How to Invest Like The 1% | All The Hacks Podcast

00:00:00.000 | I think about how maybe do some of – people have been very successful financially, look at

00:00:06.320 | investments differently than conventional advice and what sort of leads this lower bond allocation.

00:00:10.960 | I think there's historically been this notion that – I'll call it driven by the

00:00:18.080 | investment industrial complex that volatility and risk are the same thing and I think that is just

00:00:24.400 | the wrong way to look at it. So you look at terms like a sharp ratio and a sharp ratio is a way that

00:00:29.120 | people often look at assets like hedge funds or something like that and say, "How good is it?"

00:00:33.440 | You don't just say, "What is the typical rate of return?" But it basically divides that rate of

00:00:38.240 | return by the volatility. So say, "Hey, if this thing returns 20% and this other – option A

00:00:44.160 | returns 20, option B returns 10, but option A is twice as volatile as option B, then effectively,

00:00:50.080 | they're just as good as each other." You can choose how much risk you're willing to take

00:00:53.840 | and then you get proportionally rewarded in your upside. But I think this idea of volatility and

00:00:58.400 | risk being the same thing, I personally just don't follow that in my portfolio.

00:01:02.080 | I think if you have an amount of money that you don't need anywhere in the near term,

00:01:06.640 | let's say you don't need it until retirement, so that could be 10, 20, 30 years away,

00:01:10.320 | what matters to me much more is how much money am I going to have at age 70 when I want to retire

00:01:16.160 | and not how smooth is my path to age 20. Hello and welcome to another episode of All

00:01:20.960 | the Hacks, a show about upgrading your life, money, and travel. I'm your host, Chris Hutchins,

00:01:26.000 | and one of the things about money that I've always been fascinated by is how wealthy people

00:01:30.720 | manage their finances and invest their money. And thanks to today's guest, I've been able to get a

00:01:35.680 | peek behind the curtain. I'm talking with Tad Fallows, who's become an expert on the topic

00:01:40.800 | since co-founding Longangle, a free online community for high net worth investors.

00:01:45.840 | It all started when his company was acquired in 2016 and he and his co-founder were abruptly

00:01:51.200 | confronted with a bunch of personal finance questions. So they created Longangle, which

00:01:55.920 | has grown to become a diverse group of a thousand members and offers a private online community

00:02:01.360 | where people can discuss a wide variety of issues from asset allocation to taxes, philanthropy,

00:02:07.440 | insurance, raising kids, and more. The community has no membership fees, no advertising, and no

00:02:13.600 | selling of member data. So I want to invite Tad to join me to shed some light on the money and

00:02:18.320 | investing habits of wealthy investors by walking through this year's Longangle portfolio benchmarking

00:02:23.680 | survey. I wanted to break down the mysterious world of alternative assets and teach you about

00:02:28.560 | some of the assets you might never have considered. We're also going to share some of our favorite

00:02:32.960 | real estate and home buying hacks and a lot more. So let's get started.

00:02:37.040 | Tad, welcome to the show. So excited to be here. Thank you for having me.

00:02:46.960 | Yeah. So I'm going to just start and ask you a question since, and we'll get into a lot of why

00:02:51.680 | you're an expert here, but what do you think the most common misconception is around how

00:02:56.320 | wealthy people, high net worth people are spending and managing their money?

00:03:00.480 | Yeah, it's a great question. I mean, I would say if I look at it, I don't know if this is

00:03:05.040 | a misconception or not, but what struck me is different from honestly the way I do things

00:03:10.880 | myself and the way I see a lot of other people do things maybe who are not in the high net worth

00:03:15.120 | demographic is how light on debt they are. We do a benchmarking survey where we look at overall how

00:03:22.880 | people allocate their portfolios and how much debt they hold and that sort of thing. I would say a

00:03:26.880 | full 50% of the members of our group don't have any debt of any sort on their house. A quarter of

00:03:32.960 | them don't own a primary residence at all and then another quarter own their residence outright.

00:03:36.720 | I think it's 80% of members have less than 25% of their assets is debt. So to kind of put that in

00:03:44.080 | concrete terms, if you had 10 million of assets, it would mean you had less than 2 million of debt.

00:03:48.400 | And I think if you look at general stats about the American population, et cetera,

00:03:52.640 | you've got a much higher debt to assets ratio than you see among this group. And it's not

00:03:57.360 | that it's a risk averse group. These are people who have started companies, work at hedge funds,

00:04:02.000 | work in venture capital, people who are willing to take a lot of risk. But I think one of the

00:04:07.120 | reasons they're comfortable taking that risk is they go quite light on debt or leverage,

00:04:10.720 | however you want to phrase it. Yeah, it's fascinating. So let's rewind. You brought

00:04:14.960 | up a few things. We're going to get to this benchmarking survey, but I just want to talk

00:04:18.560 | a little about long angle. So you talk a little about what it is and why you started it?

00:04:22.880 | Yeah, sure. So I started this group about two years ago with my friend Sri Ram. We've been

00:04:28.560 | friends actually since I think freshman year of high school. I remember watching the Smurfs with

00:04:32.160 | him after school some days. But what led us to start this is that shortly after college,

00:04:37.440 | we were both in consulting and then decided we wanted to kind of give it a try ourselves

00:04:40.640 | of starting our own company. So we started a software company and we ran that for about 10

00:04:45.680 | years. And we bootstrapped it, which means we basically didn't take any outside venture capital.

00:04:52.080 | In practical terms, it meant we didn't make any money ourselves. We didn't take any salary out

00:04:55.680 | of it. We just rolled every dollar we made back into the company. And then after about 10 years,

00:05:00.160 | we were fortunate enough to sell it to a strategic acquirer. So it meant from a kind of a personal

00:05:05.040 | finance dimension, we made no money until our mid-30s. And then on one day, we got our

00:05:09.520 | compensation for the last 10 years of effort. And so we were quite abruptly introduced to all these

00:05:16.160 | high net worth personal finance things, whether it's estate taxes, alternative assets,

00:05:21.120 | umbrella insurance, et cetera. For a variety of reasons, we didn't want to go the model of just

00:05:25.840 | saying, "Hey, Goldman Sachs, here's all my money. You guys are in charge. You take it from here."

00:05:29.440 | We wanted to sort of manage things ourselves, but we realized we had a lot to learn.

00:05:33.760 | So we basically wanted to set up a group of friends of ours who were all in a similar situation

00:05:38.720 | financially and where nobody was trying to sell each other anything. And that's really still what

00:05:43.440 | we're doing. I think our initial expectation, this would just be a couple of dozen friends

00:05:47.280 | and sort of our first or second degree circle. It ended up that need was a lot more broadly felt.

00:05:52.320 | And so people introducing their brother, their co-founder, their board member, et cetera.

00:05:56.400 | We've grown to about 1000 members all across the US and growing share in Europe, Australia,

00:06:03.280 | Middle East, et cetera. Not that we are trying to have one cookie cutter member profile of, "Hey,

00:06:07.360 | everybody's an early 40s software entrepreneur with two little kids."

00:06:11.520 | We want as much diversity as we can get professionally, geographically, et cetera,

00:06:15.680 | provided everybody's on the same page around the non-solicitation and confidentiality.

00:06:20.880 | Yeah. When I came across Longigo, which I think I found in a Reddit thread

00:06:24.320 | on Fatfire, which we can get to later, I was like, "Oh my gosh, this is exactly something

00:06:29.920 | I'm interested in." It's a community where it's private, so you can be transparent. There's no

00:06:35.680 | fake profiles. There's no anonymous. Everybody goes by their name

00:06:38.320 | and talk about every aspect of life. So I've been really excited to be a member.

00:06:43.600 | I've learned a ton. I've tried to do my best to give back and share what I know.

00:06:48.240 | But I'm so curious. You said you've done 1000 members. You've done probably half those

00:06:52.960 | interviews at least. What kinds of things have you learned talking to all these people

00:06:58.240 | who fall into this? And maybe talk a little about where's the threshold for who's a member

00:07:02.480 | so people get a sense of the profile of members of Longangle?

00:07:06.080 | The bulk of people are in what banks would call the very high net worth demographic. And that

00:07:11.680 | means between 5 and 30 million of investable assets. We've got maybe another 15% or 20%

00:07:16.880 | on each side of that. We do validate that everyone's at least a qualified client.

00:07:21.360 | And the SEC defines that as having 2.2 million or above in investable assets.

00:07:26.960 | And that's really just a threshold that sort of governs what kind of

00:07:30.080 | assets you're allowed to invest in. So those are the kind of people that I've had this discussion

00:07:35.760 | with. I think there's a few things that have come as a surprise to me. Well, first, I would say I've

00:07:39.600 | just really enjoyed these interviews. I've met 500 fascinating people. And maybe the biggest

00:07:44.960 | thing I've learned is there is no one path here. We've got members who started cybersecurity

00:07:50.720 | companies. We have members who were employee number three at Pick Your Public Company,

00:07:55.520 | people who work at hedge funds, people who work in real estate, corporate executives,

00:08:00.080 | people who put one paycheck into crypto back in 2011, people who inherited money.

00:08:05.440 | So I'd say one thing is there's a lot of paths to significant financial success.

00:08:09.920 | The second thing is I would say that I don't think any of our members feel like they "have

00:08:15.120 | it figured out." I think if you look on a personal level, probably 80% of our members have little

00:08:20.160 | kids. And I don't think anybody feels high confidence that they know the right way to

00:08:25.760 | raise kids with wealth. I think there's this balance of, "Hey, having significant resources

00:08:30.080 | creates these opportunities. I can get private tutors. I can help them pay for whatever activities

00:08:35.360 | they're interested in, get them private gymnastics lessons, etc." So there's a lot of opportunity

00:08:39.520 | there. But I think there's this real tension of, first, I don't want to spoil my kids and just

00:08:44.560 | have them not turn into good people. And second, I don't want to deprive them of their ability to

00:08:50.080 | feel they've succeeded on their own terms and struggled and figured out the right way to do

00:08:54.000 | things. And I think that's something where, unfortunately, I don't have, "Hey, here's the

00:08:58.960 | answer about how to do it." But I do think if people are worried that they're not sure how to

00:09:04.160 | strike that balance, they're far from alone. And I think beyond that specific question of kids,

00:09:08.480 | I think even people who have achieved quite a bit of significant success financially,

00:09:13.760 | I feel like from a pure personal finance perspective, there's some big gaps in

00:09:17.280 | how they do things. Maybe it's, "Hey, I've heard about umbrella insurance. And I know that's a

00:09:21.040 | thing, but I don't know what it is or how much I should buy or where to buy it." Or maybe it's,

00:09:24.720 | "Hey, I've got no trust in estate plan. Again, I know that's a thing. If I keeled over tomorrow,

00:09:29.600 | my assets would go into probate that caused all kinds of problems, but I don't know where to start

00:09:33.440 | or how to wrap my head around this. Or maybe I'm all in cash and can't bring myself to invest."

00:09:38.800 | For each person, it's different. But I would say most people feel like they have some real gaps

00:09:43.840 | and don't have it figured out. And finally, the last thing that actually just gave me a lot of

00:09:47.760 | personal comfort is I would say 80% or 90% of people feel like they are the one sucker really

00:09:52.480 | paying their taxes. I think there's this impression of, "Hey, everybody out there is moving to Puerto

00:09:57.520 | Rico and doing 1031 exchanges and doing all these clever things that ends up with effective no tax

00:10:01.840 | rate." But the significant majority of people feel like, "Hey, I'm paying 30% plus in effective taxes

00:10:07.840 | and I haven't figured out the way around it," which personally, I think is actually not a bad

00:10:12.320 | thing. It just makes me feel better about being in that same situation to know that most people are

00:10:17.200 | paying their share. Well, one, now I feel a lot better. I'm also paying my share. And

00:10:21.680 | as much as I love to find the tax hacks, it makes me feel better. I guess unless I talk to people in

00:10:28.240 | real estate that seem to always say they're not paying taxes. I thought the misconception you

00:10:32.720 | might say at the beginning was that everyone thinks that the wealthy have it all figured out.

00:10:37.760 | And if there's something I've learned being in the group, it's like people

00:10:40.720 | are open about the fact that they haven't figured it out. And I like that. And someone listening

00:10:47.760 | might say, "Well, is it just staying within the bubble of the wealthy and all this knowledge?"

00:10:52.640 | And I think things like this, and we're going to talk about your benchmarking survey,

00:10:55.920 | hopefully are an opportunity to get some of that information out. But I know that where they're

00:11:00.480 | not a closed-door ecosystem, you just might not... People might not be as open to sharing.

00:11:05.360 | So it's this catch-22 of if you made it open for anyone to come, you might not actually get

00:11:10.080 | the conversation going. But if you close it, how do you get that information out?

00:11:14.080 | Any thoughts on ways to share some of the knowledge that's coming out of a group like

00:11:19.920 | this with more people? So people that aren't there have a higher likelihood of getting to

00:11:23.840 | that group in the future? Yeah, I think it's a fantastic question.

00:11:27.200 | And I think you're right. There is this tension there. So one of the guiding principles we put

00:11:32.480 | in place is this idea of confidentiality. Because we do think that having a real names policy and

00:11:38.240 | people actually being who they purport to be is really important, but people are just not going

00:11:42.320 | to open up about... It's one of those things that people just don't talk about money. And I would

00:11:46.320 | say, at most wealth demographics, that's not unique to the high net worth. So I think there

00:11:52.000 | is a bit of attention there, as you mentioned. As you said, for example, we do this annual

00:11:56.880 | benchmarking study. And what we do there is we ask all of our members to put in a spreadsheet

00:12:02.080 | across 60 some different asset classes, how their portfolios break down in percentage terms,

00:12:07.680 | not absolute dollars, but across these asset classes. And then we synthesize all that data,

00:12:12.160 | normalize it, correlate it with a bunch of dimensions and create a report around that.

