Patrick Donohoe

TWS 38 | Financial Structures

Financial Structures: A New Gold Standard With Anthem Blanchard

April 16, 2020 Patrick Donohoe Podcast Comments Off on Financial Structures: A New Gold Standard With Anthem Blanchard

 

TWS 38 | Financial Structures

 

It’s no surprise that financial structures drive so much of the world: how people interact, how people do business, and how people consume. However, with the changing times, financial structures are also adapting, which means that it’s everyone’s responsibility to keep up with what’s going on and continue to be informed. Patrick Donohoe is joined by Anthem Blanchard, the Co-Founder of both AnthemGold and AnthemVault. Anthem and Patrick hit on the many ways that financial structures, as they are, play into our daily lives. They also dive into what could be coming next and how people can put themselves in a position where they can adapt.

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Financial Structures: A New Gold Standard With Anthem Blanchard

My guest is Anthem Blanchard. He is the CEO of AnthemVault.com, as well as AnthemGold.com. Anthem has a long family history of being in the financial services space, specifically around the asset that has proven itself worthy throughout history which is gold. His father, Jim Blanchard, was the primary influence and lobbyist to legalize the ownership of physical gold, which those of you who understand and know history was made illegal during the Great Depression in 1933. In 1974, Anthem’s father put lots of pressure and he did on previous presidencies as well, but they finally legalized the gold. Anthem has continued the legacy of his father and Anthem Gold is a traditional golden silver broker with vaults around the world.

They have lots of inventory where most don’t have any inventory. He has also taken it a step further. AnthemGold.com incorporates the idea of blockchain and cryptocurrency. It is the first cryptocurrency that is backed with a hard asset, which is gold. You’re going to get a kick out of this episode. He’s a genuine guy and intelligent when it comes to money and carrying on that family legacy and doing some amazing things. We talk about a lot of books and other things. We reference a few different areas where Anthem has been inspired and where he goes to find opportunities.

We have a new YouTube channel. It’s YouTube.com/thewealthstandard. We switched over from another YouTube channel. I hope you’re doing well. I hope you’re taking advantage of this very tumultuous time where it may seem like opportunities aren’t there. I realize how difficult it is looking around and trying to find the good in what’s going on but there’s a lot of it. I hope you are capitalizing on opportunities and seeing how things are going to evolve and improve and how we’re all going to grow from this set of difficult circumstances. Thanks for reading. Thanks for the support. I hope you learned something from this episode.

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Anthem, it’s awesome to have you on. Thanks for being here. Thank you for what you do. I’m excited to get your perspective about what’s going on. We’re in interesting times and you have such an incredible background and bring a perspective that most don’t have. First, as you sit back and paying attention to what’s going on, how do you characterize what’s going on in society and in markets? How do you describe it?

What we’re seeing is a great shift in value, understanding value and how we value services, goods, people and other things like health. It’s causing a big inflection because when you don’t have things, all of a sudden it causes you to think like, “Do I miss these things? Do I want these things? What was I doing these things?” It’s perverse in a way. I hate to even talk like that because it’s such a crazy, hysterical time for a number of reasons. I think that there are a lot of good positives that are coming out of this. You have to stay positive. Otherwise, you’ll fall into the doom trap and that’s a death spiral.

My kids are home and they were asking me questions about the music we used to listen to when we were kids. I remembered my brothers and I, my mom likes the band Chicago. It’s their song about you don’t know the value of something until it’s gone, until you can’t do something. You’re right. It’s being healthy or not being able to travel and having to be confined to close quarters. You start to value friendships, freedom, commerce and employment. As you get into the markets, that’s added a layer because you had the hysteria of the Coronavirus. Now you have the hysteria of the markets. You have those two things happening and here in Utah, you have the hysteria of earthquakes. It’s like three waves. As you specifically look at markets, are you surprised by how they’re acting like what’s going on in markets? Maybe speak to the bailout that is about to be passed and what you feel that’s going to do.

Anyone that would say they weren’t surprised by what happened, there wasn’t an emergency federal rate cut for many years and then two happened in three days. That was definitely a shocker. The unemployment numbers. It looks like there’s a chart error because the charts are so high with the number that they put out. All those things being said, you and I being in the United States, we should feel extremely grateful because of all of the 100-plus jurisdiction countries that we could be living in, probably the US will be the best off because it has the world’s reserve currency. Whether anyone else in the world likes it or not, the system is what it is and it’s a dollar system. I think it will fade into the sunset. I don’t expect it to pull a Titanic. We need it and we’ll need it until we don’t need it.

How would you explain to someone that doesn’t necessarily understand why markets would need rates to go down or why the fed stepped in and did this mass disruption to create liquidity? Why did that have to happen?

It relates a lot to the genius that you teach and that you help provide people with infinite banking and different products that provide leverage. That’s a microcosm of how the entire system works. That’s why it’s such an effective strategy. We probably are sitting on 4 or 5-plus quadrillion of US dollar-denominated, they call it interest rate swaps. These are very sophisticated credit instruments that the very largest banks and central banks deal in. When you look at these numbers, $100,000 per person in the US would increase the debt at $33 trillion, which is gargantuan by GDP. It eclipses GDP. In essence, that still would only be less than a hundred. That looks like a total US dollar derivative. There’s a massive deleveraging that’s happening. At the same time, there’s also a releveraging happening by the Federal Reserve because they agreed that US Treasury and part of the bailout to bail out the fed at least $500 billion for whatever.

In an attempt on the government side, that’s why you’re seeing this fiscal policy pushed by both Trump and Bernie Sanders and everyone in between of having to put dollars out there. An old friend of mine, Mike Maloney, told me many years ago that he expected one day to see lifetime tax refunds. I thought that was curious but in a way, I was like, “You might be right.” I think now it’s more evident than ever of his theory probably being proven true there. I think that’s the path because the system needs it for its existence. It needs to be reinflated with a value from the base level as possible.

What happens if it doesn’t get it?

We’re going to see massive credit contraction. In this day and age, because of what happened several years ago, the Federal Reserve spent so much time. We had experienced the longest bull run in security market history. The Fed, Ben Bernanke, Janet Yellen, the whole regime spent so much time putting in all of these backstop mechanisms to be able to show signs of strain with a push of a button. Kashkari came out and said it, one of the big fed heads. They’re going to push the button and they can print more. They can buy whatever they want. It’s what discrepancy of what they’re willing to buy. That’s what it comes down to and how much.

I know why that’s a good thing. If you have so much debt out there and you have businesses using debt to grow. People are using debt to go to college, buy a house and buy cars. I can see why it’s a good thing, where you have the fed stepping in and ensuring that that continues to happen. Why is it bad that that continues to happen? We always hear the positive. What’s the downside? How are we ultimately going to be even more negatively affected?

The downside is that the reality is 95% of the value will probably go to less than 5% of the people. The reality is most of us will get hurt more because our goods and services like what we buy and sell every day relative to what we make every day will become harder. It will become more costly, more expensive for most of us to live. You read about billionaire, art collections of CEOs and public companies that were bailed out. You can start seeing where a lot of this value goes like Art Basel, people buying bananas that are rotting to take the simple deduction because then you get the appraiser to appraise the banana that you bought for $200,000, whatever. There was a great meme about this.

We're evolving away from money to barter. Share on X

You take that appraisal thing and you donate it, then you get the deduction. You get the huge write-off from all the stock that you sold that you pumped up with all the buybacks. You decide from the zero interest rate policy or even before we went zero, still the rates were ridiculously low. If you were a big company, you could access them. If you or anyone else, you couldn’t unless you’re smart. They’re trying to find retail investors. The best way to get yield and leverage is a big part of the game.

What do you feel is the end game? A lot of these activities and what’s going on can’t happen forever. Plus you have a very globally connected world where when we do something in the United States, because of how we exchange globally, there’s an impact across the board as we’re putting $2 trillion into the economy. What’s amazing is I feel like the wall is being pulled over people’s eyes because there are these guys who are like, “You’re going to get $1,000. You’re going to get $500 per child. You’re going to get this money.” That’s a small portion of the bailout. It’s more than double that as far as other money that’s going to be created and go to certain places. As you’re talking about corporations that had their hand out for stimulus, whether it’s Boeing. It’s every industry. Everyone has their hand out. Why is it a bad thing that companies have to get to that point in order to continue their operations?

It’s a scalability story. That’s what you’re alluding to. What this whole problem is showing and exposing is that we’ve reached the limits of the scalability of the current economic system that we’ve had for thousands of years. That’s been a hierarchical, centralized, money-based, bank-based system, lending and fractional reserves ultimately to make up for the fact that none of us can trust any of us 100% because it’s impossible for any of us to prove 100% anything that we’ve done in the past. Because there’s always doubt, it causes fear and collusion to be necessitated. Who do we study in history? The people that get the wealthiest and the people that killed the most people. Are these things coincidences? No, they’re all a fact of what I call force commerce or forced marketplace. We’ve had to necessitate rules of force, reprisal and punishment in order to try to enable trade in the world that we lacked trust. I think what’s happening is that people are starting to appreciate this point because for every $100 of debt that the government, the fed, central bank around the world or government might add, at this point, they might only be getting $0.50 or $0.10 of new economic growth.

It’s diminishing returns. We’ve never had negative interest rates for this long of a period for this many debt instruments ever for thousands of years of recording in history. I was a finance accounting major and EBA. It defies the whole concept of risk-free rate. Once the treasury goes negative, which I expect it will happen eventually, probably in the next several months. That defies all finance axiom. That is the axiom of finance. You’re taught in every first finance class, the treasury is the risk-free rate. That’s one of the basis is that you apply everything else in finance on. I look at it like we’re moving to barter. That sounds crazy, but it’s moving away from this idea of a violent currency that has to be defined by people, governments, central banks, some third party conduit of value.

You want a good, here’s a key for it. You want a service, here’s a key for it. You want to get that key for good or service, you get that key and you trade. All the headaches of all your accounting, your bookkeeper, your auditor, your reconciler or your inputter messing up. All of these traditional business headaches that you and I deal with every day. This is going to be eliminated with the commercialization of Bitcoin. Bitcoin being the first trusted historical record that man has ever created and being the strongest historical record that men has ever created has led the path to create all these other communities.

What these blockchains are, they’re communities. They’re protocols technically, but they’re communities of people that believe in the value of the service or good that provided so much that they’re willing to contribute to the proliferation of this better service. This is the era we’re going to see. It’s going to be cooperation, voluntary-based instead of this idea of you’re forced to inscript in the government’s draft or this or that. It’s forced. Volunteerism isn’t really volunteerism. We’re going to be in a much better place. I hope we get through this time quickly and peacefully as possible. That’s my greatest hope.

What has to happen in order for a new system to take place? Because I look at what the fed has to lose, what corporations have to lose by the system that we’re in. Also when there is disruption among people, the emotions spread quickly. Look at the toilet paper idea. I get it. I know why a person would respond the way that they responded. It’s very irrational but we all do that. We’re all human beings and are susceptible to that. When somebody is in that fear and uncertainty mode, is that the time when somebody looks to a different system or are they looking to the same system for help and guidance, which is happening? What do you feel has to happen in order for us to go to maybe a new monetary system?

I think it’s both depending on the personality type. You can look at it by the numbers. Even the doom website like Zero Hedge were showing that the US savings rate is about 8.5%. I remember reading articles years ago, it was zero or negative. That to me is a great deal of this new devastated nuclear looking landscape that we’re looking at with stocks and monetary policy. Something that’s encouraging to me is that people are thinking about savings. That shows that people are thinking in that behavior. The fear part of it is starting to make people think about, “The way that I do things, how secure is it?” One of the areas that we specialize in is ransomware. I would argue the biggest under recorded story of 2019 and 2020 is a number of infections of ransomware.

It tripled in 2019 and year over year, 2/3 of those were government debts. The vast majority of them went unreported. I know of one case in Los Angeles in particular. You’ve never heard of this story. The City of Torrance got it. Another city that’s arguably the most important to a certain industry, that’s arguably the most important to the country, got hit twice in 2019 and didn’t report it. $7.5 billion of reported losses in 2019, 2/3 of those were government. Bitcoin ends up solving this issue because of the way that it’s distributing the data, rather than centralizing the data, which is what we have. Everything is centralized, whether it’s Google or Amazon or any of these services. There’s a central company and they might have decentralized depots of servers but at the end of the day, you still have to rest your information on one instance and then you’re on there one gigantic stride.

TWS 38 | Financial Structures

Financial Structures: Whether it’s Wall Street or big business, what they got away with was placing the blame on people’s irresponsibility with their mortgage, but that’s not what collapsed the market.

 

What they call public protocols is the techie term that blockchain was. There’s information all over the place. It’s like having an Easter egg hunt. They’re hiding a bunch of value all over your property instead of in one place with the additional benefit that they have to get every little piece of the code and put them together to have the whole thing be a value to them. This type of architecture is a hundred-plus times more secure than what exists now. There’s been a lack of recognition because even a city of under 100,000 probably has over $100 million budget if it’s somewhere between 50,000 and 100,000 people in this country. We’re used to throwing money at things, more municipal bonds, more bonds, more money into the same location, areas and things.

It takes times of stress to point out where the breaks are. We’re used to doing this in business all the time long, especially in software. They call it stress testing of the software where you do all kinds of crazy things to it in preparation of what happens in these what-if scenarios. I think we’re experiencing one of these macro what-if scenarios of the society. It’s causing us that I have a lot of inflection whether we like it or not, whether we think it’s a conspiracy or not, whether we think who’s behind it or it’s nature or not. Whatever it is, irrespective, it doesn’t matter.

To me, disruption is good. You’re hitting on something that I hadn’t thought about. I’m going to try to articulate it so that the audience can understand it. For those that don’t know what ransomware is. We got hit some time ago and thankfully we caught it within a day. We had cybersecurity insurance and we were able to shut everything down and do new authentication. It would have cost us $300,000, $400,000, but we were able to do it for our deductible, which is $7,500. I think our premium went pretty high at this last insurance. Our systems are amazing. My brother is second to the chief legal counsel for a big hospital network in Colorado and they got hit.

They had their information taken. They weren’t able to catch it and they had to pay $2 million or $3 million in Bitcoin. My brother is like, “No one even knew how to get Bitcoin.” It’s one of those amazing things where it’s happening everywhere. What it’s doing is it’s causing people to realize like, “Our systems are vulnerable. We need a new system,” but it hasn’t gone to the money thing yet. That’s what you’re more referring to. It’s gone to compromised systems. Being able to create stability to create security there, but when it comes to how you do transactions with other people, that’s what you’re referring to. It’s that second level.

It’s a little of both. For example, we’re talking with different officials in different states like Louisiana or Texas. Louisiana has been under a state of digital emergencies since August of 2019. They opened up a cyber-security fund like convention centers, state DMVs, the property assessors in cities getting hit. New Orleans is already over $20 million of losses and counting. Baltimore is over $30 million because they refuse to pay. The only way that you can get this data is to pay. They’ve been hitting their heads against their titanium walls.

