In this farewell episode of The Long Run Show, we are going to be talking about what stocks are must-haves when end of the world comes and the markets are open.

Hosted By:

Austin Willson

Michael O'Connor

Support this podcast at — https://redcircle.com/the-long-run-show/donations

In this farewell episode of The Long Run Show, we are going to be talking about how you should manage your personal monatery policy.

Who is the Jerome Powell in your brain?

Hosted By:

Austin Willson

Michael O'Connor

Support this podcast at — https://redcircle.com/the-long-run-show/donations

Guest:

Marc Bell - Chairman, Chief Executive Officer and Co-Founder

https://terranorbital.com/

Hosted By:

Austin Willson

Michael O'Connor

It's Marc Bell, chairman and CEO of Terran orbital. How are you doing today, Marc? I am doing great. And so thank you for having me. Great to have you we'll first off the bat. I would love to just learn a little bit about Terran, like the name, the stories around it before we jump into too much long-term stuff.

I just want to know about you guys. Terran orbital started, I started in 2013 and I started as a vehicle. To acquire companies that were working in space. I'm a lifelong Trekkie. So there was 10 years old, always fascinated with space, always wanting to go to space. At some point I realized they weren't putting middle-aged overweight Jews into space.

So I decided to go ahead and start buying companies that I could build things to put into space that don't include myself. And it's been a dream come true. It is, we are now building satellites and we're solving problems from space. And we're the guys who helped invent the cube set. So we're all this whole new space revolution that everybody talks about.

It's all our fault. And so all these new startups and everything else, they're all there because of the technology that we created, a company we bought called tie-back because was about. Austin has a question too. It sounds but I right off the bat, the first question I can think of which you touched on already, like the go space revolution since you guys are right in the thick of it, you've started it.

When did this begin? Because we see at least for me, and I think other people in my generation, we see videos of the space shuttles, and that, that kind of felt like the big thing. And then things seem to sleepy for awhile, but it seems like there's been so much going on in the background to make everything that's going on now actually happen.

What's been going on. Two guys, a guy named Dr. Jordan pug Suare who was a college professor and Bob Twiggs called professor about 13 years ago, invented educational demonstrator called the cube set. This was a satellite. You can hold in the Palm of your head. And the point was to demonstrate that you don't need to build big satellites to do big things.

And if you think about it, you mentioned the space shuttle, your iPhone or Android phone that you hold has more computing power than the space shuttle did. And so things have changed dramatically. And so what used to cost a billion dollars to build? You can outdo for 10 million, but that was the only part of the chip sets costs a lot less.

So cubes. Open the door, but you still had to get these things to orbit. Then came along space X and space X made it affordable to go to space. So between us making payload, making the satellite sheep and space X, making the rideshare. A whole revolution was created of small sets. And now that you hear people talking, the government talks about how 50,000 satellites are going to get launched over the next 10 years.

And if you put that in perspective, you may be have like 14,000 thousands of satellites launched over the past few. Wow. Those are some impressive numbers. That's a lot of, that's a lot of stuff flying up into space around us is is that gonna be a problem? That's my one question. The good news is there's a lot of space in space

you have on earth. You have 40% of the planet is covered by land the, of. You have 3.2 billion cars and on a single plane in space, you have 43,000 miles of Y that 40,000 miles of planes. You have a lot of highways, a lot of roads of space that you could travel. And then what times objects tend to hit each other is when it's intentionally done.

When people want to demonstrate how smart they are, that they can create space junk and. And for those of you who are listeners, if you look at the TV show quark from 1977, you'll get a good laugh, but that was a space, garbage truck. And that's what we need today to clean up all this trash that these guys created.

But there is a, is it everyone says, oh, this is a problem. Not really a problem, a space situational awareness, which is what's called tracking space. Garbage has a fancy name for it is become a bigger thing. And the us, government's doing a very good job of tracking what's in space. And now there are technologies that we're developing that are similar to what airplanes have.