00:12:16.400 | That's something that actually we publicize and share with everybody. So anybody who wants that

00:12:21.760 | data is certainly welcome to access it. I think going forward, it's a great idea to think about

00:12:27.120 | other ways that we can look to share things that don't compromise confidentiality. I think there's

00:12:32.000 | always going to be certain things and first-person anecdotes that just can't be shared. But I think

00:12:36.960 | a lot of this, we're looking to do more synthesized and aggregated data. And that's not something that

00:12:42.640 | I would look to prevent being more broadly disseminated. We do this once a week. We'll do a...

00:12:50.240 | We call it a mini benchmark. In the forum, we'll ask one question, just give four possible answers.

00:12:55.040 | And that can be anything from what do you expect interest rates are going to top out at,

00:13:00.320 | how much allocation do you have to emerging markets, securities, do you use a wealth manager

00:13:05.600 | or not? And I think that's a great idea. We can maybe just tweet the results of those out to

00:13:09.680 | anybody who follows us on Twitter. The one about wealth manager, actually, you'd asked earlier

00:13:14.240 | what might be surprising. And one thing also that's surprising to me is I personally don't

00:13:19.440 | use an RIA or wealth manager. I had been under the impression that I was sort of the oddball

00:13:24.000 | in that approach. But actually, if we look at overall membership, only about 40% of people

00:13:28.240 | have any sort of third party, whether it's a multifamily office, RIA, wealth manager, etc.

00:13:34.480 | About 60% of them do not. And I think it mostly comes down to... The biggest thing is probably

00:13:39.200 | just this fee structure of paying half a percent or 1% of your assets every year. Just people

00:13:43.360 | both, I think, don't really like the idea of paying a percentage as opposed to just paying

00:13:47.840 | straight dollars. So like, "Hey, I pay my lawyer by the hour. I pay my account by the hour. Why

00:13:51.360 | can't I pay my wealth manager by the hour?" And then just the absolute number. If somebody has

00:13:55.120 | $10 million paying 1%, that means you're paying $100,000 a year, which is just quite a bit of

00:13:59.920 | money. So that was another surprise to me is that I was not in the minority of saying that I'm just

00:14:04.640 | going to do things myself. I think if I look at our membership, you get to a certain level and

00:14:09.520 | I aspire to be there, but not there myself. If you're over, say, 50 or 100 million, I think it

00:14:14.880 | just starts to get to this level of complexity that even just managing the paperwork and dealing

00:14:19.280 | with the tax returns, you really can't do that by yourself unless it's really your 100% job.

00:14:23.840 | So people do hire and help to that. But below that kind of level, I'd say most people,

00:14:28.000 | at least in our group, are managing everything themselves.

00:14:30.720 | And managing it yourselves doesn't mean you don't have an assistant, or you don't have a

00:14:35.440 | bookkeeper, or you don't have someone that files your taxes. It just means you're not

00:14:38.960 | paying someone a percentage of all of your assets to manage your investment.

00:14:42.160 | Yeah, that's exactly right. I'd say almost everybody has a CPA who's doing their taxes,

00:14:47.040 | and that can be a very reasonable amount of money. Somebody can be making $2 million a year and only

00:14:54.320 | pay $1,000 or $2,000 a year for somebody to file their taxes. It does not need to be a backbreaking

00:14:58.480 | amount of money. And I actually think at a certain point, it's just silly not to hire somebody else

00:15:02.800 | to do it because you can have all the good intentions in the world, but it's really easy

00:15:06.400 | to misread the tax code at a certain level and either underpay or overpay. And I'm not sure

00:15:11.360 | which is worse. I don't think people want to be doing either one. So certainly, as you're saying,

00:15:15.200 | yes, bookkeepers and assistants and that sort of thing. But I think just this principle of saying,

00:15:18.880 | I'm going to pay somebody half a percent or a percent a year just to tell me to put something

00:15:24.400 | into a 60/40 index fund is... Now, I will say our group tends to be younger, as I said, in their

00:15:30.080 | 30s and 40s. And overwhelmingly, probably 95% of people didn't grow up with this kind of wealth,

00:15:35.040 | but generated themselves at some point along the way. So I think probably has a relatively high

00:15:40.320 | dose of self-confidence in their ability to do it. So probably a bit of selection bias there.

00:15:44.320 | But it's not an unconventional approach. One thing when it comes to taxes, even if

00:15:49.920 | you don't want to hire a CPA forever, I would encourage everyone to hire someone for one year.

00:15:54.320 | Or even I found that as part of a sales tactic, most of the accountants I've talked to file taxes,

00:16:02.960 | when they get to know you, they say, "Hey, why don't I review your last year's return?"

00:16:07.040 | And you're still within the window of being able to refile if you mess something up. And

00:16:11.760 | I wouldn't say I found any glaring mistakes from when I was doing it myself.

00:16:15.200 | But even when I hired a firm that was not that great, the next firm I ended up hiring was like,

00:16:21.760 | "Well, here's a couple things you could have done differently." And so I found that at almost all

00:16:27.360 | levels, hiring someone to do this pays for itself in what they're able to understand and file for

00:16:33.760 | you. So I think that if I filed my taxes myself, forgetting the time it would take, I would actually

00:16:39.280 | end up not filling out the right things and ending up making less at the end of the year than I would

00:16:44.160 | if I paid someone. I agree. And I think there's also value to have somebody throughout the years

00:16:48.560 | you're trying to make decisions, you can bounce ideas off of. So for example, we own a home in

00:16:54.480 | Southern California we used to live in, and we've moved since then. And I'd like to sell it because

00:16:59.360 | it's just a hassle to manage. But then I had concerns about, "Okay, if I sell it, is that

00:17:03.680 | going to have big tax implications?" And having somebody who I've worked with for a number of

00:17:07.760 | years knows my whole situation. So I can send her an email saying, "Hey, I see these options here. I

00:17:12.480 | could sell this and do a 1031 exchange and then defer sort of indefinitely paying taxes on it,

00:17:18.240 | or I could just sell it, but I'm worried I'm going to have this big gain. This could be taxed under

00:17:21.280 | California tax rates, and it's going to sort of wipe out the whole point of doing it." And somebody

00:17:25.360 | who has that whole context, she was able to easily identify and say, "Okay, well, you've got these

00:17:29.920 | passive losses you haven't been able to take, and you can net these out." And really, it's not just

00:17:34.240 | a matter of the end of the year getting accounting right, but she was able to help me make better

00:17:37.520 | decisions along the way and say, "Hey, here's what the tax implication will be when you're

00:17:41.600 | filing your returns next year if you do this, but here's this other way to structure it that is just

00:17:45.360 | as good economically, but it's going to be a lot smarter way to go about it." You mentioned the

00:17:49.680 | benchmarking survey. And one of the things I think is really interesting is that so many of these

00:17:54.800 | benchmarking surveys exist. If you search Schwab RIA benchmarking, you get a lot of them, but they

00:18:00.000 | all are tied to some brokerage firm or some RIA. And so the results end up looking very similar to

00:18:07.680 | whatever that investment advisor is recommending their clients do. And so I don't feel like it's

00:18:12.640 | as practically useful for anyone other than if I want to steal clients from this RIA, I now know

00:18:18.240 | what their clients look like. But your benchmarking survey, like you said, 60% of people don't even

00:18:23.360 | have wealth managers, is really fascinating. So I thought maybe it'd be fun to go through

00:18:28.800 | some of the learnings. I think anyone listening would certainly be educated in many ways about

00:18:34.720 | what are all these people doing? How are they structuring their portfolios? What are they

00:18:37.600 | thinking about debt, leverage, all this stuff? So maybe we could just run through it. Like you

00:18:42.320 | mentioned, it'll be available. So I'll just link to it in the show notes if people want to go

00:18:45.840 | take a look at it and follow along. But maybe we could just walk through it and talk about it.

00:18:50.480 | The way that we run this, to be clear on that, is that we share it with all of our members. Once a

00:18:56.640 | year, we share the survey. And we define something like 60 to 65 different asset classes and ask

00:19:03.520 | people to put in how their personal portfolio is allocated across these different kinds of assets

00:19:08.960 | and these different kinds of debt. Then we gather all that data together. And we also know a lot of

00:19:14.320 | other demographic data about our members, how old they are, what was their source of wealth,

00:19:19.040 | where do they live, all that sort of thing. And we now have a big enough N that we can actually

00:19:23.920 | correlate across those things and not just say, "Okay, on average, people have this much money

00:19:27.520 | invested in private equity," but say, "Okay, compared to people who are younger or older or

00:19:32.800 | more or less money in total, how does that affect their allocation to different asset classes?"

00:19:37.920 | So that's sort of how we go about it. I would say, I know that radio is not the best medium

00:19:43.680 | for talking about a lot of numbers. So I'm not going to get into exactly what percentage point

00:19:47.840 | to each one. But I'm happy to talk about sort of a few high-level takeaways here. As I said,

00:19:51.920 | I'd encourage people to look at the link if they want to see more details. I'd say at the highest

00:19:57.120 | level in terms of how people's portfolios are allocated, it is roughly one-third into public

00:20:03.120 | stocks or public equities. So that's anything, whether US or international, buying Microsoft,

00:20:08.320 | Apple, et cetera, mostly via index funds, but it could also be individual shares.

00:20:12.160 | It's about a quarter into equity in real estate, whether that's somebody's primary residence or

00:20:17.840 | whether that is investment properties, vacation homes, commercial buildings, warehouses,

00:20:22.720 | what have you. And then about a quarter into alternative assets, which could either be

00:20:28.640 | private companies they hold, could be crypto. We can get a little bit more later in the show into

00:20:34.480 | what alts are, but about a quarter into alternative assets, and then the rest about 15% into cash and

00:20:40.160 | bonds. In terms of changes that we've seen over the last year, you can see there's a big drop

00:20:47.120 | in terms of shares and public equities that went from about half of people's portfolio down to just

00:20:51.280 | a third. And what made up the difference was more in real estate and more in alternative assets.

00:20:57.520 | And do you think that some of that is just the market was down a pretty significant amount

00:21:04.400 | between years? Or do you have any qualitative data around this to understand how much of it

00:21:10.480 | was market-driven versus portfolio structure-driven? Yeah, I think it was both. I don't know if I can

00:21:16.560 | break down exact percentages. But yeah, the fact is the market's down something like 20%

00:21:20.720 | over the last year, whereas the real estate market's gone down a little bit lately,

00:21:24.720 | but it's probably up. And alts have also done well. So I think some of it's market-driven.

00:21:29.680 | But yeah, your question about qualitatively, I can say with confidence that people... And

00:21:35.520 | partly because we asked in the survey, "What are you personally doing to change your allocation?"

00:21:39.920 | And that is something people are intentionally doing of feeling like the environment that

00:21:45.200 | we were in before is not the one we're in now. And so something like real estate, for example,

00:21:50.320 | two years ago, that was probably a fantastic buy. You had 2.5% debt that you could get on things,

00:21:55.440 | and very reasonable expectations of inflation at two to three times that level. So that was a real

00:22:02.080 | smart move to do. I'd say today, something like real estate is less attractive. Again,

00:22:05.840 | higher interest rates tend to make public stocks less attractive. So I think we are seeing people

00:22:10.320 | intentionally trying to increase their allocation, especially to alternatives.

00:22:14.320 | And then a couple of others to dive into the details, things that people may find surprising.

00:22:22.400 | I think I mentioned earlier on here that about a quarter of our members don't own their own home.

00:22:27.280 | And I would say for almost everybody, that is by choice. It's not a matter of, "If you've got $5

00:22:31.280 | million, you could afford to buy a house." But again, asking people qualitatively, "Why don't

00:22:36.160 | you buy a home?" I would say it probably falls in two categories. There's a set of people who

00:22:40.320 | just don't want to live in any one place. These often tend to be the people without kids, but

00:22:44.080 | they're nomads and say, "Okay, I want to be in Mexico City for the next three months. Then I

00:22:47.840 | want to be in Switzerland. And I just don't see a point in owning a house if I do that."

00:22:51.280 | And then there's also a lot of people who just don't want the sort of mental burden,

00:22:55.840 | the time burden, the financial risk, et cetera, associated with owning. They would rather just

00:23:00.160 | rent and know, "I'm going to pay this. And if the lights need to be changed, the plumbing breaks,

00:23:04.240 | the roof leaks, that's not my problem. I'm just going to call the landlord and tell him to deal

00:23:07.440 | with it." So that's a big thing. And then if you look at the three-quarters of people who do own

00:23:14.080 | a home, again, a quarter of those don't have a mortgage on it. So you have pretty much fully

00:23:19.040 | half of members without a mortgage. So I found that interesting. And another thing on the personal

00:23:25.040 | real estate is that, leaving aside the caveat I had that there's a material percentage of people

00:23:30.320 | who don't own a home, if you look at those who do, up to about $50 million, the home continues

00:23:36.000 | to be a pretty significant piece of people's net worth. If you get somebody who's a billionaire,

00:23:40.240 | of course, their primary residence is probably not a big part of their portfolio. But somebody

00:23:43.840 | could have over $25 million and still have 10% or 15% of their net worth in their home.