We were in the gold business. We’re originally online gold dealer. We’ve started building a gold Bitcoin effectively years ago. Part of the obstacle that we stumbled on was how do we secure this stuff in the vault? How do people know it’s real? We ended up building inventory software called Hercules that we then realized you can apply this to anything. We anchor the information into Bitcoin effectively. By doing that, it provides any of that data with 100% assurance that no one tampers with it. That date timestamp, that information got saved that nobody could have gone back and changed anything. That’s part of what these viruses take advantage of because all it takes is one email, one bad attachment, one bad link and that’s it. Someone’s downloading Ariana Grande, bootleg, RAR file on a Win that hasn’t been updated and all of a sudden, the whole Windows environment and that whole organization is corrupted and it’s under ransom.

I want to make sure we hit the ransom piece because they’ll get into your systems. They’ll take your data, people’s names, phone numbers, addresses, Social Security numbers, medical records, whatever they have. They’ll take it and they may even lock you out of it. They’ve done that in some instances. Even if they take the data then they’ll say, “I have all this data, here’s proof. It’s going to go on the internet, the dark web unless you pay this.” I want to make sure that people realize that.

Sometimes with states, they even paralyze the actual mechanism. It was massive. NPR and Wall Street Journal did cover this one, but it was more like how Lubbock staved off the infection because they were like, “We ended up catching it early and unplugged it,” and someone didn’t click anything probably to have a code with the network, so that’s good. Lubbock did that but probably the other 21 cities didn’t. They probably got hit with a $3.5 million bounty that they probably paid because the story died after that. That’s what happened. Imagine if you could provide someone with an application like a Dropbox on the data side that’s ransomware resistant from these email spam attack. That’s what we’re doing. All of a sudden people are paying attention, not because they were paying attention before with the ransomware so much, but because of the Coronavirus. It’s a psychological thing. It’s causing people to stop and think more deeply a little bit about things.

We’re creatures of habit. The majority of what we do is unconscious and we’ve been used to doing it. You don’t adopt new behaviors unless there’s some disruption that causes you to realize, “I keep doing that. That’s not good for me. I need to figure out something else to do.” Let me gravitate towards what I’m being coming aware of talking to you because as I look at the question I asked, is it going to take a collapse or more disruption for people to adopt a new system? I’ve thought about it. What has been inspiring to me with this whole pandemic is how much humanity is raised to the occasion. We’re looking at the government for all the solutions. At the same time, I look at all the amazing technology, whether it’s the 3D printing of masks or whether it’s factories figuring out how to do ventilators. The guy that invented a ventilator that you could 3D print but is getting sued because of intellectual property stuff. It’s one of those things. Peter Diamandis, I’m not sure if you know who Peter Diamandis is. He’s in your neck of the woods.

It takes times of stress to point out where the breaks in the structures are. Share on X

I got to meet Peter luckily at a dinner.

I’ve met and heard him speak a couple of times. He has such an amazing perspective of the world and he helped me back in 2009 or 2010 when he came out with his book Abundance. Looking at what the XPrize does. Simply being able to say, “Here’s a $10 million XPrize. If you guys figure out how to solve this problem, the prize is yours.” They had $100 million XPrize to solve hunger or to sustainably feed a billion people. Sustainably is defined by less than a couple of bucks a day. It’s one of those things where you have humanity that is intelligent and connected but yet the government is still there because we’re used to having them there. I like your theory, which is you potentially have ways in which people get used to using blockchain for different protection measures and transaction measures. You have humanity coming up with solutions, whether it’s computing or industrial. The global supply chain is totally jacked and people don’t even know it yet. It’s the solution to replace what we used to rely on China for. I think humanity is going to be able to solve those problems and ultimately create a system of exchange, some of your barter comments, that will replace the necessity of a medium exchange being the currency.

That’s well said and we’re seeing it happen. We can have over three ounces of “hand sanitizer” in an airplane. That got abolished. There are all these petty crimes and things that are getting abolished. Why were we even doing these things in the first place? All of a sudden they’re lifting limits on FDA. The latest thing I’ve heard, which would be like XPrize Infinity is to up the crowdfunding limits and there will be no requirement. There are talks about maybe upping it to $5 million to eliminate the income requirements. Everybody creates an XPrize to $5 million if that’s where they cap it. Things are pushing in the right direction. It’s where you’re looking if you want to look behind you or in front of you.

This is a question I wanted to reserve to the end, but I’m going to ask it now. The place where people get their news and information. There are companies that are very tight, whether it’s with the corporate world and needing to have markets to operate as well as contracts with the government. Where do you go to get information that is as pure as possible? Pure, meaning we’re all humans. We’re all susceptible to error. You’re never going to have 100%. Where do you go to get the information that you usually do not get from standard media?

I would say the best place is communities that you already have. Social media communities, chat group communities, WhatsApp, Telegram, whatever you use, whatever you like. Those are great places because you’re going to get all these new stories in there and you’re going to get dialogue from people that you respect in some way. If you’re a loner and you don’t have any friends, then start Googling in points of interest. Go to a website and start commenting on comment groups and see where that leads. Find the community there. Those are the places. Interactive forums of information are critical in this day and age because it’s the one-way channels of communication that have done a lot of devastation and manipulation. That’s what we’re receiving from and that’s what this era represents of hyper peer-to-peer social interaction like TikTok, Instagram, Facebook and Twitter.

How do you disseminate what is an opinion and emotionally driven information that’s valid? That might be valid but it may not be. I was talking to my wife and she’s still freaked out because of these earthquakes. We talk a couple of times a day. She’s like, “Did you hear that Putin put 800 lions on the street in Moscow?” I’m like, “No way in hell did he do that.” It’s a fake news but it’s one of those examples. How do you disseminate what is true and what’s not?

Find an intimate group that you respect like that. Maybe it’s your spouse. Maybe it’s your brother, sister, your parents, grandparents, friends, uncle, aunts, cousin, blood brother, blood sister, whoever it is. It doesn’t matter. The most unintimidating way I think is meet up or Google something you’re interested in. Even like a decent-sized city, there’s probably a group. If there isn’t, create one. If no one comes to that first one, make it a little more general. Change topic and see. The best suggestion ever is stay curious because if you stay curious, you’re going to keep poking. Who benefits? How is someone benefiting from collusion, oligopoly and corruption? These are the ways that people become wealthy.

Our system that’s existed for thousands of years and we live in now were migrating to this new way, but no one uses Bitcoin, Ethereum, IPFS, Tardigrade, Hercules or any of these blockchain softwares yet in their businesses or in their governments. We’re out there to change that. The ideas, better, faster, more efficient, a hundred times more secure to bring about better accountability, better commerce, more peaceful world. There are less arguments about discrepancies to things like numbers that are critical in anything business. All of a sudden, all the conflict resolves down.

This crazy Tiger King Netflix thing, I think everyone should watch it because it’s an incredible entertainment. There’s an incredible amount of life lessons in this too. One of the big life lessons is how something that was two people feuding over baby cats. They went to someone getting threatened for the other person murdering them. All of these lives being disrupted. All these animals being killed, facilities being burnt. Plot spoiler but it’s way more interesting than that because it’s the human personalities that drive the show. To see ego, money, fame, sex, drugs and all these things that we’re all susceptible to and we’ve all done. This is an interesting time for all of us. Some things that maybe we have different access to or not the same access to that causes us to pause a little bit. It’s a hiccup in the schedule on everything.

You hit on something. This is something that I feel these days, it is easier to find what that something is more objectively and that’s incentive. Everybody has an incentive to behave and act. Whether it’s a $2 trillion bailout, a business or somebody writing a book. Everybody has an incentive there. It’s not a bad thing. We’re all driven to do that. We’re married because we have self-interests of wanting something for ourselves. What’s interesting is you have to be the opposite in order to get that. The idea is that knowing what a person is driven and incentivized by is vital. It’s knowing the intention. You go behind the scenes of why does Boeing need the money and where is it going? Why does this paper company, this railway or the NPR need all of this money? What’s the incentive there? Follow the money. You’re going to be able to determine the true story or at least closer to it. When it comes to literature, movies or people that have inspired you, what would you say are your top 3 or 4 that you have learned principles, you have learned truth, you’ve learned things that enable you to discern information and weigh them against what you’ve learned?

TWS 38 | Financial Structures

Financial Structures: It takes only one email, one bad attachment, or one bad link in order for viruses to take over your system and destroy or steal important data.

 

I’m named after a book Anthem. I have to say that’s an influential one by Ayn Rand. I’m named after an author, my middle name Hayek, a famous economist that my dad interviewed 35 years ago. It’s on YouTube. It predicts Bitcoin in the interview because he says, “The only way for nationalization of money is through some SLI mechanism.” They also started talking about using metal tokens effectively, which is what we’re doing. It’s freaky and you’ll see the comments on YouTube about Bitcoin and Hayek. It’s on Libertarianism.org’s YouTube channel. That’s a good one because it got some good comments on there. Ed Griffin’s book The Creature from Jekyll Island, that’s a great one. Bastiat’s The Law is a classic. It’s a very short book like Anthem but powerful messaging.

In terms of movies, Matrix trilogy, Star Wars trilogy. Any kind of episodic, even Marvel. Anywhere where you can see a storyline transition. It’s such a long storyline that it transitions between eras. You can juxtapose what’s happening with the change in the film’s narrative with what’s happening in the narratives of society. Sometimes it helps you to look at things differently. It’s like travel is nice. You go to a different place. You still eat, sleep, drink and do all the same things, but we do it in a different place and in a different way. Different things bond on us. That’s why I think film and music, you can call trigger. A lot of these document series on Netflix or an Amazon are great because it opens up some light and some darkness that we all have. We see it in extremes and sometimes gross extremes.

You need extremes. You need both sides.

That’s freedom. That’s their freedom to choose and the freedom to figure out because we’ve all seen people that are given everything. Harry is the best example of the Royals. That’s the best example of somebody who’s been given everything by their DNA. He doesn’t want it. He wants freedom. He wants his own identity. That is more important than money. That’s when you started thinking about what is money? It is a violent currency because it’s like, “Why do we have this weird relationship with it?”

Let’s end with you talking a little bit about your business, which is fascinating. The story of your father during the Great Depression. Gold was made illegal to own personally. You had to give whatever you had. Your dad in mid or early ‘70s influences the powers that be to legalize the ownership again and you’ve continued that. Talk about Anthem Vault, Anthem Gold, and the mission you have. I remember hearing it when we talked years ago about your Anthem Gold. I was fascinated by it and it’s awesome that you have figured out derivative businesses. Why don’t you give the audience an idea of what your business mission is, what you’re doing and how they can learn more.

One last book recommendation is my dad’s autobiography, Confessions of a Gold Bug. That’s a fun read too. The transcript is on Cato Institute‘s website because he’s a board member there for fifteen years. We started as an online metal dealer. We still maintain all the brands. Anthem Vault is a way that you can own gold and silver bullion for open. We have availability. We have access to availability. It’s Lloyd’s insured. You can buy and sell from your bank account in the US. We also have a gold token product that’s interesting named Anthem Gold. It’s available to residents in Texas, Wyoming, Montana and in 170-plus other countries. That shows you how many regulatory tapes there are in the US. You have to get licensing in the rest of the states.

For those looking for a drop-ship metal, because I know a lot of people were having a hard time. We have our Oklahoma based drop-ship dealer of Amagi and AGI metals. It’s famous in the Bitcoin world because it was the oldest precious metal dealer to accept Bitcoin. The founder of Ethereum, which has been the second most popular blockchain after Bitcoin wrote an article about this shop that we bought several years ago and interviewed the founder at the time. We’ve got Valcambi, Eagles and Perth. We can get gold, silver and metal too. If you’re interested, please contact us. We’ve got great support. We’re there to help people.

We migrated to an enterprise business. We have Hercules, which is the enterprise software that we built. We have a development company named Hera Software Development. It’s like our Red Hat IBM and Hercules is a little bit like our Linux Doc. What that is, is like an open-source software to enterprises. All of that’s the same. What makes us a little bit different is that we use this blockchain software and that makes us resistant to ransomware, which is something like the real plague that’s no cure like chloroquine, Z-Pack, vaccine or anything has been created yet.

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Anthem, it’s awesome to have you on. This has been fascinating. We should do another one this season talking about Anthem Gold and Anthem Vault. Let’s wait to see how some of this stuff plays out because I believe that there’s something about gold that is understood by those that have been around a long time. I think the younger generation will start to understand it better and gravitate toward it. It always happens, generation after generation. The way in which you’ve been able to modernize ownership is pretty fascinating. Let’s do another one. Are you down for that?

I’m down for that. It’s an honor. I have great admiration for what you built and what you do. It’s impressive because it takes a lot of math understanding to be able to simplify what you have and productize. Kudos to you. Anytime you want me on, let me know.

Thank you so much for reading. Anthem, you’re amazing. Thank you. I’m inspired.

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About Anthem Blanchard

TWS 38 | Financial StructuresAnthem Vault was co-founded in February 2011 by CEO Anthem Hayek Blanchard and President Cynthia Blanchard. Anthem brings extensive knowledge of the gold and silver industry to the company. He was raised by legendary goldbug and precious metals pioneer, James U. Blanchard III, who helped restore Americans’ right to own gold and also founded rare coin and bullion company, Blanchard & Company – once, the world’s largest.

A co-founder of cryptocurrency blockchain company AnthemGold Inc. (AnthemGold.com) and co-founder of precious metals dealer Anthem Vault Inc. (brands: AnthemVault.com, AmagiMetals.com), Anthem Hayek Blanchard also serves as both companies’ Chief Executive Officer as well as a member of both Board of Directors. He was raised by legendary goldbug and precious metals pioneer, James U. Blanchard III, who helped restore Americans’ right to own gold and also founded rare coin and bullion company, Blanchard & Company – once, the world’s largest. As Director of Strategic Development and Marketing with European-based GoldMoney, Anthem helped develop and implement their current business model, overseeing marketing and product development efforts which resulted in an increase of total value held by the company from $1 million in 2002 to $368 million by 2008; today, the company holds over $2 billion in client assets. He also assisted thousands of clients personally over the years, answering their questions regarding buying and selling gold and silver. From 2010-2014 Anthem served as an independent director and member of the audit committee, compensation committee and nominating committee at Pernix Therapeutics Holdings Inc. (ticker symbol: PTX, traded on NASDAQ), a pharmaceutical company based in The Woodlands, Texas. Anthem holds a Bachelor of Business Administration degree from Goizueta Business School at Emory University, with concentrations in Professional Accounting and Finance.

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TWS 37 | Royalty Exchange

Royalty Exchange As A Unique Investment Class With Matthew Smith

April 13, 2020 Patrick Donohoe Podcast Comments Off on Royalty Exchange As A Unique Investment Class With Matthew Smith

 

TWS 37 | Royalty Exchange

 

In these times of volatility, it always helps to find other investment opportunities to diversify. Sharing in this episode a unique class of investment that does not really exist anywhere is Matthew Smith. Here, Matthew talks about his company, Royalty Exchange, and how he stumbled upon the royalties niche and created an online marketplace and auction platform where investors and artists can buy and sell royalties. He gives us a view of what goes on in this type of non-correlated asset investment and explains how it goes about intellectual property laws as well as the global demand and consumption for these different types of media. Bringing to light the current situation we are all facing, Matthew then gives his thoughts about the economic reality of the world and why it could open an opportunity for your business to restructure.

