations, but we talked a lot about patients. And I think that patient is so important. If you can't find that stock pick, and even in the situation that we're in right now, we need to talk about what this opportunity costs. There's so many different options out there. if you really can't find something that fits that, those two questions about the single digits and if a lot of things has to happen for that is so, it's probably not the best value pay. And that's pretty much regardless of the calculator that you're using.

Starting point is 01:19:37 What do you mean by, could you elaborate on the single digit portion of that? Yes. And I think Apple is actually a really great example. Actually, I think Price for Casual right now is something like 9.5. but I would like more than 10% of the cash flow, especially for a company that I don't expect to grow that much. And I think if you can't do that, it's a really, really good sign. And this is probably because I'm very much into my own head,

Starting point is 01:20:02 but if the price to cash flow is something like 20, then, or even something like 15 or 17 for that matter, when you look at the numbers and clearly the podcast is not the right mirror to do that, if you do the calculations, you will quickly see that a lot of growth has to happen to justify that, that multiple. You're paying for something that hasn't even happened yet. I think the best way to describe, like a Tesla, for example, like for them to have a market cap of $30 billion,

Starting point is 01:20:28 almost at the same level of Ford is totally insane when you think about the fact that they're producing what? One, I don't even know what the number would be if you did the number of cars that Tesla's making compared to like a Ford. It would be just insane difference. So you're effectively. paying for the price that he's already done it. That's what you have to look at that as. It's like, I'm going to pay as if he's already done this even though he hasn't. And then hope

Starting point is 01:20:57 that he grows beyond that. And when you look at things from that context, whereas when we were talking about Apple, we were saying, hey, let's just say that this earnings that they're already getting is sustainable into the future. And I think when you do that assessment, you're going to get a higher yield than you'd get owning the S&P 500 right now, which is why Sting and I were both saying we think Apple will beat the S&P 500, not by a lot, but it'll beat the S&P 500, where a company like Tesla, based at its current market price, is going to have a very hard time doing that without a lot of risk involved in achieving it, just because people are already paying those prices as if he's done it.

Starting point is 01:21:36 Yeah, I'm so overvalued. I can't even, every time I look at it, I'm just amazed. Now, here's what I'm looking at. Here's what I'm looking at with Tesla, although I would never own it today, okay, because of the price. I'm totally watching that company for a big credit contraction type event where people are going to somehow value that thing at 30 times earnings or 25 times earnings. And whenever that happens, you better believe I'm going to pay very close attention to it. Okay?

Starting point is 01:22:05 Because then you're getting into a price point where I think that, do I think Elon Musk is going to have a really successful car company in 10 years from now, you better believe I do. I think it's going to be one of the best out there, just based on what I see today. But am I going to pay 100 times earnings for it? No way. So I'm waiting for it. Yeah, no, I totally, I told you're that. I've been looking at that same way. I mean, it's just a matter of time for it. Cool. I don't know if I had any other questions. You guys had a good job. That was good good answers. Well, Derek, we're going to try to get one more person on the phone here to do

Starting point is 01:22:42 a question with us, but we really appreciate you listen to the show, and thank you so much for replying to my email and talking with us tonight. Yeah. Oh, before we forget, Derek, we actually have a small present for you for making yourself available. You're really going to like this too.

Starting point is 01:22:59 So, Stig, we know you're reading the intelligent investor. You said that you got our summary guide. Is that right? Oh, I looked at the first two. I just flip the first two. Okay. I listen to the podcast where you get talked about it a little bit.

Starting point is 01:23:14 Well, you're going to love this because Stig created an entire video course that goes chapter by chapter through the intelligent investor. And this is a paid course that we have on our site, but we're going to give it to you completely for free. Nice. Cool. All right. That's awesome.

Starting point is 01:23:29 Thanks. We'll send you the details for how you can log into your account and start using it. So we really appreciate you talking with us tonight. Thanks, both of you guys. That was very helpful. You bet. Check care. We'll see you.

Starting point is 01:23:42 Bye. Okay, Stig. One more? Yep. Let's see here. Let's see if we can get someone. This is so much fun, Preston. Dude, this is awesome.

