Why don’t doctors get rich? It’s a baffling question considering how much hard work and service these individuals are putting in every day. And it’s not all about the money, even. Doctors do have a comfortable salary, but most fail to develop and design the life that they want simply because they have no time. Tired of being trapped by his own profession, sports doctor and orthopedic surgeon, Dr. Tom Burns started to look somewhere else to find a way to create that financial freedom he was looking for. After reading Robert Kiyosaki’s iconic, “Rich Dad, Poor Dad” (the very first copy, no less), he knew that the answer to his question is in real estate. Through a combination of hard work, luck and the right people to support him, Tom developed his own real estate portfolio that now provides him the financial means to do what he wants with his life. In his book, “Why Doctors Don’t Get Rich,” Tom shares his story and message with other doctors, creating the beginnings of a community of physicians who are passionate about creating wealth and freedom for themselves. Listen in as he joins Patrick Donohoe in this eye-opening discussion.
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The Rich Doctor: Creating Financial Freedom To Design The Life That You Want With Tom Burns, MD
I have a guest that I’ve been looking forward to interviewing for quite some time. He wrote a book, which is called Why Doctors Don’t Get Rich: How YOU Can Create Freedom with Passive Income Investing. His name is Tom Burns. The first time I met Tom Burns, he was telling the story of how he purchased the very first copy of Rich Dad Poor Dad from a carwash owned by Keith Cunningham in Austin, Texas. He looked at the number on the back of the book when he was finished reading it. He called the number and lo and behold, Robert Kiyosaki himself picked up the phone. From there, they developed a relationship and it was awesome hearing that experience.
The next story I heard from Tom was when he was down in Southern Chile on a cruise. It was an icebreaker ship going toward Antarctica. This guy is an amazing guy and has incredible stories. You are going to love him. Tom is a physician. He started his adult life as a doctor. He’s trained in sports medicine as an orthopedic surgeon. He began his career in Austin, Texas and he continues to practice to this day. Along the way, Tom decided that he wanted an exceptional life and didn’t believe that a career as a doctor would check all of the boxes.
He wanted choice, freedom and time with his family. Through a series of events that included hard work, luck, loyal friends, great partners, patient educators and giving mentors, he developed a real estate portfolio that gave him the financial means to determine his ultimate future. Tom gets to live a pretty extraordinary life and he wanted to give back. He wrote this book. He is specifically focusing his attention on doctors, those in the medical career, which in 2020, they have had some challenging times.
It speaks to his experiences and what he did in order to achieve even more freedom. I hope you guys love the interview. Go pick up his book. You can go to RichDoctor.com in order to learn more about Tom. He has a newsletter and a blog. You can also go to Amazon and purchase his book. The audiobook will be coming out soon. It’s a great interview. I love talking to Tom. He’s such a good guy. I hope you enjoy it. We’ll see you in the next episode, until then.
It’s great to have an honored guest, a revered guest. His name is Tom Burns. As I mentioned, Tom, correct me if I’m wrong, but you purchased the first Rich Dad Poor Dad book ever.
I got lucky and picked up a good book. It happened to be the first one.
That fact alone says a lot about you. First off, how long ago that was, but also what you’ve done with your career and outside of your career. You have these dual careers in a sense as an entrepreneur investor and medical professional. It’s going to be awesome to interview you. When we first met, I don’t know but there’s something special about you. It’s something that I believe others could have benefited from. You took the plunge into the writing a book world. What was the experience like writing that book?
It was something. A friend of mine, the author of that book you mentioned, suggested that I write a book. I never wanted to shy away from a challenge. I said, “Okay.” I didn’t know what was going to happen. I started the process. People would ask me, “Who’s going to be your ghostwriter?” I didn’t have one. I’m a physician and sometimes a doctor’s disease is to do it yourself, but I had a specific reason I wanted to write every word in the book. I was writing to everybody, but directing the book at physicians, using them as an avatar for anybody that makes any kind of a paycheck.
I knew that my words would get through in one of the processes. What happened was I ended up growing because I wrote every word. I found out how to do it. I got editors to help. I learned a lot of terms and things that I hope to never have to remember now. It was a real blessing. It was because I learned a lot about myself and I was at first started writing a book. Somebody suggested to write a book. I’d never done it before. It sounded like a cool challenge.
What happened was I grew, changed and found out that the problem. I discovered a mission because in my world, in the physician world, there are a lot of unhappy, sad and trapped feeling physicians. Although the books written for anybody to learn about freedom, it was written to the doctors to try to help them because over 50% of them are unhappy. You and I, Patrick, when we get older, we would prefer to have a happy doctor taking care of us. It was a selfish reason I wrote the book.
As I did the research, I developed a website and developed some tools to help them. It has been a process. I’m still a tadpole in the evolutionary world trying to learn how to do this, but it was, it was great. I learned a lot about myself. I learned a lot about the world and learned a little bit about book writing. It was fun. It was a growth process and it was a blast.
I know that it has been months and months in the making, but what an iconic or serendipitous year to release a book like that. The medical world has been stretched in 2020, more so than probably any other year in memorable history. In 2020, I would say this statistic most likely has worsened as far as the medical world asking that internal question, is this worth all the decades of school and hundreds, millions of dollars in opportunity costs, but also tuition, school fees? You coming out with a book, Why Doctors Don’t Get Rich, it is somewhat of a wake-up call to them. You started down this path, but how would you characterize the theme of the book? What you want the medical world specifically to walk away from reading it? What do you want them to understand based on reading it?
I’ve had quotes from people. I felt trapped being a doctor. I didn’t know anything else was possible. I want it to be an instrument of guidance and hope to people that bring them a paycheck and feel like they’re trapped, particularly doctors. We know life’s not all money, but it’s a great tool to use to get what we want. There are certain ways to buy back your time, which is our most precious resource. A lot of physicians, a lot of people in the world don’t have time.
With some extra time, you can start to develop and design your own life. I want people to know that there is an option. It’s not for a special group of people. It’s not that difficult. Once you know the steps to buy back your time, create a little bit of even partial freedom. You take a little pressure off, life gets good and you start to smile a little bit more. The book is designed to give people guidance, hope and a bigger smile.
I know you speak to this in the book. The idea of freedom is it’s in your mind. It’s feeling, a sense of freedom because I know a lot out of people that have a financial amount of money that I would say anybody could consider being free if they had that sum of money, but they don’t feel like they’re free. When you felt that sense of freedom knowing that you didn’t have to perform surgeries, you didn’t have to work in the field that you were trained in, what was that like and how did it impact your work?
On the one hand, it was exhilarating and happened slowly. I wasn’t looking for it. I was doing my thing. All of a sudden, I realized one day, the money coming in from my passive vehicles has eclipsed my doctor’s income so that was exciting at first then it got confusing because what do you do? I wanted to make sure that I had a purpose. Freedom, money, it’s not everything you do. You do somewhat need to have a purpose. We all want to have some worth and a mission in life. It gave me the chance to sit back and see what I wanted to do with it. Selfishly, I traveled some, but then I started realizing that a little contribution to the world might be nice as well. I started looking for a mission and a purpose. It came like that. You can have the money to be free, but if you’ve got a bad home life or you’re unhealthy or your spirituality is compromised, it’s not freedom. It’s somebody with a lot of money.
Robert is the one that inspired this several years ago. He did a private education for a bunch of investors and talked about Maslow’s Hierarchy of Needs. There are these levels of Hierarchy of Needs, and most people get stuck in the self-esteem level where they achieve a lot. They go travel, they buy nice cars, they wear nice clothes. They eat at nice restaurants. It’s a Law of Diminishing Returns. The more that you pursue that, the less fulfilled you are. That’s where Maslow has his self-actualization level where it switches from satisfaction based on pleasing oneself to satisfaction coming from serving a purpose or a mission. Looking at this book, I imagine that was part of being able to offer and create value for those that you have empathy with. What has been your experience along the way, being able to give this gift to those that are in a similar situation as yourself?
It’s been a blast and that was part of that growth. I wanted to write the book to get the information out, then the mission developed. What you give, you get back ten folds. Now, I’m getting the opportunity to talk to people from all over the world and it’s been a blast. That mission has gotten deeper, broader and more focused in my life. It’s given me a great purpose. I’ve got a twenty-year plan to keep going. I hope to be doing something until I fall over and go to the next level. It’s been a pleasant surprise and it gives me a lot of fulfillment. I get to do things like this. I get to talk to good friends like this on Zoom. I’d rather do it live though.
Let me ask you a question around, I would say the information that medical professionals are exposed to with regards to finances because it’s a profession where there’s very little time. There are strenuous hours, plus there’s a lifestyle on top of that. The medical world in my experience at least has been the target of a lot of financial advertising. They’re pulled in all these different directions. When you look at the message you’re wanting to send, knowing that, how did you want to separate what you were trying to get across to this world that’s different than the typical advice that the medical world has given financially?
Why Doctors Don’t Get Rich: How YOU Can Create Freedom with Passive Income Investing
One, you mentioned the education. We rarely get any financial education although a lot of younger physicians now are taking some business courses. They’re doing combined MBA and medical programs. People are becoming more aware or medical professionals are becoming more aware. In my instance, I was a biology major and I took zero financial classes. That’s the one thing. They will get targeted for lack of a better word. Nobody feels sorry for physicians and you shouldn’t. We make a great income and it’s a great profession. It’s a fulfilling, wonderful profession. Everything’s perspective, but they get targeted by people. I’ve been in the meetings when nobody knew I was a physician and I’ve heard the person in the front of the room say, “If you don’t have a client list yet, go for the doctors. They’ve got money and they don’t understand what you’re talking about.” That’s a true story.
There’s a section in the book that talks about all the traditional ways to create investments or create money or passive income outside your profession. They’re not bad. There’s nothing wrong with them. Sometimes they are proposed or advertised as the only way. I want them to know there’s a lot of ways for them to create a lifestyle, to create the money and the funds to create their lifestyle. It’s not so much about money, but it’s about buying back that time. If you’re a physician, you have to go provide a service in order to get paid. That’s the way it works. When you have some funds come in that you slept to make or that you were on vacation, or you didn’t do anything to do, and that check shows up, it becomes a little bit addicting.
I want them to experience that feeling and have the time to do what they want to do in life. It can be research to cure cancer or it can be to quit medicine. It can be either end of the spectrum or spend a little extra time with your kids or get off a couple of hours early so that maybe you can pick your kids up from the bus when they come home from school. It’s things like that and the list is endless. That’s what I want them to know is that there are other options and that there is a life out there that is not the one that has been prescribed and advertised to you. We’re only here once and I want the journey to be magnificent.
I had seen this study where this year 2020 specifically has inspired a number of youths that are in school right now to want to pursue a medical career as a physician. I look at where most of that drive and motivation is coming from. It seems to be coming from wanting to make a difference, having a purpose wanting. In the medical world, a physician is so revered because they work on one of the most precious things that exist, which is that human life. They are remunerated highly because of that. There’s a lot of dedication, work and investment of time, energy, money that goes into developing that skillset. What have you seen as time goes on in the medical career where in the beginning, there’s that passion and drive? Does it stay the same? Does it diminish over the course of time? What is your experience collectively? Following up on that question, when you sensed that feeling of independence, how did that change the way in which you serve your clients or patients?