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Royalty Exchange As A Unique Investment Class With Matthew Smith

I have a special guest. His name is Matt Smith. He’s the CEO of Royalty Exchange. Matt has been a mentor of mine for years. He was my formal business coach for the better part of three years and one of the smartest in business that I know. He has a cool business. Talk about a non-correlated asset investment and a unique class of investment in and of itself which doesn’t exist anywhere. Matt’s background goes into a lot of entrepreneurial ventures including publishing companies. He’s bought and sold many, as a partner in many, has a brilliant marketing mind. He’s also a passionate, free-market advocate. His venture is dedicated to one of those demands in the marketplace when it comes to an income stream that comes from royalties.

He is facilitating a company in a way to monetize that where it makes sense for an investor and the intellectual property owner. You are going to enjoy it. He’s really smart. Follow him on social media and sign up for a Royalty Exchange account. You can see how cool the platform is and this investment class. I hope you are doing good in relation to everything that’s going on. I know it’s crazy out there. I hope you’re safe, healthy, and happy. It’s one of those times where we realize the value in things that we take for granted and I’m grateful for this time. It’s challenged me from a business standpoint and from a personal standpoint. I hope you are looking at this as being a great opportunity to grow. Hang in there, enjoy the show and we have a lot of cool episodes coming up as well. Stay tuned for those. Here’s my interview with Matt Smith.

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Matt, it’s awesome to have you in. Thank you so much for taking the time to do this. 

It’s my pleasure.

I have tremendous respect for you and what you’ve done in business, what you’ve taught me personally. I’m excited to interview you because we’re in the times that we haven’t experienced before because of the global nature of things and how interconnected we are. There’s news all over the place and we’re hearing tons of information, good and bad. I’d love to get your take on that first and then get into what I feel is an amazing company from what you’ve built and it is super niche. It’s one of those investments and businesses that people know about the idea at the same time, being able to turn it into some an investment opportunity is quite something else. First, you’re plugged in and you’re an intuitive person, a deep thinker. How do you view markets as they stand? What’s going on in society? The huge volatility swings with what’s going on, what’s your view on that? 

The major issue that’s going on has to do with the Coronavirus, but my view is that is not the cause of all the market volatility. It’s adding to the concerns that the market is trying to deal with but there was deeper toxicity within the system already that’s been there for a while. It’s a credit bubble we’ve been building for a long time. The pin has pricked it and all the wild swings are the market trying to find some sense of value.

It’s been amazing how quickly it’s gone. It’s surprising to me, it’s like these huge corporations but then it’s like, “We need a bailout. We need money.” It’s just ill-prepared from a number of different perspectives. 

That is one of the most shocking things. Is anyone in America ready to go a month? Nothing has happened yet at this stage in America, not serious at all yet. Everyone is screaming for bailouts and it shows how ill-prepared everyone was. There’s no resilience whatsoever. In the most families balance sheet certainly but definitely in none of these huge corporate balance sheets at all is unbelievably awful the way they’ve been managed.

It’s interesting to see how well-prepared the government was to figure out a way to spend $2 trillion. I would challenge anyone. You have a day to figure out how to spend $2 trillion, go. 

It’s going to take 1,100 pages.

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They were prepared to do that but they weren’t very prepared to do anything else. 

The markets are a place that you prefer not to be involved with if you can help it because their situations may not have a choice. The volatility is going to continue as the market tries to digest everything that’s going on in the world of what the economic reality will look like. All the big companies have moved guidance. You can’t value a company on P/E ratio. No one has any idea what the E will be at all. A lot of things are out the window and it’s a very uncertain time if you’re a stock market investor, that’s for sure.

One thing that we haven’t discussed in the show and you’re versed enough to maybe talk about it before we get to Royalty Exchange. The word, buyback, is a big part of this stimulus bill and preventing buybacks. People understand dividends. They understand big bonuses to CEOs. Why is buyback in there? What does it have to do with the credit bubble that you mentioned?

Stock buybacks in and of themselves, there’s nothing wrong with. In fact, it can be very good for the investors in those companies but like most tools, if it’s abused, it can cause a lot of damage. Because of the way that the taxation works in these corporations, if you’re looking at, “We can do a dividend distribution to our shareholders or we can buy back stocks in which case increase the per-share dividend that everyone’s getting.” They choose most often to do these stock buybacks because it’s more tax-efficient and investors usually celebrate that idea because it’s fundamentally good for investors. However, it’s executive pay packages that these supposedly the leaders of these big companies have had are usually connected to stock price. One way to make sure that your price goes up is to take a lot of the stock out of circulation.

The stock price goes up because there are fewer shares but no improvement to the corporation has been made. Meanwhile, if you’re doing that especially at the expense of preparing for a rainy day, it’s absurd that Boeing is going to shut down and then that CEO comes on and says, “If there are any restrictions on any benefit from you, we’re not having anything to do with it.” I was like, “Great deal. Sell your stock to the public market. It’s a raised capital like any other company you’d have to do.” Stock buybacks aren’t bad but they were abused and they were given preference over, they were making investments in the long-term or preparing for a rainy day.

That’s coming back to bite companies in a serious way. The one thing that reveals what we’re talking about though about the underlying toxicity in the market relating to stock buybacks is that all of the improvement, the increase in share price over about the last eleven years and the S&P comes from stock buybacks. If those companies weren’t buying back their shares over that time period, the S&P would be the same level it was 10 or 11 years ago. It makes you wonder what was even happening in the market if it was the corporations using all the cash that they were generating to buy their own stock, it was a giant financial exercise. It didn’t serve anyone very well.

It’s the unintended consequence of low-interest rates. The theory behind low-interest rates is that people will borrow and be more productive. With corporations, they would take on big corporate debt at low-interest rates that pension companies would buy or other big institutional investors or sovereign funds would buy then they would use it not to increase the value of the company by innovating R&D infrastructure, they would buy back their stock with it.

Even Apple who has something $250 billion in cash. A big part of it is because a lot of that cash is overseas and then if they brought it back then they’d have to pay taxes on it instead, they sell bonds and then they use that debt to buyback their own stock. This financialization of the world has not been good for the world.

There are those that have incentives to do it. You had mentioned that before, keeping shareholders happy, maintaining a dividend level, maintaining a consistent growth and their specific benefit and incentive packages. At the same time, it’s put them in a pickle because they have big debt payments. If they start to go down in value, that’s ultimately not going to be good. That’s interesting to see how this all shakes out. 

It will be very interesting to watch.

TWS 37 | Royalty Exchange

Royalty Exchange: There is nothing wrong with stock buybacks in and of themselves, but like most tools, if it’s abused, it can cause a lot of damage.

 

At the same time, sometimes failure and even bankruptcy, most people think bankruptcy is the company goes under and they’re no longer around. The bankruptcy is simply restructuring and settling with predators. It’s healthy for a company sometimes. 

Bankruptcy laws are designed to preserve the assets and to preserve the capability to be productive but basically wipe out the capital structure in the organization. I was talking to someone else about this and they hear these threats about the airlines going bankrupt. I said, “Did you fly in 2012? All the airlines went bankrupt during that time period but they didn’t cancel flights.” They didn’t fire the employees. The planes kept flying but they went through a bankruptcy where they restructured all their debt, they restructured the equity. That’s what they should be doing again. They’re putting fear into people that bankruptcy means it’s the end. It’s trying to protect this investor class. It’s a big mistake.

The definition of that word needs to be understood. It’s equated to failure and obsolescence than it is to a good thing to restructure. You hit the nail on the head, the capital structure. The capital structure of most companies, they want to stay relevant. It has to include a lot of debt. 

They can’t survive on it. I was talking to this person about this, I said the same thing with personal bankruptcy. It is seen as a black mark and a failure. If you get to that point, things have gone bad but we’re a society that believes in the opportunity for renewal. It’s the opportunity to do it over that you aren’t condemned forever by something. There are consequences for filing for bankruptcy but when you come out of it, you come out with a chance where there’s hope that you can be productive and contribute again. They’re there for a reason.

The quicker you can start the process over, the lesson’s done if you keep prolonging the inevitability of failure. You’re not going to be able to start the cycle over again or to learn the lesson and apply it to have an even better business. 

The bottom line is it’s supposed to be a good application of capital. You deploy capital in productive uses, then you’re rewarded for that use. Bankruptcy is supposed to breakdown the misallocation of capital. We make it so that the new people can come on and use those productive assets and do something with it. It’s an important part of a capitalist system. It’s not that we’ve had exactly a capitalist system for a while but it proves it again that it’s less existent than ever. Our first instinct is to bail everyone out right away.

The best thing would be for some of them to fail because it would replace leadership, it would put better people in there, and more innovative people in there. That’s healthy because that’s one of the worst things. It’s the whole moral hazard idea where morally, we learn when we fail. That’s a good thing because we’re better and we’re stronger when you prevent that. People don’t learn the lesson they should have and that means that they’re going to have to learn at some point in the future. It’s going to be bigger.

In many ways, if you’re a parent and you don’t allow your child ever experience any negative consequences for anything that happens in their life. Are you helping them or are you hurting them? Negative feedback is a gift and it helps us adjust to course-correct and make better decisions in life and be more successful. It’s critical and moral hazard is everywhere.

One of the guys that formed an affinity toward is Ray Dalio and he’s a successful guy, big hedge fund guy. He wrote a good book called Principles. Principles relate to business and they relate to your personal life so I respect him. One of the things he says from a financial standpoint is when you’re making an investment, you want uncorrelated investments as many as possible. I would say even though you have different sectors, classes of investment on a trading floor or an index, you still have these shifts that regardless of the sector or the industry will fluctuate with the tide. He talks a lot about the idea of uncorrelated assets.

He also has an amazing video. It’s called How the Economic Cycle Works. It’s not the philosophy of it, which is interesting. Most people have a philosophical approach to how things should work but he talks about how it works which is fascinating. Going to the uncorrelated investments because of how cycles work, there are opportunities when things go down and opportunities when things go up but they may not be in the same class of investment. That’s why I wanted to bring you on, and maybe you can comment about Ray Dalio and about economic cycles. I want you to talk about the niche that you discovered, which I would say is an uncorrelated investment that I don’t know if there’s any other platform or other opportunities to own it but through Royalty Exchange.

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Ray Dalio is brilliant. He has had the longest untarnished record of investment of anyone. It’s quite impressive and his book is very good. I also think that he has a children’s version of that. There are some good points for people and my kids have read it. He’s got a lot to teach us, that’s for sure. The market’s activity is shown how correlated everything is especially if you haven’t been in the markets for a while. We’re surprised that the gold got crushed at the same time as everything else. In 2008 that happened too for a while at least. When there’s a demand for dollars, everything goes down. Everyone needs liquidity. The point about correlation and where Royalty Exchange fits into that is what our business does is we work with one-side artists. It’s almost all in music although we’ve done a couple of things outside of that.

These are typically songwriters often for major acts for major artists who know and love. It’s the music you listen to on the radio, but behind that artist are often several songwriters who craft the work. They earn royalties on the use of that music in the same way that the performing artists would. In some cases, in a better way than the artists would. Any song, every time it’s played on Spotify, radio or whatever, there are royalties earned for these different rights holders and it generates substantial income for those artists. If you look at Spotify for instance. If you want to go look at a publicly-traded company that is focused on the music business, you’ll see that something around $0.70 in revenue they bring in, they have to pay out to the rights holders. That would be the labels of performing artists, the songwriters, the publishers that own the IP.

Their cost of goods sold is incredibly high for that business especially because of the boom in streaming over the last several years, it’s been good for rights holders. It’s used to be in the music business that music almost all of the revenue is generating music business was from new work, from music that had come out and out for less than eighteen months. This changed because of streaming and more than half of the revenue that’s created comes from what the music industry calls Deep Catalog. Deep catalog and music businesses are only music that’s been out for more than three years. That’s how short-term thinking they typically are. For instance, Dire Straits, if you remember who Dire Straits is, they haven’t disbanded in the mid-‘90s. It’s a long time ago and yet I own personally some royalties on their music and my portion of the royalty income grew 12% in 2019.

Even though the band hasn’t been performing forever that the music is old because of exposure on these streaming vehicles, it’s generating more and more income. It’s the rising tide with the music industry essentially. In any case, what we do is we work with artists who own these rights on one side but have a need or desire for a lump sum payment for it instead, then we work with investors who are looking for yield and match them up in our marketplace. That’s what Royalty Exchange is all about. We were talking before about market correlation. Most of the royalties that we sell on our platform are what’s considered songwriter public performance royalties. That’s a whole specific class of music royalties. I could go into more degree than anyone is interested in about the different slices of royalties that are there. We looked at that specific slice in particular and we looked at the income that’s produced from that or paid out to artists for that during the last major market downturn we had during the financial crisis.

We compared the growth and distributions to rights holders, compare that with the growth in dividends within the S&P 500. There is no correlation there at all. Dividends from S&P companies during the financial crisis shrank because they had to cut dividends to save capital and all that. They continued to grow throughout that entire period from music royalties. There are a couple of reasons for that. Part of it is that the consumption of music isn’t fundamentally altered by that activity. That wasn’t related to the financial markets. The second thing is that there are long-term contracts, the licensing agreements that exist.

The radio stations and all of that have these long-term licensing agreements with these public performance companies. There’s a multiyear delay. If their ad revenue is shrinking, they can’t justify as big of a licensing deal with these performing writers organizations that represent all the artists. What happens a few years after the downturn has happened, they renegotiate a new deal that’s under slightly better terms but it often works perfectly in terms of the market correlation. Once the market catches up with that downturn, the contract is already there and it continued to be paid out among those old terms which were created during the good times.

I would look at a potential inverse correlation because you’d think that when things are going down where there’s a correction recession, people would want to be lifted up by listening to music or increasing their entertainment. Was there any inverse correlation based on that?

It’s hard to know if the consumption increased during that time period. The general business was in a decline. The music business was in a big decline after the introduction of Napster in the year 2000. That major crosscurrent happening. You also had the rise and there were digital downloads through Apple Music or iTunes at that time. Streaming was starting to come in the very early stages. There are those major crosscurrents, it’s hard to see there. I will say I did see some information showing that streaming consumption went down. This is the first period where what’s the turmoil that’s happening in the United States. That doesn’t substantially affect most of the deals that happen on our platform because of the specific rights that we sell on our platform. That’s because people are staying home and they’re don’t have a commuting time, maybe it’s cut there. It wasn’t a huge decrease but there was a little bit. Maybe a rose is watching the news to figure out what was going on in the world. It had been that but we do see from 2008 that the distribution starters continued to grow while distributions to investors and S&P shrank.

Are you paying attention to how intellectual property and royalties will work globally? Is there any traction there or is that a throw out given the complexity of every country’s intellectual property laws? 

