2021-02-23_The_Power_of_Beta
00:00:00.000 | Welcome to the
00:00:15.680 | Radical Personal Finance, a show dedicated to providing you with the knowledge, skills,
00:00:18.720 | insight and encouragement you need to live a rich and meaningful life now, while building
00:00:22.560 | a plan for financial freedom in 10 years or less.
00:00:24.880 | My name is Joshua and today we're going to talk about the power of beta.
00:00:32.040 | Let me quickly clarify what I mean.
00:00:35.560 | Put very simply, if you can observe some large-scale macro trends and then align yourself, perhaps
00:00:46.960 | your career, perhaps your investments and your assets in line with those trends, then
00:00:53.520 | I'm convinced that you can win even if you don't happen to be the smartest person in
00:00:59.440 | the room.
00:01:01.520 | You just simply need to observe and align yourself with some trends and then get some
00:01:08.360 | big-picture decisions right.
00:01:11.280 | Now let's first begin with a discussion of alpha and beta.
00:01:16.560 | I'm going to use these terms in a way that they don't specifically mean, but I'm drawing
00:01:21.720 | inspiration from what they mean in the marketplace of stock research and stock investing.
00:01:30.280 | Usually when you talk about investing, the term beta is a measure of volatility of a
00:01:37.840 | particular investment, the ups and downs, the volatility of an investment relative to
00:01:42.740 | a benchmark.
00:01:44.740 | And so what beta does is it measures the systematic risk of a specific security or a specific
00:01:51.480 | portfolio when compared to an index, like say example, the S&P 500.
00:01:59.360 | That's what beta is.
00:02:00.960 | What's most interesting in your mind is to think about it in terms of alpha.
00:02:04.160 | What is alpha?
00:02:05.160 | Well, alpha is generally understood in stock investing to be the excess return of a particular
00:02:12.640 | stock or a particular mutual fund or a particular portfolio as compared to the general marketplace.
00:02:21.240 | Now, that's what they mean in investing terms, but I'm going to just take inspiration from
00:02:26.680 | that and not try to talk about this in a technical sense.
00:02:30.200 | I'm going to analogize these terms alpha and beta and apply them in a very broad sense.
00:02:35.120 | Just note that from here going forward, these answers are not going to be correct on a CFA
00:02:40.600 | exam.
00:02:41.600 | I want to simply take these terms as inspiration to talk about this concept.
00:02:47.240 | When I think about alpha, I think very simply about outperformance.
00:02:52.240 | I think about finding a star, finding a winner.
00:02:58.760 | In the investment world, when you get alpha, it's because you're just a magical portfolio
00:03:04.080 | manager.
00:03:05.080 | You can come in and you can say, "I know how to pick the very best stock.
00:03:11.160 | I know how to pick the very best company."
00:03:14.160 | Perhaps you go into a marketplace where there are five different packaged goods manufacturers
00:03:18.760 | and you say, "This particular company has a star of a leader.
00:03:23.160 | Because of that star of a leader, I know that this company is going to win."
00:03:27.040 | Perhaps you observe a telecommunications company and you say, "This telecommunications company
00:03:31.360 | has an exciting new technology.
00:03:33.440 | I'm going to come in and I'm going to invest in that telecommunications company because
00:03:37.540 | it's going to be a winner."
00:03:39.640 | The idea is in time you can generate alpha, you can generate outperformance.
00:03:45.360 | In life, we often think of ourselves as needing to generate outperformance.
00:03:51.120 | We often think of ourselves as needing to be the star, needing to have the best of skills,
00:03:57.320 | needing to have the ability to go beyond where other people go.
00:04:02.120 | Now alpha is awesome.
00:04:06.720 | If you can create alpha in your portfolio, you can do very, very well for yourself.
00:04:13.160 | You can make a fortune if you can do it in the investing world.
00:04:16.960 | If you can create alpha in your own life by being a star, you can do very, very well for
00:04:23.240 | yourself.
00:04:25.240 | Unlike perhaps the world of investments, which is maybe challenging for many of us, you can
00:04:30.200 | do this in your career.
00:04:32.400 | You can be the hardest working guy in the room.
00:04:35.880 | You can be the most prepared prior to the important meeting.
00:04:41.240 | You can be the best researcher.
00:04:43.280 | You can be the person that goes the extra mile.
00:04:45.920 | You can be a star employee.
00:04:48.680 | Or you can run a business that does very, very well.
00:04:53.480 | The challenge is this.
00:04:56.820 | If you get alpha right, but you get beta wrong, it's very hard to be successful.
00:05:05.440 | But if you get alpha right and you get beta right, now you have a winning formula.
00:05:13.200 | Again, remember, I'm not using these terms in the CFA sense.
00:05:16.480 | I'm trying to simply drive a concept.
00:05:19.280 | When I think about beta as compared to alpha, I think about the marketplace as a whole.
00:05:24.960 | I think about how is this general market going to do.
00:05:29.200 | What's going to happen with, say, telecommunications?
00:05:32.360 | Or what's going to happen with space travel?
00:05:35.280 | Or what's going to happen with the airline industry?
00:05:38.640 | What's my sense of the market?
00:05:42.560 | And then when I come back and I think about my life, I find even more applications for
00:05:47.320 | this.
00:05:48.320 | I think about not am I the person who is by definition the best, but am I lined up with
00:05:54.880 | where the market is going?
00:05:57.960 | Because if you're in a rising industry or you're in a rising company, now you have the
00:06:06.180 | ability to succeed even if you may not be the star employee.
00:06:13.880 | The 10th hire to Facebook wound up becoming very, very rich, even though they were the
00:06:22.840 | 10th hire.
00:06:25.900 | And you can apply this all the way down the road.
00:06:28.660 | So the question for you to ask yourself is, am I getting my beta right?
00:06:36.260 | You might run the very best company in your industry.
00:06:41.700 | You might be the world's greatest entrepreneur, able to make the best decisions.
00:06:47.540 | You might be the world's greatest manager running a very well-run company.
00:06:52.120 | Your company might make the very best products.
00:06:55.540 | But if the year is 1900 and your company is engaged in the business of building buggy
00:07:01.900 | whips, you didn't get it right.
00:07:06.180 | You didn't win.
00:07:09.140 | You probably didn't survive.
00:07:12.580 | Now I would be quick to point out that of course that's not guaranteed.
00:07:16.940 | Maybe today you're the world's greatest buggy whip manufacturer for the 577 people per year
00:07:22.940 | who buy a Surrey and hook it up and race their horse at the local track and they need a whip.
00:07:27.380 | I don't know.
00:07:29.380 | The point is pretty obvious.
00:07:30.520 | The market changed under your feet.
00:07:33.180 | But if the year was 1900 and you saw the direction that transportation was going and you got
00:07:38.940 | involved in the industry, there was a very good chance that you experienced more success.
00:07:48.460 | Now you may have joined the wrong company to start with.
00:07:53.180 | And I'm going to use a couple of legacy industries.
00:07:55.380 | Think about something like automobiles.
00:07:59.020 | Getting involved in the automobile industry when people are still trying to figure it
00:08:02.420 | out and you've got hundreds and hundreds of different people making 10 cars a year.