00:23:48.160 | So that's something else that's interesting to me is how much people's primary residence value

00:23:53.280 | continues to scale along with their net worth. So I want to just point out, I'm a big fan of

00:23:59.360 | the fact that Ramit Sethi spends a lot of time telling the world that renting is not the worst

00:24:06.000 | thing in the world. And I love that you're seeing that here. And this is another message that's

00:24:10.800 | reinforced. I know so many people that think that renting a house is just throwing away money.

00:24:16.240 | And I couldn't. I've spent a lot of money on property tax. I've spent a lot of money on

00:24:20.880 | insurance. I've spent a lot of... There's a lot of costs that come with owning a home that end up

00:24:24.240 | getting thrown away. Mortgage interest being another one. So I want to make sure we pause for

00:24:30.560 | a second and reinforce the fact that renting is not a decision that is something that means you

00:24:36.720 | won't make money. It means you're throwing all your money away. I've done the breakeven analysis

00:24:41.360 | and built spreadsheets to figure it out. You look at the costs and you look at the cost of mortgage

00:24:46.400 | interest and all that stuff. I generally think that if you're not in a house for more than 5

00:24:50.320 | years, all the money that you're spending to buy a home and the brokerage fees, everything,

00:24:56.000 | you're also throwing away and you actually would have been better off renting.

00:24:59.200 | Now, there are a lot of factors that play into this that who knows if rents are going to rise,

00:25:03.520 | who knows what happens to mortgage rates and home prices and appreciation. But my rule of thumb has

00:25:07.920 | always been less than 5 years owning actually doesn't make sense. And if you think, "Oh,

00:25:14.000 | I could stay in the place I am for the next 10 years." And you buy a place, but you buy a place

00:25:18.560 | that's so big that it will work 5 to 10 years from now, but it's actually way bigger than you need

00:25:24.080 | for the next 1 to 5 years, you're effectively overpaying. And if you were renting, instead,

00:25:29.440 | you might rent a 1 or 2-bedroom. But now because you want to adhere to this 5-year rule, you buy a

00:25:34.720 | 4-bedroom, then you're also still going to come out behind because for the next 3, 4, 5 years,

00:25:39.920 | you would have saved so much money renting the 1 to 2-bedroom.

00:25:42.640 | So I just try to take every opportunity I can to reinforce the fact that buying is not the end-all

00:25:50.640 | best path forward for everyone. And renting, certainly, while you don't get to recoup that

00:25:55.360 | money, you also have a lot of expenses associated with buying that you don't get to recoup.

00:25:59.920 | Yeah, I agree with that. And I think the other thing I would say is when you're looking at real

00:26:05.120 | estate, not only should you look at how long should I stay there, but it really matters what

00:26:09.520 | is the economic environment I'm buying in. And by that, I primarily actually mean what's the

00:26:13.680 | interest rate you're paying. If you buy a house in cash, it's not a bad investment,

00:26:18.800 | but nobody is becoming a multi-millionaire by buying property in cash. The reason that real

00:26:23.760 | estate often turns out to be a very good investment is that you're putting in 20%,

00:26:28.480 | 25% of your own money and 75%, 80% of somebody else's money. In that case, if it goes up 5%,

00:26:34.800 | you're seeing a 25% return on your money. And that's great. And I would say over the past five

00:26:40.160 | years, I've actually personally been buying a lot of real estate and trying to take on as

00:26:43.840 | much of that leverage as possible. But that is not a universal answer. That was the case when

00:26:48.560 | interest rates were down at 2% or 3%. And I think anybody who is looking at government policy and

00:26:53.760 | that sort of thing knew that inflation was going to be a lot higher than that. That's not the

00:26:57.600 | environment we're in anymore. Rates have gone up 3% over the last number of months. And you're

00:27:03.200 | seeing I think the highest average mortgage rates we've seen in the last 20 years. So you can still

00:27:09.280 | take on debt, but you're paying way more for that. And so it's unlikely to be that same wealth

00:27:14.160 | generator now. So I think you need to look at your own situation, but also just look at what's

00:27:18.080 | the overall economic environment. And this doesn't just go for real estate. This goes for other

00:27:21.600 | asset classes. If you look at bonds two years ago, I didn't hold any. In my opinion, that was

00:27:26.880 | a terrible investment. If you look at something that's a 30-year bond that's yielding 2%,

00:27:31.360 | there's no uncertainty. Mathematically, if you hold that to maturity over the next 30 years,

00:27:35.200 | you're going to earn 2% a year. And there's near total certainty that inflation is going

00:27:40.080 | to be higher than that. So you're basically locking yourself into losing money over 30 years.

00:27:43.840 | Now that environment by the flip side has become a lot more attractive. Personally,

00:27:46.960 | I still don't buy bonds because I'm not that compelled by a 5% rate, a 4% rate, but that's

00:27:51.440 | way better than the 2% you had before. So I think across any asset class, there's not one universal,

00:27:56.560 | "Hey, here's the right answer. Here's a portfolio that makes sense." You have to be

00:28:00.400 | somewhat reactive to the situations you see it. And unfortunately, you only get to live your life

00:28:06.400 | once. And it may be that ideally, when you're 28, you'd like to buy a home, but it's not a great

00:28:10.640 | environment to buy a home. You just have to react to that fact, but you need to look at a combination

00:28:14.320 | of what's going on internally and externally for you. I will also add right now, because I know

00:28:19.680 | there are people, especially in my friend group, that are like, "I finally have the money for the

00:28:23.040 | down payment, but interest rates are so high." I will say two things. One, I have noticed even

00:28:28.320 | in the Bay Area, that there've been a lot of price decreases. So if you factor in the fact

00:28:33.360 | that you might get the house a lot cheaper than you would have a year ago, that could be an impact.

00:28:37.680 | And then the second is, you're never locked into 7%. If you get a mortgage right now, and it is 7%,

00:28:44.080 | and hopefully, for the sake of those people that that comes down quickly, if mortgage rates drop

00:28:50.880 | back down in three years, you can always go ahead and refinance. And so funny enough, I had been

00:28:57.760 | doing some calculus, or calculations at least, when I was trying to decide whether we got a 30-year

00:29:04.240 | mortgage or a 10-year mortgage. And I was looking at the breakeven point on the 10-year mortgage.

00:29:09.520 | And it's not 10 years. In my worst case scenario math, I was saying, "Okay, well,

00:29:14.240 | at the end of the 10-year period, rates go up to 7%. And now I'm paying way higher than 2.5% or

00:29:22.160 | whatever I would have done on the 30-year mortgage." And the breakeven point was still

00:29:26.000 | like 12 or 13 years. And so what that meant was, if I had gotten a 10-year mortgage and paid,

00:29:32.240 | let's say, half a percent lower than my 30-year fixed for 10 years, and then it rose up to 7%,

00:29:38.320 | the savings I got for those first years actually was totally made up for by

00:29:44.240 | even having to pay 7% for three years. So if you inverse that and say, "If I get a mortgage now,

00:29:50.080 | and for three years, I have to pay 7%, and then after that, I can refinance," the net effect over

00:29:56.400 | a decade or more is not going to be as impactful. And probably, and I have not done any math,

00:30:02.240 | this is not financial advice, but probably not going to outweigh the fact that you might be

00:30:07.440 | able to get the house at a significantly better deal right now, because so many people are scared

00:30:12.400 | off by mortgage rates. Yeah, I would agree with that. The only other hack I would add

00:30:17.600 | in the world of buying a house. So I bought three houses since my wife and I have gotten married.

00:30:23.760 | And we have followed the same strategy on all of them. And I've been very happy with the purchase

00:30:28.480 | on each one. And that has basically been looking for houses that have been on the market for

00:30:32.640 | a year, two years, and they came on way too high, nobody wanted it. And so then after a while,

00:30:38.560 | they started cutting, they kept cutting and kept cutting. And to the point where we bought it,

00:30:43.360 | in each case, it was about 30% below where they'd originally brought it on. And I am confident that

00:30:49.040 | any one of those, if they had brought it on just at the right price at the beginning,

00:30:52.800 | it would have sold right away would have sold for more than we paid. But you start to get this

00:30:56.480 | dynamic where a house just gets stale. And I remember, you know, most recent one we bought,

00:31:00.080 | it was actually a vacation house in Southern California near my brother is really excited

00:31:04.640 | about this opportunity. We've been working with a realtor for a while there and couldn't find

00:31:08.800 | anything that sort of was what we were looking for, as price we could afford, etc. To find my

00:31:13.760 | wife, you know, she was on Zillow said, Hey, you know, what about this one? This looks amazing.

00:31:16.640 | This looks, you know, has great ocean views has exactly what we're looking for. And you know,

00:31:20.720 | this price seems super reasonable. And we talked to our broker, he said, No,

00:31:24.080 | you don't see that it's been the market forever. And so we push her, like, really do want to say,

00:31:28.000 | it's hard to show, you know, tenants, they're messy. I was like, why on earth would I carry

00:31:32.000 | the tenants? They're messy. Like, I'm not looking for tenants, I'm looking for a property. Anyway,

00:31:36.560 | you know, we finally got into into it finally saw it, and we bought it. And then, you know,

00:31:41.120 | afterwards, he's saying, I don't know why this thing was here. You know, this thing should have

00:31:44.080 | gotten a heartbeat that, you know, 20% higher than this. So I think, you know, that is a strategy.

00:31:48.480 | As I said, it wasn't a one off. It's been all three houses we bought,

00:31:51.600 | just this idea of a stale house, it's no longer hot. And then, you know, people just get spooked

00:31:55.520 | by it and say, Hey, it's been there for a year or two, there must be something fundamentally

00:31:58.560 | wrong with this house. There's a reason nobody else wants it. And then you just get these sellers

00:32:01.920 | who keep having to do these little salami slices of, you know, cutting, you know, 3%, 5% at a time

00:32:07.040 | and end up well below the market. My two house buying hacks, one that we've done for both one

00:32:12.800 | that we've done for one was earlier in our careers, we were like, well, we, we knew that we wanted to

00:32:17.600 | be in a house for a long period of time, if we wanted to buy it, because you kind of needed that

00:32:21.440 | for the math to work. But we also didn't want to pre buy space we didn't need. So we found a house

00:32:26.000 | that had three bedrooms, but it had a private entrance for one of the bedrooms. And we can

00:32:30.400 | basically converted that to a studio and rented it out. We locked the door from the inside between

00:32:35.920 | that bedroom and the rest of our house. It didn't have a kitchen. But you know, in the Bay Area,

00:32:39.920 | there are lots of young people who either work at a company that provides them all their meals,

00:32:44.400 | or don't mind cooking and, you know, in a microwave and going out to eat and all of that.

00:32:48.880 | And so for almost a decade, we rented a room out in our house. And then right about the time we

00:32:54.320 | were about to have our first daughter, we were like, you know what, we need that third bedroom

00:32:57.920 | now. And we are in a financial position to not need the rental income anymore. To make the make

00:33:04.400 | the mortgage payments. Now, all of a sudden, we're like, now we've just upgraded from a two bedroom

00:33:07.760 | to a three bedroom, but we didn't have to move. And we had that extra income. So right now,

00:33:12.960 | that could be a great opportunity. And it seems so crazy to me, or at the time, it seems so crazy

00:33:18.960 | to me to think, what if it didn't have a door now? Now I knowing everything I know, the cost to like

00:33:24.800 | cut a hole in a house and put a door is probably actually not as much as I thought. So I think

00:33:30.160 | early on, I was like only looking at houses that were set up for this. Knowing what I know now,

00:33:34.560 | you could look for any house and relative to the cost to buy a house, the cost to cut a hole and

00:33:40.000 | put a door is actually going to be pretty insignificant. So it doesn't even have to

00:33:44.000 | be perfectly situated for this, it could just, you know, be perfectly situated for you to make

00:33:48.160 | that modification. And then the second one, which most people have told me is a terrible idea,

00:33:52.800 | but I've done it twice, and I like it. So this is again, not not advice for you. But

00:33:57.040 | I've gone to a house that we found the house we'd like to ourselves, we found it on Redfin

00:34:01.840 | or Zillow or somewhere, we went and looked at it. And then we convinced the selling agent

00:34:07.120 | to be the our agent also, which is called a dual agency. And so the seller's agent now represents

00:34:12.960 | both the buyer and the seller, they have to get permission from the seller to do this.

00:34:17.520 | And if you find someone that is, you know, you reasonably would trust to act fair and impartial,

00:34:22.480 | because they're legally required to do that. So you have both the law, but also you want someone

00:34:27.120 | that you feel like can ethically handle that circumstance, you end up in a situation which

00:34:34.000 | they make two commissions if you buy the house, and they make one commission if anyone else buys

00:34:39.520 | the house. So I will say they are very motivated for you to buy the house. And so I think in the

00:34:47.680 | as a seller, I don't know if I would ever do this. Maybe I would do it if if I could agree

00:34:52.000 | that the agent would rebate me a significant part of that commission back. But as a seller,

00:34:57.440 | I want you know, I want I don't want someone to be motivated by one buyer, I want somebody

00:35:01.280 | to be motivated by the highest price. As a buyer, I would much rather want an agent who's motivated

00:35:06.480 | to sell to me than anyone else. And so in both scenarios, I think we got an, we were able to

00:35:14.720 | close and purchase contract before other higher offers came in, in some cases by hours. And in

00:35:24.320 | some cases by by by a day, but you know, we were able to make an offer on the house we're in now,

00:35:30.000 | before it went on the market, and and have it accepted. And the backup offers that came in

00:35:34.880 | were higher than our offers, at least as best I understand it. So that's my little hack, which

00:35:40.880 | I wouldn't do as a seller, but as a buyer has worked well.