The answer to part one is like everything, it depends. I have partners. I’m still practicing medicine. I have seven partners and they all love what they do. They’re great at it. They’ve been in it a long time. It’s not that everybody’s unhappy. There are people that enjoy the service. If somebody gets in to serve, that may be mission and purpose enough, and they may or may not need anything extra. On the other hand, a Medscape survey shows that roughly 50% of the physicians in the United States have at one time or another been burned out. Burnout means at one time or another, they didn’t want to be a doctor. We don’t want that. That means to you and I, that at one point, every other doctor you see, wanted to not be in medicine at one point. It’s a balance like anything in life. Everybody has different opinions, different things that motivate them. What is exciting to me is there are still a lot of physicians out that are happy with what they do.
Question number two, I continue to enjoy it because it’s been a decade since I haven’t required the income for medicine. Your question is that I was able to enjoy it more on a base level. I could eliminate the things I didn’t like. We, doctors, sometimes we take call calls when you stay up all night and the operator answered the phone. I decided that was infringing on my family time. I stopped doing that. If the hospital has too many rules or whatever, I won’t go into details, but you can stop going there. You’re not there for the money.
I was able to lower the volumes I was seeing. I can spend five minutes with somebody or 45 minutes with somebody. It doesn’t affect my income. It doesn’t affect my life. I’ve developed friends by walking and saying, “I’m Tom Burns. I hear you have a sore knee.” Years later, we’re going on trips together or we’re friends. That’s a blessing. I get to meet twenty new people several times a week. It’s been a blast. It’s been fun. That’s what I wanted every physician to have that, to wake up and realize I get to go in and see patients, not I have to go in and see patients. It doesn’t happen for everybody, but it was life-changing. If it hadn’t been like that, I would have been out of medicine several years ago.
It’s the professional world that has a very similar challenge. At the same time the medical world, the amount of time, effort, energy and money that it takes to develop those skills and be in practice is extensive. It magnifies that principle of being able to educate yourself financially and then develop a strategy to get to the point where you are free. You are independent and you don’t have to do these things. You have a choice now. You didn’t have the choice before, but now the choice is, do I practice because I want to or do I practice because I have to? It’s a very interesting question that most people don’t get to ask themselves. At the same time, those in the medical field, because of the amount of money they’re able to make have that option more so than other professions.
When you have a choice in life, you’ve got freedom. It gives you the choice to decide what’s most important to you. What’s most important might be serving your clients or your patients or whatever your profession or your job is. Your most important thing in life might be to travel and see the world or to be the best parent in the world or the best spouse or the best sibling. Choice does give you the potential to have and design the life that fits you best and that gives you the most meaning and self-actualization, as Maslow would say.
Let’s do this as we conclude. You have an extension to your book, which is a website and some tools that you’ve mentioned. Would you take a moment to speak about the website that you’ve developed and the tools that are there and how those that are listening could take advantage of those?
For everybody out there, I’m transparent. I’m still learning how to do this stuff. I put a knee together but running a website’s been interesting. I wanted something to be useful. I wanted the book to be combined with a website that was a living, breathing organism. I have a blog that I put out and I find myself better on video. As time goes on, I’ll be having videos that have little lessons. They might be mindset lessons. They might be real estate lessons or money lessons. If you look at the book, the first half of the book is all about mindset.
Some of the how to do things is in the second half of the book. The website’s going to be the same type of thing. I’ll put out a blog that either deals with mindset or something concrete with action steps. I’ll put out some videos. I have a little section that will grow, that has some tools, things that I’ve used over time, that I developed to underwrite projects or to do some things like that. There are some spreadsheets and some resources. I encourage people to sign up and get the newsletter. It’s non-spammy. It comes about once or twice a month now. It’s usually got some helpful information. You can look at it or hit the delete button and it’s all there for help. It’s all there for you to grow and develop your own freedom.
Yes. I’m the world’s worst marketer. You can go there and there’s a little sign-up sheet. It’s for everybody. I come from the doctor world and have maybe some credibility with them. You replace the word doctor in the book with your job, whatever it is, the principles are all the same. They’re all wealth and freedom-building principles.
Tom, thank you for sharing your wisdom. Thank you for writing the book. I saw how much it took and the number of revisions that you had to do. Did you end up doing the audiobook?
I haven’t yet. I’ve had a lot of requests for that so that’s step number next once I get the other mechanics of the website going and that’s about done. That’s probably the next project.
You had eyes on this book of some of the most reputable authors that are out there. It reads well. The information is compelling. It’s clear. I’d encourage anyone, regardless of whether you’re in the medical field to pick it up. Tom, any final words of wisdom or anything you’d like to leave the readers with?
I tell everybody, if you’re not growing, you’re stagnating and you’re going to wither away and die. I tell people that the $15 book is not going to change my life. I didn’t write this book to make money, but it might change your life. Whether it’s my book or your book, which is fabulous, anything. There’s always a little bit of information. You could learn something and then try to combine your education with a little bit of action. You’ll be surprised where it takes you. Life’s got a whole lot to offer and there’s a big world out there that is a lot of fun. I encourage everybody to use a little perspective and realize how much fun you can have and try not to be trapped. I don’t want people to be trapped and unhappy.
That’s one of the secrets of life is constant growth and improvement. I can’t remember what you called it. I call it the infinite horizon. What did you call it again?
It’s the second mountain.
Rich Doctor: Doctors need to educate themselves financially and develop a strategy to get to the point where they are free and they don’t have to do the things they don’t want to do.
It’s the infinite second mountain because the second mountain will lead to the third mountain, the fourth mountain. Once you have something that you’ve achieved, in order to have that fulfillment and that enjoyment of life, you have to continue to achieve these milestones.
That first mountain might be about acquisition. There’s a book called The Second Mountain by David Brooks. The first mountain is about acquisition, which we all get into when we start, but the second mountain is more about contribution. The third mountain, the fourth mountain, we always find more mountains to climb, more to contribute and more growth to achieve. That’s what keeps you young. It gives you purpose and makes life fun. It gives you a chance to do things like this.
I’m going to ask one more question. There’s a quote that I think about quite often. It’s, “The quality of life is in proportion to the quality of relationships.” I know that you have valued relationships more than anything else. You mentioned it with regards to some of your patients. You in the book, it’s very evident of all the different seminars, all the different meetup groups and associations that you’ve attended over the years. Speak maybe to the importance and value of relationships and how they’ve helped you develop over the course of time.
We’re pack animals. We love people. I love doing this with you right now. I’d rather be face-to-face. I’d rather we be in a group of 300 people as well. You and I go on a cruise together frequently. That’s fun for me. Often, I’ll go to seminars where maybe I could be teaching some of what’s going on, but I’m going there to see the people. Relationships, when you meet other people, everybody’s so diverse. Everybody has a talent and you can learn from other people or you can live through their experiences. That’s what life all about. It’s a giant world. It is a giant passion for mine. I have my core values and they are adventure, growth and connection. We talked about all that.
The connection is so important to me that I put it as my top three of my core values. I want to be with people. This is fun what we’re doing now. It’s fun to go connect with people. You will learn and grow, and your life will be better for it. Your life will be enriched by the experiences of others. I can’t encourage people more to keep up with connections and start with your family. Family connection is most important. Those are the people that count. Broaden your circle, it will make your life a beautiful thing.
I’ll end with this comment where our society is evolving to this place where relationships are the true value of life. We have been blessed with technology such as this video conference software whether it’s energy or transportation. This is a year of disruption, but it’s going to pass. The way in which society is evolving, it’s going to, in my opinion, decrease the efforts and what we’re going to have to do in order to maintain our lifestyle expenses. That’s where, again, going to the value that people seek sometimes is right in front of us, which is our relationships starting with our intimate relationships, going to kids and going to friends. It’s no longer going to be a choice where we’re going to have a lot more time on our hands as a society. The principle of satisfaction and fulfillment is right in front of us. It’s meeting new people. It’s enjoying time with the ones we love. You don’t have to wait until someday. That day could be now.
The best time to start is always yesterday and now is the next best time. Don’t let technology run your life. It’s great that we have this, but there are 7.5 billion of us. Let’s go out and meet some of them.
I can’t wait until we meet up face-to-face again. It’s been a few years. It was in Austin. It was summer of 2018. This is a year that has made us value those personal interactions even more so. I’m sure the next time will even be sweeter. Tom, thanks again.
Making smart, worthy investments is all about the preparation – the research and the analysis. This is why risk assessment for investments is such a crucial part of the process of deliberation. One bad investment could set you back a whole lot. Andy Tanner is a renowned paper assets expert and successful business owner. Andy speaks to Patrick Donohoe about what you have to be looking at when you’re making a big choice about an investment. Let Andy teach you some of the techniques that will help you make smart investments.
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Assessing Investment Risk With Andy Tanner
It’s an honor to interview Andy Tanner. Andy is a Rich Dad advisor. He is the author of 401(k)aos as well as Stock Market Cash Flow. He was also the host of The Cashflow Academy podcast. Andy’s been on here before. He is a good friend of mine. We get to do some things with our families together. We have these marathon meetings whenever he comes in to do a show that lasts up to 4 to 5 hours. Andy is someone that I have a tremendous amount of respect for. He has principles as his foundation, as well as his personal values that I have tremendous respect for, but yet he continues to change.
How he changes is because of the environment that he’s in. For those of you who are not familiar with Robert Kiyosaki, he’s the author of Rich Dad Poor Dad. As an organization and as a philosophy, they are constantly growing. They do not conform to the status quo. Even though Andy has an incredible foundation, he continues to be challenged and refined because of him being the paper asset guy. He’s written extensively about markets and the role that they play as well as how to capitalize from an investment standpoint on it whether it’s up, down and sideways. Andy and I have those discussions on. You are going to enjoy it. I know he has several free resources. However, his bread and butter is a paid membership course where he mentors you directly. Andy is a great guy. You are going to love it. We have a cool conversation.
This season is awesome. I want Andy on early because he and I have a similar philosophy and perspective on things. Him speaking about the stock market, which is his expertise I felt was appropriate. As I assume most readers, especially new readers, this is a primary investment that you are a part of yet. Most investors are participating in this asset class in much the same way. This is a different way to look at it. I hope you enjoy this episode. We will have another great one next time. For those of you who are new to the show and want a better context as to how I perceive and view investments and the role investments have with your overall personal wealth strategy, go back and read the previous seasons. We’ve had five so far.
The show has been on forever since 2007. However, we have been taking a season approach where we’re focusing on one central theme and it’s awesome that investment has become the capstone of the previous five seasons. Those themes have been life, liberty and property as the 2018 seasons and themes. In 2019, we focused on capitalism, which is the infrastructure in which the rights of life, liberty and property are able to bear lots of fruit as we’ve seen historically.
The entrepreneur, which is the last season of 2019, we focused extensively on how to maximize your best asset. You had to find ways in which you can improve yourself, make more money, discover a meaningful career, profession, something that you love that you would never retire from. Go back and keep supporting us the way that you have. You have been amazing. Subscribe to the show. Give us a good rating on iTunes, it always helps. Share it with your friends and family.