Starting point is 01:23:51 Makes me want to do this more often. All right. I think we got, can you hear Chris there, Stig? Hey, Stig. Hey, Chris, awesome. Pleasure to meet you. How's soul? Awesome.

Starting point is 01:24:03 Do you live close? You can always get a cold. coffee. No, I'm in Canada. So we're the ways away from you. Okay. The office still stands though. Okay. So Chris, welcome to the show. Tell us a little bit about yourself. We haven't really asked too many people about themselves tonight, but we want to hear about you. Well, I'm a high school English teacher here in Winnipeg, Manitoba, Canada. And I've taken a keen interest in value investing over the course of the last six months. And it really all started with the Buffett Books website.

Starting point is 01:24:41 I kind of stumbled upon it and then took in a couple of the videos and the rest is history. Yeah, I know, right? That's great. That's awesome. I love the fact that you're an English teacher. That's pretty cool. Yeah, I mean, it's an outstanding profession. Like, I'm giving back and I work in a high school that I once graduated from.

Starting point is 01:25:01 Oh, too cool. Yeah. I played basketball and I played university basketball here in Canada and then I played overseas in Portugal. And then as that wrapped up, I entered the field of education. And now I'm back at my home high school influencing young people. So it's pretty cool. And believe it or not, I've gotten some of my students to go to the Buffett Books website and take in the lessons. And I'm going to be honest with you, my vision is to somehow create like a young investment.

Starting point is 01:25:33 investors club in my high school, kind of using the resources you guys created to influence these young people. Because I think like Napoleon Hill talks about and think and grow rich, like this is very important that young people start to think about finance, how to invest and how the markets work. And it's really what makes the world move. You know what would be a cool episode is if your students went through the Buffett's Books course and then we kind of did a live interview where they could have. ask us any question, you know, because I'm serious, sometimes the best questions about investing come from, like, really young minds, like kids that are in high school that just really have,

Starting point is 01:26:12 like, a really core fundamental question. I think people eat that up to be honest with you. So maybe that's something we can look at doing in the future. Absolutely. I think it's a great idea. We'll see where it goes. I'm obviously on vacation right now and we just got married. So, all right. Well, what question you got for us, Chris? Well, guys, it basically boils down to this Three weeks ago, I married the love of my life and my best friend, and we had a fantastic wedding. And I've been studying value investing now for about six months. Took the course. I've read security analysis.

Starting point is 01:26:46 I did the intelligent investor, new case for gold. I'm currently listening to Napoleon Hill under your guys' guidance. I've listened to every episode you guys have produced. And now I'm kind of trying to figure out a strategy for myself to set my family up for a good, financial future. And I think right now the way the markets are, I'm a little, I'm just very nervous about it. I'm just wondering, what, what is your guys' advice to someone observing the markets and wanting to enter? Watch out. That's my advice. Whenever I look at your background and what you've got going for you, like your asset and your skill set, I mean, you're a, you have a writing skill set,

Starting point is 01:27:30 which I'll tell you, I think is a enormously valuable skill set for online business. Whenever I look at like our website and everything, like my skill set and what I enjoy doing is really math. I really don't like writing at all. I can do it. It's not something that I really prefer. And I think Stig, would you agree with that? Would you say that you're much more math than really kind of enjoying writing just because?

Starting point is 01:27:57 No, I would actually say, Yov said, I enjoy really. writing more. I think writing is clearly math is super important too, but I think with your skills, Chris, also in terms of financial education, I know from my own students, one thing is to speak to them about finances. Another thing is to give them something, a piece of paper. It's just a different way. And if you can accompany that with your, it's called a coaching, I think the feeling that they get something tangible, make sure you just don't send it to them, but you actually print it down and give them to them, I think that will make a difference. And the shorter and more concise you can do that, I think that's better.

Starting point is 01:28:38 And in terms of setting your family up, sorry to digress here, but I'm thinking the very best thing you can do, even though that you might be in charge of the family's finances. And really, I think that's the best way of setting your family up. I think when I look at my parents, it was not so much that I've got a lot of money in terms of being set up. But getting the financial literacy is really the best gift you can give to them. So I'm sorry I wasn't responding to that part of the question. I know a person has another point, but I would just like to stress that while I was top of my mind. So I look at things in terms of this is like what assets?