00:08:08.020 | The fact that you're involved in the automobile industry because you saw the direction of
00:08:11.660 | the industry was going didn't necessarily guarantee that you were going to be successful.
00:08:17.360 | You may have joined a company that had a bad product.
00:08:20.680 | But the fact that you were around the automobile industry and you saw the direction of the
00:08:24.160 | industry got you a step closer to success and there was a pretty good chance that you
00:08:28.540 | had a timeline of success.
00:08:30.700 | And then once you're in the industry, you can look around and try to figure out who's
00:08:34.460 | going to be the winner in this industry.
00:08:36.420 | Is it going to be Ford Motor Car Company?
00:08:38.440 | In which case you may have gone and hitched your wagon up to Mr. Ford because you said
00:08:42.940 | this is going to be the winner.
00:08:44.540 | Or maybe it was airlines.
00:08:46.000 | Maybe you observed after the airplane was invented that, you know what, air travel has
00:08:50.100 | the potential to change the world.
00:08:52.580 | And if I go and get involved in air travel, then I have the ability to be in something
00:08:59.060 | that's going to be transformative.
00:09:01.340 | You may have ended up working for a company that went bankrupt.
00:09:04.820 | But once you're in the industry, you can adjust.
00:09:06.960 | You can look for your alpha.
00:09:09.240 | You can look for the opportunity to be the best employee at the best company.
00:09:13.620 | But first you've got to get your beta right.
00:09:15.720 | You've got to get the industry right.
00:09:17.580 | And you've got to get the direction of the marketplace right.
00:09:20.440 | Maybe it was telecommunications.
00:09:22.240 | Perhaps it is telecommunications.
00:09:24.840 | But maybe you were involved in telecommunications and it was the 1980s and the 1990s.
00:09:29.240 | You said, you know what, the fact that we can make a phone call from anywhere and carry
00:09:33.120 | a phone on our hip, this is going to revolutionize the world.
00:09:36.600 | And if I just get involved in this industry in some way, there's a good chance that I
00:09:40.880 | can make my fortune.
00:09:43.440 | Well making that move doesn't mean you don't wind up at a bankrupt company.
00:09:47.520 | But what it means is there's a much better chance that you're on an upswell.
00:09:53.720 | As the axiom goes, a rising tide raises all boats.
00:09:59.620 | Maybe it was the dot-com in the early 2000s.
00:10:03.400 | Maybe it was real estate.
00:10:06.480 | I don't know.
00:10:08.200 | But when you see a trend and you observe that trend, my point in today's show is that you
00:10:14.240 | should pay attention to it.
00:10:16.120 | And you should think about how can I get involved in this trend?
00:10:20.960 | Can I get the beta right?
00:10:25.600 | So how can you apply this to your own finances?
00:10:28.720 | Well, the first thing that I would emphasize is that you should apply this to your income,
00:10:36.820 | to your earnings.
00:10:40.400 | I'm going to give an example of two different trends that I observe, especially trends that
00:10:46.520 | could be found in the space of where you're earning money.
00:10:51.820 | The first trend would be a legacy industry that may be on the decline.
00:11:00.120 | In my mind, a good example of this industry would be the role of a real estate agent in
00:11:05.440 | the United States of America.
00:11:08.280 | For a very long time, working as a real estate agent has been something that could be a very
00:11:14.880 | profitable and very – a really nice way to make a living.
00:11:20.520 | I have actually frequently recommended to people that they consider working as a real
00:11:25.040 | estate agent.
00:11:26.040 | It's the kind of job that I think I would be a pretty good fit for and that I would
00:11:29.520 | enjoy.
00:11:31.440 | Working as a real estate agent can be a very good career.
00:11:34.820 | But in my opinion – this is my opinion – it is a career that at least in the United States
00:11:39.800 | – I don't know all markets around the world, but in the United States, it's a career that
00:11:42.960 | is on the decline.
00:11:44.760 | Why?
00:11:45.760 | Well, because in many cases, the individual work and service of an agent is increasingly
00:11:54.600 | replaced by Internet technology and by people's comfort levels with going and seeing and viewing
00:12:03.800 | properties online, choosing among properties online, doing tours, virtual tours, establishing
00:12:10.800 | their own things, etc.
00:12:12.800 | Now, I'm not saying the industry is dead.
00:12:15.280 | I'm saying that I think the industry is significantly on the decline.
00:12:20.520 | I think that you're having the big players that are coming in that are disrupting the
00:12:23.440 | marketplace and I will be very surprised if five years from now, ten years from now, a
00:12:29.760 | traditional real estate agent can command the same level of commissions today that they've
00:12:35.960 | been able to command for many years.
00:12:39.320 | I'm not insulting you real estate agents.
00:12:40.880 | I'm saying I think this is a good example of a trend.
00:12:44.400 | So if I were in the real estate business, I would be observing and looking at this trend
00:12:49.280 | and saying, "I think my career may have a limited time span, shelf life.
00:12:59.200 | I think that within a period of years, this particular career in the United States is
00:13:07.920 | going to become less profitable and more difficult."
00:13:11.720 | We could have used other careers as well.
00:13:14.080 | For example, this one's more difficult because there's more factors, but let's just stick
00:13:20.480 | with a career with real estate.
00:13:22.040 | That'd be an example of, in my opinion, of a career that's on the decline in the United
00:13:26.380 | States or at least its prospects are not as bright as it once was.
00:13:30.800 | Don't think, by the way, that these things will change overnight and all of a sudden.
00:13:33.960 | I could say a similar thing of the pressure on financial advisors.
00:13:38.040 | Financial advisors are under intense pressure in the current world.
00:13:42.440 | In the 1980s, it was very easy to be a financial advisor and make a lot of money selling stocks,
00:13:47.480 | charging management fees, et cetera.
00:13:49.560 | But the pressure, the financial pressure on financial advisors has been intense so that
00:13:54.320 | now it's very hard to make a living going out and selling stocks for a commission.
00:14:00.040 | I know of virtually no financial advisors that can actually do that successfully, sell
00:14:04.920 | stocks for a commission.
00:14:06.320 | Why?
00:14:07.320 | Because you had market pressures.
00:14:08.320 | You had the market pressures of no commission stock brokerage houses.
00:14:14.760 | You had the market pressure of index funds.
00:14:17.160 | You had a mammoth like Vanguard that came in and brought tremendous pressure against
00:14:22.040 | the industry.
00:14:23.240 | You had all kinds of fracturing in the financial industry such that now financial advisors
00:14:30.080 | had to go in a totally different direction.
00:14:32.160 | Doesn't mean the career is dead.
00:14:33.720 | It means it's under intense pressure and it's not as easy as it once was.
00:14:38.600 | If you're going to be successful, your success matters depends much more on your alpha, on
00:14:44.840 | what you bring to the table than on the beta, on what the industry actually provides for
00:14:49.640 | you.
00:14:50.640 | In 1980, if you came to the table and you picked up the phone and you did your cold
00:14:55.280 | calls, you could make a great income selling stocks over the phone if you were persistent
00:15:00.520 | enough.
00:15:01.600 | In 2020, you cannot.
00:15:04.760 | It's a totally different business model and you've got to be much more intelligent about
00:15:07.760 | it.
00:15:08.760 | So there are two careers as an example.