I’m here with my friend, Andy Tanner. He is my distinguished guest. We’re going to talk about investment. We’re going to talk about your expertise, the depth of experience that you have. You have a unique perspective and experience. It’s going to be hugely valuable, but we’re going to start with some rapid-fire stuff. Who was your role model? Someone that you looked up to, who inspired you?
It’s my dad.
What superhero or icon in history do you most resonate with?
What charitable causes do you support?
Multiple sclerosis, but the biggest one is cystic fibrosis. That’s huge for us. They have huge advancements.
If there was one attribute that you can impress upon your kids, grandkids, the world, this audience, what would it be?
We could go off on many topics, but we’re going to talk about investment. Rapid-fire was more to tell you how a person thinks. That’s important, especially as you talk about investment. You’ve written some books on it, 401(k)aosand Stock Market Cash Flow. Do you have any other books that we don’t know about?
I write all the time cathartically. I don’t know if I’ll leave it on my computer for my kids to find, all my little catharsis. When I have an issue in my head, I find writing about it. If something bothers me, that’s a great form of catharsis for me. I cannot type, so it’s hunt-and-peck. A lot of bad voice-to-text technology makes no sense. As a person who doesn’t know how to type, spell, or grammar, I write all the time but I don’t like to publish. I like to write about my own stuff.
There are many different benefits from it. Ryan Holiday wrote a book called Stillness Is the Key. He talked a lot about writing. The fact that the activity itself, it’s much out of your mind, it allows you to see things differently and see them clearer. That’s stoic.
A good insight is if something is inside of you and you write it down, it releases it from outside your body. At least it’s out there where you can see it.
The physical activity of doing it is huge.
I do a lot of that.
Let’s talk about investment. This is a broad subject. I wanted to start with a broad question. How do you characterize an investment?
An investment is when you put something in whether it be time, energy, heart, soul, money, and hope with the aim to get more back than what you put in.
Does that happen a lot?
Sometimes it does. Sometimes it doesn’t. Sometimes you put in and you don’t get it back. That’s what risk is.
Let’s talk about financial investments. What have you experienced over the years? Your profession in a sense is money, financial education and speaking. You do a lot of market-based things. What are some of the common reasons why investment will succeed? What are the most common reasons you see that investment fails?
I would say number one is financial education. If I were to write another book, I would call it The Second Bridge. In all my travels, I’ve seen two things. Why do people go to seminars? Why do people read books? Why do people listen to podcasts? Thousands of people wanting to do better, which is good and right and so should they. When I’ve asked the question, if I start seeing the same faces and they don’t get out of the rat race and they don’t get it, two things that they usually don’t have. Number one is they’re in an investment they don’t understand. In a culture of advice, people center on the investment rather than the investor.
Education is about the personal development of the investor. For example, let’s say we do some options. We sell an option. We sell a naked put. You would think a naked put is a naked put for one person, for another person, the risk is there. It’s not true. Warren Buffett does this. My mom does this. There are two different outcomes. The education and understanding of what you’re delving in are massive. Most of the time in my life when I’ve lost money and when I’ve asked other people that have lost money, it was a lack of understanding of what we were doing. We got excited about the investment but didn’t take pride as an investor. Is an investor someone who invests? That’s like saying someone with a scalpel is a surgeon.
It’s not the activity. The action is the last step. You can’t skip to the last step.
I can’t call myself a doctor because I do surgery. I can only call myself a doctor because I have the skill to do surgery and I’m certified to a certain level. The second gap, which is one that is more frustrating for me. I’m not a great student. I’m willing to work enough to get it. I don’t learn quickly, but I’m willing to put in the time to learn. What is frustrating my life, which comes back to the question you asked. What would be the thing I’d want to instill in my children more than anything else? It’s discipline. Often, what happens is we have the knowledge, but there’s a second gap that requires a second bridge between what we know and how we behave. I’ll have people that I know well how to trade options and they know how to manage risks. I’ll see them blow up an account. I’d say, “Why did you blow up your account? You know better.” “Andy, I didn’t follow the rules.”
Knowledge is the first bridge. If you don’t know what you’re doing, you’re in trouble. You bridge the gap between ignorance and knowledge. Once you have the knowledge, there’s another gap between what you know and how you behave. I always make the same joke. It never gets old. I always say there are 50 pounds on me that my wife isn’t legally married to according to her. She says, “I’m not married to that. That was not part of the original agreement.” One of the majors of many I went through in college trying to figure out what I want to do is exercise physiology. There’s no gap there in how this little pocket of mine got here. No gap in knowledge. I know what happens on the atomic level, the Krebs cycle, CO2 out, O2 and carbon in the whole bit. Despite that perfect knowledge of how it got here, for some reason, I’ve implemented that in my life. It’s a lack of either discipline or implementation. Those are paramount to investing.
You have cognitive mastery, which is mastering with information. You have physical mastery.
It’s practical. There’s not a practical mastery, which is why when you said for your sons, what’s the number one thing? Self-discipline, the ability to execute what you know. Discipline is when you do what is right whether it feels good or not, whether it’s timely or not. You know what to do and you do it. That’s a huge part of investing. This important question you’ve asked because we have a culture of advice where people don’t want any of those bridges. Do it for me. Give me a financial advisor to make all the decisions. I’ll hire that stuff out. There’s danger in that because now you’re limited. There’s a bit conflict of interest, number one, and now you’re limited to their knowledge and their behavior rather than you’re handing over the ship. If you drop your kids off to daycare for twenty years and you come back and they’re not the people you wanted them to be, don’t complain.
Risk Assessment For Investments: An investment is when you put something in – time, energy, heart, soul, money, hope – with the aim to get back more than you put in.
The big picture, the key to investing is the investor less than investment. The culture of advice is an investment-centered culture. The culture of true investing is the personal development of the investor. Warren Buffett is not who he is because of what he bought. It’s because of what he knows and what he does. There’s more than one way to heaven. There’s an interesting book by Zucman who writes for the Wall Street Journal on Jim Simon. It’s interesting because Simon destroys Buffett in terms of returns. He almost doubles him up. He’s almost twice the effectiveness.
Buffett usually starts in the ‘60s when you look at what he did with Berkshire. This guy started in ‘88, so it’s a good sampling. He destroys Buffett. Buffett buys and holds and gets dividends. This guy, he’s in a trade for a week. He’s a swing trader. It doesn’t matter which one you want to do if they work. Don’t get dogmatic and say, “This is the best way,” but it’s not because of what they bought. It’s because of who they are. I hate the 401(k) for that reason because it suggests returns and prosperity minus the development of knowledge and discipline that is required for anyone.
Two points back when you’re making the comparison between Buffett and Simon. When you compare returns, it’s a comparison. Here’s this factor and that factor. When you look at all the other very variables, I’ve often said the same thing, but what I thought about when you said that is what Buffett trading is? What’s the scope of it?
It’s not fair to compare them because Buffett has only got one stock in his stock portfolio that isn’t paying a dividend. The reason he bought it is he thinks it is somewhat probably will and his cost basis is low. When you look at Coke, Buffett probably looks at it in two ways. If you compare Buffett to Simon, you can say Coke’s at $60 or $70. Buffett bought it at $3. That’s his average cost basis. You can say he bought it at $3 and now, it’s $60 that’s his return. That’s unfair to compare that to what Simon does because Simon will get more because that’s capital gain.
What Buffett cares about is the $1.47 dividend they pay every year. He’s at 50% a year on the dividend based on a cost basis. In that way, Buffett is probably destroying Simon. Either way, they both got more billions than they’ve ever known what to do with either way. It’s a little bit unfair because one is more of a cashflow model and the other is more of a capital gain model. Certainly, Wall Street is all about the capital gain model. They don’t care about dividends.
I would also say it comes down to objective. What is the individual investor? What are they doing it for? Because for Buffett, it’s a business. For Simon, it’s a business. For the individual investor, they have their business, probably their profession, their job and so forth, but you have their investments. How do you read between the lines and say, “What is a knowledgeable, educated investor?” What’s their objective? What are they after? The actual training, education, seeking that, do they need to have a refine purpose in order to do it successfully? Does that even matter?
The purpose and objectives are different. Purpose, why am I investing? Objective, what do I want to achieve? For the average person, this is quagmire because the education system doesn’t point you to either one. The education system says work for money, get a job. That’s it. That creates a problem for everybody because they’re trying to be something that they’re not. People come to me with the 401(k) thing all the time and they say, “What should I do with my 401(k)?” Advice question, not a growth question, tell me what to do question. For that person, that’s a quagmire in terms of that objective and purpose. They may not even know what that is at all in the beginning. Let’s say my purpose is freedom. My objective is to get a passive income above expenses, so I don’t have to work anymore. That’s fair.
That’s where you begin to study and that’s where you start. You’re a cashflow investor. I have a dogma that I prefer. It aligns with Robert Kiyosaki’s dogma, which is cashflow. I would be blind to the truth if I didn’t find many people that have become tremendously free, rich through capital gains stuff. Simon and Buffett are great examples. Buffett is a cashflow guy. Simon is a capital gain guy. It’s billions both ways. Both of them are financially free. Both of them don’t want for money. Both of them are living lifestyle-wise, they’re close. Philanthropy, it could be the same.
Most money managers, portfolio managers are cashflow guys because they live off of fees whether it’s performance fees or management fees.
Businesses are cashflow. If you look at the BI Triangle, you’ve got your three integrities outside and your other five in. Foundation is cashflow. The outside is mission, leader, and team, but the inside is foundations, cashflow. Businesses are certainly fundamentally in fundamental analysis. As soon as your cashflows debt, if you look at that cashflow idea from a financial statement, you got four boxes, income, expenses, assets, and liabilities. Expense is always the same as money going out. Everybody has them. You’ve got three boxes left. You either do what job people do, which is new money, in cashflow or cash investors, new money in.
The best way, this is my opinion, to deal with expenses that are new is with money that is new. If you have a new phone bill, you got to have new money coming in to take care of it. If that cashflow dies, you got two boxes left to pay. You got assets to pay or liabilities. If you have no cashflow, how do you pay? You’re in a capital gain of can you buy and sell your gold fast enough to keep up with your expenses? That puts an hourglass. The third one is, “If you have no assets left and you have no income, you have to borrow, which is the cashflow pattern of the US government.”
That’s fine for them to do that because they can print money, no problem. You looked at this and asked this question as an investor. What’s your objective? How do I want to pay my bills? Do I want to do it with a job that gives new money or I get laid off and I have to work? Do I want to make investments that produce new money, that’s dividends and rent, or do I want to make a capital gain? You’re moving from the income column depending on the asset column to pay your bills. That’s tougher to do maybe. Unless you’re Jim Simon where you’re a stud and you can compound that thing way faster than your expenses, which in a sense gives you an income above expenses in a way.
The problem with the 401(k) is those two cashflow patterns, income was the old pension model. Capital gain is the new 401(k) model. Most people don’t have the financial education to see that the column they’re draining into expenses is switched. The risk has switched because of the income from a pension, that’s the company problem to deal with stock market fluctuation and problems. 401(k) now to me. As an investor, you can learn a lot about investing by looking at the 401(k) model and deciding, “What is my purpose? Is it freedom? Is it riches?” If it’s freedom, it’s passive income above expenses. If it’s riches, probably capital gain because you’re going to have to expand your assets drastically. If you want to be a philanthropist and change the world or your cause or if you want to be driving fancy cars, which is not my thing because I don’t fit.