Airplanes have today, something called T cast or traffic collision avoidance system. So you sit in a cockpit and if you're, if something's coming out of the planes going at you, it goes traffic, and then it tells you what to do, what to go, pull up. And if you ever hear the words pray, you're, it's all over, but no one would ever hear those words.

But the goal is on a satellite it'll move. It'll be a lot. We use a lot of AI, so sell it. We'll know something's coming. It'll move out of the. It will calculate the trajectory and then I'll move back to where it's supposed to be and do it all on its own without human interaction. Like we have to do today on the.

That's interesting. Okay. Yeah, because I had heard some concern, of course you gotta have the YouTube sensational videos, so I had, I'd seen one floating around and talking about, oh my gosh, we're going to be shrouded in a trash, trash blanket over, over Earth's atmosphere and the next 10 years.

And I thought it was pretty sensational. So I figured I would bring that up and ask a real expert because I'm sure if anyone would know it would be the guy launched and all that. Spy satellites into space. So that's a reassuring answer to, to hear there's solutions to avoid exactly that, that issue.

I, I do want to ask though about the name as well of the company Terran or orbital. Is there any, anything behind that name? I know has some some connotations. With any company I've started, I've always had a naming scheme of, for lack of a better term. And this case, I went for a science fiction, schema, Taran.

Isn't our fire word for earth earthlings. Terror, I think is the basis of the word are these either the Latin or Greek or something for earth. And so we picked Heron in the, in StarCraft, they use the name terrines and it's moving to the typical Teranova TV show. And there's lots of reference Saifai references over the years.

And prejudice. Our constellation that we're building was Remington will be predator. So predator that it gov trader predecessor. So we try to have some fun as we named things. And, but you'll see, like our stock symbol is LL AP live long and prosper. And we were very excited to do your second exchange, gave it to us.

They wouldn't let us put Spock's hand on the side of the New York side, but we thought it was pretty funny. And and it's it's just, we try to make it, we're, we do very serious work here at orbital and we work mostly for the DOD and the IC community. Though we do some civil work and some commercial work, but we want our people here to have fun and enjoy working here.

Yeah. It's also a good way to to get the suits on wall street to just loosen up a little bit. I give a little live long and prosper hand signal there on the exchange. So that's good. It probably brings some levity to the situation. It does. It does, especially with things going on in this world with Ukraine and everything else.

And we've been very active over there helping the Ukrainian government. We are thrilled to bring a little bit of smile to people's faces

Austin, by the way. I think he's. We might be frozen. It looks, he's looking frozen. So we'll just, we'll we'll let Ashley edit this little chunk out and then I'll continue and he should be able to hop back.

So a follow-up to that, the idea of it seems like space travel, at least in my opinion has always been this this thing that gives hope to humanity. It's this thing. Sparks curiosity. And it's just, it's something that people from countries all over the world, cultures all over the world, love and love to see and experience and think about.

And like talking about things like the Ukraine and everything, there's so much, there's so much bad, bad press all time all the time. And. But it seems like space flight is one of those things that just gets everyone excited. How did you first get into the industry? Was it a curiosity thing from a young age?

Was it like just the thing that built? Cause it seems like something that everyone would love to do. I got very excited about space when I was a kid. It really started when I was 10 years old and got stuck somewhere in a hotel with my dad and it was raining outside and ended up watching a 24 hour star Trek marathon.

And years later, I had a company called Globex or my first comedies and we ran 28,000 miles of fiber around the world as part of the original internet backbone. And we were the world's largest logical. And we were the second largest owners of data centers in the world. And we hosted some of them, we hosted some of Microsoft's original websites, Walmarts, regional websites.

We hosted about half of the fortune, fifties, original websites back in the day. And but we couldn't reach, we, and by being the largest logical pier, what I mean is we connected to more networks than anybody else. So we connected to over a thousand ISP around the planet, but we couldn't reach ESPs in Eastern Europe.