00:15:10.200 | Now where could you go where there's some sense of growth?
00:15:13.920 | Well I think there'd be many examples.
00:15:17.280 | Last night I was looking around online in the cryptocurrency space and I was observing
00:15:22.120 | that now there are several dozens of degrees available right now in blockchain technology
00:15:28.680 | from really all over the world, but you can now go and you can get a degree in blockchain
00:15:32.800 | technology.
00:15:33.800 | Last night I was looking at the website for the University of Malta.
00:15:36.520 | Malta between Africa and Europe, a little island off the tip of Italy, has sought to
00:15:42.240 | bill itself as blockchain island.
00:15:45.000 | They've tried to be very friendly.
00:15:46.040 | They've tried to establish regulation for cryptocurrency businesses with I would say
00:15:49.920 | mixed success.
00:15:51.160 | Not as much success as was hoped thus far and we'll see what happens, but they've tried
00:15:54.720 | to bill themselves as blockchain island.
00:15:57.280 | So the University of Malta has a career, sorry, has a master's degree program that you can
00:16:02.560 | go and you can be involved in and get a master's degree in blockchain technology.
00:16:07.780 | In my opinion this would be a pretty good example of an area where there's massive growth,
00:16:12.640 | of an area where if you are competent in some skills relating to cryptocurrencies to blockchain
00:16:22.560 | technology, this is something where there's a lot of career growth.
00:16:27.880 | When you have Bitcoin hitting 50, almost $60,000 per coin and with just only modest signs of
00:16:36.120 | stopping, now all of a sudden you see a pretty significant field and then you see people
00:16:42.080 | and countries and companies trying to say, "How can we take this new technology and apply
00:16:48.720 | it in different areas?"
00:16:50.200 | Now I don't know what the end of the day is, where we're going to be 10 years from now
00:16:54.040 | with cryptocurrencies and with blockchain technology.
00:16:57.360 | There's a lot of reason to believe that they'll be an integral part of our lives, but this
00:17:01.880 | would be an example of the type of career where I think things are in a growth pattern.
00:17:07.040 | Now perhaps that's a little bit too innovative or a little bit too rare for you.
00:17:12.480 | I think another obvious example would be something as simple and mundane as being a software
00:17:17.000 | engineer.
00:17:18.500 | You could begin today with no history, no knowledge.
00:17:22.880 | You could be working as a real estate agent today, looking down and realizing, "My career
00:17:26.680 | is declining," but you can start studying software engineering entirely for free, by
00:17:31.480 | the way.
00:17:32.480 | No need to take any classes that you pay for.
00:17:35.140 | Start doing projects.
00:17:36.140 | Start going through the various coaching sites and the education sites and whatnot.
00:17:40.200 | Then a few years from now, you could have a six-figure job as a software engineer with
00:17:45.240 | massive growth potential, and as the world moves more and more intensively in the direction
00:17:50.120 | of software solutions for more and more parts of life, the need for software engineers is
00:17:54.560 | intense.
00:17:55.560 | I don't see any way that that particular career is in decline at the moment, although there
00:18:00.320 | may be heavy competition, it's not in decline.
00:18:03.240 | And there are many other examples of these.
00:18:06.040 | Now don't just think that if you just find beta, it's good enough, or if you just have
00:18:10.600 | alpha, it's good enough.
00:18:12.160 | I think the power – I teach a course on career and income planning.
00:18:17.040 | It's called the Radical Personal Finance Guide to Career and Income Planning, available
00:18:20.240 | for you today, right now, at radicalpersonalfinance.com/store.
00:18:24.120 | And one of the concepts that I teach in that course is the power of choosing very carefully
00:18:29.160 | and maximizing both your beta and your alpha.
00:18:32.800 | Somebody who carefully chooses an industry that is growing in a location, a geographic
00:18:42.520 | location of the world that is growing and where the trends are in the right direction,
00:18:49.480 | and they choose the best company in the industry that has the brightest prospects, and then
00:18:54.600 | within that company, they choose the best segment, the best division of the company,
00:19:00.440 | where it's the most important division of the company.
00:19:03.560 | And then to the degree that it's possible, they choose the best boss in that division
00:19:07.980 | to work under, and they choose the best job position for them.
00:19:13.560 | And then they go into that workplace and they work their tail off, and they become an absolute
00:19:18.480 | star exercising their alpha.
00:19:21.640 | That person is going to be light years away of the person who has the capability and potential
00:19:27.320 | to be a star, but works under a bad boss in a division of a company that's not particularly
00:19:33.400 | valuable, in a company that's poorly run, and in an industry or a geographic place in
00:19:38.840 | the world that's in decline.
00:19:41.040 | So to get the maximum benefit in your career, you want to stack all of these things on top
00:19:44.680 | of each other.
00:19:49.400 | In summary on the career perspective, think carefully about the trends that are happening.
00:19:55.120 | I've listed a number of trends, but think carefully about these.
00:20:02.000 | It's all well and good for you to be personally success oriented, for you to be the person
00:20:06.760 | who has the basic skills to be effective and successful and valuable in the marketplace.
00:20:14.500 | But if you're not positioned well, again, think about your boss.
00:20:19.360 | If you're under the wrong boss, that can be the death of you.
00:20:24.400 | Not in and of itself.
00:20:25.400 | If you're under somebody who is not going to raise you up with them, if you're under
00:20:30.040 | somebody who's not going to recognize it when you make them shine, you got a problem.
00:20:37.480 | Change to a different boss.
00:20:39.640 | If you're in a division of the company that's not particularly contributing to growth, change.
00:20:45.220 | If you're in the wrong company, change.
00:20:47.920 | But the big ones to get right are industry and I would say also geography.
00:20:54.240 | Think carefully about your industry.
00:20:56.120 | You may, and this is one of the things that I get upset a lot of times with the concepts
00:21:03.440 | of passive investing, of saying to yourself, "I can't successfully choose what stocks are
00:21:12.560 | going to outperform."
00:21:14.800 | And the reason I get upset with it is not because I have the ability to argue with the
00:21:18.440 | academic research.
00:21:20.120 | I don't.
00:21:22.400 | I'm not a researcher at the Chicago School of Economics who could sit down and generate
00:21:27.480 | new economic investing theories worthy of a Nobel Prize.
00:21:31.160 | It's not my forte.
00:21:33.440 | But what I think happens is I think that people take it too far and I believe that this has
00:21:37.520 | hurt me personally.
00:21:38.520 | I'll start with me personally.
00:21:41.120 | When I was younger, I spent so much time being told by the financial industry that, "Well,
00:21:47.280 | Joshua, you can't tell successfully with any statistical reliability, you can't tell what's
00:21:54.320 | going to outperform."
00:21:56.560 | And I was told that again and again and again and I would read the academic literature and
00:21:59.640 | I didn't have the ability to refute it.
00:22:01.840 | I didn't have the ability to say, "Well, wait a second.
00:22:03.920 | Wait a second.
00:22:04.920 | Yes, you've got your hypothesis, Mr. Fancy Pants Academic Researcher, but I think I can."
00:22:12.740 | And what would happen is I would just say, "Well, I can't do it.
00:22:15.560 | I can't predict it.
00:22:16.920 | I can't predict it."