It is deeply complex but there are organizations that are set up in every country around the world that manage the use of intellectual property within that country and the agreements for use by people in other countries. If you think about Spotify, for instance, how they waited for a long time before they finally did pull it in the US. It was because of these unique territorial licensing agreements that had to be worked out with the music labels at that time. International is a strong component of royalties that are earned. One of America’s great exports is our culture film, TV and music. A big portion of the royalties that are created are generated overseas.

TWS 37 | Royalty Exchange

Royalty Exchange: One of America’s great exports is its culture—film, TV, and music.

 

There was a presentation I saw and it was Peter Diamandis who was giving it. He was talking about the growth of people coming online and it’s going to double in the next couple of years because of the satellite infrastructure that’s going in place. You’re right, it’s one of those things where whether it’s TV shows, movies or pop culture music, the more people that are online, the more people are going to have access to it because more underdeveloped countries don’t have the structure in place to create the songs, not necessarily have the ability to come together as multiple artists with that organization to you get the same quality. I think you have some protection there. It’s also interesting how the global demand will increase and improve royalties as well. 

The other thing I would say is that you might be familiar with Techstars, which is a technology incubator. They have franchises all over the world for different sectors and there’s one for music. We’re one of the sponsoring members of it meaning we contribute capital to fund the different startups that are going through the incubator. Alongside of some of Warner music, Sony Music, Sony Corp Innovation Fund is in there and lots of other people in the music business. The music industry has a bad reputation. It probably well-earned in part for not being innovative when Napster came along for missing that and then not adjusting well to it and got dragged kicking and screaming into the streaming world.

It doesn’t seem that’s what’s happening anymore. It seems like they learned. I’m working with the different companies that are coming through the Techstars incubator. You can see that they’re constantly looking for new ways to license the music, license the IP anywhere they can whether it’s new consumer apps like TikTok. Your kids or grandkids and the people reading this know what that is. It’s been huge and driven a lot of new royalty income for rights holders that didn’t exist a year ago but it’s a big source of revenue. In gaming licenses for within video games, all of that’s happening. The music industry is finding new ways to bundle in licensing opportunities with music into other experiences. It is also proven to be a significant driver for ongoing royalty revenue.

My mom was a music professor and I grew up around music. My brother is a professional artist in Vegas. Music is one of those things that I’ve come to believe is a part of life. It’s part of what motivates us and what gets us through things. It’s cool to see how businesses are innovating ways to bring those opportunities, bring music to more people and finding innovative ways of doing it. If you look at all the different technologies that are coming soon, AR, Augmented Reality. Maybe VR gets a second wind. Anything new like if it’s just it without music, it’s not the same regardless of what the technology is. 

I’ve said to people, “If you ever do a video of yourself, you’re filming yourself doing anything and you feel like you looked silly, slowed it down and add a soundtrack, you could make anybody look a hero.”

If you put like 30 settings to the 23.98 frame rate and then you put some music to it, you look like you’re a movie star. 

The music invokes things in us, we don’t realize even so it’s huge. There’s a lot of innovation happening around it maybe it was late to the party but they’re doing a good job and that’s going to create ongoing sources of earnings for rights holders.

Going to the Royalty Exchange platform, it’s not the primary artists. It’s the one that’s on the title of the song. 

A lot of times, it’s not the performing artist.

It’s the songwriter or one of the musicians that’s playing an instrument. They have these streams of income coming in. They sell that stream of income on your platform for a lump sum. They need money for whatever purpose. 

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A lot of people go, “Why would they sell?” You have to understand. These are the original gig workers. You’re talking about Uber drivers and people like that that are unbankable, meaning if they want to go get a mortgage for their home, it’s difficult. Musicians looked like unemployed people. Songwriters look completely unemployed. Their access to capital than out of the capital markets doesn’t exist. With all of us, a little bit of injection of cash at the right time in your life can have outsize gains in productivity and what’s possible in our careers and futures, the same is true to these artists. This is the platform that creates a competitive marketplace where they can get fair market value for their assets.

What’s unique about Royalty Exchange is on the platform first, anybody can go on there and register. Is that still available? You can go on and see what’s up for bid but that brings up that point of auction. Can you talk briefly about the auction component of how somebody goes about buying a royalty stream?

There are two ways now that people can buy assets in our marketplace. The primary way and what we’re known for is auctions. What happens is we work with an artist, we validate the income from the catalog, and we validate that they, in fact, own and have the ability to transfer it and then we set it up for an auction. Something like eBay and Sotheby’s mix. Some of the assets can be expensive. We’ve had assets that are in the seven figures that have been auctioned on the platform but the average bundle of rights that gets auctioned off on the platform is about $60,000. It’s what the ending price that is on it. There’s a big range of different assets to get auctioned. If there’s an investor, if you’re interested, we have every auction we’ve ever done, they’re all there.

You can look at the bidding history, what music was, what its earnings were, and how much it sold for. You can get a lot of information by looking at what’s there. Like on eBay, you can watch an auction so you can see how people are bidding on it in real-time. I would encourage, if you’re interested in this at all, do that. Go look and watch auctions but don’t bid on anything right away. Watch some stuff, see how the market works, see how other investors who’ve been bidding on things for a long time. Interact with it and you’ll get a much better sense if it’s right for you at all and if so, at what level? The other part we have, and this is relatively new is a secondary market. Any assets in the past transacted on the platform get automatically listed in the secondary market. Once they’re listed in the secondary market, you can see the assets and what their income is.

If the owner of that asset, this would be the investor, are interested in selling it, they can list the list price. They can say, “If you’re interested in this, I’m willing to sell it for this price.” That’s listed there. Alternatively, you can make an unsolicited bid on any asset that is there. There’s a much wider variety than you would see up for auction at any one time. There are 150 assets in the secondary market. You can compare by age, how old the catalog is, by its earnings of the catalog and you get lost probably because there’s so much information on each one. Auctions can make people nervous. I’ve been known in charity auctions to make very rational decisions, get competitive in them so you’ve got to be careful with auctions. In the secondary market, you can peruse at your own interests and you can place unsolicited offers for people. If they accept it, we’ll facilitate the transaction in the background.

Let’s say I invest in an album or invest in a product and now the income starts, does that come through your platform? Is there an escrow account? How does all that work? 

Here’s the most important thing. When you buy one of these, it’s not as though you need to rely on the artists sending you a check every quarter. What happens is title is transferred at the organizations that collect and distribute the royalties level and they assign the royalty to the new owner. We would handle those all individually. We would individually title them all and people would receive. If you own ten of them, you will get ten different payments from these PROs, Performance Rights Organizations. It’s difficult to keep track of which one is which, but we would have them send all the checks to you. Since then, we started offering a free service for people, we collect and then immediately send out the payment to people. The reason we do that is one, we can see if there’s an issue.

If you have a question about something that’s going on, we can help facilitate and answer for that versus hundreds of other people calling these organizations that aren’t used to it all dealing with investors, they’re used to dealing with artists. If it comes a time where you want to sell the asset, we can facilitate that much more quickly because we have an ongoing record of the performance of the assets. We facilitate the transaction or the ongoing payments for our investors. The payments in most cases, they occur every quarter. When I say most cases, sometimes if it’s with the label, the label might only payout to the rights holder twice a year, for instance, some pay every single month. The typical arrangement is every single quarter, it pays out of check. On average, those checks amount into a little over 12% return for the investors.

Talk about the taxes. Are royalties taxed differently than other assets?

It depends at what point in their life cycle you’re looking at. From an investor perspective, if I acquire somebody’s royalties from them, I’m paying them and then they’re going to pay a capital gain on it. Instead of paying, they would normally be paying royalty income on it but they’re going to pay a capital gain. I encourage everyone to consult their own tax authority or tax accountant. I’m not a tax person but it’s a lot like real estate. In that, you can amateurize the cost of the asset over time. Depreciate it. That offsets a substantial portion of the income unlike real estate, which might have a schedule of twenty years or something in most cases, typically ten. If it’s generating a 10% yield for you, your tax base on this can be low. You’re going to be in a good position. The poorly understood things about this asset class is that from a tax standpoint, it has special treatment in the Tax Code and it’s good for investors.

TWS 37 | Royalty Exchange

Royalty Exchange: A little injection of cash at the right time in your life can have outsize gains in productivity and what’s possible in our careers and futures.

 

Do you communicate or have ways like accountants have somebody who had been invested in something in this direction that they can use and understand the income stream better?

We have a letter from a tax attorney that describes the way and points to the parts of the Tax Code. We facilitate the general guidance from this tax accountant but we don’t set people up with bookkeepers or anything like that around it. That’s something they have to handle on their own. We haven’t heard of that being a major problem for anybody yet.

It’s fascinating and it’s one of those assets that people are familiar with what royalties are. The artists, movie stars and actors get it. At the same time, how that has been turned into investment opportunities? There are not any opportunities. You had mentioned once that these types of investments exist at a high level like Goldman Sachs or a BlackRock level but not necessarily at the retail level. 

That’s been bad for both sides because it used to be the big featured artists that had a deal that was big enough and could go and get liquidity through somebody like Goldman. Before the hundreds of thousands of songwriters who contributed substantially to these works, the size of their catalogs were not big enough. The income, while it’s generated $25,000 a year for them in passive income, it’s great. From an investor, I’d go, “I would love doing that passive income if I can buy it at a six multiple or an eight multiple, I buy it all day long.” For them, there was no market for this. They had no access to liquidity and investors had no access to the yield. Our goal is trying to make it so that it’s not just the superstars and not the Goldman Sachs of the world that the transact. We’ve done well with that. I want to say one thing about how long the royalties last. That’s one of the common questions we have.

In US Copyright Law, anything after 1978, it looked like this. The IP is owned by the rights holder for life of the last living author plus 70 years. You might have three writers on one song and it stays for all three of those rights holders or their heirs until all of them are deceased and then the 70-year mark starts counting. They last for a long time. On our platform, we sell primarily the royalties in one of two ways. One way is life of rights, which is for life of the last living author plus 70 years. The other way is a ten-year term. You’re buying the right that income stream over the next decade. You get 100% of the income that comes from it. After that ten-year period, it goes back to the original rights holders. Both of those are available on the platform. Which one is better? It all depends on the price. Most of the earnings of these things, if you’re doing it for forecasting out, the biggest value of those earning is going to be over the next decade. As assets that generate income that are uncorrelated, it’s unique whether it’s for 10 years or for 70.

Is that choice done by the holder of the IP or is it done by the investor? 

It’s done by the holder of the IP. They’re told from early in their career, “Don’t ever sell your royalties. Don’t ever sell your rights.” The reason for that is because you always hear these stories about artists getting these awful deals with labels and things like that. That knowledge has been passed down. Try and keep them from getting in those bad deals. Some of them will live that way until they die, they’re never going to sell their rights. By having the ten-year option, it opens up the possibilities.

Matt, this has been fascinating. Thank you for sharing all of this. I love your platform too. Can you give the readers some ways that they can connect with you or connect with Royalty Exchange, get on the platform and look at what’s going on there? 

The best thing you do is go to RoyaltyExchange.com. You can see all of the things we’ve ever done on there, all of the assets that have transacted. One of the other things is that this space has always been prone to secrecy. When deals happen, they’re behind closed doors. No one talks about the multiple they went for anything that. We’ve done hundreds and hundreds of transactions and all the information on them is in the public domain. You can get a good sense of how the market functions and it makes it so that you can participate in an intelligent way if it’s right for you.

Matt, it’s awesome to connect with you. Any last words? 

Thank you for your time and all that you do, Patrick. I appreciate it.

Thanks for reading. I hope you enjoyed. Make sure you go on to iTunes, give us a good review. We also have a new YouTube channel, that’s up and running. YouTube.com/TheWealthStandard. We’ll see you next time.

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About Matt Smith

TWS 37 | Royalty ExchangeMatt Smith is an experienced entrepreneur, investor, and advisor who has founded and led multiple successful businesses. He is a passionate free market advocate dedicated to providing rightsholders and creative professionals with fair financial options, and has extensive experience with alternative investment strategies.

 

 

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TWS 36 | Alternative Investments

Exploring Alternative Investment Opportunities With Dave Zook

April 2, 2020 Patrick Donohoe Podcast Comments Off on Exploring Alternative Investment Opportunities With Dave Zook

TWS 36 | Alternative Investments

There is no question that in some areas, there’s been a tremendous loss in the typical investments, especially with the tax law changes. Unknown to many, there are great opportunities that exist in the form of alternative investments. Joining Patrick Donohoe on the show today is Dave Zook, the Founder, and CEO of The Real Asset Investor. Dave is a successful business owner and an experienced real estate investor active in multifamily apartments, self-storage, and ATM space. Together, they explore Dave’s investment philosophy as well as his strategies for making investments and structuring deals especially with the current state of the market.

Watch the episode here:

Listen to the podcast here:

Exploring Alternative Investment Opportunities With Dave Zook

I hope you are doing well. I’m going to stay on topic and the course of our theme this season about alternative investments. First, I’ve had a lot of you reach out to me about the earthquake that happened in Salt Lake City. I was in my office sitting right in that chair over my shoulder. It was a 5.7 earthquake. I’ve never been in an earthquake before. What a rush of adrenaline. I didn’t know what to do. I felt like the whole building was going to come down on me. My wife called, I answered and I could hardly talk. I was wired with adrenaline and energy. Thanks for reaching out. I appreciate that. Everything’s good. The building is old but she survived. There’s no noticeable damage, the same thing with the house. I live in about 3 or 4 miles east of here. Everything is good as if the change in the chaos wasn’t enough with the Coronavirus and how the world changed and the earthquake on top of it.

We’ve had a bunch of aftershocks but all good. I hope that you are taking advantage of this opportunity. I don’t mean capitalizing on business or investment opportunity but I would say capitalizing on being a different standard than how the status quo responds to times like this. Shutting down, being afraid, hiding in a corner and sitting on the sidelines. Getting into the game when you’re winning or you’re playing a team weaker than you, I don’t think that’s winning and success. These are the times when it puts you in the position of very simple choices and it’s a choice of mindset. It’s not a one-time decision, it’s a decision that has to be made daily. It’s to choose to rise to the occasion, choosing to be the leader and the voice setting a new standard. A standard that doesn’t succumb to the status quo of what everybody else is doing and saying but it’s being a solution. It’s taking the lessons from the last five seasons of the show into an environment that you can thrive in. It’s almost perfectly designed for what we’ve been speaking to the last several years. I realize it’s hard.

Any successful entrepreneur has got to have the grit and got to hustle and go out and add value to the community and the world. Share on X

When you look at the instinctual unconscious reaction to certain things, it doesn’t always serve you. I believe nowadays, it doesn’t serve you at all. Being cautious is important. Beyond that, I would look at this as a tremendous opportunity to serve, to add value, to use what’s inside you to make a difference in somebody else’s life. It may be a good conversation. That’s what I’ve been encouraging my team to do. There are only so many things that we can control. You can control how you show up to a conversation and being the best conversation of a person’s day, and adding value wherever possible. There’s a tremendous opportunity for that. We’re seeing corporations all around the world rally to be the solution. Everybody looks to the government to be a solution. I think that’s a terrible solution. I’m not going to get into that but I believe that you look at the entrepreneurial companies that are finding ways in which they can make a hand sanitizer and ventilators. Figuring out ways to provide medicine, make the vaccine process accelerated.