So we started building ground stations and buying satellite transponder space. And that's how we started connecting all these Eastern European ice IPS onto the global internet. And it was very a, and that was my first exposure into a space. And I've been enamored ever since. It's just been exciting journey.

Yeah, definitely get that. What was that? What was that like transitioning to. In an industry setting in a practical setting, transitioning to using space to, to solve a practical issue. Cause it seems like there's so much talk around. I've heard skeptics be like, oh, we're still decades away from, I don't know, being able to colonize Mars and all those things.

And that's fair, but it seems like there's some people who are just. Pessimistic about space being able to solve real issues in general, but it does. What's your kind of take on that. Look at all the things that have been invented that came out of space. Everything from God, perfect.

Ball-bearings certain kinds of glass. There's this, all these man missions to space have CIF created all these technologies that we use today on a daily basis. How they're part of our society and and so it helps us innovate, innovating, and you are right people aspire and dream of going to space.

They dream of it. We see movies and TV shows everything you're fantasizing about it. And it gives us hope, like you said, but there are ponds we can track globally global warm. We can watch icebergs in real time and we come and we can measure the depth of them and measure the decrease them day by day, hour by hour.

If we choose you, can't do that with drones. You can't do that with planes. It's too big. A but you can do it from space and you can do it economically from space. You can measure crop yields from space globally. If you want to figure out where your there's going to be famine ahead of time and where you're going to have to move food suppliers around because you'll know in a wheat field, how hydrated.

There's some amazing technologies that just are not economical to do from the air from airplanes, with drones, but our economical space, but also helps with things like insurance fraud. And, we can map out Florida the day before hurricane the day after hurricane and see whose roofs were missing before the hurricane using AI.

So you, there's a lot of things that are good. A lot of good comes out of space and, human space travel is a desire and colonization of the planets and the moon and Mars and beyond is a desire. And you, we have to, you have to imagine there obviously, Other planets, like earth Goldilocks, planets around the universe.

We're not the only ones. I'm sure if the other ones found us, they ran long ago, they went to Washington and they saw they left. They got scared, in general, there's a lot of a lot of dreaming to go on there.

Definitely. And that's, I think that is something that so many people. I have, like you said, have aspired to, to go to space, to see earth from space, to, see the pale blue dot. And to the curiosity, like we've already talked about that, that inspires. Where do you see, we've talked a little bit about the past.

Where do you see the long run of, we're in the long run show. We're always talking about the long run. Where do you see. In the long run. Even the medium term, I'm really curious even just about two to five years, but certainly 10, 20 years of where Taryn is going and where the industry is.

Yeah. So we look at Taran, I don't want to be in an industry unless we can be the number one or number two player. And if you look at all the businesses, we visit my fifth unicorn, all the businesses we started in the past with rare exception, we've been able to be number one and number two.

And we strive to do that. We want to do it right. We want to be the best. We want to be different. We want to create barriers to entry and what we do, and this case we're innovating, becoming Tulloch technologically superior to other people. And we're building something for a very well used to close to a billion I could build for 10 million and I can deliver a higher quality product for phenomenally less money.

And so it's not evolutionary, but it's revolutionary, but we're working on become revolutionary, was creating the cube set that we did here at Tyvac evolutionary is what we're doing today tearing and going ahead and creating products that will continue to get cheaper and smarter and better.

And we're going to see more and more applications with space today. You're going to see 5g, there was saying that's something everyone's talking about. Cell phones. You go, you're going to see it. You see a lot of internet things, Starlink, everyone's getting, everyone wants to buy the internet bandwidth for space, but you can see that bandwidth is starting off slow, and then it's going to get very fast.

It's just like today. I remember when Globex, we used to sell up 1.5, four megabit connection for $999 a month to companies today, I got 2.5 gigabits of Google fiber in my home for $99 a month. It's a whole different world, and you're gonna see that in space. The images today you get from space are they're great and they're going to get phenomenally better.