00:22:19.720 | The problem is for me, this went far too far, far beyond what the academic research would
00:22:25.240 | indicate to areas where the academic philosophy, sorry, the academics who created that numerical
00:22:31.400 | modeling that said, "Hey, it's very difficult for a fund manager to outperform."
00:22:35.640 | I absorbed this concept in my own life to much too great of a degree and I came to the
00:22:42.120 | perspective and I said, "Well, I can't predict what market's going to be.
00:22:46.160 | I can't predict what stock is going to be the next winner."
00:22:49.040 | I didn't understand that there were ways to make money on stocks even if I couldn't predict
00:22:53.120 | it successfully and to ensure my bets.
00:22:54.880 | I didn't get that.
00:22:55.880 | I wasn't sophisticated enough at that time.
00:22:58.160 | Then I thought, "Well, I can't predict what market segment or I can't predict the general
00:23:04.560 | direction of the stock market or I can't predict what industries are going to take off or I
00:23:11.880 | can't predict what regions of the world are going to be successful."
00:23:17.000 | When I test those ideas, I realized that I was completely wrong.
00:23:22.560 | Now, I may not be the world's best stock picker, but I can look at something as simple as demographics
00:23:29.680 | and make some educated guesses about where I think things are going.
00:23:33.800 | Now, in the fullness of time, will I turn out to be right or wrong?
00:23:36.800 | I don't know, but I can make some educated guesses and I'm willing to put my money behind
00:23:46.040 | that.
00:23:47.040 | This is just, again, speaking personally for me.
00:23:50.760 | When I finally realized where this came from, again, I become frustrated with passive investing
00:23:56.880 | because I believe that one of the dangers, maybe not for most people, but at least for
00:24:00.120 | me, one of the dangers was that it led me to doubt my own abilities.
00:24:06.080 | I'm not so much of a maverick in the sense of my ability to go against everybody and
00:24:10.960 | say, "Well, I just have it all figured out."
00:24:13.000 | I admire people who can.
00:24:14.920 | I admire somebody who can stand up in a room full of people saying, "That thing is white."
00:24:20.040 | They can say, "No, it's not.
00:24:21.040 | It's not white.
00:24:22.040 | It's black," and they can be totally convinced of it.
00:24:23.960 | I'm too much of a researcher and analytical and I say, "Well, listen, if 98% of the people
00:24:28.440 | say it's white, there's a very good chance it's white and I want to see some really good
00:24:32.320 | evidence that it's actually black before I open my mouth and say it's black."
00:24:37.120 | So if I've had 18 years to do the research, then I might be willing to be one of the 2%.
00:24:41.720 | In some things, I'm totally willing to be the 2%, but I'm not willing to open my mouth
00:24:46.040 | at an early stage where there are other people who are just – they have a gut instinct
00:24:50.360 | and they say, "No, this is the way it is.
00:24:52.000 | This is the way the world is."
00:24:53.000 | I admire those people.
00:24:54.000 | That's not me.
00:24:55.520 | And all of that idea about the efficient market hypothesis, I took it far too far in my own
00:25:02.080 | life and it's hurt me because I didn't have the forethought to be willing to take bets
00:25:08.480 | on things that I thought were true.
00:25:10.800 | Well, speaking personally, now that I have identified that, I'm changing.
00:25:16.040 | I was wrong.
00:25:17.880 | I've identified to the best of my ability the source of why I was wrong and now I reject
00:25:24.840 | that previous way of thinking and I'm willing at this point in my life to take bets on myself
00:25:30.440 | and on my own hunches.
00:25:32.400 | I have a good safety mechanism with good financial planning to say, "Hey, I'm not going to
00:25:36.120 | ruin myself," but I'm willing to bet my money on what I think is happening and I'm willing
00:25:41.040 | to bet my life on it.
00:25:42.040 | I'm willing to make life decisions on it.
00:25:43.600 | I'll give you a couple of examples.
00:25:45.800 | Geography matters.
00:25:48.120 | Geography matters to your daily experience of life.
00:25:52.440 | I've tried to emphasize how important that is.
00:25:54.520 | If you like living a beach lifestyle, choose a beach place to live.
00:25:57.600 | If you like a mountains lifestyle, choose a mountains lifestyle to live.
00:26:01.200 | But geography also matters to economics.
00:26:04.120 | This is why all over the world, the trend is for people to move from rural regions into
00:26:09.200 | cities.
00:26:10.200 | As far as I can tell, the continued growth of mega cities is inevitable.
00:26:15.000 | I guess inevitable is too much of a word, but it's a very strong chance that the cities
00:26:23.420 | are going to continue to grow.
00:26:25.520 | Doesn't mean that all cities are going to continue to grow everywhere, but on the whole,
00:26:28.960 | speaking globally, mega cities and very large cities, as I see it, are going to continue
00:26:34.120 | to grow because what they offer is a very, very compelling set of benefits.
00:26:40.600 | Now there may be difficulties.
00:26:41.960 | New York City might be in a difficult place right now.
00:26:47.120 | San Francisco might be in a very difficult place right now.
00:26:50.920 | I think there's good reasons to believe that the difficulties in these particular cities
00:26:54.760 | will continue, but I don't expect Mexico City to continue to be in a difficult space.
00:27:00.000 | I don't expect Istanbul to face those same trends.
00:27:05.040 | There are some unique trends, I think, about certain things that are happening in the US
00:27:08.920 | culture that are going to continue, but at the end of the day, New York is still going
00:27:11.560 | to continue to be attractive to many people.
00:27:14.880 | On a global basis, some of the other global mega cities have some benefits that a city
00:27:20.440 | like a New York City doesn't have.
00:27:23.600 | I think this trend is going to continue.
00:27:27.800 | So if you were living out in the country and you wanted to get yourself in the way of a
00:27:32.560 | beta trend, you're going to find it easier to build wealth, to get a good job, if you
00:27:37.840 | move from a little podunk town in the middle of nowhere to a city.
00:27:43.600 | There are going to be more economic opportunities, which is why millions and millions of people
00:27:46.960 | all around the world are doing this.
00:27:49.720 | If it's not right for you, you don't want to live in a city, it doesn't mean you have
00:27:52.080 | to, especially today.
00:27:55.240 | You can make a fortune in the country, but you should be aware that if you don't have
00:27:59.040 | any better ideas, you can probably increase your earning power by moving to a city.
00:28:04.560 | But let's talk about globally.
00:28:06.520 | This to me seems obvious.
00:28:10.120 | I personally am convinced that most of the West, specifically Western Europe and North
00:28:17.640 | America, most of these countries are in either malaise or decline.
00:28:26.840 | I don't think that they will be in precipitous decline.
00:28:29.880 | I think what's more personally more likely is a general sense of malaise.
00:28:33.320 | Where I'm most familiar, of course, the United States, I think you see this.
00:28:36.560 | You see just this general sense of lack of optimism for the future.
00:28:40.240 | You see incredible levels of discontent, of discord in the society.
00:28:43.920 | You don't get a sense of a people bursting with energy and a vision for the future.
00:28:48.600 | You don't get a sense of collaboration.
00:28:51.440 | Now what can change this?
00:28:52.640 | I don't know.
00:28:53.720 | Maybe some amazing leader could come along and re-inspire it.