00:35:43.040 | I like that hack. And you know, I would build on it. I think that works the way you did it,

00:35:47.760 | that works great in a competitive market where the challenge for you is to actually get the buy.

00:35:52.240 | I think if you say, hey, maybe today's markets not so hot, you know, I've got time,

00:35:56.480 | it's more of a buyer's market, or maybe a more balanced market. But I think you can easily flip

00:36:00.320 | that around. And I haven't done this myself. But I have a friend who's done this several times

00:36:05.840 | where he'll put in an offer, and he'll write into his offer, you know, I'm not represented by an

00:36:10.640 | agent. And part of my offer is that the seller is no longer paying a 6% commission, they're only

00:36:17.840 | paying a 3% commission. So he's basically saying, hey, when you look at my offer here, and maybe,

00:36:22.720 | you know, I'm bidding 970,000, my competitor is bidding a million, but you, Mr. Owner, are going

00:36:27.840 | to net the same amount because I am explicitly stating that that commission goes back to the

00:36:32.160 | seller, then I think, you know, you can basically get a lower price on it. Again, it's not something

00:36:38.560 | I've done. But I think it's the flip side. If it's not a competitive market, if it's more of

00:36:41.760 | a buyer's market, you can use that as a way to find a lower price that's not going to hurt your

00:36:46.720 | seller. Yeah, when we did it, we actually the first time, the second time, this didn't work.

00:36:50.720 | But the first time we convinced the agent to rebate the 1% of their commission back to us,

00:36:56.240 | meaning one of the 6%, not 1% of their overall thing. So you know, we were able to bid a little

00:37:02.480 | higher because we were getting it back. I've never thought about what you just described,

00:37:06.480 | which is like just take the commission out, and then you can offer lower. So those are fun hacks,

00:37:11.040 | especially if you're buying a house in this market and want to try to find a way to get it get the

00:37:14.720 | best deal. But I want to jump back in. So we're talking about real estate as part of your portfolio,

00:37:19.360 | we talked about what happened to stocks. Let's talk about a few of the other interesting things.

00:37:23.280 | And I think alternative assets is one. Maybe because I have a lot of questions there,

00:37:27.920 | we could start with cash, and then jump to alternatives, because I think we could spend

00:37:31.600 | a bit more time there. Anything you learned particularly interesting about cash or anything

00:37:36.320 | else that we've kind of missed when we talked earlier? Yeah, I would say that if you think of

00:37:42.240 | conventional financial advice, it would probably look like a 60/40 portfolio, 60% stocks, 40% bonds.

00:37:49.120 | If I look at our typical member, and so again, we're talking about people with

00:37:52.560 | 5 to 30 million, their typical portfolio is only 15% cash plus bonds altogether. There's just

00:38:01.040 | been very little appetite historically for those instruments. Now, that could be different. Now,

00:38:05.760 | the interest rates have tripled over the past number of months. If we run this next year,

00:38:10.480 | we might find that bonds become more interesting. But to date, I think people keeping very little

00:38:16.960 | cash and bonds, and part of the flip side of that is probably not having much debt either.

00:38:20.400 | It's saying, "Hey, I'm not going to take a lot of risk here and put a lot of leverage in my

00:38:23.520 | portfolio. But by the same token, what I'm putting my money into, I want to have a high

00:38:27.600 | expected return. I'm not happy with the expected return of 2%. I want to get 10% or 20% or something

00:38:32.960 | like that." And I think part of this comes down to... Apologies if I'm taking a little field from

00:38:38.000 | your question here. But if I think about how maybe do some of... People have been very successful

00:38:44.480 | financially look at investments differently than conventional advice and what sort of leads this

00:38:49.600 | lower bond allocation. I think there's historically been this notion that... I'll call it driven by the

00:38:57.760 | investment industrial complex that volatility and risk are the same thing. And I think that is just

00:39:04.080 | the wrong way to look at it. So you look at terms like a Sharpe ratio. And a Sharpe ratio is a way

00:39:08.320 | that people often look at assets like hedge funds or something like that and say, "How good is it?"

00:39:13.120 | You don't just say, "What is the typical rate of return?" But it basically divides that rate

00:39:17.840 | of return by the volatility. So say, "Hey, if this thing returns 20% and this other... Option

00:39:23.680 | A returns 20, option B returns 10, but option A is twice as volatile as option B, then effectively,

00:39:29.760 | they're just as good as each other." You can choose how much risk you're willing to take,

00:39:33.520 | and then you get proportionally rewarded in your upside. But I think this idea of volatility and

00:39:38.080 | risk being the same thing, I personally just don't follow that in my portfolio. I think if

00:39:42.160 | you have an amount of money that you don't need anywhere in the near term, let's say you don't

00:39:46.880 | need it until retirement, so that could be 10, 20, 30 years away. What matters to me much more

00:39:52.240 | is how much money am I going to have at age 70 when I want to retire, and not how smooth is my

00:39:57.200 | path to age 20. So not that I don't care at all. Everyone, of course, is somewhat emotional,

00:40:02.960 | is not going to be happy about seeing a million dollars go down to 100,000, then jump up to 5

00:40:07.280 | million. But you're much better off ending up at 3 million than having it just in a bond going from

00:40:12.960 | a million to 1,000,001 to 1,000,002 and ending up only a million and a half in 30 years rather

00:40:17.360 | than 3 million. So this idea that risk is very real, but I see risk much more as what is the

00:40:24.880 | chance that in the end, I'm going to have a permanent loss on this, a permanent impairment

00:40:29.120 | of capital. These are not new concepts for me. Warren Buffett talks about it in the same terms,

00:40:33.840 | the risk that you permanently lose this money, not just how much does it bounce around

00:40:37.920 | in the interim. So I think that would be something that I would encourage everybody

00:40:43.040 | to think about, especially if you do work in a financial advisor. I'll give an anecdote.

00:40:49.600 | When we sold our company and I was talking to a number of financial advisors, one of the

00:40:54.240 | big name, high profile banks I was talking with, actually a good friend of mine who works there,

00:40:59.600 | he's a wealth manager and he was sort of giving their pitch. He said, "You know what we can do

00:41:03.040 | for you? We can give you half the return on the stock market at a quarter of the volatility."

00:41:07.120 | I said, "Why would I want that? Why don't you give me twice the return on the stock market

00:41:11.920 | at the normal volatility?" He just looked at me like I was crazy, like, "No, it's not what we do.

00:41:15.520 | We give you lower returns and lower volatility." I think that's fine if you have a known need for

00:41:22.080 | this. If you're sending your kid to college in two years and that money needs to be there,

00:41:25.600 | and it's no good for you that you'll have money in 10 years, well, then you shouldn't take risk

00:41:28.720 | with it. But I think a lot of your listeners are probably earning good salaries in an active

00:41:34.480 | savings phase and if they're younger and earlier in their careers, are going to be in a savings

00:41:38.240 | phase for decades to come. I would encourage them, unless that they know that they personally

00:41:44.400 | just don't have the risk appetite and are going to panic and sell in a downturn,

00:41:48.640 | unless that that's the case, just not to be as worried about near-term volatility.

00:41:54.400 | I think there is less panic selling than people are led to believe. I think it's in the interest

00:42:01.760 | of the financial advisors to sort of say, "Hey, if you're going into these things by yourself,

00:42:06.960 | and you're going to these risky asset classes, you are going to panic the next time .com bubble

00:42:12.880 | happens or next time a great financial crisis happens." That's not universally true. That's

00:42:17.200 | some people, but that's not everybody. I think there's a lot of people who can just say,

00:42:20.960 | "I'm going to set on autopilot. I save $1,000 a month and I never look at that.

00:42:25.040 | And I just check my portfolio once a year and hope it goes up."

00:42:27.520 | I mean, the good news, this is not good news for our accounts. But in the last,

00:42:32.880 | I don't know, three years, we've had what happened when the pandemic started. People

00:42:39.360 | that were invested in equity saw their portfolio crash. And you can ask yourself, "How did I react?"

00:42:43.360 | And if you were able to hold back your fear and not react, well, now you've been able to test

00:42:49.280 | yourself. Now we're again, in a double-digit, 20+% correction in the stock market. And then anyone

00:42:56.560 | who's held basically any amount of crypto in the last handful of years has probably had a separate,

00:43:02.720 | sometimes correlated, sometimes uncorrelated, completely 50% haircut in that market.

00:43:08.640 | So I think a benefit to young people today --I'm going to pretend I'm young right now-- is that

00:43:15.920 | these things were things that some people didn't see for 10, 20 years.

00:43:20.240 | And now, we've seen 2 in the public stock market in the last 2 years.

00:43:25.840 | And so people have really gotten to understand how they feel,

00:43:28.720 | and even understand how they felt the first one, and now see how it changed in the second one.

00:43:33.520 | And I think that's something that historically, people have needed

00:43:36.640 | maybe 20 years to find out. And now, we're fortunate, I guess, maybe not right now with

00:43:42.720 | our portfolios being down, but we're at least fortunate that in a very short period of time,

00:43:46.800 | we've gotten 2 opportunities to see how we would react, and what happens, and understand

00:43:51.440 | our own appetite for risk and short-term volatility.

00:43:55.440 | And for me, I don't love logging in and seeing that my portfolio is down 20%.

00:44:00.640 | But the portfolio is down 20%. I don't need now.

00:44:05.200 | So you can get caught up and say, "Oh man, my net worth is down."

00:44:08.480 | But it's like, "I'm not trying to withdraw this money to spend it now. So maybe it doesn't matter."

00:44:12.800 | And one thing we didn't touch on before we talk about cash and alternatives

00:44:16.720 | is the balance between indexes and individual stock investing.

00:44:20.800 | And I'm a little curious what you've seen in the long angle community with this

00:44:26.240 | survey of people trying to pick stocks and pick winners, which is...

00:44:30.400 | I know often, a thing that people are told you can't do, but then you're like,

00:44:35.760 | "Well, Warren Buffett's doing it. What are people in the community doing here?"

00:44:38.720 | Yeah, I would say they're probably picking a lot fewer individual stocks than you would expect.

00:44:43.600 | We did ask of your total public equity exposure, how much of that is in index

00:44:48.560 | funds versus individual stocks. And the significant majority is index funds.

00:44:54.160 | And I would say those individual stocks, they often tend to be employer stocks.

00:44:58.640 | So hey, I was an employee of X company before it went public, and I've got a lot of shares,

00:45:03.680 | or I just get every year as part of my compensation package, I get a certain

00:45:06.880 | number of shares and haven't gotten around to sell them. So I would say that there is not a

00:45:10.480 | lot of individual stock picking. Now, of course, nothing's universal. There are the guys who love

00:45:14.400 | it. But in general, I'd say that for their public equity exposure, people go diversified.

00:45:20.160 | Now, the one plug I will put in favor of individual stock picking,

00:45:23.040 | and I do a little bit of this, not that I think I'm great, but mostly for fun,

00:45:26.160 | is to your point around, "Hey, the market went down 20%. I feel 20% poorer."

00:45:31.360 | I think that's largely a perception of people's relationship with a stock is just this number on

00:45:35.440 | the screen. But the more you're actually thinking about, "I own 1,000,000th of a percent of Apple,

00:45:40.800 | and that's the thing I own. I don't own a share of Apple that today is worth 100, tomorrow is 140,

00:45:45.040 | but I own this little share on their future income." You know intuitively, Apple didn't

00:45:49.920 | just become 20% or 30% less valuable. This is just the market pinging around. Or a more extreme case,

00:45:55.520 | Facebook did not lose 75% of its value over the last six months, even though the price went down

00:45:59.760 | 75%. So I actually think it's not that harmful. If you're somebody who enjoys it, I wouldn't just

00:46:06.160 | put all your eggs in one basket. But if you want to buy a sort of balance of 20, 30 different

00:46:11.680 | stocks, you're almost certainly just going to track the overall index. But if either you find

00:46:15.840 | that a fun diversion, it's something that you enjoy, and maybe that's a form of spending.

00:46:20.000 | So rather than going on a fancy vacation, you're spending by investing in these stocks. It's not a

00:46:23.680 | bad thing financially, but especially if it makes you more comfortable and a drawdown, because you

00:46:27.840 | can really just look at a profit and loss statement and say, "Hey, P&G sold 3% more

00:46:32.480 | tide this year than last year. So I don't really care that the market's down because they're still

00:46:36.800 | paying their dividends. They're still making tide. Exxon is still pumping oil." I think that can

00:46:41.200 | actually be really helpful. People sort of ride out some of this volatility. And to your point

00:46:44.960 | about Warren Buffett and picking stocks, I think that's exactly how he talks about it. He says,

00:46:50.400 | "Don't look at my market to market. Just look at what is the operating cash flow of the businesses

00:46:54.560 | we own and do a look through basis. I own 5% of Apple and that made X billion dollars of profit

00:47:00.080 | next year." So that's what I think it's worth, not what I could get if I happen to sell my Apple

00:47:04.640 | shares today. Let's move to the topic of alternatives, because I think it's something

00:47:08.880 | that seems so mysterious to people. And in some ways, even just through the LongAngle community,

00:47:15.440 | I've started learning like, "Wow, even I felt like there was a lot more that I knew."