Starting point is 01:29:23 Hi. Hi. Hi. Oh, I love this. I absolutely love this. Congratulations. I listen to you guys. I know his headphones, but I know a lot about you. This is awesome. How much fun is this? Chris, I actually thought whenever you said like, oh, I just got married and I'm investing. It's like, do you want us to, you know, teach you how you can eventually pay for your marriage? I mean, I was like, and I was so much in debt now. It's like it was $200,000 for this dream wedding. No, it's all over. Now it's all the fun part. Yeah, it's about living and taking care of ourselves.

Starting point is 01:30:03 What's your wife's name just so we can say hi to her on the show? Kristen. Kristen, thank you for stopping over to say hi to us. Yeah, it's amazing. I said thank you for stopping. Bye. All right, so Chris, this is what I would tell you. When you look at things from an investing standpoint, I think it's all about asset accumulation.

Starting point is 01:30:23 So you have a skill set. One of your assets is that you're a school teacher. That consumes a lot of your time and your labor. So the thing that I think really gives people a big edge is how can I accumulate and amass different assets that I've created through time, whether that's buying stocks, whether it's owning debt instruments, whether it's actually creating my own assets and moving forward. And what I would tell you is to emphasize on that last one. because I think that there is enormous opportunity in financial education for high school students.

Starting point is 01:30:56 And when you talk to anybody in the United States, Canada, anywhere in the West, the first thing that they'll tell you that's broke, like the number one thing that's broke with our school system is they don't teach you one thing about business, investing, or nothing. And then once you graduate from college, what's the number one thing that you have to now know? You have to know about business investing and all that kind of stuff that they never teach you in school. So what I would tell you is as a writer, I think you have an enormous opportunity with the internet because with a brick and mortar business, you're stuck to the physical location of your town. But with the internet, your town has literally become the entire world. And so what I would tell you is maybe invest your time more in understanding online business, understanding how you can develop an audience, how you can basically do things to teach

Starting point is 01:31:52 young high school type students about finance and investing from a really basic and fundamental level. And I think when you do that, it's going to be a really, I mean, this is a huge uphill battle, what I'm telling you to do. But what you will potentially have the ability to do is the accumulate assets that you own 100% of the equity of. And I think that that's probably one of the most powerful investments that a person can make is taking their time and investing in equity that they own 100% of. Chris, I'm really happy that you're giving us a shout-up about the podcast to your students. But really, I think before they really dig into everything with stock investing, which is probably something that a lot of the guys that you're teaching,

Starting point is 01:32:35 they're really interested in them. It's that teach them about personal finances first. I think it's super easy to speak to especially young guys about saying, oh, you can get so and so much money and they're probably once both on Wall Street or whatnot and I think that would be pretty cool or the big short and they're thinking, oh, that's a cool thing I want to go there. But really, personal finance is spending less than you're making. I think that's just so important. So I would definitely focus a lot more on that. And in terms of doing the online marketing thing, in general, I think that's a good suggestion also because it takes a lot of money to start up your own fiscal business. But I think it's really important for you once you, if that's something you want to start looking at, you don't get sucked into the whole online marketing world. I mean, I think it's amazing. But I would say very true to my passion and my intention. Forget all about the, oh, that's how I reach so many people.

Starting point is 01:33:39 that's how I market this in a smart way. Yes, marketing is important, but as long as you keep staying true, it might take a little longer, as long as you're staying true to the products you're developing and the young people that you're helping, I think that's the core thing for you. The other thing might be a distraction. I might speak from my own experience, and you might start looking too much the money, which is not the intention and not the purpose at all. So we like to give book recommendations.

Starting point is 01:34:07 and I have a good friend. His name is Douglas McCormick, Doug McCormick, and he went to West Point quite a few years before I went there. But Doug is the brother of his brother is the number two guy at Bridgewater with Ray Dalio. And so Doug is also in finance. He was the first captain at West Point, the number one student at West Point whenever he graduated. He now, he's been, you know, I think he graduated. in the 80s, I want to say. But Doug wrote a book, and it's called Family Incorporated.