00:28:57.560 | Maybe a JFK could say, "We're going to the moon."
00:29:00.280 | And all of a sudden everyone said, "Yes, we're going to the moon."
00:29:02.440 | I love to watch Apollo 13.
00:29:04.320 | I love to see a movie like that and imagine what it was like to be living in a time when
00:29:10.200 | you do that.
00:29:11.640 | You have some of that pride when they land a rover on Mars.
00:29:15.360 | I have some of that pride when I watch SpaceX launches.
00:29:17.680 | I really enjoy watching SpaceX launches with my children.
00:29:20.840 | I gain some kind of glimmer of that sense of nationalistic pride again.
00:29:27.920 | So maybe it happens again.
00:29:28.920 | It could.
00:29:29.920 | But in general, I think there's good reasons to believe that these areas are in decline.
00:29:34.800 | I'll give some examples just so that you can consider for yourself.
00:29:38.800 | In my observation, there are probably three big things that – maybe four – that really
00:29:43.840 | hinder the West generally, Western Europe, North America.
00:29:49.360 | I'll just speak mostly about the United States.
00:29:52.260 | One of the most obvious ones is population decline.
00:29:56.840 | Most Western countries have birth rates far below replacement rates.
00:30:03.760 | So you don't have a stable sense of population, but you have declining population.
00:30:10.920 | Now this is generally being offset right now with immigration.
00:30:15.600 | You have a country like Canada, this relatively small country that's importing hundreds of
00:30:20.040 | thousands of immigrants every year to try to lead to economic growth and seems to be
00:30:25.440 | successful, at least in some measures, things like real estate marketplaces, et cetera.
00:30:29.460 | But it's primarily happening through immigration.
00:30:32.400 | Immigration brings its own unique set of challenges.
00:30:35.080 | You see this all around the world.
00:30:37.000 | In my experience, I've never traveled a place where there's just been total complete
00:30:41.080 | peace and harmony between large numbers of immigrants.
00:30:44.840 | You see this in Western Europe.
00:30:46.620 | You see general sense of societal unease relating to immigrants from Africa.
00:30:52.280 | You see this in North America with immigrants from all over, but in the United States especially
00:30:57.360 | from Central America.
00:30:59.120 | And so you see this general sense of tension happening across the society, at least a political
00:31:03.240 | strife, et cetera.
00:31:05.800 | Why?
00:31:07.200 | And does that change?
00:31:09.040 | I don't put my opinion.
00:31:10.440 | I don't think it changes.
00:31:11.440 | Number one, the cultural trend seems to be against having children, which means declining
00:31:17.680 | population.
00:31:19.280 | And while I think that most of these countries with declining populations are going to have
00:31:22.840 | to massively increase their immigration perspectives, at this point in time, I don't think that
00:31:28.000 | there's a solid enough home country culture to lead to successful assimilation of immigrants.
00:31:35.880 | And so I think we're going to see more and more balkanization, so to speak, more and
00:31:39.280 | more separation, where instead of having immigrants being able to be assimilated into a strong
00:31:45.840 | central culture, you'll see various groups of immigrants retaining their own local identity
00:31:52.400 | rather than grasping the central identity.
00:31:55.360 | You see this right now in France with the French government seeking to pass laws requiring
00:32:00.560 | the French Muslim community to integrate more fully into the community.
00:32:07.400 | And this is especially, I think, challenging in secular cultures like you see in France,
00:32:11.880 | because my personal opinion, I don't think secularism has the foundation to do that.
00:32:16.480 | I personally think that you'll see much – a massive growth of Islam throughout Western
00:32:21.640 | Europe rather than a growth of secularization we'll see in the coming years.
00:32:26.160 | But this point of population growth is a major factor.
00:32:30.000 | Now what does this matter?
00:32:31.360 | Well, it ties into the second time, the second thing.
00:32:34.600 | When you look at a culture like the United States, you see that it is burdened by the
00:32:38.360 | decisions and the promises of the past.
00:32:41.160 | So you had a previous very robust, very healthy economy, very healthy country.
00:32:47.800 | You had growing populations.
00:32:50.000 | You had economic growth.
00:32:51.000 | It seemed like the sky was the limit.
00:32:53.200 | And so then you had people come out and pass all of these ideas.
00:32:55.880 | We're going to have Medicare.
00:32:57.120 | We're going to have Social Security.
00:32:58.520 | We're going to have social safety nets.
00:33:00.840 | We can borrow money to expand.
00:33:02.040 | It's all going to be great.
00:33:03.040 | It's going to be fantastic.
00:33:05.560 | But then when you have a declining population, all of a sudden now those promises don't
00:33:10.720 | work anymore.
00:33:12.280 | And yet the society is still burdened under the weight of these things.
00:33:17.140 | So you see the political instability in the United States.
00:33:20.720 | You see this whipsaw effect between a George W. Bush and then a snapping all the way over
00:33:26.680 | to a Barack Obama, then a snapping from a Barack Obama to a Donald Trump, then a snapping
00:33:32.300 | from a Donald Trump to a Joe Biden.
00:33:34.680 | And then we'll see what's next.
00:33:36.120 | Why?
00:33:37.120 | Well, you have this government that is laden by decades and decades of promises, but those
00:33:43.920 | promises weren't paid for.
00:33:45.840 | And so it's very easy for a politician to identify the problems and with skillful public
00:33:51.480 | rhetoric to rile people up to vote for him.
00:33:54.960 | But then when he comes into office, there's virtually nothing he can do because there's
00:33:59.080 | this immense bureaucracy whose hands and feet are all tied by all of these promises.
00:34:05.460 | And the US president elected in 2020 can only affect a tiny percentage of the budget compared
00:34:11.320 | to a US president elected in 1920.
00:34:14.240 | Why?
00:34:15.320 | Because 75% of the budget goes to Medicare, Medicaid, Social Security, and military spending.
00:34:21.640 | So you have a country that's mired in these decisions of the past and these expectations
00:34:27.400 | that were built for a society that no longer exists.
00:34:32.000 | And this leads to a sense of malaise, a sense of frustration.
00:34:35.080 | In the same way, so I'll finish it.
00:34:37.400 | And then you have a world in which you have a flattening occur.
00:34:44.240 | And many of the geographical features, many of the technological features where you had
00:34:48.960 | US American superiority, well, those areas of superiority are no longer as clear.
00:34:56.440 | So you have a massive empire that's difficult to maintain.
00:34:59.160 | And it seems to me, I don't see a lot of room for things to run personally.
00:35:05.000 | So when I think about where are things likely to be in the West in the coming years, where
00:35:08.880 | are things likely to be in the United States economically 30 years from now, 50 years from
00:35:13.080 | now, again, could be wrong.
00:35:16.160 | But to me, it seems pretty obvious that without a massive level of bankruptcy to clear the
00:35:22.080 | old debt, that a society like the United States is going to be pretty well mired in malaise
00:35:30.400 | for quite a while.
00:35:34.520 | Let's use a personal finance example.
00:35:37.760 | Imagine a guy, maybe a 55-year-old guy.
00:35:42.800 | He's been really successful, very successful.
00:35:46.860 | But the reality is he's more tired at 55 than he was at 25.
00:35:52.440 | And imagine that he built his whole life thinking that he was going to be as energetic at 55
00:35:57.960 | as he was at 25.