There are many examples of this. You don’t have to be an example in that regard. You can be an example in a simple way whether it’s helping your boss or company to go virtual. Being able to provide value through Zoom, podcast, webinar, sending an email or using social media. There are many different opportunities to do good and I get it, it’s hard. I don’t think the challenges are going to stop just the virus. It’s going to be even more challenging business-wise. Those are things we can’t control. We can’t control our reaction to these circumstances. I believe that if you are a longtime reader, there’s so much opportunity to do good because there is so little of it. Be that voice, be that change. I know you can do it. We transitioned our YouTube channel. If you want to subscribe, that would be amazing. If you were subscribed to the Paradigm Life channel, this is a different channel. We’re trying to create some separation there to boost our audience as well as marketing efforts for the show and Paradigm.

TWS 36 | Alternative Investments

Alternative Investments: Figure out where the need is in the marketplace.

 

If you can also get on social media, I’m trying to be way more active there. We’re going to be able to rally on this. A big thing about what I believe is that the asset that survives most crises is the community. It’s your community online, your business and your network. That is where strength is when it comes to being able to withstand difficult situations like this. I hope you are thriving. I hope you are out there with the mindset of serving that adding value. It’s going to pay dividends, I guarantee it. Be that voice, I love to hear from you, Hello@TheWealthStandard.com or on social media. Let’s keep this going. Let’s keep the optimism as high as possible and during these difficult circumstances being an asset to the community and the world. I know it’s in you. I’m trying to do my part as well and now let’s do it together. 

My guest is a longtime friend of mine and a client. We met each other right after the 2008, 2009 market crash. Everybody was dealing with some difficult circumstances. His name is Dave Zook. He rallied and has built an amazing investment business. He also has some manufacturing businesses as well. He was born an entrepreneur. He’s in diapers trying to figure stuff out but you’ll learn a little bit about his story. He grew up in an Amish country, Lancaster County, Pennsylvania. He’s an incredible example of everything that we’ve been talking about the last several years about how to capitalize on opportunities to do things differently. Dave has a couple of investments that he’s done in the past and is still doing that are our alternative.

There’s been a tremendous loss in the typical investments that are out there. This is a great example of the opportunities that exist. They provide a good service but also a return on those that put forth the effort and the capital to make that service available. You can check him out at TheRealAssetInvestor.com. Welcome my good friend, Dave Zook. He’s an entrepreneur, a syndicator, financier. He’s raised more than $170 million in less than ten years. He is an amazing person. You are going to enjoy this episode.

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I’m with my good friend, Dave. It’s hard to believe that we were ten years younger when we met each other. You haven’t aged a bit. I lost some hair. That’s pretty much the extent of it, plus I can grow some facial hair. Before, I wasn’t able to grow facial hair. How are you doing? How’s life?

I’m doing great. We’re going through some interesting times but we’re blessed. We’ve got a lot of good things going and I’m happy to be alive. This challenging time will pass. On the other side of challenges, there are always opportunities. I’m excited about what’s ahead.

We met each other during a very interesting time and it’s coincidental to what’s going on at the moment because we’re doing this the week of the big earthquake that happened in Salt Lake as well as the Coronavirus and the world being shut down. We met during a time when there was a lot of uncertainty. It was right in the wake of the financial crisis. It’s been inspiring to me to see you from a distance based on all the amazing business opportunities you’ve capitalized on. You’re already doing well with Horizon Structures and some of the stuff you were doing back home but how you’ve grown has been impressive. I’m stoked for the audience to learn from you because you have an amazing background, incredible philosophy and you walked the walk. You’ve done it. You don’t talk about it but you did it. Thanks for being a great role model for a lot of people. First, these are the questions I ask every guest that helps to have the audience gain perspective of your background, your life and what’s meaningful to you. Before you started working, and I think you’ve worked for a long time even before you’re legally able to work, who was a role model for you? Who did you look up to? Who most inspired you?

Before I started working, I’d have to say it was my dad. My dad was a very successful businessman, he still is. You talk about me working before it was legal to work, I started in our manufacturing business when I was six years old. I would paint hinges, put the little set screw in the door latches for our doors and those kinds of things. My dad allowed me in our family modular building business to spread my wings, take the helm early and make some mistakes. When I saw him investing in real estate, I decided early on that I was never going to be a real estate investor. I saw him self-manage with some single-family homes. I was like, “There’s got to be a better way to make money than that.” I started investing and working in, partnering and founding some businesses. When I got going down that road, I met my mentor, Bill Poole, who’s on my advisory team. His career is in banking, he’s founded and then sold a couple of banks. This is a Lancaster County success story. I would say in my late teens and from here forward, it’s been Bill Poole who’s been an inspiration to me.

It’s amazing how a business owner can be so successful in running his business but knows so little about tax. Share on X

What superhero or icon in history do you personally most resonate with?

I would say, King David. I love reading stories. We came back from Israel and one of the reasons we went over is I got connected with this author who wrote the Lion of a War series books. It talked about King David, his mighty men, the struggles that they fought through and finally came to rule the land. You can’t read that series of books and then go back and read in the Bible first and second Samuel without being able to live it. You can imagine what it might’ve been like. Being able to go to Israel and see what those and being inside Jerusalem, the City Walls and tour the whole country.

What charitable causes do you support?

There are a couple. One is our local Christian private school where my children go to. We purchased an eleven-acre piece of property with $4.3 million value. There are buildings on it. We were able to purchase that from a family who believed in what we were doing for $1.2 million. That’s a great real estate story. A replacement cost on that building is $7-something million. That was exciting. Have you ever heard of Alliance Defending Freedom? What they do is they will defend your right of free speech and Christian values in this country. If you’re holding a prayer meeting in a college and you’re getting penalized for that, ADF will step in and defend you with their pro-life group.

We got to go down to DC with this group. My wife and I went down and there were six couples. We stayed at the Trump Plaza right down in DC right next to the White House. We had dinner with the attorneys for ADF. They were very influential in this upcoming case. We got to sit in front of the Supreme Court and watch them go through the whole session. You’ve got the nine justices that you see in the paper or on the news all the time. We got to experience sitting right in the courtroom. That was a high-profile case. People were standing in line from Monday morning until Wednesday morning. We had paid some college kids to stand in line for us and hold our spots. Wednesday morning we’d go in and get in front to get into the courtroom. We did a whole tour of the Supreme Court and the White House got private towards backend stuff. It was cool. I love that group.

I have a trust fund of my own. I know some people aren’t, there’s nothing that matters with it. It’s a personal preference. Some people will support causes and feed kids in Africa and Haiti. I was never as in those kinds of things because I am here locally. I liked to do stuff a little bit more local. I set up a fund that cares for widows. Every year, I buy assets. I put those assets in the fund and the cash flow from those assets support then I can cut a check out of the fund and support local widows. What I do is I have those widows set up on a monthly where they can get a check. It’s not like, “Your husband died, you get one check and pretty soon somebody forgets.” This is a monthly ongoing check until they either have some liquidity event or they get remarried. I’d love to do that. Hopefully, that’s a fund that my kids will be able to administer 10, 20, 50, 100 years from now.

Last question, gaining a perspective of the life of Dave. If there was one attribute that you could impress on your kids, your grandkids or the world, what would that attribute be?

I don’t care if my kids aren’t involved in a family business. I would like them to be but at the end of the day, what I care about is go out and make a difference, impact the world around you, hustle and build something to add value to people. Whether you’re doing that on your own, totally separate from what I’m doing or the family business, as any successful entrepreneur, you’ve got to have grit, you’ve got to hustle, you’ve got to go out and add value to the community and the world. I’m hopeful that I can instill that and pass that on to my kids. One thing that we’ll discuss an entrepreneur is when you have somebody that’s a drag on society and it doesn’t add value to society. I hope that I’m able to pass that on to my kids.

That’s the influence that we love most in life growing up is who we tend to emulate in our adult life. It seems like you’ve had an incredible experience with your family, but guaranteed that all your kids will hopefully share that attribute even though they have a uniqueness to them. Let’s get into an investment. You and I have had many discussions over the years and I gave you a ton of kudos with regards to what you’ve done. What I thought would be appropriate is for the audience to know about your investment philosophy. How would you briefly describe your philosophy about investment in general?

I’m an investment and tax strategist. It’s my official self-proclaimed title. We talked about 2008, we talked about when you learn the most is when you go through some pain. What happened to me was, almost a decade ago, I got in a position where I had several good businesses. I got in a position where I had to pay $500,000 in tax. I was out there hustling, doing my thing and having so much fun. It didn’t even feel like work because it was so much fun, I loved it. I remember where I was standing when I got the call saying, “In two days, you’ve got to cut a check for almost $400,000.” That year, when you consider the quarterly payments that I had already made, I spent $500,000 in tax. That was the turning point for me. It was like, “I was in pain and I went down this rabbit hole.” That’s why I ended up on the Summit at Sea that you and I first met. I showed up because Robert Kiyosaki was there. He’s was talking about, “You can make millions of dollars a year and not pay a tax legally.” I was like, “I’ve got to hunt this guy down.”

All my life I’ve been taught if you make a lot of money, you’ve got to pay a lot of tax. I’ve got my mind around tax and I went from paying a $500,000 a year to paying zero federal tax. My income tripled and quadrupled and more, and I’m paying a fraction of the amount of tax. My federal tax is somewhere between 0% and 3% every year since then. This has to do with figuring out where the need is in the marketplace. I realize that a lot of people have that same need. I’m always amazed at how successfully run a business can be and a business owner can be successful in running his business but he knows so little about tax. One of my strengths as a syndicator has been putting deals together, not only telling someone, “If you invest $100,000, you get $180,000 or $200,000 back in five years and you double your money in whatever amount of years.” It has been being very strategic, helping investors to navigate through the tax walls and trying to figure out how to be most tax-efficient in what they’re doing.

I was part of a tax team that came together where a dentist sold his practice for almost $11 million. He ended up coming out of that transaction with all but zero bases. He owned the practice for a long time. He would’ve owed $4.3 million in tax. His tax bill was $700. It was a combination of a couple of different strategies. One was a 453(a) and then I helped him invested money into some assets that had a bonus depreciation component. It was a multifaceted approach to not only putting them in a good position from an asset appreciation and a cashflow position. A lot of times your biggest return of investment in your first year when you deploy capital is tax savings. If you take somebody that’s paying 37% tax and you wait, that’s a 37% return the first year. That’s not even considering what that asset produced or the cash-on-cash return from that asset. It’s my thing. I love integrating tax strategy into an investment philosophy.

TWS 36 | Alternative Investments

Alternative Investments: A lot of times, your biggest return on investment in your first year when you deploy capital is tax savings.

 

I’m looking at what the future entails given the situation with government liabilities, there are only a couple of ways they can pay that. The big one is taxes. Relatively speaking, tax rates are low like what they’ve been in the past. I look at a very interesting dynamic that is going to be how tax law changes. At the same time, that thing is a monstrosity. It’s big and there are many different ways in which you can deploy money so you don’t have to pay tax. Their accountants don’t ever end up reading it or thinking that there’s anything beyond the status quo tax deduction that’s possible.

Our mutual friend, Tom Wheelwright, taught me that if you want to change your tax, you’ve got to change your facts. That was a slap in the face. That was the jolt like, “What are you talking about? It’s up to me?” I thought this is tax law and legislation. If you make a lot of money, you’ve got to pay a lot of tax. When I discovered that it was up to me and that I was in control of my destiny, that’s when everything changed. The thing to remember too is it’s not being super smart, trying to outwit the government and trying to evade taxes and all that. It’s figuring out what the government wants you to do and then going and doing it. There’s a whole bunch of ways that the government comes to you and says, “Here’s a list of things you can do. Here’s what we want you to do.”

If you invest in those things and do business in the way they want you to do business, they’ll pay you to do it. They’ll give you those tax rates. That’s important to remember. You’re doing what the government wants you to do. If you’re going out there and adding a ton of value to people and you’re giving people jobs, you’re building stuff and creating stuff, they’ll pay big dollars to go out there and do it. If you’re out there with a W-2 job, working for the man, putting your time in and you’re not creating those things that the government wants you to do, all they’re doing is giving you a fine for not taking their suggestions on what they want you to do. You’re not listening to them. That’s your penalty. Your tax bill is a penalty for not doing what the government wants you to do.

That’s a very blunt way of saying it but true. Hopefully, people realize especially the newer investors that in the end, it’s not about the return you get. It’s about getting your money back first off but then also getting your money back after tax. There are tons of ways in which you can make investments and structure deals in which the tax is low if anything. One thing I wanted to get into and this is what you’re doing as a big part of your businesses, which is syndicating. Syndicating means you go out and you have investors all get their money together and make a big investment. What I was curious about is you have some very unique types of investments. Before we get into those, what’s your philosophy about when you decide to move forward on one of these investments that you syndicate? What are the necessary components or criteria that have to be in place for you to move forward? Would you speak to that? 

I’ll back up that I never started as an investor thinking that I was going to be a syndicator. I was out there doing what I wanted to do for myself. When I saw how it was working and realized that, “What I’m doing for myself, there’s a lot of need out there for other people.” It came in the opportunity when I started running out of my cash, I bought a couple of hundred units of my own, and a couple of hundred apartment units of my own and I ran out of cash. At that point, I had a great team, we had a lot of opportunities back then in the apartment space. I put a deal together and raised $850,000, went out, raised and funded an apartment building. That’s the start of my syndication career. I wasn’t even meant to go out and syndicate. For me, it’s not as much about the deal on the front side as it is about the team.

If I see a team out there, I have some rules around mind busting. Number one, it’s got to cashflow. Number two, it’s got to have some tax. The strategy to it or tax incentive. When we got late into the apartment, what I felt was getting late into the multifamily apartment investing arena. We started getting closer to what I felt was closer to the top than the bottom or even midway. I started looking for an asset class that does well in a downturn or a recession. I specifically wanted self-storage but I didn’t have a team at that time. It’s when you start thinking about things then they appear. I kept hearing about this group. A number of my investors in my network had invested in this group over the last decade. I couldn’t say enough good things about this group and that’s when my ears perk up and I start thinking, “I like this thing.” If they don’t pass that test, they don’t even make it in the door.

It’s about the team first and then if it fits my rules for cashflow and some tax advantage and those three things combined, I start going down the path about, “Let’s do due diligence. I liked the asset class and the timing that we’re in. Let’s look at the team.” I went down this path down this team, I brought him up to my neighborhood. I’ve got a good friend who was the chairman of the board of the National Self Storage Association. I brought them up to his office and he interrogated them and put his stamp of approval. They went through this whole process. I like to do a whole bunch of deals with that team. I shared with you how we wrapped up a $44 million fund. There is eleven self-storage of assets in the fund. Once I have the team nailed down, then we’d go out and do a bunch of stuff together.