Starting point is 01:34:44 And the subtitle of the book is using business principles to maximize your family's wealth. And it gets totally at what you're talking about. And what I like also about Doug's book is he has free income statements and balance sheets that you can do through the book with his website and stuff, that you can download these income statements and balance sheets that are designed for your private life. and he gets into a lot of the stuff that I was talking about is creating your own assets and all that kind of stuff and how to look at your job as an asset, I highly recommend his book for you because it's totally up your alley of what you're looking to do. Thank you very much.

Starting point is 01:35:21 Do you guys mind if I transition into some questions about like actual value investing? You're our last person we're going to talk to, so you fire away. Okay. If they don't make the show, I mean, this is such a rare opportunity. So first thing, I'm finding, like, I use your guys' checklist that was on the website. And what I'm noticing is when I'm running it through the Google screener, it doesn't give you many options. And then if you change the metrics on the cap, you can find small caps with some of the metrics that you guys have. And I'm just wondering, under current market conditions, is it attractive to be investing in these small caps that

Starting point is 01:36:04 meet some of the gram value investing fundamentals? Yeah, I think that's a great question. And I think, well, the first thing to think about the checklist, whenever a person I created that is that we're really picky, as you can probably see. That's one thing. Another way of looking at is that the market conditions right now are really unfavorable because you can go back to March 2009, and I can assure you there will be plenty of stock picks for you. So in that sense, it's really a question about patience. Keep being patient.

Starting point is 01:36:40 If you're doing something like a small cap, I think in general, I'm not too concerned about small cap. And I think you can see there is inherent risk. Yes, there is. But it's still in this framework saying, I know the business I'm investing in. And it's, we actually had this conversation before with another gentleman who talked about Apple and was really curious about our thoughts on Apple and how to estimate the future cash flows. Well, I'm not invested in Apple. I don't know how to predict the next 10 years for Apple. But if you can find a company where you can break the next 10 years, I don't care if it's 50 million or it's $5 billion or $300 billion, that would probably work for you. And I think that should really be the key whenever you're evaluating

Starting point is 01:37:27 that. Some companies, some small companies, they're more vulnerable to something like a recession, for instance. So that's just something I will add into that. It's not necessarily because they're small always, but there is a tendency that small companies are more vulnerable in recessions than bigger companies. So I would definitely, I always look at that, but I would definitely look at that because a lot of small companies, they have the debt obligations structure different ways than large corporations. So that might be something I would ask. the investor relations about in detail. Sorry, go ahead, Chris. This may sound super novice, but would you actually pick up the phone and phone some of these

Starting point is 01:38:07 businesses? Because I've actually, like, wrestled with that. Like, I would just love to call and talk to someone and see what's going on. Yeah. Have you guys ever done that? What do you, what do you suggest? Yeah, no shame in life. That works for a lot of different life situations. And one of them is really investor relations. And it's a great way of checking how they treat their investors. So definitely. Yeah. And I've seen so many different responses.

Starting point is 01:38:33 Like some people that don't want to talk to me. I mean, and I was like, I'm an investor. Why do you want to talk? It's like I was almost interrupting them in their day. I mean, and we're talking about investing relationship manager.

Starting point is 01:38:45 Their job is to speak with me or you. So that's big red flag for me. It'll show you too where the power and the company lies. As you go from company to company, like let's say the. CEO holds an enormous amount of the equity and a lot of the voting rights. And so he's pretty much making the decisions autonomously from what any other shareholder thinks. You'd probably see the shareholders department that you'd call there really lacking in any kind of support just because

Starting point is 01:39:10 there's no reason for it to really be there because the decisions all lie at a much more individual basis. So it really depends from company to company of where that power lies within the equity. But yeah, I think the reason you're seeing the checklist really not. materialized too many results is simply because of where you're at in the credit cycle. Like Stig said, you go back to 08 through 10, I guarantee you, you would have a lot of companies showing up in that filtering that you're doing on Google. But now you're not. So I don't invest in the smaller companies that kind of kick out of that filter just because

Starting point is 01:39:47 I can't really operationally control them. I think if I did have operational control of the decisions that were occurring inside of those companies I might be a little bit more favorable and maybe taking a position in them. Yeah, you had a follow-up question there, Chris? Well, my follow-up question is a very natural transition and it goes to the Schiller-P.E. ratio. And what do you suggest for an investor who follows the Schiller-P.E. ratio, how do you suggest they use that metric to find an entry point into the market?