00:35:59.600 | And he made all these decisions to borrow lots and lots and lots of money to sign himself
00:36:04.280 | up for all kinds of obligations.
00:36:06.880 | And so his financial life became very, very heavy.
00:36:09.680 | And now at 55, he's trying to maintain the image of being the guy who still got it all
00:36:16.240 | together.
00:36:17.240 | But the reality is he's not as vigorous or as productive as he used to be.
00:36:21.120 | It's kind of how I picture the United States.
00:36:23.480 | It's not that the 55-year-old guy is going to die today.
00:36:27.480 | It's just that he's really burdened down, right?
00:36:31.400 | He's got a lot of debt.
00:36:33.960 | He's not as young as he once was.
00:36:35.280 | He doesn't have the advantages he once was.
00:36:37.080 | He can't move his fingers on his iPhone screen as quickly as his 15-year-old son can.
00:36:41.840 | And yet he's living in a world in which that iPhone screen is a ticket to wealth for many
00:36:47.400 | 15-year-olds.
00:36:48.400 | It's not to say he's not powerful, right?
00:36:50.600 | The 55-year-old guy has connections.
00:36:52.520 | He has power.
00:36:53.520 | He's got all of the legacy that he has.
00:36:55.680 | But he's aging and he's burdened.
00:37:03.920 | So now compare that kind of society with some other societies.
00:37:13.420 | Compare it with Asia.
00:37:15.280 | Now the birth rate story in Asia is not strictly clear.
00:37:21.600 | Asia is a very big place.
00:37:22.640 | You have a place like Japan that's had negative birth rates for 40 years.
00:37:27.040 | But that would be compared with a place like Thailand or Vietnam or Cambodia where there's
00:37:33.660 | much more of a sense of energy and there's much more of a growth.
00:37:38.040 | I think birth rates matter massively.
00:37:39.880 | You can see when you see a culture that's expanding, there's a sense of optimism and
00:37:44.280 | growth and that youthful energy can bring a lot of instability, right?
00:37:47.320 | You see that.
00:37:48.320 | You see a society where there's a lot of young people but low employment and it can be very
00:37:53.440 | unstable.
00:37:54.440 | But it can also bring tremendous economic growth.
00:37:56.920 | You go back to the baby boom in the United States.
00:37:58.640 | It made a massive difference in terms of the economic growth of the nation.
00:38:04.220 | So birth rates, population makes a big difference.
00:38:06.820 | But what's more important?
00:38:07.820 | Well, many of these societies in Asia are not burdened down by the debt, the promises,
00:38:13.780 | right?
00:38:14.780 | The decades and decades of promises that a place like the United States is.
00:38:19.480 | I think what's also very important is when you look at the relative level of poverty
00:38:23.720 | versus wealth.
00:38:25.220 | In my mind, the economic opportunities for Asia, Africa, South America, they're clearly
00:38:34.400 | bigger because there's clearly more room to go.
00:38:38.440 | There's clearly more opportunities.
00:38:40.640 | It's very hard I think to look at a wealthy nation, to look at Singapore, right?
00:38:47.040 | That's a spectacular success story in itself.
00:38:49.040 | But let's just look at the United States, right?
00:38:51.000 | It's very hard to look at a nation like the United States and say on the whole, how do
00:38:55.160 | standards of living increase significantly?
00:38:58.760 | Generally when people think about increasing standard of living in the United States, they
00:39:01.900 | think about making things easier and less expensive rather than having more, right?
00:39:07.960 | They think about saying, "Well, let's have government-provided health care programs because
00:39:13.960 | that makes life easier for you and removes a burden of providing for your own health
00:39:17.800 | needs.
00:39:18.800 | Let's provide some kind of income.
00:39:20.840 | Let's give more money to poor people and provide poor people with more."
00:39:24.920 | But when you come to actual standard of living as measured by consumption, it's hard to see
00:39:28.600 | how you get a lot more consumption across the board.
00:39:34.120 | And when you have an economy that's built on consumption, it's hard to see where the
00:39:38.960 | massive growth comes from.
00:39:41.160 | Maybe there's a new technology, right?
00:39:42.820 | Maybe you saw this in telecommunications and some things over the last few decades.
00:39:47.240 | Maybe there'll be a new technology that we just don't see right now.
00:39:50.660 | But even if there is a new technology, it's hard for me personally to see how that results
00:39:56.240 | in a massively growing economy.
00:39:59.080 | But when you go to a place like China and you think about 30 years ago what the average
00:40:05.320 | person was living in versus today, it's just night and day.
00:40:11.560 | When you go to Mexico and you look at the broader Mexican population and you think about
00:40:17.120 | the consumer goods and the lifestyle choices and whatnot that many Mexicans would like
00:40:21.520 | to have, the beta, meaning the opportunity to rise, seems so much stronger in my opinion.
00:40:28.240 | Because you have people that want a lot of the luxury goods that you see in some other
00:40:34.280 | economies.
00:40:35.280 | So to me it just seems fairly obvious that a simple decision like that would make all
00:40:39.680 | the difference in the world.
00:40:41.680 | Jim Rogers had a famous quote, or had a quote, I don't know if it's famous or not, but it's
00:40:44.920 | something that's always stuck with me since I read his book when I was in high school.
00:40:48.920 | He wrote this book called, I think it was Adventure Capitalist.
00:40:52.240 | I think that was the one with him and his car.
00:40:54.240 | Jim Rogers was a stock fund guy, a mutual fund manager, maybe a hedge fund guy, I can't
00:41:00.600 | remember.
00:41:01.600 | Very successful trader.
00:41:02.920 | And I got interested in him, stumbled across his book in the library because he had this
00:41:07.200 | book of this yellow car that was built on a four-wheel drive chassis.
00:41:11.280 | And I grabbed it and I just thought it was so interesting.
00:41:12.920 | I read his story.
00:41:13.920 | And what happened was he took a Mercedes, he had made a lot of money, decided he wanted
00:41:19.280 | to travel around the world.
00:41:20.280 | Younger in his life, I think in the 80s, he had motorcycled across China and that had
00:41:24.920 | changed his perspective of the world.
00:41:26.800 | And then he had made a lot of money and he and his wife, I think his third wife at the
00:41:30.200 | time, or maybe second, I don't remember, but he bought a Mercedes G-Wagon, a Glenda Wagon,
00:41:35.520 | Glenda Wagon, and Wagon, I guess, a G-Wagon.
00:41:39.520 | And he had them take the body off of it and he had them put the Mercedes convertible body
00:41:44.360 | onto it, which they adjusted.
00:41:47.120 | And so he had this wacky looking car and then he made a little trailer for it and he proceeded
00:41:50.360 | to drive around the world visiting all these countries.
00:41:52.880 | So I read his book and I don't remember if it was in that book or later, but he had this
00:41:57.120 | saying where he said that a wealthy, or sorry, a smart man in 1800 would have moved to London.
00:42:07.400 | And what I would add is a smart man in 1800 would have moved to London and had his fortune
00:42:12.000 | made.
00:42:13.000 | A smart man in 1900 would have moved, I think he said to New York City, maybe San Francisco,
00:42:16.960 | I can't remember, but would have moved to New York City or San Francisco.