How do you characterize markets? How have you come to understand the different markets that are out there and their purpose?
I’m not an economist, so you’re smarter than me on this stuff, but to me, a market is a category of supply and demand. We have an energy market. What is the supply and demand for energy? We have an agricultural market, whether it’s corn or soybeans. What is the supply and demand for that? We have a financial market, which is a stock price is based on supply and demand, not the earnings of the company. The earnings of the company are secondary, the supply and demand are primary. That’s why the chart tells the truth more than the fundamentals do. To me, a market is looking at the supply and demand in the emerging market. What is the supply and demand for this stuff that’s emerging in these countries?
That creates all things being equal, fair pricing. It creates a clearing price.
In theory, AI is an interesting thing to think about because most of the transactions on Wall Street are made by machines. That’s tough because does it create a fair market? I suppose everything is fair. Define fair, life isn’t fair. Therefore, everything is. All is fair in love and war. I sometimes wonder if we’re a little disconnected from the fundamentals sometimes because if your machines are doing high-frequency trading and the AI is looking at technical stuff, historically markets have gone up over time. Does it disconnect from the fundamentals?
I certainly look at the run we’ve had in the last several years, which is unprecedented. I don’t think our GDP has grown. I don’t think what we’ve produced so is that fair pricing? I like saying this. If you had a beauty contest with all ugly girls, that’s what it looks like. Perhaps US stocks are the least ugly person or man in the beauty contest. Do you want to save euros? Do you want to risk everything in gold that doesn’t cashflow?
It’s not good for things to go down. The overarching theory for business is they like when things go up.
If you look at Jim Simon’s portfolio, do you know what’s the two best years are? Two best years he ever had were in the downs. It’s down bad. It’s all perspective.
People want growth and consistency.
Prices are going up and down. If you go to the gas pump and you’re an employee and the gas goes up, that’s a bad thing. If you own an oil company or you own some ExxonMobil and you see the gas price go up, depending on how many shares you have. One guy can go to the gas pump excited and one guy is bummed. It’s all relative to where you are. I wouldn’t say the market is going up or down or good or bad. If it goes up huge and it’s a bubble, is it good? Is a forest fire bad? Is it bad to purge Yellowstone National Park with forest fire? I don’t see up as good, down as bad. I’m like, “Up is up and down is down.” Robert Kiyosaki says it this way, “I don’t have a right hand and a wrong hand. I’ve got a right and left, they’re different.” In terms of people getting hurt, it gives you a different perspective. People say, “401(k)s are going up, that’s good for people going down.” I don’t know. They give all their men in Wall Street anyway.
That’s where I was going to because of a lot of the asset prices, stock prices, company prices. There’s been the biggest corporate buyback in history where you have businesses that are essentially issuing bonds that have low-interest rates. Not necessarily investing in infrastructure, but creating liquidity in their company, keeping the price and the value high and going higher. You also have this wave of how businesses are capitalized and how valuations are done.
There are a lot of reasons to issue bonds though. Apple is a great example. Over in Ireland, they’ve got all that money. If they bring that money home, what’s their charge? It’s 30% or whatever it is. They issue a bond at 3% tax-free, borrow money tax-free, repatriate the money. I’d go bond every time.
There are all sorts of reasons, but you’ll look at what you see most commonly, which is corporate buybacks in order to prop up share value.
Some people look at it that way. Some people say, “We’re confident about buying our own stuff.” You look at that in a macro idea. For this market to go higher, what is required to get it higher? It’s an influx of cash. In other words, money needs to come from somewhere. That money earned is one thing. If it’s borrowed, it’s another thing. If it’s created out of nothing, which the fed starting to do again surreptitiously, that’s a whole other show for you and me.
There are many forces. Fundamentally supply and demand, there is much supply and much demand. This creates a price. If demand goes up, prices go up. If supplies the same. If supply goes down, but demand goes up the even higher price. Assuming a stable dollar, that’s fundamental, but there are all of these other forces. The way in which accounting is done, the different financial instruments. You have many different options in order to get an outcome. One of the biggest lawsuits going on is by Citadel, where they’re suing their quant. This strategy that’s all based on this micro volatility is where they’re making all of their money. It’s not necessarily on the fundamental value of Bank of America or GE.
I have a graph in my class where I draw a line of the timeframe from long-term to micro trading in milliseconds. I have a graph of the importance of fundamentals, against that goes to zero. The fundamentals don’t change in a microsecond. That brings up another thing back with AI. They’re worried about competing against AI and I would warn them not to think that way because you don’t need AI. You’re not trading against AI. You’re not competing against them. You’re playing a different game.
The way you play the game is you say, “The market goes up, down or sideways. I’m going to be prepared for all three in terms of risk management, position size number one.” You can go in all three ways. Does it matter what causes that? No. In other words, if AI causes it to go up, who cares that went up. Maybe it was better sales that made it up. Maybe it was better GDP that made it go up. Maybe it was a devaluation of dollar where it takes more dollars to buy that many shares that made it go up. Is it more valuable then? I don’t know. Regardless of what makes it go up or down, I’ve never cared and nor will I ever care. If it’s AI that makes it go up and down, high-frequency train, I don’t care. What is interesting is if we’re going that way, does that disconnect you from the fundamentals? The answer is yes. You’d have to because they’re making such quick decisions there.
Who still bases their decisions on fundamentals?
Risk Assessment For Investments: Most people don’t have the financial education and literacy to understand that the column they’re draining into expenses is switched.
I care about fundamentals. I hate talking about the same stock all the time. It seems like every time I’ve been on a radio or on podcasts that talk about Kraft Heinz, and it’s a Warren Buffett company. He owns a ton of it. I bought a lot of it off the dip. I didn’t do that for technical reasons. I did it for fundamental reasons and for cost basis reasons. I did it because I think there’s going to be ketchup on the table regardless of what AI does. If I go to a restaurant a few years from now, I think there’s going to be Heinz on the table. I don’t know that that’s the risk, but that’s my bet. That’s a fundamental decision where I write options to get paid to buy it, reduced my cost basis with an eye of faith that their dividend will get higher with inflation. Their dividends will increase as the dollar loses value. My cost basis will be low and we’ll still be eating ketchup.
That would be an interesting econometric type of study is to look at the volatility and how quickly people’s tastes changed when it comes to condiments as opposed to food. Food changes differently.
They own Oscar Mayer. They own Kraft macaroni cheese, Philadelphia cream cheese. Nestle is bigger than they are, but they’re the third-largest in the country. There’s more salsa sold than ketchup. There are a couple of big knocks on it if you want to look at the other side of that trade, not to get into the minutia of it. A lot of people are more health-conscious and so they say, “Is macaroni and cheese in trouble?” I’ll keep that personally sustained out of my own family. I’m not worried about that. People like salsa. With that said, I still think that fundamental analysis, I don’t think ketchup is going away.
The other problem with them is they’ve got too much debt. Understanding it economically is a big deal. This blew me away that their stock dropped on this. I feel like I’m on an island because I’m not an economics professor. I’m a C-minus average basketball player trying to stay eligible in college. I didn’t understand this because I always feel like there are people that should be way smarter than me on this. They had a write-down of their brand equity. Meaning what’s the brand Heinz or if we sold the name Heinz that you sell a new mayo under it. They overestimate that, which happens all the time.
It’s like, “What’s your house worth?” You don’t know until you sold it. It’s the only time you know, so maybe you put down in your balance sheet, “My house is worth $10 million.” It’s only worth $5 million. They wrote down billions in that, but that doesn’t affect the cashflow. It doesn’t affect how many ketchup bottles were sold. Their stock drops hugely. I’m like, “That’s good. That’s cleaning the house.” What that means is your return on assets went up. The amount you’re declaring in assets is that’s a better ratio to income. Why is it going down? I don’t know.
The SEC’s mad they did it. There are probably people smarter than me, but the thing that gives me a lot of sauce in that, Buffett is making $300 million a year off it. If you have a machine that’s making $300 million a year in dividends and someone says, “Your machine lost some value if you want to sell your machine.” Do you care? Cashflow investing, whereas these other guys, all these algorithms were about prices of stocks for a capital gain, but from a dividend cashflow’s point, are they selling ketchup? Do you know what percent of their profits go to the investors for dividends? It’s 57%. Do you know why that’s a big deal? Heinz is 57.
Has it been that way? Is that coincidence?
It has nothing to do with Heinz 57 sauce. It’s a coincidence. Buffett is thinking about this cashflow-wise. What does the company make? What do they sell? The AIs are totally disconnected from the business. They’re like, “What’s the stock price at?” I’ve tried to be less dogmatic. You and I like sound money. You and I like gold. We’re probably not fans of Fiat currency, but in the reality of it is I have to say we’ve been calling for crashes forever. How long is the last? This doesn’t feel right. No money out of nothing. Our dogma in our mind is like, “How can you?” You look at Japan, how long has Japan been? Their GDP is the worst in the world that I’m aware of a major country.
They continue to grow 100-year mortgages, crazy stuff. I went back and read some of Bernanke’s stuff. If you’re dogmatic about it, you say, “You don’t print money out of nothing.” What’s interesting, if you took his side and reread what he said about, he says, “A currency like gold is valuable based on the value we place on it and the quantity of what we have.” The problem I see with it is that you can invent it out of nothing. The reality of it is we don’t trust men with that power. That’s probably where you and I have a big issue.
When you think about it, if the population grows, you’re going to need more currency. Keep up with population demand, you can dig up more gold to back it. If people did trust it and as long as you controlled it, what’s the difference? If we say this is a dollar, it’s valuable, they’re limited in supply. The problem is if men get there what we see is they flip that switch and they turn it on to fix everything. There was no sacrifice of anything of substance. It’s money out of nothing. Fiat currency is our issue. When the S&P hit 2000, I’m nervous about being bullish ever since, but I have to do what the chart says. I can’t say, “It’s going to crash.” I have to do what my chart says because the chart tells the truth.
If you look at money supply and how much liquidity, you can go back in hindsight and say, “That totally makes sense why things kept going up.”
What’s crazy is we’ve got $22 trillion on balance sheet, $150 trillion off promised obligations. If you don’t freak out at $1 trillion and you don’t freak out at $5 trillion, the guy who understands it is the guy that would know at what point it doesn’t work anymore. If you were back in the Ross Perot days where he had his little charts, “Back in 1971 when $1 is a $1.” If you’d have told Ross Perot back in the ‘80s that we’re going to have a $22 trillion deficit, he will say, “You will collapse far before then.” That’s an interesting thought.
We’re beyond this point where people we’ll freak out. I’m not sure at what level it is. Maybe it’s no level.
No one talks about it but us. Congress isn’t talking about it. Trump hasn’t talked about it. Pelosi hasn’t talked about it. Is it wag the dog for both of them? We’re making wars. We’re doing impeachments. We’re doing all the stuff. We’ve got to keep this fight going because if people realize that we owe $150 trillion, they’re going to freak out, so let’s fight with each other in public as long as we both agree not to talk about that.