00:47:19.840 | So maybe if you could give a little bit of an overview to people listening on what you even

00:47:24.960 | mean by alternatives, what does that whole space look like? And then we can talk a little bit about

00:47:29.040 | how to think about them, when to think about them, where to get them, what kinds, and all that.

00:47:33.360 | Yeah. Awesome. I'm super excited to talk about this. I think this is just a really

00:47:37.760 | interesting asset class. So first of all, I'll say alternatives is a very broad term.

00:47:43.360 | At its highest level, it means really anything that is not stocks, bonds, cash, or real estate.

00:47:49.280 | Now, some people will call real estate an alternative, but I don't think it really

00:47:52.080 | belongs there, but it's basically everything else. So when I talk about it here, I'm sure

00:47:57.040 | that you'll have somebody writing in, listing 10 different alternatives I left out, because pretty

00:48:01.360 | much anything you can think of putting your money into, you can define as an alternative.

00:48:04.800 | But it's everything except those conventional ones. Now, to make that a little bit more concrete,

00:48:11.680 | they tend to share a few characteristics. I would say they tend to be less regulated. When you're

00:48:18.000 | buying stocks or buying bonds, you have this whole infrastructure of the federal government

00:48:22.880 | and the Securities Exchange Commission and all these rules and courts that make sure that you

00:48:27.040 | have full information and that every company has to publish their quarterly earnings or else the

00:48:31.680 | CEO and the board is going to be sued and that sort of thing. There's a lot to ensure transparent

00:48:37.200 | information and effectively efficient pricing. This is part of the reason that you can just go

00:48:41.120 | out there and buy whatever stocks you want to. If you buy enough of them, you're probably just

00:48:45.120 | going to track the index because there's good information. But there is a lot less regulation

00:48:49.680 | and a lot less information on alternatives. In terms of less information, I can go out there

00:48:57.360 | today and find a list of every publicly traded company in the US, and that's just an objective,

00:49:01.040 | factual list. If you said, "Hey, what is every alternative out there?" There is no list you can

00:49:07.360 | look at. You can do Google searches and say, "Okay, what's every hedge fund out there?" and

00:49:11.360 | you'll find different lists, but it's only going to be people who opt into that hedge fund index.

00:49:15.200 | And also, they tend to be usually less liquid. That's not universal. Something like crypto,

00:49:20.720 | I can go sell it tomorrow. It's a very liquid market. Or maybe foreign currencies, I can go

00:49:24.960 | sell those tomorrow, very liquid. But a lot of them tend to be less liquid, just means it's a

00:49:30.160 | higher friction to buy and sell and longer holding periods. Now, this idea of being less regulated,

00:49:35.840 | less transparent, less liquid, that sounds bad, but it's not necessarily bad. I think

00:49:40.560 | that's the... There's both a good and bad on it. The bad is that it is a lot more dangerous to be

00:49:46.560 | a naive investor in alternatives. The good is that if you actually know what you're talking about,

00:49:52.000 | there's a lot more opportunity to sustainably have high rates of return. If somebody tells you

00:49:57.840 | they're going to buy public stocks and return 25% a year consistently with low risk, I would

00:50:03.120 | just run away from that. It's just not possible. The market is efficient. Any good news, good

00:50:08.960 | information just gets arbitraged away very quickly. But in the alternative space, you can

00:50:13.840 | find a little niche where if you really understand it, you know the people you're partnering with

00:50:18.400 | are good. Because it's not transparent, because it's not liquid, you don't have trillions of

00:50:23.520 | dollars of capital flooding into that particular niche and arbitraging away the whole opportunity.

00:50:27.680 | You can have a consistent sustainable source of... It's called alpha or just consistent above market

00:50:34.560 | rate returns. I think it's extremely attractive. Personally, I'm doing most of my investing there,

00:50:40.000 | but it's one where you have to be more careful because you can either make a lot or lose a lot

00:50:44.320 | of money depending on how you do it. If you want, I'd be happy to get a little bit more into

00:50:49.920 | what some of the specific kinds of alternatives are, classes, and what to expect in each of those.

00:50:57.600 | Yeah, I think that'd be really helpful and include some examples of some of the

00:51:01.360 | interesting ones that maybe people would have never thought of as an investment.

00:51:04.800 | Again, with the caveat that I'm sure I'm going to be leaving out more than I mentioned here,

00:51:08.080 | I would probably put them into four big groups. I think the first one is some sort of equity,

00:51:12.560 | some sort of ownership in a business. Typically, people think of stocks and buying Microsoft or

00:51:17.040 | Google, but that's really only the biggest 5,000 or 10,000 companies in the country.

00:51:21.440 | There's another multiple millions of companies in the country that are not publicly traded,

00:51:25.360 | and so they're all accessed through some kind of alternative. Within there, I think there's

00:51:29.760 | some really interesting asset classes. Maybe people are most familiar with angel investing,

00:51:34.000 | and that really means somebody just... It's basically at an idea stage, you've got a small

00:51:38.800 | team of two or three founders who want to build something, and they're raising maybe half a

00:51:43.440 | million or a million dollars to start hiring a team, start proving this concept works.

00:51:48.400 | That's very early stage, super high risk. Most of those are going to go bankrupt, but super high

00:51:52.800 | return. If you happen to be the angel who invests in Google, you're going to get 1,000 times your

00:51:56.720 | money back. That's angel. You get a little bit further along in the process, and you move into

00:52:01.760 | what's called venture capital or VC. There are different stages. The earliest stage is seed

00:52:06.960 | round, then you've got A, B, C, D, E, and so on. As the companies get bigger and bigger,

00:52:11.760 | their valuation gets higher and higher, but the risk goes lower and lower.

00:52:15.040 | Angel people often do themselves. I would only recommend doing that if you work in technology

00:52:23.920 | or biotech or robotics or something like that, or AI, and you know people who are starting these

00:52:27.920 | companies, you have a lot of confidence in them, that's a great way to do it. If you don't have as

00:52:31.440 | much access there, I probably would go light on that. Venture capital is more traditionally done

00:52:36.080 | through venture capital funds. You can think of a lot of big names there like Sequoia.

00:52:40.800 | There's a million of them and often have a very good historical track record.

00:52:47.200 | Those are the ones that are putting money into companies that are usually growing quickly.

00:52:51.680 | They have some degree of proof that their model works, but they're not yet at scale.

00:52:55.680 | They're giving them millions or tens or hundreds of millions to basically scale up and reach their

00:53:00.800 | opportunity there. Again, it's still risky compared to investing in a public company,

00:53:04.800 | but it's a lot less risky than Angel, especially the further down the trail you get into these

00:53:09.120 | late-stage series C and D and E. The companies are fairly proven and mature,

00:53:13.760 | but you still have some upside there. A third one is private equity.

00:53:20.160 | Basically, what private equity does is they're not looking to turbocharge these smaller companies,

00:53:24.880 | but they're buying companies that are usually fairly mature companies. Sometimes they're very

00:53:30.800 | profitable. Sometimes they have some dents and scratches on them and need to be fixed up,

00:53:34.960 | but they're basically buying mature companies and they might take them private. A company that is

00:53:39.040 | publicly traded, they'll take it private. If you think of Twitter, that being a sample of a company

00:53:43.440 | taken private recently, or they might just be buying them from the guy who started it or a

00:53:49.840 | previous private equity firm that bought it. Buy it somewhere in private market transaction.

00:53:54.560 | Their idea there is they'll usually put in some amount of their own money,

00:53:58.000 | maybe 25% or 50% of the purchase price, then they'll borrow the rest. Their idea is to run

00:54:02.560 | that company better and to throw off more cash, and then eventually after maybe five or seven

00:54:07.760 | years to sell it to somebody else. Those tend to also have very good historic returns. If you think

00:54:14.880 | of VC maybe having in the 20% plus returns, I think private equity often the good ones can get

00:54:22.560 | in a similar return range there. Again, that was almost entirely done through a fund or a third

00:54:28.320 | party. Unless you happen to be somebody with an enormous amount of money, you can't personally

00:54:32.480 | take a company like this private, but you can invest in some of the big names or companies like

00:54:37.600 | KKR or Blackstone or Carlyle, some of the better known private equity funds that hold many billions

00:54:44.400 | of dollars. Then there's one other actually really interesting class of equity alternatives,

00:54:50.320 | which is search funds. People don't know about this as much, but it has one of the highest

00:54:54.960 | returns actually of any asset class out there historically. Stanford does a lot of studies on

00:54:59.920 | this and they've been tracking it for more than 30 years. Over that period, the average internal

00:55:06.800 | rate of return or IRR, just the average return on money there has been above 30% almost consistently

00:55:13.040 | every year over the past three decades. Basically, the search fund model is that

00:55:18.320 | someone typically, a new MBA graduate from some high-end school like a Harvard or a Stanford MBA

00:55:24.880 | will spend a year or two going and looking to find a small company to buy, and they will get maybe

00:55:31.440 | half a million or a million dollars of backing from a number of investors to pay their own salary

00:55:35.600 | and pay their expenses as they're looking for this company to buy. Then after a year or two,

00:55:39.440 | they've identified the company, they buy it often from the person who started that company,

00:55:44.800 | and then they try and scale it up or run it, somehow improve it for five years or so,

00:55:50.320 | and then they sell it off into another private equity company. This idea of basically buying it

00:55:55.840 | at a relatively low multiple from the founder, and then improving it and selling it at a high

00:56:00.400 | multiple to a follow-on private equity company has just almost like clockwork returned unbelievable

00:56:05.840 | returns. This one, the flip side, and this is what I was talking about in general where

00:56:10.960 | alternative assets can be low information, hard to get into, but then really good. I'd say search

00:56:16.480 | funds tend to be an example of that really good. It's hard to get into, but if you find a good

00:56:20.880 | search fund sponsor, you can see those kinds of returns. If I look at the deals that we have done

00:56:27.200 | within the long-angle community, that's probably some of the ones I'm most excited about are those

00:56:31.440 | search fund opportunities. We talked about a class of equities. I think there's also a class

00:56:37.760 | of commodities. Examples of that could be crypto. That's probably one of the most accessible

00:56:42.240 | alternative assets out there. If you're looking at a major coin like an Ethereum or a Bitcoin or

00:56:47.360 | even anything in the top 10, top 20, you can go buy that in Coinbase or really any marketplace

00:56:54.480 | for crypto, and you're going to get basically the exact same thing. You don't need somebody's help

00:56:59.040 | to buy Ethereum. You can go just do that yourself. Another example of commodity might be whiskey.

00:57:06.800 | This is something that we've done a few deals and recently I've found really interesting where

00:57:11.040 | there has been a pretty consistent appreciation curve where newly distilled whiskey that's just

00:57:16.480 | put into the barrel, or maybe I should say like Kentucky bourbon to be more specific,

00:57:20.320 | will often be about maybe $1,500 a barrel. Then when it's three years old, it's usually worth more

00:57:25.840 | like 3,000. When it's five years old, it's worth maybe 4,500. There's been this just very consistent

00:57:31.040 | and rapid appreciation curve. Don't want to spend too much people's time to talk about exactly why

00:57:36.000 | that curve has existed there. But that's an example of something that I never would have

00:57:39.920 | thought before, this idea of, "Okay, I'm buying a barrel or shares of 100 barrels of newly distilled

00:57:46.960 | Kentucky bourbon." But if you look historically, if you have a good operator there, you can

00:57:51.440 | consistently see these really pretty exceptional rates of return. I won't say that that is totally

00:57:56.720 | uncorrelated. Assets, especially in a down market, tend to have some degree of correlation.

00:58:01.440 | When it's a bad market for public stocks, probably art, probably real estate, probably whiskey,

00:58:06.080 | probably everything's going to get hurt to some degree, but it's not perfectly correlated. You're

00:58:09.840 | going to get some benefit of that lack of correlation. Commodities are another example.

00:58:14.800 | Then there's a whole set of things that are just around complex financial structures,

00:58:20.480 | where basically there's some stream of money or some asset that someone then wants to structure

00:58:25.200 | in a certain way and sell on to somebody else. I'll give you a more concrete example. There's

00:58:29.840 | something called equity finance, where if you have someone who's lucky enough to be

00:58:34.960 | an early employee at a company, maybe it's like a private company, but it's been quite successful.

00:58:40.960 | So think of like a SpaceX or a Stripe or some private company that now their shares are worth,

00:58:47.280 | let's call it $10 million. If that person, they may actually want some liquidity from that,

00:58:53.040 | but it's not a public stock today. So they can't just go and sell it through their brokerage

00:58:58.400 | account. One thing that, and also to actually realize the value of that to a stock option,

00:59:03.920 | to get a little bit into the weeds, a stock option, if I actually want to turn it from an option to

00:59:09.360 | so-called exercise or turn into a share, I have to spend a certain amount of money called the

00:59:14.400 | strike price to actually say, "Okay, maybe this share is really worth a dollar, but my option is

00:59:18.160 | to buy it at 10 cents." Well, at a million shares, I need to now come up with $100,000 to buy those

00:59:23.280 | shares at 10 cents. I know it's a great deal because they're worth a million, but I still

00:59:26.320 | got to find the $100,000 and I can't necessarily sell them for a million here. So what do I do?