Most people can get their minds around what self-storage means and put together why it’s an asset that does well during a recessionary time. To my knowledge, I haven’t come across anybody else that’s done it as big as you have. It’s ATMs. Talk to a very interesting asset class and what most would assume is a dying industry. Talk about the ATM investments that you’ve made over the last several years.

One thing to remember or think about when you were thinking of ATM operators, there are two kinds of operators. It’s a mom and pop operator and there are the institutional operators. Mom and pop operators run around. They can serve us between 150 to 200 ATMs themselves in a 50-mile radius. You can make a lot of money in that situation. There are institutional players. There’s the Cardtronics of the world, publicly traded companies, $1.5 billion revenue companies. To my knowledge, there has never been anybody in between. Let’s say you have an investor who wants to get into this space passively, but you can’t do it on the mom and pop operator side. If you have a relationship with an operator and you want to loan him $50,000 or $100,000. I’m not going to say there’s not an opportunity like that but you’ve got to know somebody and it’s not widely available. The other option is to go trade a publicly-traded stock.

What we do is we play in the institutional space. We take down large portfolios of institutional-grade locations, $5 million, $10 million, and $15 million portfolios at a time. To give you an example of what an institutional-grade location. We own all of the McDonalds in all five boroughs of New York City. That’s considered an institutional-grade location. We’ve been able to take those portfolios. We’ll put a big $5 million, $10 million, $15 million portfolios under contract, and then we’ll bring it back to Main Street and we’ll break it up in bite-size pieces. $104,000 chunks and investors come in and make $104,000 investment. They get seven ATMs which then get rolled over into our fund and we manage it for them. That’s the business model. We’ve systemized it and figured out ways that we, as a fund, can bear the brunt to the volatility. We have a committed return like you, as the investor, have seven machines, we’re going to commit to you that you’re going to make 3,373 transactions per month. Your portion of the surcharge revenue is $0.63. Surcharge revenue can be anywhere between $2 and $3. You, as an investor, you get $0.63. That’s a 24.5% cash-on-cash return, 18.6% IRR.

If you invest in the things and do business in the way the government wants you to do, they'll give you those tax breaks. Share on X

It’s a good way for an investor to get into an ATM play passively while getting into some of the best institutional-grade locations you can find anywhere. It’s been a good business model. We’re one of the top five operators in the country and we’ve been doing it for a long time. It’s my most repeat investor asset class that I have. More people come back for more ATM. They love this space and I love this space. I invest in ATM four years before I brought it to my investor group.

Given the circumstances, during a crisis when people value cash than ever before, they would rather have cash than eat.

This is one of the things that brings me great joy when I think about what Wall Street investors went through. I think how much money we moved out of Wall Street into a safe, solid asset. This is for guys that think that ATMs are going by the wayside and people aren’t using them, year-over-year and the fund was up to 2% but in the past few weeks, we’ve also seen nice spike inactivity. While Wall Street investors are losing their shirts, we’re like, “The ATM demand and ATM use is way up.” Here’s what I would like to remind people that think that ATM use and cash use are going away. Most people who can afford to invest in an ATM, that’s exactly right. You and I converted to plastic a long time ago. There was a whole subset of the demographic in this country who have not.

The people in this country who are regular users of ATMs, they’re the fastest-growing demographic in the country. It’s the lower-income people. These people use ATM for their banks. Years ago, at the end of the workweek, you used to get a check. You don’t get a check anymore, you get an ACH and it gets taken right to your account. They walk out of their C-Class apartment building, go down to the corner deli and get their $20, $100, $50 out of the machine. Times change but it’s been an asset class that has done well. There’s more cash in circulation than ever before. That demographic of people who use ATMs are growing at a faster pace than any other demographic in the country.

David, this has been awesome. Thank you for taking the time. How can readers connect, learn more about your philosophy, opportunities and follow and learn from you?

Our website is TheRealAssetInvestor.com. To send us an email, send it to Info@TheRealAssetInvestor.com or ATM@TheRealAssetInvestor.com. Patrick for your audience, there’s an easy to read which is an eight or nine-page report on ATM investing and gives you the whole rundown of what that’s all about.

Thank you for sharing that. One last thing before we sign off. I look at how crazy this set of circumstances we’re living in and there are many different reasons to be pessimistic. What are the top couple of reasons why you’re optimistic? There are always reasons to be pessimistic. It’s easier for us to find those because we’re creatures that are designed to survive. We’re always looking out for something wanting to attack us. What are you optimistic about during a time when 99% of people are running for the hills or hiding in their basement?

The big opportunities come in times like this like 2008, 2009 and they don’t come around real often. I feel there may be some pressure coming in the multifamily space. If people don’t have jobs, people aren’t getting paid, how are they going to pay their rent? That could be a challenge. What’s on the flip side of the challenge? It doesn’t matter. If there’s a challenge, there’s an opportunity. What happened to interest rates? What if it’s sitting on a $5 million mortgage and you’re paying 5.5% interest? Now you can refinance into a 3% mortgage. There you have it. One big challenge and opportunity. These kinds of times are going to create once in a decade of opportunities. I’m always looking to exploit even in our manufacturing business, we were looking for times of weakness and ways we can take advantage of what’s going on in the marketplace.

TWS 36 | Alternative Investments

Alternative Investments: Regular users of ATMs are the fastest-growing demographic in the country.

 

In the commodity space, there are ups and downs and there are times where you’ll get an opportunity to buy something less than the cost to produce that commodity. Every ten years or so, we get an opportunity to buy roof sheeting at below cost to produce it. We built a warehouse to store OSB roof sheeting. We’ve got 50 tractor-trailer loads of the stuff and below the cost to produce your stuff. It’s almost double already a year later, not quite double what we paid for this stuff. The price had to go up from $550 to $675 a sheet to pay for the whole building that we built. We’ve got that building for the next 50 years. Those opportunities come along when there’s stuff like this going on in the marketplace. If you’re ready, you’re not scared, and you’re confident, you got cash, you can jump on opportunities like that.

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The saying I keep repeating over and over to my kids, my wife and the team is, “When there is a challenge, there is an opportunity and solution.” You can complain about the challenge or you can be the solution. That’s where I look at. A lot of stuff is unwinding but it’s one of the greatest times in history for human beings to step up, use their ingenuity, make a difference and make some money too. Dave, thanks again. I appreciate it. Thank you for sharing that. For those reading, head over to TheWealthStandard.com to connect with Dave as well as download that free report. We’ll see you next time.

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About Dave Zook

TWS 36 | Alternative Investments

Dave Zook is Founder & CEO of The Real Asset Investor. He is a successful business owner and an experienced real estate investor active in multifamily apartments, self-storage, and ATM space.

Dave has acquired more than $100 million worth of real estate since 2010. At the time of this writing, he and his investors own approximately 3000 Multi-family Apartment units.

Together with his business partner, Dave is a renowned and trusted professional resource in the Automatic Teller Machine (ATM) investment market where they have deployed more than $90 million of investor capital and they are heavily invested personally in the ATM space.

As a #1 Best Selling Author and popular guest speaker Dave has shared his knowledge at the International Business conference, The Jason Hartman Real Estate Mastermind, The Wealth Formula Podcast and the Real Estate Guys Radio show, the #1 most downloaded podcast on Real Estate Investing on iTunes.

 

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One Man’s Journey of Discovering Himself and the Fragile Nature of The World Economy

March 29, 2020 Patrick Donohoe Podcast Comments Off on One Man’s Journey of Discovering Himself and the Fragile Nature of The World Economy

Tom Dyson was the co-founder of the Palm Beach Research Group with Mark Ford – which became one of the most successful financial publications.
You can follow Tom on Instagram HoboFamily and his new newsletter ‘Postcards from the Fringe.’
https://www.bonnerandpartners.com/products/postcards-from-the-fringe/
In this episode, you’re going to listen to Tom’s story of divorce and business failure to traveling the world with his three young children and ex-wife. Before leaving, Tom sold all of his assets and possessions and bought physical gold.
Tom’s transformational story re-invigorated his passion for writing about finance, investing, and economics. His refined perspective is almost prophetic, given the current state of the world.

Watch the episode here:

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About Tom Dyson

Tom Dyson is the editor of Postcards from the Fringe. He’s a former London banker and money manager. He’s currently traveling around the world with his ex-wife, three kids, and a suitcase.

 

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TWS 10 | Training The Next Generation

Training The Next Generation With Aaron Chapman

March 26, 2020 Patrick Donohoe Podcast 00:50:00 Comments Off on Training The Next Generation With Aaron Chapman

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TWS 10 | Training The Next Generation

 

 

Humans are creatures of habit, which is why from an early age, people need to be educated about which habits are good and which are potentially destructive. Training the next generation is really the best way to ensure that these habits, values, and motivations are instilled from an early age and not so easily discarded once they go into working environments. Aaron Chapman is a veteran of the finance industry working at SecurityNational Mortgage Company. Aaron speaks to Patrick Donohoe about when to instill these habits and the best ways to keep them ingrained. Is it time for you to learn some new habits?

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Training The Next Generation With Aaron Chapman

We’re going to dive deeper into residential real estate investing. My guest has been in the industry for quite a long time and has a different angle. We took the conversation in a direction that you will be definitely inspired by. My guest is Aaron Chapman. It was an in-person interview. The last couple had been in-person video type of interviews. Make sure you head over to our YouTube channel because those interviews and the video are housed there. Aaron Chapman is a veteran in the finance industry. He started in 1997. Since entering the finance industry, his clientele has ranged from purchasing their first home, building their dream home or investing in multiple properties for long-term cashflow. He considers his expertise complicated. He’s presently ranked in the top 10% of the 300 licensed loan originators in the United States, which is a huge feat. Aaron and his wife also take huge pride in a family business structure that they have developed. They openly discuss their assets, their reason for being, and their mission. They have created a system of accountability with their kids, which is unprecedented.

You will learn about that in the interview. The kids are very much engaged and also are able to participate. Aaron and his wife also retired from nine years of service with the Pinal County Sheriff’s Office Volunteer Rescue Unit. They both retired as team leaders. During that stint, they experience an excess of 50 rescues per year. In many cases, the missions received international media and local attention because they were able to preserve lives in extreme circumstances. This guy is amazing. You are going to be inspired by how he thinks and what he is motivated by. I can’t wait for you to meet him. Without further delay, please welcome my guest and my friend, Aaron Chapman.

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Thank you for tuning into this episode. It’s going to be an awesome interview. You don’t know it yet, but you will soon know. Aaron, it is awesome to have you.

I was impressed with what I saw because we walked up to this place and like, “Are we going to that building?” We get in and it’s like, “This place is awesome.” You let me in, which is a good thing. People let me come in, hang out, meet your staff and see everybody here. You’ve got a cool operation. It’s a cool looking place.

I also tell you about my first impression of this building when we first moved in. There used to be a Mexican restaurant and a nightclub. I didn’t know. We came in on a Saturday night over the holidays. They had this runway out on the patio. There were girls in Santa Claus attire. That was my first impression of the building where the whole building was shaking and that was going on downstairs. My wife was with me too. That was a good experience.

Aaron, it’s serendipity because we’re focusing on investment, but a lot of the interviews have gravitated toward legacy, meaning and purpose. In the end, a lot of people are in this rat race in a sense of what they’re doing financially and don’t necessarily know what the end result is. They think it’s retirement. Other than that, most people don’t dig deep. You were going to be in town because the main company that you do business with is located in Salt Lake. It worked out that you’re going to be here. You’re going to be able to meet the entire team, come to the office, but also do this interview.

You’ve been writing a mini-book that is very inspiring. It revolves around legacy, purpose and meaning. I’m excited to interview you because all these events had to happen in order for you to be here. There’s definitely a design behind it. You’ve supported our business as an advocate working with Gary Pinkerton and I’ve learned a lot about you. You’ve spoken on the Cashflow Wealth Summit a couple of times. You’re a stand-up guy. You’re a man of principle and purpose. It’s awesome to know you.

Thank you. I appreciate that. The reasons that I can do those things is because of the stand-up people here at Paradigm, the stand-up person that Gary and you are, the principles and purpose that you operate your business with and your lives. I can walk beside those kinds of people. It’s difficult to live a life and you’re seeking purpose and significance, but the people around you are not or what they’re seeking is the wrong things. You can’t couple those things together. You can’t walk together. The reason it’s easy to be able to do what I do as far as supporting this organization and be able to point people to the knowledge that you guys exist is because of who you are.

Let’s dive into something I’ve done with all of the guests, which is be able to gain quickly their perspective of life, business and investment. It’s with a couple of rapid-fire questions. Pre-work, who was a role model to you, someone that you looked up to or inspired you?

It might sound cliche but it’s my parents. I always sought their acceptance of what it is that I did. They were very hardworking people. They would be all night long going. I say this about my mom, if she sleeps, she’s hanging upside down. That woman goes and goes. Even now at 72 years old, she’s still going. I grew up watching them work their guts out. We did some time in my high school years on the cattle ranch. We had a partnership with a cattle ranch. My dad and I were out there together a lot. We worked together in the mines in New Mexico before I came into this. One of the big things for me when I was working with them in the mines was to be able to experience that, and then for him to call me his partner underground to the general manager. I knew I’d made it to the goal where I wanted to be. Through my childhood, when he was mining and not when we were cattle ranching, because we were mining a lot of other times, we were referred to as a partner. That was a big deal to me who that person was. For me to be claimed that was a big thing for me. Working with my mother, she was in real estate, I was doing regular type of lending for home buyers. We worked together a lot. Having her willing to continue to offer my name to her clients because she won’t do that if you suck. If you don’t do your job, she has zero patience for you.

TWS 10 | Training The Next Generation

Training The Next Generation: A legacy is educating people enough to know where their end is and what tools they can use to achieve that end.

 

The nepotism idea is even more so.

It’s a reverse nepotism. She works her guts out. I didn’t. I had to continue to earn that position. That would be the people that I needed to work to continue to get that type of acknowledgment.

Second question, what superhero or icon in history did you most resonate with?

I’ve got to say the Hulk in a way because you could be a very calculated and thoughtful individual. He was a scientist and very brilliant mind in there, but then life happens. My business has been in one of the situations where no matter how hard I try and how much I did to go about a calculator process, there’s always somebody there to block you. There’s always something to hit you. There’s always something to try and knock you down. I found that I had this power internal part go back at it like a silver back on Coke and go after what I wanted because I knew it was right. I knew it was necessary to overcome those obstacles and be able to see what was on the other side.

It wasn’t where I went out in a crazy way like you have no control, but I can see how you finally have that internal fire that comes out. You are able to push through that obstacle. They’re not even obstacles anymore. What used to be like a huge difficulty I overcome because we have such momentum with me and my team that I don’t even feel those things. It feels like a little bump. It’s like a train of full board. When you need to go out there, it’s readily available to me. When you look at an actual historical icon, we’re sitting in Utah and you’ve got Porter Rockwell.