00:42:20.020 | And I would add, would have had his fortune pretty well made.
00:42:23.340 | Just the simple fact of moving to New York City or moving to San Francisco in 1900 would
00:42:27.600 | have put you in contact with so much opportunity.
00:42:30.840 | A smart man in 2000 would have moved to Singapore.
00:42:35.000 | One fifth of every resident or citizen of Singapore is a millionaire today.
00:42:39.800 | It's one of the most incredible success stories of the 21st century.
00:42:43.240 | It's an amazing story.
00:42:47.080 | And I think if you think about that, you can see how being in the right place where there's
00:42:51.560 | this social growth, where there's this growth of economy, growth of opportunity can put
00:42:56.800 | you where you can see the opportunities more easily.
00:43:01.860 | If you're living in Poughkeepsie, Illinois, is that a place?
00:43:05.840 | Or I don't know, Polk County, Florida, or rural Kansas or rural South Dakota or something
00:43:16.200 | like that, it's very hard to imagine what's happened in Singapore.
00:43:20.820 | But if you had gone to Singapore and seen it and observed it, it would have opened your
00:43:25.000 | eyes.
00:43:26.000 | I mean, for me, the most eye-opening experience I had from this perspective was the first
00:43:30.300 | time I went to Hong Kong.
00:43:32.080 | As I remember, I think it was in college at the time.
00:43:34.080 | I think it was 2005.
00:43:35.940 | It was the time when – maybe it was 2004.
00:43:39.040 | It was the time when they had the tsunami in Indonesia and Thailand.
00:43:45.520 | I was in Hong Kong when that happened at Christmas.
00:43:48.200 | And I went to Hong Kong.
00:43:49.800 | And when I had been in high school, I had gone to New York City and I'd always been
00:43:52.400 | impressed with New York City.
00:43:53.400 | I thought it was great.
00:43:54.400 | And then I went to Hong Kong.
00:43:56.920 | And I arrived in Hong Kong and I looked around and I couldn't believe my eyes.
00:44:01.640 | I spent days walking around the city by myself with no purpose.
00:44:05.360 | I walked through Kowloon.
00:44:06.360 | I walked through Hong Kong Island.
00:44:08.440 | I spent time in the new territories.
00:44:09.880 | I would wander in and out of random shops and wandering out of restaurants and bars
00:44:14.800 | and just wandering around.
00:44:16.800 | And it was just the most overwhelming thing I'd ever seen.
00:44:20.480 | I thought never in my life will I ever think that New York City is a world-class city compared
00:44:26.160 | to Hong Kong.
00:44:29.160 | That was my experience.
00:44:30.160 | It was what started to open my eyes when you start to see, wait a second, this is totally
00:44:33.520 | different.
00:44:36.880 | So I personally think, to me, it's the most obvious thing.
00:44:39.440 | It's fairly obvious that the growth in the next couple of decades is going to come from
00:44:45.280 | Asia, possibly from Africa.
00:44:48.440 | Why?
00:44:51.040 | Uncertain growth, no debt, no empire, no decades of promises that have to be bankrupted
00:44:57.440 | their way out of, which is going to create intense instability in the society.
00:45:01.800 | In the coming years and years when the United States starts to fulfill fewer and fewer of
00:45:06.900 | its promises, it's going to create more and more instability, unhappiness, because people
00:45:11.380 | are going to depend on that.
00:45:13.760 | So unless there's some unexpected massive economic wave, which I don't know where it's
00:45:18.480 | going to come from, it's going to create instability in the society.
00:45:24.320 | And then you've got the opportunity for standards of living to rise much farther in Laos or
00:45:33.720 | Cambodia than you have in Munich or in Paris.
00:45:42.120 | So to me, it seems obvious.
00:45:47.280 | Now there are industries in that place where I went a little long on kind of countries,
00:45:51.780 | but the point is that just being in a physical geographic location can make a big difference
00:45:55.920 | for you.
00:45:58.320 | Physical geographic location, industry selection, and then career or job within an industry,
00:46:06.280 | these are things that make a big difference.
00:46:09.040 | Now, thus far, I went a little longer and deeper on careers than I meant to, but this
00:46:14.920 | is the biggest ticket for most people, be it your career or job or be it your career
00:46:19.400 | or business.
00:46:20.800 | If you can get a business where you can serve people, you can do it.
00:46:23.200 | So back to an example of a dying industry.
00:46:26.360 | I have tried several times to get several of my friends who are real estate agents in
00:46:29.680 | the United States to leave the United States and to go and set up a real estate agency
00:46:33.760 | in other countries, many other countries around the world.
00:46:37.480 | Why?
00:46:38.480 | Well, I think that you can take something that, in my opinion, is a dying industry or
00:46:42.880 | career profession or a profession that has dim prospects, at least in the way that it's
00:46:48.240 | currently done, in a place like the United States, and you can take it to another place
00:46:53.400 | and it can be a tremendously valuable profession in another place.
00:46:59.200 | You can take your real estate business in the United States and go to Central or South
00:47:06.040 | America, and if you'll take the same level of service, the same level of efficiency,
00:47:11.560 | the same level of sales training, customer service, et cetera, you can possibly build
00:47:18.000 | a national empire in a way that allows you to have major competitive advantages and allows
00:47:25.160 | you to serve your customers and build a much more powerful system.
00:47:31.680 | So a geographic change is one tool, but it's not the only tool.
00:47:36.860 | There are many other tools to look at, to think about where can I grow this.
00:47:40.720 | So if you're in something that's declining, think about how you can adapt, adjust, change.
00:47:46.080 | And remember, you're only ever a few years away from a brand new life.
00:47:51.040 | You could be today a truck driver, a truck driver, long haul trucking across Canada,
00:47:59.480 | and you say, "You know what?
00:48:00.560 | I think my job has a relatively short lifespan.
00:48:03.960 | I think that self-driving trucks are probably going to be making their presence known very
00:48:09.200 | intensively within five or 10 years.
00:48:11.280 | I need to be thinking about this."
00:48:13.720 | And in three or four or five years, you can be completely retooled, reeducated, re-equipped
00:48:22.160 | for a brand new career.
00:48:24.400 | You could be the world's leading cryptocurrency programmer or the world's leading cryptocurrency
00:48:30.000 | expert within a few years.
00:48:32.480 | You could grab yourself, spend your time in your truck studying everything there is to
00:48:36.200 | know about cryptocurrency, thinking through the issues, thinking about how to organize
00:48:39.400 | them, understanding the applications for blockchain technology.
00:48:42.720 | At night, instead of watching movies in the cab of your truck, you're sitting there spending
00:48:46.080 | time studying the companies, understanding the innovators.
00:48:49.320 | You take your time off to go to the conferences.
00:48:51.660 | You start a web program, a podcast.
00:48:54.260 | You start a thing that gets you in front of all these people all around the world.
00:48:58.380 | You become known as the go-to guy.
00:48:59.880 | You go ahead and get that master's degree from the University of Malta.
00:49:03.600 | It costs you 10,000 euros, by the way, for the whole thing.
00:49:07.200 | Get the master's degree from the University of Malta in blockchain technology.
00:49:10.840 | And five years from now, you can be one of the world's most sought-after pundits or practitioners
00:49:16.520 | in the world of blockchain technology, investing your money with the winners along the way.