Starting point is 01:40:18 Because obviously, these drawdowns, they don't take place over one month or two months. they can very well take place for a number of years. How do you guys kind of see the bottoming of that or a reversal? And at what point do you decide this is a good time for me to maybe start indexing because as a rookie investor, from what I've learned from you guys and some of your guess, is that indexing is a very smart thing to do under certain market conditions. Maybe not right now, but if the opportunity presents itself to index. But how do you guys suggest I use the Schiller-P-E ratio to improve my entry?

Starting point is 01:40:58 So this is a very difficult question just because of the timing of the question. So I think that if you would have asked this question any time in the last 20 years, it would have been a lot easier to respond to simply because of the fact that you had interest rates that were in reasonable positions in the Fed, it could lower those interest rates. And it was all within a margin of normal. But now you're in a position. where the Fed raised the federal funds rate by 25 basis points or 0.25% in the last, let's just call it almost a decade.

Starting point is 01:41:32 Okay. Like, that's where we're at. That's insane. That's totally nuts. So as we look at the next credit contraction, whether that happens here in the third quarter, it happens in another year from now or whenever, when that happens, the Fed doesn't have the tools that they've had at their disposal in the past. And so for me, what I would tell you in the past would have been, well, look at the volume spike, you know, look at those normal things that that really kind of gave you that indication that there was a bottoming that occurred.

Starting point is 01:42:04 You're starting to see reinvestment and things like that. And maybe it's time to get back in and you're seeing lending occur again. You're seeing, you know, high yield debt is looking a lot better than it did going into the contraction. All those kind of things were really the cues that you looked for. or to get back in and take another position. So, Chris, you talked about indexing. And I think what you kind of said was, so should I invest whenever it reads 20 or 15 or?

Starting point is 01:42:33 Is that where you're getting at, press, in terms of when to enter the market? Yeah, like, if the Schiller-P.E. ratio is reading 15 or below, I'm thinking that might be a good opportunity to be indexing. Is that- Yeah. In that sense, I think it's a good idea.

Starting point is 01:42:49 you know, it might take 10 years. I don't know when it will happen. So it's hard, you know, sitting with all that cash for so many years. I think the way to look at PE, at least right now, the showless PE is to say, okay, index in America doesn't make a lot of sense for a long, long time. And if you want to wait, just call something like 20. Say that hits 20 and you said, okay, I'll allocate, I don't know, 4% of my portfolio or whatnot. Then it bounced back to 23.

Starting point is 01:43:16 I mean, what are you going to do then? I think the thing to do is really to look at, if you want to do index, and look at the world and see that there are actually a lot of, if not cheap, than cheaper markets out there. Yes, there are a lot of risk and their interest rate, death levels, a lot of bad things out there. But you might use another strategy saying you would just rebalance the five or ten cheapest based on the SILAPE ratio. And I'll also make sure to send you a link and put a link in the show notes where you can see, and all of you all these, but if you're looking at the Sili-a-Pee and you're seeing, well, it's

Starting point is 01:43:52 Russia that appears to be more attractive than Brazil, Poland, Czech Republic, and you don't find those appealing. Think about something like Develop Europe, for instance, that 14.7. I'm not saying that Develop Europe is necessarily the best solution, but you probably won't say hyperinflation and whatnot in that market. So just think about that, if that's an approach Chris you want to take, if you want to do index it, and if you think that the U.S., as I would we view is simple not interesting. I agree with where Stig was going there at the end is maybe start looking internationally for value where you have an economy that has normal interest rates, I think is maybe a better

Starting point is 01:44:32 play and maybe a better place to look. You know, whenever I'm trying to think of a situation where I would have got crushed in the past historically, if you took me back to 1990 in Japan and I was investing domestically in that market. And I'm trying to think of how I would react it to that. After you had the big credit contraction in 1990, the stock market melts down. You know, you might say, hey, it would have been a great time to buy into that market at that point. And you would have had a little bit of a of a little pop there for a few years, but then you would have got crushed again. And if you would have stayed in that market for a decade, 15 years, 20 years, you would have had a horrible