I remember reading books about him. He’s an individual who was a kind man. When the time came and when he needed to, there was no line even for a personal cross. He took care of business in a big way and I identified with the way he went about life. He did the right things. When things are off a little bit, he went at his way. That might even be a reason why I look the way that I do. I’m going about things my way. Even though I’m amongst groups, either it be religious or business, this is the individual you’re dealing with. I don’t give a crap what room I’m walking.

Carl Jung, the difference he’s made in psychology is identifying those four dominant archetypes: the warrior, the magician, the lover and the sovereign or the king/queen. From what I’ve studied, the ability to associate those archetypes of your personality at the right time equals an incredibly meaningful life because you’re not showing up as one all the time. You identify who those archetypes inside of your personality so that when you do show up, you make the biggest difference. Imagine showing up to a hard situation that requires a warrior, but you’re the lover. It doesn’t work so well. You may dent a few legs but you’re not going to get anywhere. What charitable causes do you support?

You mentioned the book and I have released four. We may even talk about those, but those four are out. We have yet to get the marketing behind them. Every penny that comes in through those books is going to go towards charities here. I’m working on supporting veterans housing, The Land Foundation who handles cerebral palsy, trying to get research done for children. There’s Operation Underground Railroad and we know what they do and what is necessary. That whole subject to me is something that turns my gut, but inspires me to think on ways to try and help.

Every cent is going to go to help those causes. That’s why we even have some of the systems we have built in place to help those who can’t help themselves, but we’ve screwed it up. This is the one thing that I get to control. I’m going to control the sales of those four books to go to those causes. I’m telling anybody who’s reading, I spent in excess of $20,000 to get those out. I’m asking you to spend $30 to $35 to support those foundations. I’ll support them with $20,000 plus. Please support it with your $35 to $40 to pick those up and work with me to get some resources into the right hands.

Finally, legacy, if there was one attribute that you could impress upon your kids, grandkids, the world, this audience, what would it be?

It would be to be able to direct your mind. That’s the one thing that I want everybody to be able to gather control over. You’re probably like me, I’m a big fan of Napoleon Hill and his book that was released in 2011, Outwitting The Devil talks about a person’s ability to control their thoughts and focus them where you have the most success. 98% of the people drift. They focused on nothing and accomplished nothing. People ask me about my business and why I focus almost solely on real estate investors, doing financing for real estate investors, buying those single-family duplex, triplex, fourplex homes. Why do I not target realtors? Why don’t I go after first time home buyers? I found when you tried to be everything to everyone, you’re nothing to no one. I focused and went after one specific type of client. I went from doing 100 transactions a year to 723. I’ve been consistently 700 for three years. One thing I will preach to everyone, if you can control your mind, control where you’re focusing your energy and not yanked at 100 different directions, you will be able to find the success you’re looking for.

New technologies continually make it easier to educate the next generation. Share on X

I’m curious about what’s driving you because you’re an incredibly driven individual. The first question I had is how do you characterize legacy? You give me a preview of what your next book is going to look like when it comes to the legacy you want to leave for the world, for your family specifically. How do you characterize what legacy is?

People being able to pick up the pieces that are left when you exit and be able to continue on the exact same path. Not necessarily does it have to be 100% of the end result that you planned for, but the result that they planned for. For me is to educate my children enough about what I have done, what I’m intending to do and to understand and figure out what their intentions are. When I do leave this sphere and they have to pick up the ball from there, from what I leave, they can use that to continue to grow towards their end goal. A legacy is in reality educating people enough to know where their end is and knowing the tools that they’re left and how to use them to get to that end.

You alluded to something in the beginning, which is what I’ve found with most of the guests were their biggest influence was their parents. A lot of that development happens within the first ten years of life. If you look past to their parents and their parents are going back to generations, it’s amazing to see how one little thing can make a difference for future generations. I look at something that I’ve questioned myself in and often thought about, which is what am I after? What am I trying to achieve? Ultimately, I believed that the meaning that we get comes from us being able to make a difference. It starts in those inner circles and then works its way out. The inner circles are your kids and your spouse, then you go to your extended family, then your community. When you grab hold of what creates meaning for you, life starts to take off. It sounds like that’s been the case for you.

It is in a big way. You talk about inner circles, your inner circle evolves to an outer circle, which becomes your inner circle again. You have your parents and your siblings. Eventually you’re looking to expand that inner circle to an outer circle, which is a spouse. When I met Rizzo, I brought her into an inner circle and then we have kids and that create inner circle. We then have friends and business associates. You and I may have lived and stayed away, but there’s an inner circle forming there. Part of it is I’m looking for the acceptance of my family and continued acceptance of my spouse and acceptance of my kids. I wanted to be able to lay my head on the pillow at night and know that those people that are in that circle that’s ever-expanding have the best thoughts possible with me because of what my intentions are. My intentions are not for me, but my intentions are for them. If we continue on that path, everything we’re talking about achieving on the legacy side is easily achieved.

Talk more about what drove you to write the book that you’re writing around legacy and a system for the family. Where did that idea spark? Maybe it had to germinate along the way, but where did that come from?

I remember back in 2012 when I started typing. I wanted to give something to my kids. I wanted to leave something. They were all very young. It’s amazing what has happened in this window of time. I started hammering away on a tablet I had and I had one of those Samsung Galaxy 10.1 whatever they were. I found myself there all the time starting from childhood. What it boiled down to is I was trying to understand my kids. I don’t remember the circumstances. Something was going on there. I couldn’t get what was going on with them. Why are they not getting it?

I had to take myself backwards to that age. I stopped myself back at those early ages to try and put myself in a position to understand what were they thinking, why were they thinking it, how can I identify with them, and how can I communicate in a way that they would understand? From that initial thought of putting myself in a dormant state to think through that, I started writing. I started creating my entire life story up until 2015. It’s amazing, I got to nearly 400 8.5×11 pages and 9 or 10 is what the size of the script was. It was amazing how much data was there.

I’m like, “I’ve written all this, I need to put them in book form.” Somebody introduced me to an editor who was working for Tony Robbins for a number of years as his personal assistant. I put this in her hands. She read it. She says, “This is all great, but nobody gives a crap. Give them something that they care about first and they’ll care about this.” I’m like, “What do we do?” I paid to have this ghostwriter package done. I flew out to her location in Olympia, Washington. We sat at the Lake House for two days. It started out for the first six hours and it wasn’t working.

The information wasn’t flying, nothing was flying. I was telling them there was something happening here. We had to get into a deep conversation and start uncovering some things, then it started to flow. We spent the rest of that day and into the next day recording conversation after conversation. After a few months, they gave me the finished product. I read it and I’m like, “I can’t publish that. That’s not me.” They’re like, “What do you mean it’s not you? This is all your words.” “That’s my words, but it’s all edited. You took the stories and some of the meanings even change the way that you typed it up. It’s not the same meaning.”

I went back and what they do is awesome. It got me started. I started all over again, but now I had processes that I’ve gone through. I started typing. It hit me one day. I was talking to my brother-in-law. I was in the Admiral’s Club in Dallas. That’s where I got off a plane. He’s calling me and we’re talking. He goes, “I was thinking. You hit on a lot of topics. I hear you talking to different people and doing these podcasts. You need to start touching on specific topics and write on that.” I’m like, “You can’t do that. How am I going to do that? I can’t do a full book on that.” He’s like, “You don’t have to do a full book.”

TWS 10 | Training The Next Generation

Training The Next Generation: Today, accountability is not always built into the ways people operate, and kids are influenced by this lax environment.

 

It started occurring to me. I take all the content of a full book and break it into releasing it chapter by chapter as a small book like the dime novels of the 1800s. I started off with a book called Point Your Head and Heart…Your Ass Will Follow. It’s all about if you think it and you believe it and you write it down, you will show up there and it’s happened repetitively in my life. The second is a book called Gratitude: A Practical Application. It illustrates two separate contrasting events that created my understanding of gratitude as actual economy. This is not some agreement between me and God.

There’s no mystical piñata floating around that’s going to drop gratitude blessings on you because you walk around with gratitude. It is an economy between me and you. It’s very well illustrated between two different people I met in the same week. The second one is called Quit Jerkin Off. You can take that phrase however you want to and figure out your topic, but what it boils down to is habit that people are losing so much productivity to have and it gets back down to controlling your thoughts.

The final of those four is called Stihl Runnin. That’s about one of the icons of my life, my dad. Watching him with that Stihl chainsaw he had. It’s an O41 made in early 1960s in West Germany and how everybody else on the mountain would have problems with their chainsaw, but that kept running and it still does. It’s in my personal collection. It explains where I wear the hat. It’s a lot about controlling your mind. Back to that mental focus situation. We’re then going to go into book five, which is what we’re talking about now. I’m titling that book five, The Business of Family.

What it boils down to is I have been able to create a system within my family, having my kids being held accountable to what they’re putting aside for their future even at a very young age. Nobody ever held me accountable. They said save. That’s all they did. Nobody showed you how. Nobody taught you how. They told you, go and invest into a mutual fund or something. My children and I now on a fairly regular basis, we sit down. We go over the investments we’re going to do. We go over the family holdings. We also go over a log that they are putting aside 10% of their income for their future. They’re getting their own life insurance policy and we’re training them how to use it.

We’ve created an engine to be able to use our income with our life insurance policy to buy real estate investments and rotate it back through this engine of growth. I can illustrate to people how to do that within the book and also with other materials. It’s a matter of seeing the change that happened in my kid’s life. I’ve got to think like there are a lot of people frustrated with the next generation and this generation, but they’re not doing anything about it. I can’t things bitch about what’s going on with the generation and the following if I’m not doing any of these. I need to participate in doing it. The easiest way would be to start is with my own kids. Get them on a track and then after that everybody else. I can’t walk into people’s houses to get your kids over here or I can create some documents that they can use as a framework. I can partner with somebody like Paradigm Life to get that framework out. We can work together on technologies to continue to make it easier and easier to educate the next generation.

If you go to our generation, the generation before us and all the way back, the necessities and the physiological needs of life continue to get easier and cheaper and almost built-in. If you go to a lot of the generations in the past, the accountability of life was built in. If they didn’t prepare or organize, they died. Now, you don’t have to hunt. You don’t have to store food for the winter and ration during the winter. There are many conveniences now that the environment of accountability continues to decline. I look at my kids and even though their life seems easier from that physiological standpoint, it’s much harder because the previous generations had it easy. We had accountability built in. Now accountability is not built in. If you look at where kids are influenced, they’re influenced by their environment. It’s a very laxed environment. They think things happen in certain ways because they haven’t been taught and the older generation assume that they know and they don’t know.

I never even thought about. That is a very good point. If you did not do certain things, the outcome was swift and it was certain. It was right there in front of your face. Now everything has softened. It’s interesting to think that our children can survive easily. One of the things I’ve noticed and people are interesting creatures. They don’t realize that being able to survive is a skill that can easily translate to thrive. You see a guy who’s trying to dodge the tow truck that’s coming to get their car because they aren’t making the payments. It’s amazing how quickly they can come up with money to make those payments when they’re losing their transportation. If they have that type of energy and put that fuel into it to get to that point to pay all that stuff, why do they take the foot off the gas? You know the momentum it took to get there, can stay right there behind. They can take their foot off the gas, but if they keep the foot on to throttle a little bit, you can stay at a cruising altitude.

They wanted to take their foot off the gas and say, “I’ve got three more months before that guy shows up again.” It happens all the time. Many people in my immediate sphere, I’ve seen that happen too over and over again. Why don’t you keep going? What is the allure of your couch or your video games or whatever that is that stops you from having a much more comfortable existence? Nobody says you have to become a millionaire or billionaire or whatever. How about paying your bills?

That’s where I look at the habits that guy had were built in a long time ago. The influence that he had when it came to money, whether it was his parents or his environment, his social circle, his work circle, who knows. Right now, everybody has those habitual behaviors that they operate by. Very seldom it’s consciously controlled. It’s all unconsciously happening. You look at where the most influence happens, especially with kids, is in those early years is the first 10 to 15 years of life where they are impressed based on their environment.

Their environment is controlled usually by the parents. That’s where I look at the influence that I’ve had from my parents and my grandparents to my parents and my great grandparents to my grandparents. All of that has influenced how I show up for my kids. If I want things to change, I wasn’t necessarily happy with certain elements of how I grew up. I believe my parents did an amazing job. If I wanted things different, if I had one of the things even better, that was on me to create the environment in which that was going to happen.

Everyone has habitual behaviors they operate by that are seldom consciously controllable. Share on X

The environment is interesting. If it’s not done dynamically, it could have unintended consequences. My wife grew up in the slums of Mexico in a cinderblock home, concrete floors, very humble circumstances. Her dream was to give her kids what she never had. I understand that motivation. At the same time, there are huge unintended consequences from that. It provides this environment where kids aren’t necessarily accountable or learn the principle of self-reliance. If we recognize the elements of what influences people then we can customize it to what values we want to layer on to them so that they have those unconscious behaviors going forward, not the ones where they’re fending for their life when the tow truck comes to take their car.

The tough part is giving all that information, boxing it all up for him, you’re teaching the best you can, but then you have to walk away and let them do it. I’ve also noticed in many families, you could have 4 or 5, 6 kids in the family and 1 or 2 of them do some amazing things. The other ones are completely different and they all grew up in the exact same environment because they accepted things differently. It’s so easy to see the negative, “Mom and dad did this stuff to us, but what about this over here? I never saw that.” “How is it that I saw it?” We were in the same room together. We were there the whole time together. We weren’t even separable, but yet somehow you saw only the negative.” That’s a difficult thing for us to wrap our head around our parents, also educators, business mentors and business people whatsoever and we’re leading our clients to do an end goal, to give them all the data they need and then do nothing with it and be able to accept that and not get frustrated. That’s tough.

Information and resources are more abundant than in any point in time in history. At the same time, the use of that information, the understanding of how to be resourceful and use that for a certain achievable end. That’s definitely lacking.

It made great data cheap as it is. I can get amazing stuff. It doesn’t become valuable until you use it. The second I put it to use, the second I put Napoleon Hill’s works to use, that can be extremely valuable. I heard about his stuff. I had a seventh grade English teacher write his quote, “What the mind of man conceived and believed, he can achieve.” In my yearbook in seventh grade, that still stands out. Your book is long gone but Mrs. Shumway writing that stood out. I’d never ever seen that phrase again until I read Napoleon Hill’s works in 2016. That’s when I first picked up his books in 2016 and I started reading that. It was 2015 or 2016 when I started picking up the book. The change that had happened to me from 2015 until now had more impact in that little time of getting that education and put it to work far greater than that time before as far as my business impact. You look at my last few years, I’m ranking the top twenty people in United States in my business.

There are 300,000 people in my industry. I’m in the top twenty for transactions closed. It all started in 2015. It all starts from educating yourself with the data that’s out there. My job is now to take the data I already know and refine it down into a way that people will hopefully listen. I’m trying to dumb it down a ton. There’s some high-level stuff out. There’s nothing new. I’m giving it from my perspective. I practiced it and used it. I saw the success of it in a very short window. Now I’m handing it off in little bite-sized chunks.