You're going to see more and more interesting images and more detailed. And eventually you'll be able to just take a selfie from space. You both to look up, say, take a picture of. You're sitting in the football game and I'll take a picture of you and it to your phone. That's technologically very doable.

It's just about, as somebody wants to spend the money to do it, but that's something that's totally doable. Those are some wild applications there. Mark and I, it brings up some interesting questions for me. I, if you haven't noticed yet, Mike tends to be of the two of us a bit more on the the.

Positive. And I tend to be a little more skeptical most of the time. My, my trash comment earlier, and then also I have another one coming up here, a question for you and in almost more than negative light. But with that excuse that I guess is my preface there. But with all that, This basically mapping of the earth.

And you're just at being able to take a selfie from space, which is a crazy idea. What are the kind of Issues from a privacy and ethical standpoint that you have to think through when we're talking about taking pictures and mapping, people's property, because obviously we have the rules where your property lines don't extend vertically upward.

But they only go up so high. So where's the privacy kind of layer come into effect. I know we've seen some interesting situations with drones, but satellites has just, that's a whole nother. On the other level, it seems because you have a lot more, ability to see things you may not be able to see in any other way, which again, not saying Teran is out to do bad things, but there are plenty of bad people in the world.

So how do we think about this kind of moving forward as we map earth from space, we work for the good people in the world

that, you bring up a very good question. There are lots of laws out there to what we can and can't. And when we can, and can't image a, there are lots of laws today that perk to protect us citizens. Not necessarily global citizens but it is a as they control resolution. So the resolution we can image and the resolution we're allowed to sell are two different things.

So we can sell, we can image super high resolution. We, we can, but we can't sell that to the public. So they learn and that's when national security. Otherwise we'd just be reading the text on your phone as you type. And so it is a it does bring up some interesting questions on privacy.

I have or I have friends who accidentally got taken a picture of. From a satellite of him laying on his backyard. And so we started a picture, we laughed very hard and he was almost laughing. And it's it is going to be, does more and more of these imaging satellites go up there.

Then it's going to have to be some sort of regularly. To protect your privacy, because if you're out in your backyard, sunbathing, and let's say you were going for new 10 lines, you don't want that picture. And then you hop on Google and but I'm trying, I'm sure everybody would be imaging every pool in Vegas if they could do that.

So there are privacy issues abound, and it's going to be, there will be somewhere where regulations, I think drones right now are the bigger problem because you can't get the go over your property. Shoot them down. You can't take them down. You can't shut them down. He came and put a drone net up, you can't.

So it's a real privacy issue of having that, having drones over your property. And now, right now it's a much bigger issue from space then from space and listen. I see drones buzzing around all the time where I live and, we don't like it, but there's nothing we can do about it right now.

Yeah, it is interesting. It's when we get into these new spaces and this is what we've talked about this in crypto, Mike and I have, it's just interesting, like you get into a space where humans haven't really had to think about these problems before. We haven't really been able to just hover above someone's property before it's it presents these interesting interesting problems to, to think through.

But on the positive side, like you were saying, it also presents solutions that we. Ever imagined like the whole crop issue and being able to predict, okay, we're going to have a, have an issue with supply of food over here. Let's move some food around. Let's make sure that this country sells to this country to make sure they're taking care of that.

That's something where I think it seems like the positives could outweigh the the cons, even though I am somewhat skeptical sometimes or can be less positive than a than Mike, I do think in the long run, we're, our human ingenuity is pretty astounding. And the fact that they took a satellite, made it into a cube that is a little bigger than a large Rubik's cube.

Kind of wild to me, so I'm sure we can solve these issues. I believe, I always tell people, who privacy issue does come up a lot. And I tell people just don't do anything wrong. Don't do anything you don't want to see on the cover of the New York post. And you're doing okay. And as long as that's my metric and that's why I lived my life as long as I don't care, if it ends up on the cover of the New York post it's.