Starting point is 01:45:12 experience. Whenever I look at the parallels between where Japan was in 1990, and what I think could potentially happen here in the United States and also over in Europe, my opinion is they're in a similar situation as Japan in 1990. And that's my concern moving into the coming decade in the U.S. market and also in Europe, is does that play out because interest rates have nowhere to go and this thing is just a struggling disaster that has nowhere to go? Or do you go to a market that still has some interest rates to play with like over in India or, I mean, the whole China shadow banking things a mess, but they do have interest rates that are in what I would classify as somewhat normal territory. And they do have potential growth prospects

Starting point is 01:45:57 with their population, which is where the U.S. and Japan and Europe is in. Another thing, Chris, is patience. And I know that you're just starting a new family and you want to do the best thing you can. One of the most logic conclusions to reach right now, might be to be fully invested or these close to because now you probably read that you're young now, now you really need to start investing and compound that over the years and you can't predict what's going to happen, all of that. And I would say, I would agree with all that. We can't predict what's going to happen. But we do know right now that it's an expensive market. And if you're looking at stocks, especially American stocks and thinking, I probably should do that for my family.

Starting point is 01:46:44 I'm sure you see where I'm going with us. That's not the way to look at it. I think you should be patient and you should increase your financial knowledge. And that's the best thing you can do for your family. And if it takes a year, if it takes two or three years, it will still be a lot better than for you to start indexing because you read that you should just do dollar cost averaging and over time we would just average out. You're nodding.

Starting point is 01:47:10 You probably read that. I think right now I think it's a horrible advice. I don't think you should do that, especially because you are starting a new family right now. Right. And obviously there are other options like assets at home, real estate, etc. Exactly. So it's a balancing act and I guess part of it is this whole process of educating oneself because now for the first time we have the surplus in our income to start thinking in these ways.

Starting point is 01:47:40 Yep. And that's a big step in life. It's interesting what Stig's talking about because Meb Faber is talking a lot about this. I've started following his podcast. Yeah. Love that episode. And then I read his Global Asset Allocation Text. And what he's saying makes a lot of sense.

Starting point is 01:47:57 But I like where you're going Stig with the risk with the hyperinflation piece and everything. I'm even thinking the Canadian market may be an option for me down the road because there are some good like PEs aren't that out of control for some of the big Canadian corporations and that's something I've been keeping an eye on but definitely I think the sidelines until I acquire enough knowledge is probably the best play for now. We're huge fans

Starting point is 01:48:23 of Meb Faber and for anyone who doesn't listen to Meb, you need to because the guy's brilliant and he makes things very simple. I can't speak highly enough of Meb Faber, so yes, I totally agree with you on him. Yeah, amazing podcast and he's actually

Starting point is 01:48:38 I think he's actually even doing this where he's balancing the cheapest indexes. And I mean, I haven't looked too much into that. I'm not endorsing anything. I'm just saying if that's something, I have a tremendous respect for MAP. So I would definitely read up on his prospects. Yeah, me as well. My wife has a question.

Starting point is 01:48:55 Oh, yeah. Yeah, bring her out. This is awesome. These guys. You listen to one too. Okay. Okay, so I don't know a lot, but he tells me and he educates me through what you tell him and what he reads elsewhere.

Starting point is 01:49:09 but with us because we're just starting out, we don't have, especially because we just got married and it's a big rip, but after you get married and you're trying to now build savings, he's obsessed with physical gold. And I hear you guys talk about physical gold all the time. And especially you guys are talking about like the trends throughout history through the Japan and all the gold standards and everything else.

Starting point is 01:49:36 With us just starting out, do you think it's smart to buy things? physical gold, even if it's in no. No. Ready? Yeah, I'm just wondering if it's smart for us as we're starting to save just because of the instability of the markets and the banking systems and how everything's digital. Is it a good idea to have physical gold in your possession as you're saving, I guess,

Starting point is 01:50:04 elsewhere in the process, not just to buy gold, but just to have some physical gold. This is like the Zinger question that probably everyone on the show wanted to hear. Came from the right person. Sorry I was almost cutting you off by shaking my head. And he's, yeah, on the same. No, but, Christy, it was a great question. And I would say no. And especially not in the position that you're in right now.