In 2019 when they diverted away from what they were trying to do with interest rates, I think they had three or four cuts.
What was interesting about that, you and I have talked about this, but what’s weird is if you looked at the economic policy as medicine to where I say, “The economy is sick.” What do we have in the pharmacy? We can print money, we can change rates, we can change the fractional reserve rate. What are the tools in our cabinet? What medicine do we have? If you looked at the Federal Reserve as a pharmacy with different medicines, I could see after ‘08 where we lost half its value. You’re going to drop interest rates to practically nothing. We’re at all-time highs. What’s the unemployment rate? How far back do you have to go to find that low of a number? Here you got stock market all-time high. You got all-time unemployment low. Their job is price stability. Why are we medicating the economy?
It’s the government who are monetizing them because if interest rates did go up, they wouldn’t be able to afford the interest on it.
The question is, is the economy healthy it as to be propped up? You and I would say no because if you got to give you heroin, the heroin hit makes you feel good. Get off the heroin and see how you do. In 2018 going into 2019, we started trying to pull off heroin. We tried to raise rents. Look what the market did and how it goes. We will be patient. Yellen was not cryptic. She’s going to do whatever she says she’s going to do. Powell is maybe a little more cryptic. Bernanke is a little bit more cryptic. Yellen was an academic. They’re all academics, but it’s interesting. Why is the monetary policy accommodated? We’re addicted to cheap money.
It’s almost 2008 that created the precedent for the role of the fed. There’s much more power. Their influence has changed.
They used to buy bonds, now they’re buying private stuff. That was a big change.
The whole repo thing is fascinating because the overnight market, bank-to-bank lending, but they stopped lending because it was less risky and a huge reward keeping money at the fed as opposed to giving it to each other. Banks putting up crappy collateral and that’s when the interest rates spiked on the repo stuff.
Maybe that’s why he got $1,500 gold again. Maybe some people always want to turn to gold.
There are many different things happening where I find it interesting. At the same time, it’s beyond my understandings from a rational standpoint.
That’s where technical. People say you’re a fundamental guy or technical guy. I talk about my Heinz trade as a fundamental trade. I’m in line with Warren Buffett. Why do I care about the technical as well? This is exactly why. It’s because they tell the truth. When you come right down to it, let’s say markets go up, down and sideways. Let’s decide to create a risk management strategy that does well regardless of the cause. What we’re talking about is the cause, “Is it the fed? Is it the debt? Is it the overnight stuff? Is it the repo stuff? Is it the AI stuff?” We’re talking about causation. If you say, “I don’t care what the cause is. I need something that helps me if it goes up, down or sideways, regardless of the cause.” You have a little bit of freedom there. That’s why technical analysis is an important thing. Direction matters. At the end of the day, it’s the truth. It might not correlate to what the fundamentals are doing, but it correlates to your buying power and what you have to show for yourself.
This might be a good tangent. How do you characterize risks when it comes to investment? You have more knowledge of markets.
First of all, it’s weird having an insurance guy ask me about risks because that’s your wheelhouse, not mine. The greatest lesson I ever learned from risk because I credit Robert Kiyosaki with so much of what I’ve learned. We were in Phoenix and I remember he said this, it resonated as true to me. He said, “Risk is about control. The more control you have, the less risk. Less control you have, the more risk.” I said, “If you have no control, you’re gambling.”
What are some examples of control?
Control is when you can force an outcome. Let’s do several examples across the asset classes. Let’s say you’re a guy like Than Merrill who understands markets well. He knows that regardless of what the market’s going to do, that he can take a single-family home and he can renovate it. People bash flippers. Why don’t you bash developers then? Because all flipping is redevelopment. If you can have a development business, you can have a redevelopment business. If he understands what those rents are and he understands what those home prices are, in a short amount of time because it takes a long time for the housing market to crash.
He can force appreciation like Kenny McElroy does, better management, better facilities, better features, different cashflows. They can force that appreciation. They go and borrow out money against the need to get tax-free cash. They’re managing their risks with knowledge and being able to force appreciation of some kind. Kenny McElroy is the same way. He buys development. He says, “How can we raise the NOI? Can we force that to happen?” As opposed to a stock where you buy Apple, now force the price up or down. The reason that real estate investors freak out about stock is like, “I have no control. I can’t force appreciation. I can’t force this up.” True, but if you marry the stock market with the options market, now you gained control back because an option gives you a guarantee on where you can buy or sell.
It does it in a liquid environment or real estate. If you get in trouble there, how are you going to get rid of that? Neither one is better than the other. As a salesperson, the reason people are scared of working on commission is there is an illusion that they can’t control the outcome. One person goes and he goes into sales and his mindset is, “I can’t make people buy from me,” but a skilled salesman that understands stimulus and response. If he controls the stimulus, he controls the response and he can walk into a business meeting and know he’s going to get the contract because he can force it to happen with his skills. It’s a low risk. If you find a square mile area with a certain population, a certain economic status, you plop a McDonald’s in that, try to stop people from coming through the drive-through. All you can do is put your close sign up because you’re going to make money. You can’t stop it from happening. The amount of control you have is the risk.
I look at markets and it’s interesting because risk, the likelihood of loss, I look at real estate being more consistent. There are only many things that could go wrong. If you’re able to look at the example you gave, which is here’s this city, here are the demographics, and here are the trends over the course of time. Putting McDonald’s there, there’s a high probability it’s going to be successful. Ultimately there could be an earthquake, that happens and everything is gone. My point is like, “What could cause loss?” How do you go about identifying that in markets?
There’s a lot. Real estate is riskier than that because real estate is dependent on the debt market. If you made a law that said you’ve got to pay cash for it, what would happen to the real estate market? You said, “No more debt for real estate.” The amount of debt you have enables the purchase. The more you enable people to purchase, the more they’ll purchase. The more student loans you create, the higher the tuition it will go. Why did we have a bubble in the 2000s in real estate? It’s zero down, no doc loans. In other words, anyone can get a loan.
Risk Assessment For Investments: Risk is about control. The more control you have, the less risk. The less control you have, the more risk.
When you give a loan to anybody, anyone can buy the real estate. To me, that doesn’t sound like a real safe environment. It turned out it wasn’t. People say, “What about the stock market?” Mark Cuban has Broadcast.com. Ross got his baseball games over the internet all over. People listen to their baseball games than radio. Yahoo at that point was bigger than Google. Yahoo was the search engine. Some people don’t even know what Google was. He sells his company for $6 billion in stock. For Yahoo, maybe it’s $100 a share. The 2000 crash, tech bubble. In 2000, it was $5 a share. Let’s say it goes from $100 to $5, 95% is value.
Cuban is fine. Why? He bought the right guarantee. What’s more solid than that? He’s got a guarantee at which you can sell no matter what happens. The company can go bankrupt. As a person in the insurance business, why do I buy insurance on my home or my life or whatever else? It’s to give me some guarantees and people will buy guarantees. Those are derivatives. That’s the driven market. Is one market more solid than the other? I don’t think so because they’re intertwined and they’re both relying on the debt market so much. The largest market in the world is the currency market. The bond market is much bigger than the stock market. The stock market is much bigger than the options market. Debt is probably the one that links them all together and makes them all risky because they’re all dependent on debt.
You also look at the risk associated with the bond market versus risk associated with the equity markets and risk associated with the options markets. The risk keeps going higher and higher in a sense. It depends on how it’s used because a bond is a guaranteed coupon rate. Bonds are used as equity in a sense because it’s bought and sold, not kept.
It makes the paper asset class relevant because people hate paper, “I want gold. I want real estate. I want business.” Paper is everywhere. You put money in the safe or gold. It’s printed on paper. You put your car in a valet and they give you a stub. It’s on paper. You got a title for your real estate. You got an insurance policy. What you’re talking about is social to primal. If you want to take it to the extreme, does your paper hold water? In a primal world, if I’m bigger and stronger, then I get the sandwich and my kids eat. We fight and you lose. It’s primal, it’s not civil.
If you’re civil, you have a government, you have paper, you have agreements because that’s all these are. This paper has meaning. It should. If we’re honest and true, all papers are a handshake written down. As long as there are honesty and truth, “This is my house. I’ve sold it to you. Now it’s your house,” agreed on paper. If we grow primal, we throw all that out. Put up our dotes and we go back to caveman days where the biggest, strongest guy becomes the alpha male of the group. Paper is an interesting thing. In order to invest, there’s a certain amount of trust that you place in civility. You need a certain amount of trust that you put into this stuff. Hopefully, that trust is not always misplaced.
I’m not necessarily talking from your perspective, but from a retail perspective, what is typically the fear associated with markets and with market investing? Looking at them, I would say the majority of people that have ownership or stake in the market. Are they ones that do it based on your definition of risk or is there a different definition for them?
Are you asking like factors?
Employment is a big number because employment suggests people’s ability to buy. Debt is also a big one because it suggests people’s ability to buy. You have to earn money. You have to borrow money. Innovation is a huge one because if we innovate, now we’re creating value out of nothing. Unlike a Fiat currency, you create a new drug like Trikafta for CF. Trikafta has $300,000 a year for a kid to be on that thing. That’s a new value there and it’s worth it. As you innovate, that’s a factor. What’s the risk of failure to innovate?
The war between the United States and China is less of a trade war and more of who gets to AI the fastest. They’ve taken a much different path towards AI than we have. If they out-innovate us, that’s a huge risk. Failure to innovate is a major risk because that’s called obsolescence risk. Obsolescence risk is Blockbuster Video. They failed to innovate. Netflix did, they didn’t. Netflix won. They’re gone that quick. How fast did Blockbuster die? You have legislative risks.
Innovation always displaces the technology in which it was inferior.
If you go out of the individual, you say, “l have legislative risk.” For example, the new 401(k) law. It’s awesome for Wall Street. It’s horrible for the worker under the guise of being better for the worker, legislative risks. Geographic risk, does the Middle East run out of oil someday? Political risk, we’re going to start a war with Iran may be. Purchasing risk and inflation, all these risk factors are there. You look at and you freak out. That’s outside. If you want to go inside, you say, “What can I control?” That’s the real key. Risk is about control. You can’t control legislative risk. Do I run from options? No, I embrace them because of my best chance to control them. An option is a guarantee. It gives me a choice to do something. Someone else makes me a promise. Do they make good on it? You can’t control that either.
All those risks are evident and you have the retail investor world that doesn’t know how to control ignorance risks. That’s where you look at having the upper hand is being able to know what your options are and be able to make moves so that whether it’s up, down, sideways, you’re capitalizing on the opportunity.
It comes back to those two bridges. If you have the ignorance to knowledge, any gap there is risky because now you’re in an environment where you can’t control it because you can’t control what you don’t understand for sure. That second gap is if you don’t apply it, you’re also at risk.
I was going to make a comment on China, which is fascinating because China has tons of money. They’re building these massive cities because they have tons of capital. What I found interesting is I was reading a report on the billionaires and millionaires of the world and the fastest-growing population, and it’s in Africa.
The policy of China, they have controls on population. They had to. They’ve got a big population. It’s against the law to have kids over there.