Okay. And so you want to make sure that whatever you're doing, you do the right thing. And that, that is cause there's no reason why you should be doing something wrong and just live your life.

A lot of freedoms in this country, you should have. Touching off of that. And we've mentioned a little bit of, the situation that Ukraine right now, but that for me looking at space and go individual privacy and the individual's perspective zooming out to, we've never really, at least since, since decades, at this point, we never really had as intense of a possibility of conflict.

Between two space powers, astronauts from both Russia and the U S and the ISS. So it's like what do you think is there the capability for space war in the future? It's all scifi and everything, but it's something that definitely seems to be interesting, especially now that conflict is a little more sadly normalized.

I don't know. What are your perspectives on the future of space? Defense, he's a space wars person. You said space defense. So we'll tackle it from both sides, and we have a very sophisticated military. That's doing some very sophisticated things and we live a very blessed life here in the United States.

Because it's all the things that don't happen that you never read about that you never hear about is what allows you to live your life. Because if you knew everything that was going on, you'd never go to a shopping mall. You never go to a restaurant and you probably would leave the country for the rallies because of the phenomenal job that the U S government does in protecting us is that we are able to leave the life that we.

And that's on the defense side on the worst side, I'm sure there's somebody somewhere that even the Pentagon building, trying to figure out how to build a death star. I totally see it happening. It's just know somebody's gotta be creative enough to say, Hey, we just build a battleship in space and that's it.

But the reality is nobody wants to do there's no such thing as winning. Everybody loses at the end of the day, both sides lose because those are things as a winner, no matter what the outcome is, war everybody loses. And and what's going on right now is incredibly unfortunate in the Ukraine because there really was no need for it.

And, and all these people are dying for no reason and it's not making the world a better place. It's just destroying. And and that's that's the problem. And, but, we have, we will, I would like to think the human race is becoming more evolved, but obviously not. And the space is becoming a contested domain, just like the Chinese are building all these islands in the south Pacific and it's taken, the Ukraine has taken away.

China and Taiwan conversation, if you know that you're, if the Europeans, really got their act together and cut off north school, And bit the bullet and cough Russia's supply of cash. Then all of a sudden, there'd be some real economic sanctions with some real power who are still, they're still paying billions of dollars a year to the Russians in funding, or they're a military attack cut off their money and they'll stop.

And, but the U S the Germans don't want to do that. And they can't cause they. And so the true lined off, because it's winter time, the waiting the summertime in order to stop a war, which is ridiculous. We have in the U S the Chinese economy relies on us, but the Chinese are, I've never really, I've never been aggressors.

So you had a peaceful handover of Hong Kong, there could be people arguing about freedoms. But overall, it was a peaceful handover in the military. All of the lease expires for the British and the Chinese moved in, but that was their island. They were able to do that Sydney with Macau Taiwan is a different story.

But I'm hoping that will be a piece of resolution at some point in the future and not a conflict which would decimate the island. Yeah. It's interesting. You were, you're saying. To think that humans are more evolved and it is an interesting hole to run down. But you mentioned earlier that, even if we are or are not, that's a totally separate question.

If there were other. Life forms out there on other Goldilocks planets, and they found us first. You think that they would just run away and hightailed away. I tend to agree with you. I think maybe Mike would have a different opinion. What's your opinion? Ever the optimist, maybe I am, maybe I hope they say hello or something that I guess will.

Yeah. If I was smart enough to travel light years, And I found this shit, the shit storm going on, I go right back there. There, there are better planets to go visit. So my question is underlying that people are always asking this question. Are there other earths out there? And you seem, you hinted.

You seem to think there are. It could be very intelligent lifeforms up there as well. I am super open to the possibility. I would love to think that there's aliens out there we could interact with, I don't know if they would want to interact with us, but what is your after launching lots of things into space and studying space, what is your kind of thought process on that?

