Turn_Funny_Money_Into_Real_Assets
00:00:00.000 | Hello everybody, it's Sam from financial samurai and in this episode
00:00:03.920 | I want to talk about the importance of protecting your wealth. That's not funny money
00:00:09.440 | Funny money to me is any type of wealth that you just look on the computer screen and you can't touch and there's no utility
00:00:17.040 | So in other words funny money can include stock market wealth
00:00:21.360 | Cryptocurrency wealth and other type of wealth that really has no utility
00:00:26.700 | And the reason why I want to talk about this again is because something amazing happened the world's second biggest
00:00:34.420 | crypto exchange
00:00:36.200 | FTX
00:00:37.320 | Just got bought out today. Well, it's in due diligence talks to get bought out by the number one
00:00:42.320 | cryptocurrency exchange finance because FTX was perhaps secretly insolvent or
00:00:49.240 | Lending out customer deposits or investing customer deposits when it shouldn't have nobody knows for sure
00:00:56.160 | but the bottom line is that the value of FTX which was once worth maybe
00:01:01.440 | Twelve thirteen billion dollars is now worth only a dollar because customers have withdrawn their capital
00:01:08.920 | So things aren't working anymore
00:01:10.720 | but the interesting thing is
00:01:12.720 | Supposedly about seven plus billion dollars of Bankman Freed's net worth was in his crypto trading house Alameda research
00:01:21.840 | Which also has plummeted to a value of maybe a dollar because what it held has also sunk tremendously in value
00:01:29.800 | It's very complicated. But the bottom line is Sam Bankman Freed's net worth
00:01:34.220 | Plummeted from around fifteen point six billion to only quote only one billion dollars in a 24-hour time span
00:01:42.640 | So funny money is real folks
00:01:44.760 | You know all the value that we assign to our net worth to our investments that provide no real utility
00:01:51.600 | Is very subjective it can be anything the market wants one day and totally different the next day
00:01:58.640 | You know you see even with stocks right earnings misses of let's say five percent five percent
00:02:04.160 | Miss on the top line or three percent miss on the bottom line and these growth stocks
00:02:09.600 | Get crushed they get crushed by ten twenty plus percent in just one day
00:02:16.200 | Because future estimates have to be ratcheted down and so when we invest in funny money if we invest in things
00:02:24.040 | That are subjective in value then we must be prepared for that volatility
00:02:29.800 | But more importantly if you want to protect your wealth preserve your capital, especially after you've made a lot
00:02:36.120 | You probably want to consistently convert some of that funny money into real assets
00:02:41.980 | So the number one real asset most super wealthy people convert their funny money into is in real estate
00:02:47.980 | Because real estate is tangible it provides utility. It's less volatile and
00:02:53.820 | It generally generates income higher income higher
00:02:57.960 | Yields than other assets normally, of course real estate can also go down in value
00:03:03.480 | Especially if the market is highly over levered we saw that in 2008 in 2009
00:03:09.920 | But for the most part real estate is more stable and it'll probably last long after you're gone
00:03:15.760 | You know how sometimes you see in the news like some billionaire buys a hundred million dollar property or 50 million here or 200 million
00:03:24.640 | And you think yourself who the hell needs like 20,000 square foot mega mansion, right with 20 bathrooms
00:03:31.760 | And 18 bedrooms is just kind of nuts
00:03:35.000 | But the thing we must remember besides looking at these people and saying wow, you're nuts. You're greedy
00:03:40.360 | You could save the world with all your money
00:03:42.680 | Is that they want to try to preserve their capital because deep down they know a lot of this massive wealth that they've generated
00:03:49.480 | Is a lot of due to luck and a lot of it is funny money and very subjective in value
00:03:55.560 | So they can sell some of these assets convert it to their mega mansion
00:04:00.840 | Then at least they know that if all goes to hell right if their FTX exchange goes to zero
00:04:06.360 | They'll still have their hard assets to live off of now
00:04:10.200 | The problem is carrying costs are gonna be very expensive
00:04:13.000 | but these very wealthy folks have figured out a way to diversify their net worth and
00:04:17.800 | Earn income in other ways to preserve their lifestyles this strategy of converting funny money into real assets is
00:04:25.100 | very common for
00:04:28.080 | Foreign government officials now you would think if you're a foreign government official
00:04:32.680 | Let's say in China or I don't know a communist country or somewhere
00:04:37.040 | you wouldn't be making a lot of money, but uh,
00:04:40.040 | a lot of these folks make a ton of money and I won't get into the details on how they make a ton of
00:04:47.040 | money on a government salary
00:04:49.280 | But they do and what I've seen here in San Francisco is a lot of that foreign money
00:04:54.680 | Comes and buys up San Francisco real estate prime properties around the city and then they just leave them empty
00:05:01.920 | They leave them empty for years
00:05:03.880 | Yeah, they pay the property taxes and all that but what they've done is they've converted their funny money way of making money
00:05:10.320 | Into hard assets in a sovereign country like the United States where the currency is more stable
00:05:16.300 | The government is more stable. The assets are more stable and they're not going to be confiscated away by the government and I'm particularly
00:05:24.240 | wary of this happening because one I live in San Francisco and before this I lived in New York City and
00:05:30.680 | Two it's because I lived overseas in
00:05:34.640 | Developing countries for 13 years and I worked in international equities for 13 years where I would travel back and forth
00:05:42.280 | to places like China India Hong Kong Taiwan
00:05:46.160 | Indonesia Malaysia and so forth from a foreigner's perspective
00:05:51.440 | US assets are very valuable and from an American's perspective who has never
00:05:57.160 | Traveled outside the country. I'm not sure how good we know we have it
00:06:03.060 | We take our freedom our stability our government for granted because this is all we know
00:06:08.880 | So everyone I encourage you to review your net worth asset allocation
00:06:13.720 | Look at what percentage of net worth is in funny money assets stuff that provides no utility or tangible value
00:06:21.200 | Maybe consider shifting some of that into hard assets and it doesn't have to be real estate. It can be fine art. It can be
00:06:28.720 | Expensive wine something that you can actually enjoy because if you accumulate all this money and you don't enjoy it
00:06:35.880 | You don't spend it. You know, what is the point? What is the point of everything?