Do you know where the biggest investor in Africa is? It’s China. As you look out, what they’re doing there. They have a big presence in the Middle East as well. It’s interesting because you look at China years ago when we would do a show, we would say, “They’re building these massive cities. They have tons of resources and they have those limitations on kids.” They’re destined for failure, but they’re innovating by going outside. That’s where I find it’s fascinating. It’s how the world is becoming global.
It’s important to be patriotic, but not dogmatic because I’m a red-blooded American. I love my country. Is it unpatriotic to say they might be beating us? That’s reality. You have to live in reality. You can still be patriotic and that’s not anti-American to say they’re beating us. It’s weird because they have this economic capitalism and yet they still have this communistic social stuff, control, big brother and all that. Hong Kong and China, it’s a weird place because you go over there and you feel the energy of capitalism, yet it’s still under North Korea-type crazy dictatorships. You give them that stuff, they’ll revolt. They’ll want their freedom.
They get enough freedom to make a buck. It’s interesting how they’re playing the game and what we don’t want to be. If we’re not all part of the human race and we decide, “It’s us versus them.” We don’t want to be arrogant because they got a lot of minds. If you believe two heads are better than one, how many engineers do they have as opposed to how many AI guys they have working on this? We’re smarter because we’re Americans. They have resources. They’re spreading their influence. They have a culture of, I wouldn’t say of an underdog. We feel like in America. Pride comes before the fall. You got to respect those guys. Probably the best thing to do is start learning how to get along in the world. That’s probably the best thing, like do unto others type stuff, build bridges and not panic. See them as enemies. That’s the way the world has always been.
The world is the world. We’ve known there are people all over the place, but it’s becoming so much more linked because of technology and a lot of the innovation that’s happening is allowing third world countries, emerging markets to start to live a better life.
Where’s Google Translate going to be in 30 years? Pretty soon, we’ll be listening to Chinese podcast and they’ll be listening to yours and ideas will be exchanged so much more freely with language barrier dropped and innovation.
There’s this velocity of people where you have innovation, ideas and things are compounding. They’re going to continue until the language barrier is going to become less and less significant.
People hate change. Change causes upset. People resist change. Dogmas will take the truth. Chain it with their chains and sink it at the bottom of the ocean if it doesn’t fit the rhetorical goals. As we innovate and the truth is discovered from the epistemological standpoint, do you think we’d be able to change? We’ll have a culture of change is okay? Do you think that will ever happen or do you think the DNA that we’ve evolved into don’t change?
There’s equity in change. What I mean by that is there’s a room or the capacity to change. In the US, I don’t think there are tons of capacity other than the Millennial generation who are going to be inheriting trillions of dollars over the next few years. I look at the rest of the world because we’re 300 million people in the US, but there are billions everywhere else. As the world becomes more connected, they’re going to see what’s possible in life and they’re going to want that. Equity for change is huge. The capacity to change outside the United States is big.
Millennials are interesting to think about. I hate that stereotypical thing is you label all these people. You’re Millennials, you judge them because they’re a diverse group and any other thing is. With that confessed and with that caveat, they’re an interesting group because on the one side, we see them as more open to change and brighter. My kids even below Millennials got iPads. You learn differently. You think about the world differently. The other part of it is a lot of them have been tested like the greatest generations like World War II guys if they had resistance. Because on the one hand, they’re like, “School should be free. Everything should be free. We shouldn’t have to suffer.”
They’ve been coddled a bit. Assault can be done with words like that book, The Coddling of American Mind. All of a sudden, you go on a college campus, “I need a safe room because someone said something.” I look at them as maybe they are strong to handle these problems? They’re smart and they’re open to change. That’s going to be an interesting generation to see how they deal with all the crap that the Baby Boomers dumped on them.
There are challenges, problems and there have been forever. People go through different challenges. Going through world wars and being at the brink of death, that’s a big challenge. The challenge is going to be different. You can measure extreme, but extreme in a sense is based on perspective. They’re smart. They want simple. They want easy. They’re looking more for lifestyle than they are for security. That is a different motivation that drives behavior that is unprecedented. When you put resources in their hands, it’s going to be in better use than with Baby Boomers. Have you seen the Bill Gates docu-series that’s on Netflix?
It shows how he’s helped to brainstorm finance trade awareness to some of the global challenges mainly in Africa, third world countries, whether it’s about pollution or HIV or the water cleanliness. One of his big projects in that docu-series that they talked about was how kids in parts of Africa continue to die because of diarrhea. There’s so much bad water, bad sewage. He essentially brought good minds together to create a sanitary system that was affordable. It took several years to do it, but what he’s been able to accomplish there, that’s the mentality of Millennials. That’s Bill Gates. They see how things should be and they’re empathetic.
That’s where equality comes from that group. They care about equality out of empathy. Quite frankly, the Baby Boomers did not feel that way.
No, because they were in a war. It was about survival. Survival is you first before anybody else. Millennials haven’t had to go through that. They are sympathetic, empathetic and that’s where their minds work differently. How they get information, how they organize. It’s different. They may be able to get a better outcome than the methods that were used previously.
They got more intelligence, more knowledge than we had in our generation. Back to investing, when you look at all the stuff we’ve talked about, generational stuff, economic stuff, risks and all that, investing is about wanting first to sacrifice, first put out before you get in. That can hurt people right from the beginning. Notice when you asked me that question, what’s investing? I didn’t do it in a monetary sense because I don’t think about it that way. There are investments of time, energy, love, and many kinds other than money. It’s when you give and hoping that it’ll come back bigger. Whether you’re investing in your children, you’re hoping the fruit of that will be bigger than what you put in. Playing the piano, you’re hoping the fruit of it will be bigger than what you put in.
It’s an exchange where there’s an output that’s greater than the input.
The thing that’s tough is whenever you put something out because there’s not a guarantee that will happen and there’s your risk. You manage that with control saying, “If I put this out, what can I control to ensure that this comes back?” It’s so much not about advice. In 2020, I’m going to take my gloves off and I’m going to start punching advice in the culture of advice because it’s dangerous. Why fight personal development? Why fight that work? Why fight becoming before having or doing? Give me advice and tell me what to buy.
Risk Assessment For Investments: Employment is an important number because employment suggests people’s ability to buy.
If you were to read this blog, what people are going to do is they’re reading about all this talk we do about Millennials or AI or any stuff we’ve talked about. They’re still going to be caught in it. What am I supposed to buy? At the end of the day, what they’re craving, what their addiction is like heroin. I want to know what to buy. I want to know what to do. There are plenty of people who will sell that heroin on the street. They’ll sell it to them and give them advice. They’ll suck it up. If you sell this in a different way of saying, “No, it’s not about what I’m going to buy, it’s about what I’m going to be.” I do personal development, that should be sexy, that should be exciting, it should be healthy. You look at and say, “My schooling told me to get a job and it’s not looking good. Maybe my next schooling is I’m going to learn to invest. I’m going to be an investor before I have investments.” That’s “be have” behavior. When you take the ‘be’ and you put the ‘have’ and put them together, that’s behavior. You’ve got to be before you can have. The doing is in-between behavior.
As a final point and then I’ll have you tell everyone how they can buy your books, access your courses, follow you. What I would say is on that vein, which is as I’ve looked at giving people advice and doing the show and we have a business that revolves around it. People rarely connect to why they’re doing what they’re doing. They connect to the objective. They do it because they’re supposed to do it. That’s never qualified. I look at what an individual realizes that they think all of these things have to happen in order for them to experience something. That experience gives them a feeling or an emotion. That’s ultimately what it is.
I look at those emotions, those feelings can be experienced. You don’t need all of these things to have that outcome. That’s where you look at those that have achieved enormous amounts of wealth, success, and prestige, but they’re still way more miserable. In some instances, they take their own life. It’s one of those things where you need to connect the role of money, the role of investment because we live in a time that we’re all wealthy. If you compare to other parts of the world and look at it in history, you look at what we’re able to do, experience and how incredible it is. It doesn’t mean that investing and achieving more isn’t going to bring more of those experiences, but you got to connect that first. If you go about thinking that your life’s going to suck until you have this much money, this job, this title or this bank account balance. It doesn’t work that way.
My parents raised me in church and I don’t get out as much. There’s a wonderful passage that I remember and I don’t remember where specifically it came from, but it was about a group of people. It’s a wonderful idea where they figured it out. A group of people that had a society where it was almost communist because of all things common among them. They lived after the order of happiness. That’s a huge thing. When you look at the role that money plays in that Maslow’s hierarchy’s instructive is food, clothing, and shelter. You got to have some to do that. People say, “Money can’t buy happiness.” Hunger doesn’t buy happiness. Sick kids without medicine don’t buy happiness, and being naked and afraid on day 25 isn’t happiness, especially if it could be day 300.
As you go up there and you look at familial relationships that are different. Having money means you have time. I think having a little extra cash helped me spend more time with my kids. It’s been better not to have a 9:00 to 5:00 job that most people look at normal and having more time to put into my kids. The problem is that some people get caught up with the money. They never put in that time for those relationships. The money eclipses through relationships, so they’re killing. In that case, too much money kills that hierarchy. Self-actualization, try to buy that. How many Ferraris can you buy? You’re not going to get it.
Happiness, huge part as you get into your investing thing. I love Robert Kiyosaki’s CASHFLOW game, the rat race. Cashflow, if you get out of the rat race, that’s when you win it. It’s not when you get to the fast track. It gets ridiculous after that. I’m doing this charity thing. I’m making millions of dollars and I’m buying this. They’re big deals. When you look at where that game is played on the first page of financial. When you get passive income above expenses, now you have freedom. That’s a huge happiness thing.
If you go into your investing and you say, “If I don’t do anything more than that, does it get passive income above expenses?” There is some happiness to be found in that. That is not in the money, it’s in the life that you have at that point. Where if you have time, you can study what you want to study and if that’s your thing to go out and get another $100 million, you have to pursue it. Passive income above expenses out of the rat race, that’s a good place to start with a goal of investing that many people would find attractive.
What you’re saying is profound and still goes to the idea that it’s the life people are looking for and they think that having to get to certain points from a financial standpoint is when they’re going to be able to experience it. I’ll use an example with a client who got divorced as he was about to sell his business. He owned tons of property. He had been going to different personal development conferences and had studied, read books and watched videos. While he’s doing it, it was all for his family. That’s what he told himself, but yet he neglected his family the entire time. He neglected their needs. It’s that whole mentality where “I’m doing this all for them. They should love me because of that.”
They won’t give you love for that specific purpose. Plus, after you achieve that level where you have the money, freedom and time, suddenly life is going to start. I keep going back and forth on it because I look at the necessity that’s in me, which is I have to keep growing. I have to keep contributing, but I find fulfillment in that. If I do more, I’m going to have more of that fulfillment, yet I’ve connected that fulfillment piece to it. I’m satisfied fulfilled. If I get more, it’s going to be more. I’m good with where I’m at.