00:59:31.840 | There's something called equity finance, where a third party will go give that employee the

00:59:35.760 | $100,000 and tell them to use it to exercise these shares. And that in return for that,

00:59:41.120 | you can negotiate however you want to, but they will get some fraction of the upside on it and

00:59:45.520 | some shared downside on it. So if that million dollars of share now doubles to 2 million,

00:59:50.960 | maybe the person who put in $100,000 to allow the person to exercise their options,

00:59:55.600 | maybe he or she gets 50% of the upside and the other 50% goes to the employee.

01:00:00.080 | So those are just illustrative numbers, but this idea of a structured financial arrangement where

01:00:06.320 | I'm putting in money to get a certain claim on a certain asset, there's an almost unlimited

01:00:10.480 | number of these. There's also things called secondaries. So basically, anything that's

01:00:14.880 | in a fund, whether it's a real estate fund, a venture capital fund, any kind of fund where

01:00:20.640 | there's not day-to-day liquidity, where you can't just go to the venture capital fund and say,

01:00:24.640 | "I want my money back," because they'll say, "Well, too bad. It's invested in private companies.

01:00:27.920 | I can't give you your money back until those companies go public." I can turn around and

01:00:31.760 | sell it to you, Chris, and say, "Hey, Chris, I want to sell you my stake in this Sequoia fund

01:00:36.160 | here. And I think the underlying assets are worth a million dollars." Typically, these secondaries

01:00:41.600 | will have a discount and you'll say, "Well, I'll give you $800,000 for that million dollars of

01:00:45.920 | shares in Sequoia." And this is, again, across any of these asset classes, this idea of secondary

01:00:51.040 | transactions at a discount to the underlying value is a very common form of settlements.

01:00:58.160 | There's even more esoteric things like buying somebody's life insurance policy from them and

01:01:01.920 | assuming the premium when they pass away, you get the money. I haven't done that particular one

01:01:07.440 | myself, but that'd be another example of structuring something. And then finally,

01:01:10.800 | you've just got a whole grab bag of esoteric approaches you can take. So just talk about

01:01:15.760 | a couple of fun ones. For example, there's a professional athlete revenue share,

01:01:19.760 | where let's say somebody just signed a minor league contract and they don't have any money

01:01:27.760 | right now. They're making very little on that, but they're likely to become the next major leaguer

01:01:33.920 | and sign a very big contract. But it's going to be quite a while out because they're going to be in

01:01:37.120 | the minors for three years or five years. And then the way contracts are structured in the

01:01:41.200 | major leagues is your rookie contract lasts another five years and it's not worth that much.

01:01:45.760 | So they could be 10 years out from their high earning potential. You could say, "Okay,

01:01:50.160 | I'm going to give you $100,000. And in return, I want 2% of your salary should you make the majors.

01:01:56.480 | If you don't make the majors, I've lost my money. You got $100,000. That's the risk for me. But if

01:02:02.480 | you do make it and I get 2% claim on it, if you sign $100 million contract, now I'm getting a $2

01:02:07.600 | million payout there." So that's just an example of, again, how almost anything can be an alternative

01:02:14.400 | asset. And where do things, art, farmland, those fall in one of these buckets also?

01:02:20.000 | Yeah. I mean, to this point of almost anything you say, "Is that an alternative?" And the answer

01:02:24.720 | is going to be yes. I think something like farmland, that probably falls into your overall

01:02:29.120 | world of real estate. And I would analyze those deals the way I'd analyze any other real estate

01:02:33.120 | deal. I think that's probably a low risk, low return version of real estate. It's a pretty

01:02:38.480 | predictable yield. I'm going to rent it to a farmer for a few percent a year. And it's probably just

01:02:43.200 | going to slowly appreciate. The jackpot for farmland real estate is if you happen to be in

01:02:49.920 | the path of urban sprawl. I live here in Dallas. There's a neighborhood north of town called Plano

01:02:55.440 | that 20 or 30 years ago was cornfields. And now it's all 10 and 15 story skyscrapers. The guy who

01:03:01.040 | owned a ranch there did super well. But that's kind of what farmland looks like. You've got

01:03:06.560 | these things, as you're saying, like art, like watches, and probably crypto is like this as well,

01:03:11.840 | where there's not really an obvious measure of what's the intrinsic value here. Is a Picasso

01:03:18.960 | worth $1 or is it worth $100 million? It's really only worth what somebody will pay for it. There's

01:03:24.480 | no cash flow stream there. I personally have not gone heavily into any of those collectibles.

01:03:31.840 | Baseball trading cards would be another example of this. I think the ways you can do well there is

01:03:38.000 | either you can just look at this as a hobby and say, "Hey, I am really excited about owning this

01:03:42.480 | cool Rolex watch. And I don't really care if I've "lost money and can't sell it" because that's

01:03:48.000 | something I'm excited about owning. My wife's wedding ring, I have no idea if that's worth more

01:03:52.560 | or less than I paid, but I really don't care. We're not looking to sell her wedding ring. We

01:03:55.440 | just like it to be a wedding ring." And so I think there's things... And art, again, you could pay a

01:04:00.720 | few thousand dollars for commissioning a piece of art from a local artist. You're probably not going

01:04:04.560 | to make money on that, but the point wasn't as an investment. The point was to have it.

01:04:07.520 | I think if you're looking at it as a pure investment, I would say this is really a case

01:04:12.640 | where you have to know what you're doing. I think there's the old apocryphal story about the poker

01:04:17.600 | player where if you don't know who the sucker at the table is, it's probably you. Then I think that

01:04:22.240 | could be very true in collectibles markets or art markets where if you don't know what you're doing

01:04:27.120 | and are just sort of buying at the price that's given to you, I think there's a... If you have fun

01:04:32.560 | along the way, that's great. But I think your odds of making money as a non-expert in something like

01:04:36.720 | art are probably pretty low. You mentioned at the outset, the reason you set a threshold for

01:04:42.320 | long-angle members is because they have to meet some requirements. Whether that's a qualified,

01:04:47.200 | I think, customer, or even I know in other cases, there's a credited investor,

01:04:50.800 | are those things always going to be the minimum? And someone who doesn't meet them,

01:04:55.520 | is there any accessible way to partake in a lot of these alternatives?

01:04:59.120 | I know that's two questions. So maybe we could talk on who's even eligible for this,

01:05:03.840 | and then we can move into how would you even go about evaluating it or finding it?

01:05:08.320 | Yeah, great question. So as you said, two things. First, who can? And then second, who should?

01:05:14.080 | I think in terms of who can, it really depends on the asset class.

01:05:16.960 | As you said, there's sort of accredited investor, which basically means you've got a six-figure

01:05:23.040 | income or you have a million dollars. Then there's some higher thresholds like qualified client and

01:05:27.680 | qualified purchaser. Qualified purchaser is actually a very common one. That's the highest

01:05:31.760 | level. That means you have $5 million or more. So there's a lot of the most interesting ones,

01:05:37.200 | you have to be a qualified purchaser and you can't get in if you don't have that $5 million

01:05:41.520 | of investable assets. I think there's also a question of, hey,

01:05:44.960 | you shouldn't be putting 10% or 20% of your portfolio into any one of these. They tend to

01:05:50.880 | be more volatile, or maybe volatile is not the right word. Risky, you want to diversify across

01:05:56.640 | them. The same way you shouldn't put 10% or 20% of your money into a single company's stock,

01:06:00.960 | you should diversify across stocks. Same thing, you should diversify across alternative assets.

01:06:05.120 | So if you're talking about putting 1% of your portfolio into something,

01:06:08.560 | you need to have enough money that 1% is going to be a meaningful investment. If 1% is

01:06:13.600 | $100, then no good sponsor is going to want to take your money. It's not worth your time thinking

01:06:19.920 | about it. There can be some complex taxes with 1099s and it's not worth the administrative burden.

01:06:25.120 | So I think typically this range of low seven figures of having a million or 2 million or

01:06:29.840 | certainly if you have 5 million, it's definitely plenty to play. But I think that if someone has

01:06:34.080 | maybe $100,000, I would probably not yet go into alternatives. I think the two exceptions I'd make

01:06:40.560 | there, one, as I said, crypto is a very accessible alternative. You can put in as little money as you

01:06:45.360 | want. And there's very good information about pricing. I don't know what a Bitcoin is inherently

01:06:51.360 | worth, but I have as much information as anybody else does about what it's inherently worth. So

01:06:55.200 | I think there's nothing wrong with dabbling in that. I also think angel investing, if you happen

01:06:59.680 | to have friends who you know and trust and respect and think that they're very successful,

01:07:04.080 | angel investments are often small dollars, $5,000 and relatively small dollars compared to some of

01:07:11.360 | these other ones. So you don't need an enormous amount of money to make a bet on your roommate

01:07:17.440 | from college if you think he's going to start a very impressive company. But for a lot of the

01:07:21.120 | other ones, I think it often needs to get into high six figures, low seven figures before the

01:07:26.560 | administrative burden is worth it and before the good sponsors of these funds will be interested

01:07:31.440 | in talking with you. Having spent a lot of time in venture capital, I'll push back a little

01:07:37.120 | and share one stat. I believe 95% of all the returns in venture capital are derived from the

01:07:43.840 | top 3% of funds. So I've always been someone who, as much as I've played in this space and even

01:07:51.120 | professionally invested others' money in startups, I have been very reluctant to angel invest,

01:07:57.680 | mostly because I think, "I've started companies. They haven't all worked. I have friends that I

01:08:05.600 | thought were smart, and those companies didn't work." I feel like it's just a very hard game

01:08:09.040 | where you have to be willing to lose all the money. The one place, which you aptly pointed

01:08:14.720 | out that I think is the one place where I will consider writing a small check in a person's

01:08:21.200 | company is if it's a person I just know really well and I believe in. But I will say I've also

01:08:26.480 | had enough reps working at, investing in, and meeting people who start and raise money and

01:08:33.760 | build companies that I feel like my barometer for someone who's great is adjusted for what it takes

01:08:41.840 | to also build a big company. And I think that if you had asked me 15 years ago, which of my friends

01:08:47.440 | were awesome and I would want to back, I'm not sure I would have picked the same way I would now.

01:08:52.560 | So I'm probably the person that's sat by the sidelines more often here. And I'm sure I have

01:08:59.520 | at least a handful of friends who didn't and have hundreds of thousands or millions or 10s of

01:09:04.880 | millions because of it. And there are certainly early-stage deals that I remember. I remember

01:09:10.160 | lots of people trying to write early-stage checks in Uber and it wasn't even something that crossed

01:09:15.280 | my mind. And that turned out really well. So I'm a little bit more risk-averse in that space than

01:09:21.280 | I think maybe you are. But maybe I'm a little jaded from living and breathing it and feeling

01:09:27.440 | like my real estate's in the Bay Area tied to tech, my jobs that I've had, my jobs my wife's

01:09:32.640 | had are all tied here. So I think that's another factor to consider is if you work at a technology

01:09:37.120 | company, and your spouse works at a technology company, and you live in a place where technology

01:09:41.920 | is a big part of the neighborhood or the city you're in, thinking about diversifying how you

01:09:47.840 | invest a little differently. If you're getting paid in Facebook stock and your spouse is getting

01:09:52.480 | paid in a startup stock, maybe tech is not the place to invest. So I just want to flag a few of

01:09:58.000 | those before and then get your reaction to... There are a bunch of platforms online that let you

01:10:05.280 | invest in both alternatives, as we've discussed, but also things like private REITs and real estate

01:10:13.120 | funds that aren't public, wine, that kind of stuff. What thoughts do you have there? Because

01:10:19.840 | I think many of them have made it almost as accessible as buying crypto and not something

01:10:29.600 | where you're necessarily going direct to a fund that has a higher threshold.

01:10:33.600 | I'll start with the disclaimer that I do not invest through any of those platforms.

01:10:38.720 | And I'm both happy to share what I see as the pros and cons and can share how I go about it

01:10:43.360 | personally, to the degree that may be helpful to some of your guests. So as you said, there are a

01:10:48.960 | huge number of these crowdsourced investing platforms to whether you want to get into wine,

01:10:55.840 | venture capital, farmland, private equity, etc. There are crowdsourced platforms for you there,

01:11:02.960 | fine art, etc. I won't get into the sort of pros and cons exactly of each specific one

01:11:07.840 | and their fee structure. But I would say generically, I think the biggest advantage

01:11:12.240 | of this is it does allow you to get access to an asset class without needing to have personal

01:11:18.320 | relationships with the partners at those firms. And without being able to write six or seven

01:11:23.280 | figure checks, often the minimums will be 5,000 or 10,000 or 20,000, not in some cases,

01:11:29.280 | 5 or 10 or 20 million to get into some of the best funds. So it definitely gives access and

01:11:35.200 | it democratizes that access and brings down the barriers to entry. Now, in terms of what I would

01:11:40.320 | say are the downsides and the reason I don't do it personally, there's two of them. I think the

01:11:45.120 | obvious one is that there are extra layers of fees on it. And I think there's nothing inherently

01:11:50.240 | wrong with those fees. They are providing a service, they have real costs. I would just

01:11:54.480 | caution people to make sure that they truly understand the fees of what they're looking at,

01:11:58.960 | because often there'll be an advertised fee of saying, "Okay, we take 0.75% per year of assets

01:12:05.680 | under management," something like that. But what they won't necessarily disclose is that there's

01:12:09.680 | also certain administrative fees being paid or maybe the asset that went in there, they purchased

01:12:14.800 | on the open market and then marked it up 10% and then sold it into their fund. There's certain

01:12:18.480 | things like that, which can actually make the fees a lot higher than they first appear to be.