In whole it's pierced, it's pure odds. It's like going to Vegas and gambling at a rillette table. There are only so many numbers, you're going to win. There are so many planets, so many. I only need to apply in at a certain distance from the sun to have you a Goldilocks planet, to have the right heat temperature for things to be able to grow.

Now, keep in mind, earth is very young compared to the rest of the universe. And as a civilization, we're very young. So they're going to be civilizations that are millions of years old, that hyper sophisticated or ones that never got sophisticated for. There has to be somebody in other people that are out there.

And they're not just going to come here and bring us. That's an old Woody Allen joke from years ago, but they are there is a it's just statistically speaking. There has to be other things going on. But, be careful what you wish for. They could bring a calm, their common cold could be a deadly virus to us.

They could be the friendliest people on earth when they, we always make movies that they're always hostile because that's what sells tickets. You never have a movie that they're all friendly and happy go lucky. And they don't have, they have utopia, that would be nice. And they're just happy go lucky people that just want to hang out and have fun.

But then again, we and then when, again, and again, I go back and, I look at what goes on in DC and I'm like, oh, they're already here. And

yeah, I think that's what I could agree with a lot of wild characters out there. That's for sure. Sometimes they feel a foreign to our planet too. Yeah, it's interesting. I always think of, I always think of. Twilight zone episode to serve, man, have you seen the Twilight zone where it's there?

All the aliens come down and they're very nice and leave. All of these ways to just fix society. And then everyone's all the people are going to the alien planet and they're all getting eaten. That's a cookbook, the whole Sony pictures did a great short called the Chub chubs. If any of our listeners want to download, it's got four minute video, but these little parties, but furry, little funny creatures that just eat you.

And but they're very cute until the youth. And so it's a very funny. Too funny. So I have to bring it back down to earth here to use it, to use a good punter. She'd never that one, mark. So you guys just went public and I believe it was through a SPAC. Is that correct? We did. We did. We decided there are three, as there are three ways to go public and do an IPO.

A direct listing or a spec, and we've done it. And I did this back before my spec was in 2007 called enterprise acquisition. So $250 million back, we deice back to 2009 with 90% redemptions into a company that today is armor ARR in the New York stock.

And I'm with art with AMR on a $25 million beginning equity base. That's what we started off. We've paid out over $1.8 billion of dividends and and returned on the $7 million PO or promote reparented return to significant portions of promote. So it was a hundreds of millions to promote it. So we did.

We created a very good structure that was good for everybody and showed us a house backs can work and there'd be prop and work out. So in our case, if we had tried to do an IPO on February 24th, we would have had what's called a market out. Meaning all the books would have impacted. We've had that happen.

I want to try to price a deal on the day of the Greek debt crisis. And we had a market out that day and didn't go public. And we wanted certainty of close. We created a unique $250 million exit financing arrangement with Francisco partners between capital industrial, Lockheed Martin and others that allow guaranteed.

And we would have a positive back, which is what. And now we're no longer a spec and we never want to hear that four letter word again. They have a very bad rap but I keep reminding people it's just because they bought bad targets. It's all about the company they're merging with and has nothing to do with the vehicle.

Interesting. Yeah, you were doing specs and you said 2007 was the first. Yeah. So you were doing them way before they were cool. They were cool in 2020 and 2021. And that was the hip thing to do was, oh yeah. We're going to go public through a spec and clearly it can be done and it just needs to be done.

Correct. And w it's all about the target? So the, oh, they're all these companies that are emerging into specs that never should have gone public, especially all these new space companies that don't have a re don't have real revenues. They don't have a real backlog. Don't have real management. They don't have a real pipeline.

They don't have real customers. They just have an idea that's called venture capital. And they should never have been allowed to emerge into a spec. And of course they're all missing their numbers. They're all there. They're being investigated. The FCC rightfully they are, it's just, they never, this should've been rules to allow companies like that.

In our case, we announced our over $200 million. We are we are, we announced, reviewed our numbers for last year. I think we're the first space back to we actually beat their numbers. And so we are continuing to continuing to fly ahead on our work speed and we're doing exceptionally well.