Investing is not about money. In other words, money is a subset of investing but not vice versa. We opened the program with it. Investing in people, hobbies, and growth is a huge thing. How we spend our time, that is the investment that is required. You have a limited amount of time. You can’t make it. How you invest the time is huge. Part of that time will be invested to learn and make money. Part of it will be to foster relationships. Part of what we’ll do philanthropic things. What did you achieve? What’d you build? What’s your legacy? Steve Jobs has an incredible legacy. Look at the stuff we use and what he left and what he gave us. I don’t think he went to work for more money. He knew what he wanted, who, why, and all that stuff.
How can readers get a hold of you and learn what you put online?
I’m changing my pitch on this stuff. When I google stuff, they google me as everyone else does. Google is looking at what I search and because I’m in investing, the ads I get on my YouTube stuff are all about stocks. I’m so sick of them. I hate them. I hate how they’re presented. It’s usually some guy in a Learjet, “I’m the greatest option,” or there’s this one, “I used to work on Wall Street and I found their dirty little secret. I’m going to share it with you.” I’m like, “Are people this stupid?” Before we talk about how people get a hold of me, I am going to take my gloves off in 2020. I have no interest in having any students or anyone read my books that want advice and that don’t want to develop themselves and put a little work.
I was over in Vietnam and I saw some people saying, “Sign up for one program. Click the button, follow, to do is $10,000 a day.” I was like, “People believe this. They sign up for these programs.” My website is The Cashflow Academy. The way we approach this is we say, “If people that want to learn, be investors and get excited about learning, this is the best place in the world you could go.” For the people that want quick tips, the people that want something for nothing, that’s not an investment. Remember something for nothing is not investing. Investing is putting out something and getting something back. If you put out nothing, that’s not investing. We’ve tried to purge any messages when we do promos. We didn’t want to work with those people frankly. First, I’m saying, “There’s only a certain type of people we want to drop by.” Is that bad to do? I don’t know if it’s bad to do or not, but I’ve grown weary of the environment of advice, programs, books and stuff. I like to be frank and clear. Would you like to do some work and put in some effort to gain knowledge and discipline, then we’re going to be a great resource for you.
That’s the natural order of things. If you want to get something more than what you have, there has to be more in the process.
Our website is The Cashflow Academy. We’ve got a lot of free stuff. It’s good stuff. We teach the 4 Pillars of Investing. We teach fundamental, technical analysis, cashflow, risk management in a way that’s fun and simple.
It’s good to have you here.
It’s fun to hang out. I always look forward to this stuff.
Andy Tanner is a renowned paper assets expert and successful business owner and investor known for his ability to teach key techniques for stock options investing. In 2008, Andy was key in helping develop and launch Rich Dad’s Stock Success System, which teaches investors advanced technical trading techniques to profit from bull and bear markets.
He serves as a coach to Rich Dad’s Stock Success System trainers and as the Rich Dad Advisor for Paper Assets. He is currently authoring an upcoming Rich Dad Advisor book on paper asset investing.
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In this second part of Financial Friday, we are still with wealth strategist Will Street as we move on to talking about the pursuit of financial certainty and happiness. We examine a scintillating article published by the Business Insider, detailing a woman’s insight by studying 600 millionaires on the effects of where you choose to live to building wealth. We discuss the importance of putting one’s happiness and where they find meaning in life to the equation of wealth-building. Learn how to balance financial certainty and security with real life, taking into account friendships, family, and environment. Know that we don’t have to give up the enjoyment of right now to the mirage of the good life in the future.
Watch the episode here:
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The Pursuit Of Financial Certainty And Happiness with Will Street – Part 2
We are in part two. We started with part one last episode. We’re going to continue with a scintillating article. I’m here with my friend, Will Street. It’s an interesting article from Business Insider. It is the insight a woman had by studying 600 millionaires and she discovered where you choose to live has two effects on your ability to build wealth. First off, we’ll recap the last episode. What did you think of the last episode? How did you like that discussion?
To recap it a little bit, it was good because we talked quite a bit about building wealth in the right way and building it from the base up and talking about uncertainty. Where a lot of people go wrong is they thirst after this uncertainty, but they seek it out without having the proper foundation in place. Not every financial decision is going to pan out. If you’re out and about in search of success or financial freedom or whatever that means to you and when you come across one of those scenarios where it doesn’t pan out. If you don’t have the right foundation to fall back to, that’s when things become difficult for people. You shared a couple of examples of some of those failures, the Puerto Rican fish farm. You got to do the due diligence. Things aren’t always going to work out. In fact, often things don’t work out exactly according to plan. The best that you can do is put yourself in a position to weather the storm and to have the right type of foundation, the right base and to keep moving forward.
The other point that you made that I thought was super compelling was this idea about tier two. We used as examples a couple of tier two assets, real estate investments, starting a business. The investment in ourselves and finding something that drives us. Finding something that gives us purpose and meaning and the value that it brings as we feel that sense of drive to get out of bed and make it happen. If that’s what is driving us, more often than not, we’re going to have a whole lot more in the tank to be able to push forward and be successful.
It’s the distinction between escaping. Most people are pursuing retirement, which is the escape of what they’re doing because they wouldn’t choose to spend all of their time working in what they’re doing. They’d rather spend their time somewhere else. They’re trying to escape from that. We advocate the discovery of doing meaningful things. I referenced some Tony Robbins material that says that the most fulfilling life comes from discovering that meaning and then spending 50% to 60% of your time doing that, not all of it. That’s where you look at people that retire and are miserable or people that achieve tremendous wealth and then decide to take their own life.
Where that true, that core meaning wasn’t discovered. Money or success or something else they thought was going to help them to discover it, where it’s the other way around where you can discover it without achieving wealth. This is something that’s not talked about when it comes to financial planning or financial advice or what you should do with your money and I think that it’s a tragedy. Most typical retirement planning solves for a specific end, which I don’t think is the end that people are seeking. Let’s get into some typical financial advice by a woman who studied 600 millionaires and she discovered where you choose to live has two effects on your ability to build wealth.
Here are a couple of her claims. She says the key to wealth building is to live in a home that one can easily afford. If you live in a pricey home and neighborhood, you will act and buy like your neighbors. The more affluent the neighborhood, the more the residents spend on almost every conceivable product and service. If you’re high income-producing, high-consuming neighbors roll up to the driveway in a BMW or a Mercedes-Benz, it’s likely you’ll feel the urge to do the same. The pressure to keep up with the Joneses can also be affected by lifestyle creep. The tendency to spend more whenever one earns more. First off, let’s take her perspective. What is she saying? What is she trying to allude to when it comes to a person’s ability to build wealth?
The common expression that you hear is somebody who’s house-poor. She’s saying, “Don’t be house-poor. Don’t spend or don’t buy a house that uses up more than a certain percentage of your disposable income. That’s a term that is somewhat familiar is this idea being house-poor. That’s the first piece, the size of your mortgage relative to your income. The second is if you live in this neighborhood and you see the neighbor across the street rolled up in a new 7 Series BMW, my 3 Series is not adequate anymore. I need the 7 Series. I need the S-Class Mercedes. I can’t resist that urge. If I see that my neighbor has something that I don’t, I’ve got to keep up with him or her. We’ve got home automation, swimming pool in the backyard, we’ve got it all. Pickleball court is the latest. “My neighbor’s got the pickleball court. I need the ball court. I’m going to spend it, even if it means I’m spending now what I would otherwise save.”
One of the natural tendencies we have as humans is we value community. We value friendships. We value relationships. If you live in a certain neighborhood, you want to be a part of that. I don’t think there’s anything wrong with it. She categorized that the wrong neighborhood, then you are most likely going to spend more than you make and you’re going to get into financial trouble. That’s what she’s alluding to. You’re not going to save and then you’re going to affect your future or ruin it, or both. Consider billionaire investor Warren Buffett. He lives in a modest house worth 0.001% of his total wealth. This is a commonly held perspective. I understand the accumulation of wealth. If you spend less, you’re going to accumulate more. It’s hitting on the financial principle, not the lifestyle and the meaning behind where you live and the memories and the experiences. It approaches it from a purely economic standpoint.
Financial Certainty: Your home is not an asset because it does not produce cashflow.
The thing with economics is it doesn’t take into consideration human behavior. She’s saying that human behavior, you’re going to spend less and you’re going to have more to accumulate. Is there anything that’s lost? This is where we’ll pivot to the other side of the coin when it comes to home ownership, the home that you live in. I’ve heard it as your home is not an asset. Robert Kiyosaki talks a lot about that because your home doesn’t produce cashflow. Someone else isn’t paying your mortgage, you are. You’re putting money into the maintenance and you’re putting money into upgrading this and upgrading that. You have to have Mercedes-Benz and BMWs. I look at the value of living in a nice neighborhood, the value of living in a nice home and what value that provides you when it comes to lifestyle, meaning, memories, family, etc. What do you think of the other side of the coin? How could you say, “I see what you’re saying, but here’s another opinion?”
I see what you’re saying is this idea. It’s the Dave Ramsey budgeting. Is budgeting generally a good idea? To tip our cap to her a little bit, it would be generally should you not spend every disposable dime that you have on a mortgage? The flip side of that coin is that also doesn’t mean that you should live in a studio apartment if you don’t have to. You don’t need to live in a trailer park if you don’t have to. There’s something to be said about a good safe neighborhood with good schools and a good community feel where it’s safe to walk on the sidewalks at night and spend time together as a family. The other flip side to this hyper-focus on budgeting and saving and as most people probably do, you probably have met people in the past who are hyper-focused on saving a nickel. They drive 30 miles to save a nickel on gas. The rational person would be like, “What did you do? Why did you do that?”
The flip side there is you can take it to the extreme, where generally, are there some good core principles there? The flip side to that is the happiness piece, the safety piece, the security, the peace of mind. Especially when you consider how much time you spend at home with your family and the experiences all of us want to have with our families. Your house is the key component of that. You can do all that without obsessing over the neighbor’s car and making sure that you put in the pickleball court that’s slightly bigger than your neighbors.
These are all good points. I’m going to continue on with this perspective, hitting on some different things. I understand this person’s point of view and she makes valid economical points. At the same time, if you look at what life is about according to me and it’s different for everybody. I’ve had lots of clients. There’s a period of time within a year that they had divorces, eight or nine people all got divorced and they were around the same age as me. One, in particular, hit home to me because he had made the statement, “All the work I’ve done, everything I’ve done has all been for my family and now they’re gone.” He built tremendous wealth. He worked all the time. I look at that and his intention was genuine. His actions didn’t necessarily correspond to that. You look at a home and where you live. It’s like, “That’s what gives life meaning is the memories and things you can do with your family.” I’d also say the friendships that you have.
Financial Certainty: Your environment has a lot to do with the ideas that are in your mind, the expectations you have of yourself, and the questions you ask others.
If you look at living in an affluent neighborhood, it’s affluent for a reason. They may drive BMWs or Mercedes-Benz, but the conversations that I’ve had with people in my neighborhood, I would not have had in another neighborhood. I look at my neighbor next door. I’ve had some fascinating conversations with him. He runs a microfinance bank and he consults with countries. He does a lot of work in Myanmar, Asia and Africa. It’s fascinating to have these conversations with him. He’s a computer programmer by trade. Those are the conversations. Those are the things that you can learn and be inspired by people. I have a neighbor that lives across the street and he’s been a successful attorney. What he knows and the books that he’s read. I have incredible conversations with him and we’ve made other friendships as well. I look at what’s the price of those relationships? What’s the price of those friendships? What ideas have they given that would not have come by living in a neighborhood that was 0.001% of your income? I looked at that and there are many intangibles associated with it.