Starting point is 01:50:31 And I know that you're probably not going to do like 100% in goal. But even so, I think right now it's a question, especially the station, in, it's about preserving your capital. And I know a lot of people would say gold is a way to do that. I don't think I would agree with that 100% in your situation. And the other thing is that you need to compound. Now, it's really hard to compound, as you also talked about earlier on this conversation. But I think you should really see gold as a currency insurance. And I mean, if I was like 60 or 70, I was about to retire, I had like a really nice net worth. I might be thinking about what would I really do if this and that would happen to the currencies.

Starting point is 01:51:18 You're not in that position. And I don't think that something, I think something crazy will happen, but I don't think like the whole system can crash down and we will start you and bottom a goal or anything like that. And also think that even though I don't know how, well, I can look at you. would probably estimate you around 30 or something like that. I mean, right on the market. 29, 31. Perfect. Yeah, I wouldn't be too worried. I mean, you're still young. Clearly, we want to start as soon as possible. But if it takes a few years to get the, to acquire knowledge, I think that's, that's okay. And you're also paying a huge opportunity cost in your age and, well, I'm 31 as well. In our age, whenever we are investing, 10,000,

Starting point is 01:52:04 or 15% in gold because we are not making a return on that. And that adds up too. So to answer your question, no, I don't want to do that. And especially because you're talking about fiscal gold, it is quite expensive to do that. You might be around 1%. And I mean, it makes sense for someone like Kyle Bass that has like 100 million and because he's building a vault. And like for him, the extra cost to, you know, security guards or whatnot, that is not, that's not really a thing. but for you to put some of your investment into something you're just paying a percent of in case the whole monetary system is crushing down, I think that's not the right solution for you. I just think you will pay a huge opportunity cost for that.

Starting point is 01:52:49 So I kind of agree with Stig. I think that my reasoning for why I would tell you kind of the same response is simply because of your domestic currency that you guys have in Canada. That's a bad time for it right now. Yeah, well, so whenever I look at your currency, your currency has been punished over the last, like, year and a half. You guys have gotten crushed because of the whole oil industry and everything, everyone kind of moving out of that currency.

Starting point is 01:53:15 So here in the U.S., everyone's piling into the dollar right now. So if you lived in the United States, I might tell you that, yeah, it might not be too bad of a play to put on because I think gold's going to do really well versus the dollar moving forward into the next five years. But I think your currency, my opinion, I could be wrong on this, but I think your currency is actually going to do fairly well moving into the next five years as oil eventually kind of comes back and I think does really well moving into the next five years. I think that it still has some rough times for maybe the next couple, the next quarter to

Starting point is 01:53:51 year-ish. I think it's going to continue to struggle, maybe even move lower. But after that moves past, I think that you guys, I think your currency is going to do really well. So the hedge that you're kind of having, I would probably just keep it as cash. I would keep it as Canadian dollars at this point because you've already, you guys have gotten punished. What was your question on that? My question on that is talking about the oil and the potential recovery, looking at Canadian oil producers, there are some that are trading at really good PEs right now.

Starting point is 01:54:25 When you look at it, it looks like such an attractive time to buy. And I guess sometimes for us as Canadians, we become very disenchanted by a lot of what we hear from the U.S. market or other markets globally that it affects fear in buying Canadian equities. I mean, this is easy. Look at the debt on the company. If the company is not very highly leveraged, I think that that's probably the main starting point for me. You'd want to dig into more of the business, but especially if you're buying individual. PICs. But I would look at that. And if the company doesn't have a lot of debt and they've been really kind of paying for everything out of retained earnings in order to finance growth,

Starting point is 01:55:05 they're probably going to be in a very good position to either be, A, acquired by a larger company as they come out of it, or B, have an enormous recovery five years from now moving forward. So you might have to put up with a lot of pain in the coming quarters because, you know, you might put the play on and you might get crushed in the next six months if oil would move in the direction. I kind of feel like it might be moving in. But, you know, if you're in, well, if you're in the play for the long haul, you're fine. And what I would tell you is I wouldn't go, I wouldn't go all in. If you would say, let's say you're going to put on 15% of your portfolio into it.