00:06:39.760 | Well, I'll tell you the point the point is to use your money to live a better life and have more freedom to do what?
00:06:45.960 | You want now what's gonna happen to FTX the crypto exchange?
00:06:50.040 | Well, probably finance will not buy it instead
00:06:53.960 | finance will probably let it die because
00:06:57.640 | FTX was finances largest competitor
00:07:01.120 | So if you let your competitor die after you look at the books, you know
00:07:05.120 | You not only can you get inside information on what's going on with that exchange and its financials
00:07:10.240 | But you dominate more market share once your competitor dies. So this is a story
00:07:16.920 | Everybody should be following because it talks about
00:07:20.280 | treachery it talks about
00:07:23.120 | Competitive business dynamics it talks about huge amounts of wealth
00:07:27.720 | evaporating overnight
00:07:29.280 | I mean these are the reasons why maybe a lot of folks don't want to be entrepreneurs because it is a
00:07:35.760 | Cutthroat business folks and the bigger the stakes man the bigger the risks and the bigger the rewards and downfalls
00:07:43.000 | One final takeaway is that if you happen to be running a business
00:07:46.920 | You need to pay attention to your debt levels
00:07:50.080 | You can't have too much debt. Otherwise, you could be taken to the cleaners once revenue plummets
00:07:55.240 | Another thing is you might be tempted to do something funny with the cash on your company's balance sheet
00:08:02.240 | And the reason why it's considered funny is because whatever you plan to do with that cash might not be consistent
00:08:09.720 | With your business model, right if you run a business raising chickens, but you use your cash flow to invest in
00:08:17.720 | Cryptocurrency, it's not synergistic and you could get in trouble. For example
00:08:23.240 | Financial samurai has some cash on the balance sheet if I use the money to invest in real estate
00:08:29.840 | Not very synergistic
00:08:32.240 | It probably wouldn't sink the company because financial samurai is cash flow positive and there's no debt
00:08:38.800 | but you got to be careful because once you have that cash funny things start to happen in your mind and
00:08:44.680 | Sometimes in CEOs minds they might want to use it to pay for their fancy
00:08:49.400 | Mansion off the books or something
00:08:51.600 | They might want to use it to invest in other things to try to make more money and make their company more valuable
00:08:57.720 | So, let's see how this all plays out
00:09:00.240 | but for cryptocurrency investors
00:09:03.800 | This is a blow to confidence and trust and as investors overall, you know trust is paramount
00:09:10.080 | You've got to trust the institution to be a caretaker of your money to do the right thing
00:09:16.120 | Otherwise, you're just gonna pull your money, which is what everybody did with FTX. Alright folks
00:09:21.480 | I hope you enjoyed this episode. And if you did, please leave a positive review. It is unfortunately
00:09:27.560 | Mass layoff season you're seeing all over the news about Elon Musk laying off about
00:09:33.100 | 3,700 employees at Twitter or over 50% of its workforce
00:09:37.120 | Facebook announced it will be laying off 13% of its workforce or about
00:09:41.980 | 11,000 employees these companies are laying employees off because of poor share price performance
00:09:48.440 | Obviously a poor economic outlook and also the desire to save just on costs and not pay out RSUs
00:09:55.520 | bonuses so holiday times can be good or they can be bad and I encourage any
00:10:00.920 | Employee who is worried about their future at the firm or who wants to find some new opportunity and leave
00:10:08.160 | To plan out a severance negotiation. I wrote a book in 2012 that has helped
00:10:14.800 | Literally thousands of people negotiate tens of millions dollars in severance to leave a job
00:10:20.520 | They dislike to do something else or to retire early and the book is now in its fifth edition
00:10:25.760 | For 2022. So if you want to save $10 on the book use the code save 10 as a V E T E N on
00:10:33.140 | Checkout and you'll save $10 and I'll put it in the show notes. Take care everyone. Be well