Getting to this person’s point, how can you have both? How can you be responsible? How can you have the experience of life right now, not waiting 30 years or 20 years down the road to retirement where you are able to have the permission slip to experience life? This comes down to your financial education. It’s understanding a financial statement, money in, money out. If you can’t afford the neighborhood, it isn’t, “We have to live in another neighborhood.” It’s asking the question, “How can I live in that neighborhood? How can I live in that home?” That starts to engage a part of your brain where you start to look for opportunities. You may not be able to live there at this point or this point, but at some point, you may be able to live there. It’s the pursuit of that because you figured out ways to make more money. I look at the home that we live in.
We’ve lived in the same neighborhood for many years. This is the third home in the neighborhood, but I lived on the outskirts for a number of years. We almost moved a few times, especially during the financial crisis but it’s because this neighborhood is somewhat affluent neighborhood and it’s because I had established relationships there. I had friendships there and I wanted to also have a nice house for my family and also a happy wife because happy wife equals happy life. It was one of those things where I could have taken the money that went into a house and invested it. I would have had more money, have more cashflow, at the same time, I wouldn’t have had the experiences with my family.
You look at what that does to your soul, what that does to your drive. It can affect many different things. That’s the conversation that’s not typically had with these types of articles. They give you this, “Step one is to make sure that your mortgage payment is less than 20% of your earned income,” which are always technical steps and there’s merit to some of those. It’s disempowering because it almost assumes that you’re at the income level you’re going to be for the rest of your life and you better deal with it. If you want to retire one day, you better scrimp and save and not enjoy life until you’re 65. I don’t think that’s the right mentality. They may not say that’s what they mean. That’s the feeling you get.
That’s where the motivation comes from where in order to build wealth, you don’t figure out how to earn more and be more valuable, but you scrimp and save based on the money you are earning. That’s the only money you’re going to earn. That money there is going to somehow compound and grow and you have enough money to live for the rest of your life at 65. It’s a narrative that is disempowering. Looking at our perspective, it doesn’t mean that you need to go out and buy a beautiful home and BMWs and Mercedes, but you need to start asking different questions. There’s merit to her perspective. There’s also merit to the other perspective. Hopefully, you’re seeing that. You sit on the edge. It’s up to you to determine what’s right for you at this point.
I can resonate with a lot of what you said about the neighborhood that you live in. For us, we moved a few years ago. It wasn’t to try and get into some fancy neighborhood where we wanted to be surrounded by a bunch of gazillionaires or anything like that. For us, it was family. We live within about a mile or so of my wife’s two brothers. The result of that is we live in a neighborhood that we love, that we’re comfortable with, that’s a good neighborhood. The interaction with our kids among their cousins and holidays and things like that, it’s a completely different dynamic.
The thing that’s interesting is for me, I didn’t grow up like that. It’s one of those things where I would have been stuck in that old mentality. I would have imposed this artificial ceiling on myself that, “We can’t do that. We got to take where we are right now, assume that that’s our maximum and operate from that level and below. We can’t do that.” My wife helped me stretch a little bit and see opportunity, meaning and value. Now that we’re there, my kids are having a completely different experience as kids from what I had. The family is so much more critical, so much more part of their everyday lives than it was for me. I wouldn’t trade that for anything. It’s huge.
Your environment has more to do with your experience of life than you think. It’s the environment, whether it’s where you live, the culture of your office and the social networks that you’re in. Those are environments and that environment can make life miserable or it can totally empower you. It can also stretch you. I’m going to give you one example. This was a long time ago, but after my sophomore year of college, I went to a hockey camp in Minnesota. It was sponsored by the Anaheim Ducks. It was a humbling experience because I was in an environment of these Triple-A players. There are a couple of pros there, it was a camp where it was training but also spotlight. I remember getting out onto the ice the first time and the speed that they were warming up. For me, it’s the speed of a game where it was all out. What it did, it raised my level of play because I was in an environment that stretched me. I believe that anybody can be stretched. Anybody can make more of a difference tomorrow than they did now.
A lot of it depends on the environment that you’re in. Some of it depends on your internal drive and what you want for life, your vision, your mission. Your environment has a lot to do with the ideas that are in your mind, the expectations you have of yourself, the questions you ask yourself and the questions you ask others. You’re one idea away from a totally different life. You’re one decision away from a totally different life. Your environment influences a lot of that. That’s why I try to go to events. I try to participate in mastermind groups. I try to be around individuals who are inspiring, who are pushing the limits, that doesn’t settle for the status quo. That inspires me, it helps me stretch. If I didn’t have that, it would be more difficult for me to do that. What do you think of part two?
We dissected it pretty well. There’s always a second side or even a third.
It’s one of those things where I find it disheartening sometimes that people sacrifice the enjoyment of life right now for what I consider a mirage of the good life in the future. Sacrificing now, I don’t think you’re suddenly going to have an amazing life when you retire or you achieve success. Life needs to be valued and celebrated.
I think so much of those limitations are mental. I can remember as a kid growing up where I had some friends who were better off than we were financially. They came from amazing families. I got to see from the inside. I had friends whose families were awesome and who included me in a lot of what they did, vacations and stuff like that. I got to be able to see it from the inside. My parents were that limiting frame of mind. They would refer to my friend’s families. It was with some jealousy and with, “We could never afford to do that. It’s nice that they can do those types of things, but we can’t do any of those things.”
I was living in an environment where I was hearing all these limitations, but I was spending a significant amount of time within these other environments where I was seeing everything that was possible. It’s not like they were burning $100 bills for the fun of it because they had so much money. It wasn’t anything like that. They prioritized what was important to them and they lived within that framework. Early on in my teenage years, I consciously made the decision what I wanted. I wanted out of where I was, that mindset, those limitations. I wanted to gravitate toward what my friends’ families had. The number one reason why I went on to become an attorney was that my best friend’s dad was an attorney. I saw the family dynamic. I saw the lifestyle. I saw what they did together as a family and what I didn’t do. I bee-lined it straight for that.
The idea was nurtured over the course of time, but it may have come in one experience. Those ideas can come frequently if you’re in the right environment. That happened to be the circumstance at the time for you. You can intentionally be in certain environments that can inspire you, stretch you and push you beyond what you consider your limitations. Hopefully, this has been a valuable episode for you guys. It’s setting the stage for some future ones that we’re going to do when it comes to investment and also some other financial strategies. Thanks for joining us. Make sure you go and listen to our past episodes as well as our primary episodes. We’ve had some awesome ones, G. Edward Griffin, Lawrence Reed, it was fun interviewing those guys. The topic’s capitalism so learn about capitalism. We’ll see you on the next episode. Thanks.
Will earned his Bachelor of Arts degree from Brigham Young University in 2005. After graduating from BYU, Will attended the University of Iowa College of Law and received his Juris Doctor in May of 2008. Will began practicing law with the law firm of VanCott, Bagley, Cornwall & McCarthy the oldest and one of the most well-respected law firms in the State of Utah. Will’s practice focused primarily on consumer finance-related litigation, consumer finance transactions, sale and purchase agreements, NDA’s, RFP’s, teaming agreements, security agreements, creditor’s rights in bankruptcy, and estate planning. Working directly with clients to analyze a problem, develop a solution, and working to ensure a successful resolution are what Will enjoyed most about being an attorney. Will comes to Paradigm after nearly six years in the private practice of law.
After his exposure to the Infinite Banking concept and seeing that his legal training would be directly relevant to his role at Paradigm, Will made the decision to leave his practice. Paradigm allows Will to continue to do what he enjoys most – develop client relationships, dissect problems, create solutions and work collaboratively with the client towards a successful resolution. Originally from the Tri-Cities area of Eastern Washington, Will currently resides in Salt Lake City with his wife, Sunny, and their three children.
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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.
Run-of-the-mill advice is everywhere. But in order to achieve different results, your strategy has to be different.
In this book, you're going to learn about a hundred year old strategy that's tried and proven to give results. Are you ready to
shift the way you think about investing?
WHAT THE PROS ARE SAYING...
Once in a great while, a person comes along who can explain financial concepts so clearlu that all of a sudden,
what had been a mystery becomes obvious. For many people, Robert Kiyosaki was that person when he wrote Rich Dad Poor Dad. For me,
that person was Patrick Donohoe when he first explained what you're about to learn in this book.
Tom Wheelright, CPA
Author of Tax-Free Wealth, of the Rich Dad Advisor Series
"Patrick's book explains why every American is experiencing worry, fear, and uncertainty with thier finances.
'Heads I Win, Tails You Lose' outlines a better way to take back control and live a life you love."
"Storyteller, man of honor, humble seeker of truth - these are the words I think about when Patrick comes to mind.
I've been looking forward to this book for quite a while and am pleased to tell you, the reader, it is worth the wait."
CEO, Partners for Prosperity
"Patrick is someone that I call upon to learn the strategies of the world's richest people. 'Heads I Win, Tails You Lose' provides
a creative approach for managing wealth outside of the old and tired methods used by everyone else."
Founder of Capitalism.com
Book Nailed it
A should-read for anyone looking to be smart with thier money, and smart enough not to just follow the herd.
Robert K. Cunningham
Very enlightening and actionable!!
If you want a real path to Economic Independance and not a theory this book is for you.
Wise if I read this years ago.
Great book, made me change my thinking on my investment situation.
Take back control of your money
The truth about money. You will be surprised with the information. WOW!
A must read
Outstanding book. Details information most people are not aware of in creating a sound financial programs.
...a critical financial strategy
I simply couldn't put this book down, I read it cover to cover in 1.5 days! #VeryEngagingRead
ABOUT THE AUTHOR
Patrick Donohoe is the Founder and CEO of Paradigm Life and PL Wealth Advisors. Patrick and his team teach thousands how
to build wealth, create lifetime cash flow, and leave a meaningful legacy.
Patrick was recently honored by Investopedia as one of the Nation's Top 100 Most Financial Advisors. He is a highly sought
after presenter and speaker at financial-based events around the country and is the host of The Wealth Standard podcast.
Patrick grew up in West Hartford, Connecticut, and attended the University of Utah, where he received his bachelor's degree in economics.
He lives in Salt Lake city with his wife and three children.
WHAT'S INSIDE THE BOOK?
THE CHAPTER LIST:
1. ORIGINS OF THE AMERICAN DREAM
2. THE PERPETUAL WEALTH STRATEGY™
3. QUESTION EVERYTHING
4. BREAK AWAY FROM WALL STREET
5. AVOIDING THE INVESTING AND LENDING TRAP
6. THINK FOR YOURSELF
7. A SOLID FOUNDATION
8. B ELIKE THE WEALTHY
9. MYTHS AND TRUTHS OF INSURANCE
10. SAVE, BORROW, INVEST, AND BUILD WEALTH
11. START, BUILD, AND PROSPER YOUR BUSINESS
12. YOUR FINANCIAL FUTURE
13. MAKE THE SHIFT
14. TAKE BACK CONTROL