The information existed, you had all these different experiences of time as well as that quote in the yearbook. What brought it together? You read Think and Grow Rich, The Law of Success, and Outwitting the Devil. What was the connection? You were reading it. What did you become aware of that you weren’t aware of previously?

I started a partnership in 2015. You’d call him my competitor. He and I run an event. He started pushing me to come and merge our businesses. We did in 2015. In a need to contribute to the growth, we were on a trajectory. We’re going to accomplish some major things. When I made that happen, I was like, “There’s some huge potential here.” It wasn’t just me. This was somebody over here who I’ve had held in pretty high regard. He was getting it done. He saw enough in me to bring a board with his team. I have to step my game up. I was having some chicken wings with a buddy of mine at one of those little Irish pubs.

He had told me about the book, The Goal by Eliyahu Goldratt. I took that book and I started figuring between that and the system that I was already creating in my head. I called my Chipotle System, which is how we get loans done. It’s like going to Chipotle to get a burrito built. I started taking from The Goal things to be able to implement those manufacturing systems to finance, to building an intricate financial instrument for real estate investment. That’s where it started. It’s trying to contribute more to the whole. That partnership severed. He had decided that he didn’t want to continue and he walked and left me. In November 1st, 2015, I start over with nothing. Starting over with nothing, I had greater knowledge. The knowledge of, “This is possible. We could do this because we were doing it.” I saw that it was working for some reason, he didn’t. What he wasn’t seeing, I can’t speak to, but what I saw was a huge growth in a short window of time.

TWS 10 | Training The Next Generation

Training The Next Generation: If we recognize the elements that influence people, we can customize what values we want to layer on to them so that they have those unconscious behaviors going forward.

 

I implemented those things. I got to thinking at that point, I was like, “If I got all that at one book and all these people kept talking about this Napoleon Hill guy, maybe I should listen.” I cracked open one of his books and it started. I cracked Think and Grow Rich because that’s where you start. A buddy of mine told me about Joe Dispenza’s book, which is Breaking the Habit of Being Yourself. I cracked it open. I tell everybody about Joe Dispenza’s Tacoma TEDx. You’ve got to watch that Tacoma TEDx Talk about how that mind works and connects neurons. I saw those things.

Let me get into the next thing. I got into Outwitting The Devil. Somebody told me about that. I was telling about some of the books I was reading. I share with them Dispenza’s book. They go, “You should check out this book.” They shared with me Outwitting The Devil. I’ve never heard of that. I read that and that was eye-opening. I read it once and listened to it three times on Audible. The Audible version with the contracting voices is amazing. I went from there to The Wisdom of Success. It continued to domino. I start to discover the most influential book on me. It’s Charles Haanel’s book, The Master Key System.

In fact, I shared that you’re going to do this thing. That helped me train my mind properly. I get into scripture. Every morning I started getting up at 4:30. I’m still deep into the Old Testament. I’m reading it along with Skousen’s The Third Thousand Years. I started off with The First 2000 Years and I’m about twenty pages left of The Third Thousand Years and go into the next one. I’m now through the Exodus and all that, which is amazingly deep stuff. When you couple that with Skousen’s work, you can see how to handle people.

There’s a lot in there. Not to take this down a religious path, but when you start looking at the works that we’ve all talked about and you look at the work of the Bible, the book of Mormon and other scripture and all these things together, you start finding that there is no religion. This is the history of us. This is like my dad telling me what I need to do to be successful. This is the Creator of all things saying this is the stuff you’ve got to do to be successful and follow it. When you get it from people’s perspective like Hill, Spencer and Haanel, then you couple that with works that have been in existence forever, it’s all been there. Every single thing has been there.

The values associated with a meaningful life have been there for a long time. The principles that govern behavior have also been there for a long time.

You have stories on how to practically apply it. That’s the difference. We didn’t have practical application.

That’s where as we were talking about kids, practical application for you required signing a partnership. It put you in this position where, “I have to do this.” It’s no longer a choice. It’s, “I must do this.” When your partner left, it created an even more refined environment where it’s like, “I have to do this.” That environment can be controlled and designed intentionally. However, for most people that you have these epiphanies of life, it’s been done because of a car accident or a loved one passing away or having a near death experience, something like that.

I’ve had all those but for some reason, this was the most poignant.

It’s different for everybody where they come to this realization of, “If I don’t do this, the consequences are severe. The consequences are way more painful than the actual pain of changing.” That environment, going back to legacy, I’ve shifted how I influenced my kids. I’m intentional about the environment and intentional about what my motivations are, what my values are and the reason behind, sometimes things being difficult because in that difficulty is where your mind engages all the different resources of your life that you’ve learned, that you’ve read about. It gives you guidance on what action to take, which then refines your habits. That’s what it’s about.

Og Mandino wrote The Greatest Salesman In The World. He puts humans as creatures of habit. We all need to understand it. You’re going to be guided by some form of habit. Form good habits and become their slave. Tactics and strategies will continue to evolve with your environment. It’s the principles that remained the same. If you form the habits around principle and you have the right principles, everything starts to work for itself. People ask me, “How do you have the energies to have all these things done?” It’s because it all goes back to my basic principles. If it fits within that, I move forward. If it does not, I ignore it and move on what does.

What does this have to do with investment? That’s our theme for this. It has a lot to do with it. Most people may think, “You’re talking all this stuff, but what does that have to do with investing?”

The bottom line is the person has to decide that they want to invest. They’ll start building the principles around the investment vehicles that they’re choosing to do. They have to get the principles around what is the bottom line that I’m going to invest into. Too often people are like, “I’m going to run the numbers.” What result do you want on the numbers? Run them all you want, but you can get different results depending on what numbers. There are a lot of people out there that loved to throw out the pro forma. People are like, “Pro forma has to come up with this.” When you look at all the numbers most of us made up anyway.

Professor John Abernathy at the Kennesaw State University tells his students that pro forma is made up. None of it is real. It’s hopeful. Let’s look at real numbers. I take these investors back to the principles of the real end result you’re trying to get and I can show them how the real estate gets there. It’s not all about the loan. The loan in my opinion, that’s a 30-year fixed mortgage that we can get is the greatest asset associated with the transaction. It’s not debt. This is a great asset.

When I back them into how to find that as the asset, because the inflationary environment we live in, the tax environment we live in, the appreciation environment. The appreciation is easing on the radar, the amortization of the loan by your tenant and that cashflow, even if the cashflow is $150 to $200, if you’re buying in a place that will stay reasonably rented, it has the ability to raise rents because of inflation. I can show you how it’s 100% return, not some 9%, 10% or 12% cash on cash return model. If people are preaching that and that’s all they preach, they’re saying, “Look at this spreadsheet and if it does this at the bottom, you should buy it.” You need to walk away from those freaking people because they don’t know what they’re talking about.

They’re trying to sell you something. That’s it. You need to look at the entire thing as a whole. My goal is to take everybody I work with and convert their mindset to the proper mindset like we’ve talked about, become the CEO of their real estate investment business. Run it like a business. Get the right people on board to know the right things. There have been successful CEOs that say the reason they’re successful is because they find themselves and embrace the fact that they are the dumbest in the boardroom.

If you know more than everybody about their job, then you hired the wrong people. I tell my clients, “Welcome to being the dumbest person in the boardroom. I’m applying for a seat at your board table. If I have better information to offer than somebody else, I hope they have a shot at being at that table. If I do and when you come to me with the questions you have to consider and the decisions you have to make, I can help you make those in a way with practical information that somebody else chose to do. I can show you where they failed and where they have succeeded because I do 700 transactions a year for investors. Hopefully, you’ll make the decision and I’ll make you successful.” I even asked the question, and you probably know it, “Who made the most revenue during the gold rush?”

You have to be intentional about what values and motivations you leave behind. Share on X

The people who owns the mine.

It’s the guys who sold the picks and shovels. It’s the outfitters. I explained to everybody, that’s me. That’s Paradigm. We’re outfitters. We’re selling picks and shovels. That’s how we’re going to better our table. The difference is we know where the gold are. It’s the real estate investment gold, the long-term legacy gold within these life insurance policies and being able to couple them with real estate. That’s how you extract the gold. That’s where you find it. If you’re successful in extracting it, what are you going to need? You’re going to need trucks. You’re going to need mining equipment. You’re going to need a smelter. You’re going to need a mill. You’re going to need a train to haul that.

If I’ve done my job, who are you going to come to get it? It’s us. Your success breeds my success. If you fail, I fail. I don’t want to sell one pick, one shovel. I want to make you so wealthy. You’ve got to come back to me for all the other things. Our success breeds further success for other people. It’s basically a big wheel. The client is the hub. We’re all the spokes. If one of us breaks another spoke in the process, the whole wheel is at risk. We can’t have it. How does this couple into investing gets back to mindset. Getting the mindset right of the individual trying to start. The desire to start is where it all starts from. You’ve got to take that first step. Darren Hardy says the first twenty seconds of a decision is where all the outcome comes from. You can decide to move forward or decide to be too afraid to step forward and you step back. That twenty seconds will create your outcome so step forward. We’ll help you, walk with you to get you where you need to go. You need to get the right people on your train.

I’ve been talking about a docuseries on Bill Gates. Have you seen Inside Bill’s Brain on Netflix?

I’ve heard about it. I started watching a couple of them. I haven’t seen all of them.

As you’ve been talking, I’ve been reflecting on the brain that he has and how he understands a lot of different things with what he’s trying to achieve, which is a lot of humanitarian good as well as solving significant problems. He operates the same way that you described. He knows what the end result is. He knows what his motivation is. He understands the basic question and principle around it. He has an entire network of those axes, picks and equipment, the people that are able to go, implement and execute. It was profound to watch that docuseries with that perspective.

He wasn’t doing any of the work. He was basically the first domino to say, “Here’s the problem. Here’s why we must solve it.” He enrolled other people that had expertise in different levels. He knew how to put teams together and how to inspire people. He’d sponsored some prizes. He did micro-funding of different businesses in order to achieve his end. He didn’t do any of the backend work. He came up with the idea, establish the results. He had this motivation. He knew how to put people in place in order to accomplish his end.

He stacked the dominos in design and knocked them off.

It’s similar principles. That’s what’s amazing is at that scale, which is a massive scale, making a difference for tens of millions, maybe even hundreds of millions of people, but also at the individual level. You’re trying to make a difference right now for your family, for your well-being, for your future. There are obviously going to be things added to that after. It keeps expanding.

Humans are the apex predator. We don’t fall prey to other species. We fall prey to other humans. Unfortunately, because of the marketing engines that are out there and the capability, people are figuring out a way, how do they prey upon somebody else’s pocket? I’m making sure that the entire world knows that’s not my intention. One of the things that I hate about my industry is full predators. All those predators out there are the people that I get to say, “You determine who they are or just know who I am. If you know who I am and what my team is about and what we’re about and we’re about you. That helps build our business even greater. As long as we’re helping other people, they feel like they’re getting them somewhere and start taking from them. I win as a result. I don’t need to concern myself with me. I’m not concerned myself with me. I haven’t concerned myself with my income in so long, even now I’m surprised that it’s there. I don’t have to worry about it. It’s not a stress of mine. I’m more stressed about somebody else’s.

When it comes down to those that have made a big difference, it’s because of them putting others in front of them. In the end, it’s the best benefit for them. I listened to what you’re saying and I come to this conclusion that when you start to realize your position in life and go from it being about you to being about others, you have the most fulfillment and the most meaning that comes from that. That motivation can’t die. Evidence of that is everywhere. Jon Huntsman passed away a few years ago in Utah, but he was a multibillionaire. That was his first principle. I read a lot of stuff from Ray Dalio. That was one of his primary principles. He’s connecting who he was with making a difference in other people’s lives. Everything came to him as far as his personal fulfillment and success because of that drive.

As we talked before, you alluded to some of the religious aspects of things in the Christianity and the depth of the scripture and stuff. It’s all there. The person who is more concerned of other people, you get there as a result. It’s an amazing thing that we’ve been taught our lives to not be selfish and unfortunately people are afraid that, “Nobody’s going to help me if I don’t help myself.” You end up hurting yourself in the process.

That’s how strong that drive is.

If you could somehow break that drive being all about you, you become all about you without realizing it.

How can the audience follow you and learn more about you? What’s the best way to connect with you, Aaron?

TWS 10 | Training The Next Generation

Training The Next Generation: Humans are creatures of habit, which means that they will always be guided by some form of habit, whether good or bad.

 

Go straight to the website, AaronBChapman.com. If you’re expecting to see a banker’s website, you’ll be at the wrong spot. You see a redneck sitting on a porch, you’re at the right spot. That porch is my office in Missouri. That brick and mortar story is in the book one. That’s the best way to get me there. I’ve got the LinkedIn thing. I’ve got a lot of stuff posted up there. My wife and my sister are working on Facebook and Twitter. I don’t know what else, Instagram or something. They’re working on that. I’m not in there doing anything, but those are the places you can find me.

Aaron, it’s been a pleasure. It’s been an awesome blessing to have you here.

Thanks for taking your time.

We’ll definitely need to do a follow-up to this especially when the next book comes out.

I’m looking forward to it.

Everyone, thank you for reading. Reach out to Aaron and get connected with him, even if it’s to be inspired and motivated by him through his social media presence. We’ll talk to you next time.

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About Aaron Chapman

TWS 10 | Training The Next GenerationAaron Chapman is a veteran in the finance industry beginning 1997, exited Mining, Heavy Equipment Operation, Welding and long haul truck driving. Since entering the finance industry his clientele has ranged from those purchasing their first home, building their dream home or investing in multiple properties for long term cash flow. His expertise is in the complicated. Presently ranked #14 in an industry of over 300,000 licensed loan originators for transactions closed annually (723 closed units for real estate investors in 2019, 707 in 2018 and 676 in 2017); Aaron is that battle-worn partner every real estate entrepreneur needs to walk thru the tough parts of building a real estate business.
In addition to a career in real estate finance Aaron is a Published Author with 4 books released and dozens of magazine articles. Very happily married to his wife since 1996 with 4 children. Aaron and his wife both take great pride in watching their children mature and make calculated decisions about their lives with their parents coaching. The hindsight education is openly discussed and both parent and child benefit from such conversation which has led to the creation of a family business where each member (even the 12-year-old) has a say in the family investments and growth of the family assets.
Aaron and his wife recently retired from 9 years of service with the Pinal County Sheriff’s office volunteer Rescue Unit. Both retired as team leaders. Aaron’s specific role within the Unit with designations as EMT (his wife is a Paramedic) was to lead the Technical Rescue unit as well as the Off-road and as well as the Air Rescue Unit’s. During those years the team experienced in excess of 50 rescues each year. In many cases, the missions completed received international media attention with lives preserved in extreme circumstances.

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About the host

Patrick Donohoe

Patrick Donohoe

CEO Paradigm Life

Patrick is the President and CEO and started Paradigm Life in 2007 after learning from his mentor Kim Butler about financial strategies outside of Wall Street.

With a background in economics and marketing, Patrick immediately realized the opportunity to teach investors, business owners, professionals and families on a large scale using modern digital media and communication technology. Since 2007 Paradigm Life has worked with thousands of individuals in all 50 states.