01:12:22.320 | So you want to just make sure you really understand the fee structure of those.

01:12:25.760 | The second thing, and I think potentially the more important disadvantage and reason I don't do it,

01:12:30.880 | is that there's a selection bias. Now, you said earlier that if you look at venture capital,

01:12:35.760 | you said something like 90% of the returns are driven by the top 3% of funds. That's going to

01:12:40.160 | be true across a lot of these asset classes, where the top 5%, 10%, 25% of the funds are driving all

01:12:47.840 | the returns and really skewing the averages. And you're going to have adverse selection almost

01:12:52.320 | universally, where I would be shocked if you're going to find Sequoia as a venture capital fund

01:12:57.280 | offered on one of these platforms. They're not going to have the very top tier funds there,

01:13:01.440 | because those guys are much more careful if there's access. Again, if you want to get into

01:13:05.120 | search funds, the good search funds or probably any search funds are not going to be on there.

01:13:08.960 | It's just not an asset class that is looking for "retail investors." And I think that selection

01:13:16.000 | bias is going to cause you problems, because if you're expecting that venture capital returns

01:13:19.600 | 20% or 30% a year, but then you slice off the very best part of that, what you're left with,

01:13:23.920 | the venture capital you can actually get through these crowdsourcing platforms is not going to

01:13:28.560 | have nearly those same returns. You won't necessarily lose money and you'll get some

01:13:31.440 | exposure to the asset class, but it's not going to be the same sort of profits there.

01:13:34.960 | You're seeing the deals that couldn't get funded by the more connected private investors.

01:13:39.200 | That sounds like a negative story, and so I'm not saying this can't be done. I'll share the way

01:13:44.960 | that I do it, is I think basically the most effective way is to do it via networking. Now,

01:13:49.840 | I personally, that was actually part of the reason I started Long Angle, is I was interested in

01:13:53.120 | getting into a lot of these asset classes, but I didn't have the network. There's some things I

01:13:57.360 | knew well. I'd started a software company, so I do know other people who are starting software

01:14:02.000 | companies. I can do that angel investing by myself. I maybe even know some VCs and could

01:14:06.400 | do the VC investing, but I don't know anything about mineral rights and I don't know guys who

01:14:10.880 | are buying acreage in the Permian Basin and that sort of thing. I didn't have the right

01:14:16.080 | first-person connections at private equity funds, search funds, etc. So the way I do is actually,

01:14:23.440 | it's all through the Long Angle network, where basically we've got 1,000 members every day.

01:14:29.760 | One of them is sending me a deal with 1,000 members with very different professional backgrounds,

01:14:34.080 | so in every one of these industries. So there are people who, if you're interested in AI and ML

01:14:38.640 | driven crypto trading strategies, there's people who that's part of their whole job. They start

01:14:42.720 | funds that do that. So we're both seeing access to them. They send them to me or one of the other

01:14:49.040 | guys who's helping manage the community. We then pick out the ones we think are most promising.

01:14:53.600 | And I think in addition to the access, you want the evaluation. So we also get a volunteer deal

01:14:58.240 | team of three or four people who really know a particular asset class well. So for example,

01:15:02.720 | we were looking at one that was around tertiary oil field rejuvenation through oxygen injection,

01:15:08.000 | and it was fairly technically complex. So we just got a team of three or four members who

01:15:11.760 | were all petroleum engineers by background. That team did a deep dive on it. We ended up passing

01:15:15.920 | because we weren't confident with the technology of it. The point being that it was both sourced

01:15:21.120 | by somebody who worked in that industry and then evaluated by people who work there.

01:15:24.160 | And so that's how I've done my private market ones, is that the handful of ones where that

01:15:28.240 | deal team likes it, and I would say this is only one to two deals a month across a variety of

01:15:32.560 | different asset classes. We then create a special purpose vehicle or SPV, basically a fund within

01:15:39.680 | our group where anyone in the community who's interested in investing, everybody's making their

01:15:43.120 | own decisions, but they can read the deal notes and look at the calls and talk with the guy running

01:15:48.000 | it. If they like that fund, they can then choose to put in a little bit. And again, we're able to

01:15:52.720 | bring down the fees or the sort of minimums because collectively making that investment there.

01:15:57.760 | So that's how I go about personally. Now I realize that only works for me because I'm within the

01:16:01.920 | network. If somebody joined the community, they could certainly participate there. But I think

01:16:06.560 | this is also extensible to people who are not in our community. We're saying leverage your personal

01:16:11.520 | network. And I don't think you have to invest in every one of these alternative asset classes.

01:16:16.240 | I think it would be a lot better for you to say, "Hey, there are one or two or three of them where

01:16:20.960 | either I have personal expertise, or I am good friends with somebody who really has expertise

01:16:25.360 | here, and I'm going to leverage that person's connections and that person's expertise,"

01:16:29.600 | as opposed to saying, "Hey, I just think that watches are a really cool asset class,

01:16:33.440 | and I don't know anything about watches, and I'm not going to take the time to learn it,

01:16:36.000 | but I'm just going to throw some money at it." You might make money, but you're likely to lose

01:16:39.680 | money there. So I would focus on fewer asset classes where you really can get that first

01:16:44.880 | degree network yourself. I totally agree. And full disclosure,

01:16:49.440 | while I've signed up for many of these platforms and played around, the only one I actually use is

01:16:53.200 | Masterworks. And that's because I like the idea of investing in art with a small part of my

01:16:57.600 | portfolio, but certainly didn't have the assets or the expertise to do it myself.

01:17:02.160 | And I was okay with the fees, especially when I felt like they were doing something more than

01:17:06.400 | just charging for access to a fund. But yeah, the whole alternative space is something that

01:17:11.680 | for a while, I just was excited about. There weren't a lot of platforms to do anything

01:17:16.320 | 10 years ago, so I was just learning. And I did what you did, which was pick an industry where

01:17:22.240 | it was technology and dive into it and understand it deeper and feel like I understood the companies

01:17:27.360 | and that. And then worked in venture capital. And even with all of that, I'm still pretty hesitant

01:17:32.720 | when it comes to angel investing. So it doesn't mean you have to do it. But now I have enough

01:17:37.120 | knowledge about that space that people ask me questions. And every now and then, someone will

01:17:41.600 | share a deal or something that makes sense. And I've heard the same thing is true with real

01:17:46.880 | estate. I've asked lots of people, "How do you find all these great real estate deals?"

01:17:50.640 | Because the number one thing I hear when I ask someone about real estate deals

01:17:54.720 | is they seem to always say two things. And they're the most stressful two things to be

01:17:59.040 | paired with each other. One is, "Gosh, real estate deals are so great. I've made so much

01:18:02.320 | money on real estate deals. And oh, by the way, 90% of all the real estate deals are terrible,

01:18:06.320 | and you're going to lose money." And I'm like, "Okay, well..." So I basically decided I have

01:18:10.480 | two options. I can either really try to understand the real estate community, understand what makes

01:18:15.040 | deals good or bad, meet people that can help guide me through that, or I can just steer clear.

01:18:20.320 | And so for me, real estate has been one where I just haven't been involved. But

01:18:24.000 | the opportunity to go to real estate investing meetups and meet people and understand they're

01:18:28.720 | out there. And I know that if that was one of the asset classes I wanted to get into, I could.

01:18:32.800 | It's just... It hasn't been an exciting passion of mine. And so I'm okay missing out on all those

01:18:38.800 | deals. And there are probably a handful of deals that are going to come up in LongAle that I'm

01:18:43.360 | more interested in now than I was before. So I'm glad we got to talk about it.

01:18:47.040 | Yeah. I would agree with you that I wouldn't pressure myself to invest in an asset class

01:18:51.120 | because I'm going to miss out. If you put all your money into an S&P 500 index fund,

01:18:55.280 | keep it there for 30 years, you're going to do fine. There may be an opportunity to make

01:18:59.520 | a little bit more by doing certain well-selected alternatives or mixing them in the portfolio,

01:19:05.280 | but I would not do it at the expense of stretching and investing in something where you don't

01:19:09.280 | understand it or don't have the access or don't feel like you can really evaluate it.

01:19:12.960 | And it's funny because in advance of this call, I went and looked... I filled out the benchmarking

01:19:16.400 | survey. And I went and looked at mine. And it's like, even despite my passion in this,

01:19:20.320 | even despite all of these deals that come up on the platform, I'm at...

01:19:23.600 | I think it was like 88% of everything that I have is in equities and my primary residence.

01:19:34.960 | And of the 12% that's left, it's like half split between cash and alternatives. So even for me,

01:19:42.640 | with all the exposure and knowledge and some of the access, but certainly not as much as you have,

01:19:48.000 | it's still something that I try to keep down to the sub 10% part of my portfolio.

01:19:53.600 | And the vast majority of it, 85% of all of that equity is in index funds.

01:19:58.640 | So for me, as much as this is exciting and interesting, and I like to think about it,

01:20:03.040 | dabble in it, and maybe that'll grow over time, I just want to make it clear that

01:20:08.400 | my passion and excitement about learning about it is certainly not commensurate to

01:20:12.160 | its position in my portfolio. So that was like a masterclass on alternatives.

01:20:16.880 | But I am curious about another type of financial education, which is how you're thinking about

01:20:21.920 | sharing all of this knowledge with your kids. Because mine, right now at two and five months,

01:20:28.000 | we're not really talking about it a lot. A guy I know, Rob Phelan, has this awesome book called

01:20:34.320 | M is for Money that we bought for my daughter. So it's like an alphabet book, except each page is

01:20:38.720 | talking about an aspect of money. And my daughter knows that the piggy bank has money and that money

01:20:42.880 | buys things. And that's about as far as we've gotten. You're further on the journey. How have

01:20:47.280 | you thought about trying to make sure your kids both understand all of this and are equipped with

01:20:53.440 | the knowledge? But also, I went to a conference recently, and there was a group of people that

01:20:57.440 | said, "How do we raise kids that aren't entitled?" And have you thought about that? And what are you

01:21:02.400 | doing? Yeah, I love this question. And of course, I'll start with the comment that I don't have all

01:21:07.440 | the answers here. But if I look at myself and actually all the members of our community,

01:21:12.480 | I'd say, "What is the number one problem that most of them are struggling with?" It's this question

01:21:16.640 | of, as you're saying, what's the right way to raise kids in regard to money? And I might put

01:21:21.680 | that into two groups. One, you talked about how to make sure you're instilling them with the right

01:21:25.760 | values and not to take things for granted, not to be entitled. And then the other one is just

01:21:30.400 | practically how you get them the information and knowledge about it. In the world of not being

01:21:35.840 | entitled, I don't have a full answer there. But a few things, I think one, in general, I would say

01:21:40.960 | that communication and honesty and transparency, I think is the best way to go. So my kids are a

01:21:46.000 | little bit older. They're 7 and 11. And we've been trying to do this throughout. So in terms of

01:21:50.320 | making sure they value money, of course, they can see that we have a nice house. If we want to go

01:21:54.240 | on vacation, we go on vacation. But my wife and I are transparent when we talk about decisions

01:21:58.480 | we're making. We bought a new car recently. And my son was asking, "Well, why didn't we get a

01:22:04.640 | luxury car? Why did we get a Hyundai?" And he goes, "That we didn't have the money for." I said,

01:22:08.400 | "We could if we wanted to buy a fancier car. But that's just not important to us. And other things

01:22:14.320 | that we spend our money on are more valuable to us." And I used actual numbers with him. Okay,

01:22:19.120 | here's how much a Mercedes would cost. Here's how much the Hyundai costs. And this one seems

01:22:24.080 | nice to me. They both get from A to B. So just this idea of communicating, no matter how much

01:22:29.200 | or little money you have, there are trade-offs, whether it's whether to buy the coffee at

01:22:34.160 | Starbucks versus making it at home versus do you want to fly private versus do you want to fly

01:22:39.360 | commercial. I personally have not moved beyond the idea of flying economy. I can't get my head

01:22:43.840 | around flying first class. So the kids actually, it de-mysticizes it. They see this as something

01:22:49.200 | that mommy and daddy talk about, and they think about these trade-offs. And I think that kind of

01:22:53.200 | gives them exposure to it. In terms of how to educate the kids on money and how it works is

01:23:02.640 | something where I wouldn't say that we've done a lot of things right in parenting, but this is one

01:23:06.400 | where I feel like we have done a pretty good job of it. I think the fundamental thing is your kids

01:23:10.960 | are interested in everything that you're interested in and everything you do. So again, my wife and I

01:23:15.520 | just talk transparently about our jobs. And when I'm looking at an investment here, I will put it

01:23:20.480 | in words that will make sense to a seven-year-old or make sense to an 11-year-old, but I'll tell

01:23:24.240 | them, "Hey, we're looking at this whiskey aging fund, and here's how it works. You're buying stuff

01:23:28.880 | that this factory makes, and you're holding onto it, and you think you can sell it for more for

01:23:32.000 | later. And does this seem like a good deal?" And asking them, "Hey, what would you be worried about

01:23:36.080 | on this deal? How do you think it might not work out? Why do you think it does make sense here?"

01:23:41.120 | So I think that just that open talking about it of not having money be a taboo. Our son was asking

01:23:48.080 | about how we bought a house and how we decide which one to buy. And we didn't make up numbers

01:23:52.880 | saying, "Okay, let's pretend a house costs $100." We talked about the actual prices of that because

01:23:57.360 | they are sooner than we want or realize going to get access to the actual numbers.