00:49:22.360 | We're all three, four, five, maybe 10 years at the maximum away from a completely different
00:49:27.120 | lifestyle.
00:49:28.280 | So don't be sad if your career is not lining up with where there's an opportunity for really
00:49:34.840 | good beta.
00:49:36.800 | Just recognize that this is a fact and I need to change and adjust.
00:49:42.000 | What about investments?
00:49:43.000 | Well, I think with investments, I have less to say here, but I would say that with investments,
00:49:48.920 | you need to focus on beta before you focus on alpha.
00:49:52.600 | For example, I think this is why in real estate do you have the saying, "Location, location,
00:49:57.320 | location, location."
00:49:58.320 | Well, because if you buy the best house in a bad neighborhood, you're going to lose your
00:50:04.960 | shirt from an investment perspective versus buying the worst house in the best neighborhood.
00:50:10.920 | Why?
00:50:11.920 | Well, that has to do with location, the things that people find desirable.
00:50:16.640 | If you have a walkable apartment in a downtown area in a major city, that's going to be forever
00:50:21.840 | more desirable than a place kind of out on the fringes.
00:50:26.280 | If you're dealing at the upper end of the market, you're serving the wealthy.
00:50:28.800 | That's generally going to be more insulated.
00:50:30.680 | Why?
00:50:31.680 | Because wealthy people suffer less during economic instability.
00:50:36.400 | There's many other ways to apply it.
00:50:38.200 | I don't know how you apply this in the stock market.
00:50:42.800 | For example, I'm not saying you should just sell all your index funds and go and buy real
00:50:46.320 | estate in Bangkok.
00:50:47.320 | I don't think that would be a good idea.
00:50:50.940 | One of the nice things that you are engaged in, and one of the wonders of the modern financial
00:50:55.160 | world, when you own well-run investments, when you own companies on the New York Stock
00:51:00.960 | Exchange, those companies are every day strategizing about how to earn their income from these
00:51:05.640 | growing markets.
00:51:07.200 | Coca-Cola Corporation is every day looking and saying, "How do we sell more Coke products?"
00:51:13.920 | Apple Computers is saying, "How do we sell more Apple products all around the world?"
00:51:18.360 | Samsung, every single one.
00:51:20.520 | You can benefit, even if you own a stock that is publicly traded in the United States or
00:51:26.040 | London or wherever, that stock can still be benefiting from the growth around the world.
00:51:31.680 | So while I think that the US economy is in a malaise, it doesn't by definition mean that
00:51:38.320 | the US stock market is going to have the same experience.
00:51:41.760 | You might find it much more exciting and a much better experience to go and be involved
00:51:46.480 | in something on the frontier markets, but you might not.
00:51:51.160 | So I don't know how to guide you on that.
00:51:54.440 | I have some ideas.
00:51:55.440 | I'm investing my money in areas where I think there's growth.
00:51:58.320 | I guess maybe one obvious example would be something like cryptocurrency.
00:52:02.200 | You've seen this amazing run-up in cryptocurrency, supercharged this last week with the announcement
00:52:07.080 | that more and more large US companies are devoting large holdings to Bitcoin.
00:52:12.600 | There was just the announcement a couple of days ago, the first DeFi index fund, which
00:52:17.520 | is kind of an exciting development as well.
00:52:20.380 | So if you think that there's a future of cryptocurrency, if you think that there's a future of blockchain,
00:52:24.800 | I do personally, then just simply allocating some of your money to it can put you in line
00:52:31.440 | with the beta, even if you don't necessarily have the solution for what's going to be the
00:52:36.680 | winner.
00:52:37.680 | Do I know whether Bitcoin is going to be the currency of choice 20 years from now?
00:52:41.000 | I don't know.
00:52:42.000 | I don't know.
00:52:44.120 | Do I know?
00:52:45.120 | I don't know.
00:52:46.120 | Ethereum or Bitcoin Cash or Share Ring or Dogecoin, I don't know.
00:52:53.600 | What's going to be the winner?
00:52:54.600 | I don't know.
00:52:57.200 | But you can start to expose yourself to the beta.
00:53:00.080 | I think that these places, these are going to, my personal opinion, these are going to
00:53:03.080 | be around and they're going to be a very, very large growth industry.
00:53:06.480 | Why?
00:53:07.480 | Because it solves some significant problems for people, which is exciting.
00:53:13.240 | So in conclusion, think about the beta in your life.
00:53:20.520 | Think about, am I positioned to gain a benefit from beta?
00:53:28.400 | You don't have to, if you see everyone going out to California for a gold rush, you don't
00:53:34.840 | have to strike it rich on a particular claim.
00:53:37.760 | You can just say, everyone's moving to California and you can go and start selling them their
00:53:42.600 | shovels.
00:53:44.880 | I've tried to use as many historical examples as I can think of, but historical examples
00:53:50.560 | are easy because you can see them in the hindsight, but they're harder in the present because
00:53:55.400 | you can get it wrong.
00:53:56.800 | What I'll tell you is that in my life personally, the more time that I spend just simply analyzing
00:54:04.080 | things and going with my gut and thinking, no, I'm not going to buy this line that somehow
00:54:09.400 | I'm incapable of outperforming the market in the wrong way that I did when I was younger.
00:54:14.920 | Rather, I'm a smart guy.
00:54:16.960 | I can look around, I can see the world.
00:54:18.600 | I can understand that most people are just about like me.
00:54:21.440 | We're all pretty similar, right?
00:54:22.880 | Maybe 90% similar.
00:54:24.440 | We all have similar desires, et cetera, and I can see the long ranging trends and I don't
00:54:29.080 | have to get it perfectly right to benefit from the general trend.
00:54:35.800 | I don't have to get it perfectly right to benefit from the general trend.
00:54:40.320 | And then if you'll incorporate the safety of what I talked about in the last show of
00:54:45.200 | ratios, of thinking through your positions, of spreading things around based upon a way
00:54:53.240 | that makes sense to you, and I'll make sure that I'm just cautious and I don't take a
00:54:57.680 | wipe out risk, now I think you've got a winning formula.
00:55:03.240 | I hope that you'll share this show with young people.
00:55:06.840 | I hope that you'll teach them these concepts because these are some of the concepts that
00:55:09.960 | I wish that somebody had taught me.
00:55:12.720 | And I feel sometimes I feel like I'm 20 years too late.
00:55:15.920 | Like if I had just known this at 15 years old, man, I would have finally had done that.
00:55:20.520 | At 15 years old, I would have just been so much more successful.
00:55:23.680 | Well, unfortunately that was then and this is now.
00:55:27.040 | But the point is I can still apply these things today and so can you.
00:55:31.520 | Thank you for listening to today's show.
00:55:32.840 | In closing, I guess I should just share with you that you should check out my career and
00:55:37.000 | income course.
00:55:38.000 | Go to radicalpersonalfinance.com/store.
00:55:40.440 | And if this has been useful for you, consider signing up for my guided career and income
00:55:43.720 | planning because there are more good concepts like this there in that show.
00:55:47.960 | Sorry, in that course, radicalpersonalfinance.com/store.
00:55:50.000 | And I'll be back with you very soon.
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