Starting point is 01:55:44 I wouldn't tell you to step completely into it right now. I would tell you to just maybe say in an entire year from starting right now, to a year from now, I'm going to be in a 15% position, and then I would put in a linear just purchasing of those companies that you would identify as being the ones you want, and I put that on and just let it run until it hits that position a year from now. I'm curious if Stig would have a similar approach to that. I'm actually quite excited about rolling Canada, and I know I'm always seemed to be excited about all, but I also think you should be very careful, especially in Canada.

Starting point is 01:56:18 So this is really the key in terms of understanding the company that you are, that you're looking at. So a lot of Canadian companies are, no surprise, very much exposed to the Canadian industry. They are exposed to all sense. Now it makes a lot of sense that they're punished right now because before, well, I'll probably have a breaking around called 70, 80. I mean, they're really getting crushed right now. And if you don't think all we're going to that territory, you know, see a lot of bad things happening in Canada. Now, you also have a lot of all companies in Canada. They're not as exposed

Starting point is 01:56:54 to the Canadian industry. They are selling to the major vertical integrated companies all around the world. I think that's a lot more interesting. And they're getting punnings too because the market right now can't distinguish between where the risk really is. I would really think a lot in terms of where, what are their exposure. I would always do that especially for Canadian all the companies right now. Just because of the highest cost producer, really globally, I mean, they cost them the most to pull it out of the ground. So they're going to have the hardest time having any kind of margin and retained earnings

Starting point is 01:57:26 because of that. So that's where it gets really tricky when you're playing around with Canadian-specific companies. And to be honest with you, I've been quite surprised that we haven't seen as many defaults as we have south of the border. Some of the things you guys have shared on Twitter and on, on the show notes and everything have really shown a tremendous amount of default, but in the Canadian oil sands,

Starting point is 01:57:51 it's just not there yet, but there are some that are close. I think that's a testament. I can be completely wrong on this, but I think it's a testament of how well run they are relative to other. So they don't just crash. Yeah, around the globe.

Starting point is 01:58:05 I think that it really kind of speaks to the management and their ability to kind of manage how difficult the circumstances are. Yeah. So, all right, guys. I think that's it. I got to get to bed. It's midday. It was really, really nice to meet you.

Starting point is 01:58:21 So nice to talk. Nice meeting both of you. And congratulations. That's our three week anniversary. No big deal. Oh, yeah. That's great. Perfect.

Starting point is 01:58:31 So romantic. Guys, keep doing what you're doing. What you're doing. Your show is incredible. Such a tremendous resource. You guys are really good guys. Very intelligent guys. You guys have an amazing guests.

Starting point is 01:58:45 I don't know how you do it, but we don't either. No. Our pleasure. It was so great speaking to both of you. Okay. Bye. Thank you guys. See you.

Starting point is 01:58:56 Take care. Bye. All right. So we're going to wrap this up really quick because we know this was a really long episode, but for everybody that we talked to tonight, we are going to send them a free signed copy of the Warren Buffett Accounting Book. We are also giving them free access to Stig's video-based chapter-by-chapter intelligent investor course on our website. So thank you guys so much for participating in our

Starting point is 01:59:18 100th episode. And this is for you, audience. Thank you from the bottom of our hearts. You guys are the reason that we actually ranked number six in the world a couple nights back on iTunes for business podcasts. And like, we cannot thank you enough for listening to our show and supporting us and telling all your friends and leaving the reviews and like everything you guys are doing, we just were totally floored and humbled and so thankful for. So thank you so much. I personally can't wait to see how much we can all learn together over the next 100 episodes and I just want to take the opportunity to tell all of you how grateful we are. We couldn't have done any of this without you and I hope that in time we can

Starting point is 02:00:07 repay the goodwill you have shown us. This was such a fun episode to record and we hope you'll join us 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.com. Submit your questions or request a guest appearance to the Investors Podcast by going to www.com. If your question is answered during the show, you will receive a free autographed copy

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