01:24:02.320 | So versing them those real numbers is super helpful. And then the other thing we've done

01:24:06.880 | is actually just tactically in the world of investing. Each kid, as soon as they were born,

01:24:11.600 | I opened a brokerage account for them. So this was separate from their 529 college savings,

01:24:15.600 | but just a brokerage account to buy individual shares of stock. And then for every birthday and

01:24:20.160 | Christmas and Hanukkah, they each get to pick out one stock that they're interested in. It starts

01:24:25.120 | when they're little kids like, "Okay, how about Mattel? Or how about Disney?" Or something like

01:24:28.480 | that. And I just print out a cute, goofy looking stock certificate. And they think that's semi

01:24:32.480 | cool. But then especially my son, now he's 11, has gotten older, he's expressed interest in this.

01:24:37.760 | And so we will actually talk about particular companies and say, "Hey, your birthday is coming

01:24:41.680 | up. What do you want to look at?" And it depends. Sometimes he'll be, he wants a share of stock in

01:24:46.320 | the company where my wife works or something like that. And sometimes he'll want to actually say,

01:24:50.080 | "Well, which one's growing faster?" And start to do a junior version of analysis on them.

01:24:55.680 | And it's not like this is his passion. He may show no interest in it for two months,

01:24:59.520 | but then the brokerage statement will come, he'll look at it, he'll read it. And the cool thing

01:25:03.040 | about kids is if he's getting 75 cents in dividends from some companies that, "Wow,

01:25:06.720 | I just got 75 cents I didn't work for." For a grownup, you might say, "Hey, who cares about

01:25:10.800 | 75 cents?" But for a kid, actually, those small numbers are an exciting amount of money.

01:25:15.280 | And it's a way to start getting them that exposure there and they can get those little

01:25:19.440 | wins. And they actually then see that continuity where a year from now, in two years, in five

01:25:23.840 | years, he's seen those same shares that he got for his third birthday. Now it is eighth birthday or

01:25:29.120 | his 13th birthday. He's seen those there. If he puts on dividend reinvestment, he's seen those

01:25:33.280 | numbers get bigger. And just at least for him, I saw this light bulb go out of these dividends,

01:25:37.840 | "Hey, I didn't do anything. And now I got this money here." I think he gets the value.

01:25:41.600 | We also nudge them in that direction where they get an allowance and we give them the option of,

01:25:46.240 | "Hey, you can spend it on whatever you want to. It's your money. It's your choice.

01:25:49.840 | But if you donate to charity, we're going to match that 100%. And if you invest it,

01:25:55.360 | we're going to match that 100%." And so the kids, they spend some on trash, but I would say most of

01:26:01.360 | it they choose to donate or invest and they see the value of that 100% investment and it gets it

01:26:05.680 | compounding pretty fast. I've also found, especially as they get older, it's been a nice

01:26:10.080 | discipline tool. You know every parent, discipline is such a challenge. You lecture them, you give

01:26:15.840 | them consequences, timeouts, takes things away, et cetera. But for a certain class of misbehavior,

01:26:21.360 | this can actually be really effective. So my son and I were at Boy Scouts a couple of weeks ago.

01:26:27.200 | He was throwing around his Boy Scout book and he accidentally threw it up in the rafters and

01:26:30.640 | it got stuck there. And so I was being so frustrated with him like, "Why'd you do that?

01:26:35.280 | It's going to cost $25 to buy a new Boy Scout book." And I realized, "You know what, Jack?

01:26:38.720 | You got to spend the $25 to buy that Boy Scout book. I told you not to throw it around.

01:26:43.440 | You knew that was the wrong thing to do. It factually cost $25. We can look on Amazon here

01:26:48.240 | and saying getting a new book is costing $25. That's coming out of your account there."

01:26:52.720 | And so that was, I would say, it was a very fair consequence. It was just a natural consequence

01:26:58.560 | of what he did, but it really reinforced it. He has not done that same thing again when he realized,

01:27:02.960 | "Hey, I have to pay out of pocket for this." And of course, if he destroys our sofa, we're not going

01:27:07.440 | to charge him thousands of dollars for that. But you get these small classes of things where you

01:27:11.920 | can actually just make them more responsible, at least with material things, by making them live

01:27:16.800 | with the consequences when they act irresponsibly. I like it. I feel like I got a lot of thinking to

01:27:21.600 | do before we get there. I will ask in case you've thought about it, have you thought much about

01:27:30.160 | college savings and 529s versus just keeping something in a little bit more liquid, less

01:27:37.360 | restrictive place? Yeah. I looked at this a lot when they were born, and I've just started to put

01:27:42.880 | on autopilot since then. The math I did when they were born was basically if you put $1,000 a month

01:27:48.480 | from day one into a 529 plan, assuming some reasonable rate of return, that's going to more

01:27:55.120 | or less cover the cost of college when they get there. Since that was seven, 11 years ago,

01:28:00.160 | it's probably a higher number today. Maybe it's 1,200 bucks that you need to put a month into

01:28:03.680 | that. But I just started that from day one, and those accounts have been building up.

01:28:07.760 | I think the upside to 529s, they're great from a tax perspective. You put the money

01:28:14.240 | in untaxed at the beginning, but basically it grows untaxed. The dividends are untaxed,

01:28:18.960 | capital gains are untaxed. And when you take it out, as long as you're spending it on education,

01:28:22.960 | and there's a very broad set of things that cause education, there's no taxes ever when you're

01:28:27.200 | taking it out. So it's great there. The only "risk" is that you actually overfund it, and maybe your

01:28:32.080 | kid doesn't go to college, or they get a full scholarship, or they go to an inexpensive in-state

01:28:36.160 | school, and you've got too much money in there. I think it's a really pretty small problem.

01:28:40.240 | One reason is that you can take that money out and just pay a penalty. But if it's been compounding

01:28:44.400 | for 20 years, you've probably done better than the penalty anyway. Or if you're fortunate that

01:28:49.120 | you've got extra money, and there's money left over in there, you can always just repurpose that

01:28:53.520 | to a new beneficiary. So in theory, you could make your grandkids the beneficiary of that,

01:28:57.280 | and then you've done your kids' college savings on their behalf for them.

01:29:01.040 | And so I have probably overfunded what we need to have in there. But just in the idea that

01:29:07.120 | the downside is pretty small, and the upside of not having to worry about it is pretty significant.

01:29:15.440 | There are other things you can do in terms of also putting money in trust for your kids,

01:29:19.440 | and UTMA accounts, etc. I wouldn't say I have the exact answer there. But for the 529s,

01:29:26.000 | I think just picking a number and consistently putting in every month is kind of a no-brainer

01:29:30.160 | if you can afford to do it. Yeah, someone sent me...

01:29:33.200 | I can't even remember the name of the website, or I'd share it.

01:29:36.240 | But this guy who basically teaches a course or does consulting, I can't quite figure out

01:29:42.240 | whether it's legitimate or... "Fraud" is the wrong word. But I can't figure out how legitimate it is.

01:29:48.800 | But it's a bunch of hacks and a series of tactics to basically offset the cost of college.

01:29:55.920 | And it seemed like it was asset location meets scholarship eligibility and financial aid and

01:30:03.600 | all that kind of stuff. So I'm thinking of doing an episode on college savings in and of itself.

01:30:07.840 | And I'm trying to do some research now. So stay tuned if I learned anything interesting.

01:30:12.560 | And if I don't, then that means there's not really any interesting tactics to learn from.

01:30:16.960 | Yeah. And I will say, if you send your kids to private elementary school, you will

01:30:21.520 | question why you're saving for college. It costs just as much to send them to a private elementary.

01:30:25.760 | Fortunately, our kids are going to a public school now. But when they were previously going

01:30:30.640 | to a private school, I really questioned why there was all this hoopla around it when it

01:30:34.480 | cost just as much before that. Before we wrap, that was kids. Are there any other areas of life,

01:30:42.240 | things you've picked up, tactics you want to share, tips, hacks, before we take off?

01:30:47.520 | I think one that does not work for everybody, and I don't personally do this, but if you can

01:30:52.560 | make it work, there's a huge upside to is having you or your spouse become a real estate professional.

01:30:57.680 | And what that means is whoever is a real estate professional needs to spend

01:31:02.560 | 750 hours or more, and at least half or more of their kind of business hours doing real estate.

01:31:09.840 | It's a pretty broad variety. It can be a contractor, a real estate agent managing

01:31:13.520 | your properties, et cetera. But if you do that, then all of your paper losses on real estate

01:31:18.880 | are actually deductible against your ordinary income. So if you have one spouse, say your wife

01:31:24.160 | is a lawyer earning a lot of money or a doctor earning a lot of money, and you can qualify as

01:31:28.800 | a real estate professional, you can actually cancel out her income with your paper losses

01:31:34.960 | on real estate. So I don't know that I think this is good public policy, but if it's something you

01:31:39.040 | can do, I think it's a real savings for your portfolio. I know you love all this stuff.

01:31:45.600 | This conversation has been great. We've had other ones before.

01:31:47.840 | Are there other places online that you consume content? You've got Long Angle,

01:31:52.960 | you've got this podcast, of course, but what other resources, sites, blogs,

01:31:57.840 | people you follow to stay on top of all this? Yeah, for sure. There's a couple of websites I

01:32:04.560 | like. Mr. Money Mustache, I'm sure you're familiar with, a lot of your listeners probably are.

01:32:09.440 | He was one of the ones that initially got me into this idea of a lot of the investing and

01:32:15.600 | financial hacks. It's fairly different from some of the stuff I do, but I find him a very

01:32:21.520 | entertaining writer and a lot of interesting content there. There's also the Fatfire Forum

01:32:27.520 | on Reddit, which Mr. Money Mustache is all about extreme frugality. Fatfire is more around

01:32:34.000 | financial independence, but spending a lot of money. So between those 2, you get a yin and yang

01:32:38.480 | of it. In terms of podcasts, there's probably 3 that I really like. One is the Odd Lots podcast

01:32:45.600 | by a couple of the Wall Street Journal reporters. It covers different economic topics in a really

01:32:50.320 | good degree of detail, sort of like yourself. There's one called Money for the Rest of Us

01:32:54.960 | that, again, he'll pick one generally investing concept or asset class and really go deep on it

01:33:03.360 | for half an hour or so. I've learned quite a bit from that one. Then there's one that won't appeal

01:33:09.600 | to all listeners, but it's called the Business of Family, especially people who are in a demographic

01:33:14.320 | of having a family office or a family company and having quite a bit of assets in some company like

01:33:21.360 | that. Every episode, he interviews the person leading one often multi-generational family

01:33:30.000 | company and talks about what they do to pass values and wealth and practices and other things

01:33:35.840 | on across generations and how to run these family companies. I'm not exactly personally in that

01:33:40.480 | situation, but I just find it fascinating to hear what some of these very successful families have

01:33:45.360 | done there. Those were 3 that I would point you to. Great. Then you know this already. We always

01:33:51.760 | end up asking you to pick a place that you're pretty familiar with and share a few recommendations,

01:33:57.040 | something to do, eat, drink. What's your spot? I live here in Dallas. I've lived here about 7

01:34:04.080 | years. Anybody who talks to me knows I'm basically the Dallas Chamber of Commerce. I love it here.

01:34:08.720 | I'll talk about a couple of things with Dallas. If I were looking at a really nice day in Dallas,

01:34:13.440 | I'd probably go for a walk down the Katy Trail, which is our rail trail here. There's a nice

01:34:18.640 | place called the Katy Trail Ice House. There's not great food there, but the atmosphere is awesome.

01:34:24.320 | One of those places where you can get a margarita the size of your head. That's a fun kind of people

01:34:28.080 | watching on the trail. Then where I'd probably go, what might surprise people about Dallas is

01:34:34.160 | the symphony here is actually phenomenal. I'm not a very cultured person and not historically into

01:34:39.680 | the arts, but we went one time to the symphony and absolutely love it. We became season ticket

01:34:43.680 | subscribers after that. The concert hall was designed by I.M. Pei. Apparently, it has top 10

01:34:50.000 | acoustics in the world among symphony halls given the way they designed it. We definitely recommend

01:34:57.040 | that anybody who has a free Thursday, Friday, Saturday night here in Dallas checks out the

01:35:01.040 | symphony. This is awesome. I really appreciate you being here. Where can anyone listening that

01:35:07.280 | wants to check out more of what you're working on with Long Angle, where can they go?

01:35:11.680 | Yeah. I'd love to hear from any of your listeners here. Best place to find about Long Angle is just

01:35:19.360 | on our website, longangle.com, or feel free to email me directly. It's T Fallows, T-F-A-L-L-O-W-S

01:35:28.720 | @longangle.com if you want to drop me an email. As I mentioned, in terms of people joining the

01:35:33.760 | community, we do have the qualified client threshold. So it would be any of your listeners

01:35:39.520 | with 2.2 million or above of investable assets is the threshold for the community there. But

01:35:47.280 | anybody who wants to join, who's in that demographic, I'd love to have a conversation

01:35:50.880 | with you and see if it seems like a fit. Yeah. So that's how to find out more.

01:35:56.400 | Awesome. Thank you so much for joining me. Well, thanks so much for your time, Chris.

01:35:59.840 | I really enjoyed this conversation.

How to Invest Like The 1% | All The Hacks Podcast | Tad Fallows Ep. 87