And and we continue to build our business at a rapid pace. What do you think? Is it that sets apart? The successful space companies. Cause it's it. I think it was mind boggling for me to see the rise of space X, how it went from an idea to real in there. It seemed like a very short time, especially if you look back at, very old legacy, Lockheed Martin, like you mentioned or the other companies that have been in aerospace for a long time, it's amazing to see companies come into the space realm, which is this incredibly capital intensive.

Space and succeed. What do you think is what separates the ones that do succeed from the ones that, don't get the numbers. So let's take space sex as an example. So what seems like a short time flies Ilan started 20 years ago. It is 20 years in the making and everyone forgets in the early days of space.

A lot of things used to blow up and a lot of things used to crash, but he stuck with it and he innovated and he kept building. So then I look at turnover. We started with young over 10 years ago and we stuck with it and we kept innovating and we kept going. And so we are, it's you learn from your.

And, we're not to the end. You hear all these startups and he's still private and people aren't, people would always tell me that I should have stayed private and I should have enjoyed the being private, but we are in like Ilan we're in a capital intensive business. But because of our business that we're in, it's not very sexy in terms of.

Talking about our customer programs, talking about what we do, because we do a lot of work for the national security. So it's not like we can tell you, oh, we're building this really cool satellite. And and I can see you laying in bed and every new Orleans had been with you kind of thing.

You can't do stuff like that. And so we're trying very hard to we've taught the public markets, give us a better, easier access to capital to continue to expand. Yeah. Yeah, that makes sense. I also wanted to ask you, I know you mentioned, and I don't know if it was when I was researching beforehand or if we'd talked about this before, but you mentioned that you're the ones building the satellites, right?

The keeps hats. And then we don't reduce that to anymore. We haven't pulled the cube setting. Those are okay. Got it. Okay. So you're building the satellites though. Not now. I'll start with that. We build satellites now, the size of your refrigerator in your house. That's got gotcha. But you're not though.

You're not actually building the rocket that launches that into space. Is that. No Eland does a very good job of that. So he builds the rockets. We build the satellites. It's a very symbiotic. Gotcha. Okay. So the question I was going to ask is when it comes to launching other things, I know this is not necessarily specific to what Tara is doing, but just with your experience, when it comes to launching other things like human beings, we've seen a lot of human launches that.

Super they didn't go very far into space, but they were definitely, out into space through blue origin, through space X, when it comes to those types of things, just space travel for humans, not necessarily launching technology up there. What do you think about the kind of the long run outlook for, say Mike or I hop it on a hopping on a space shuttle and going up and.

Looking down at earth. What do you see, do you think that's just going to remain this elite class thing? Or do you think that's going to become a little bit more democratized? Do you think it could? The numbers are hard. I think. Space travel. The cost will continue to decrease.

So it'll become more accessible people, but we say travel, right now. And you're on the road to nowhere because you don't. So they need to build like a restaurant in space or something cool like that, where you can get out, go have lunch, then come back. This is the. And rallies it's going to happen.

Someone's going to build a space station, a private test-based station, and some guy, then you're going to get David Grutman from Miami. He's going to build a restaurant on it cause you're already down. So he's going to go build the rest of the restaurant is on a space station and he's going to make it happen.

He's going to put a nightclub in there too, and then you're going to have a roof. Then you're going to have a real party. They'll let live Miami. And we were trying to, but it's going to be, it's going to, those are probably things in the realm of reality the realm of, going to the moon for vacation, that's a long way away.

And to Mars or vacation, that's probably not in our lifetime. But in orbit. Yeah, I think it's the Costco. You'll see people spending money and you're seeing your wealthy people like Elan, like bayzos on others are able to afford and fund building private space stations, and then they got to figure out how to try to turn it into a revenue generator to sustain.

I think that's a great point to bring up because it seems like. The idea of colonizing or, I think, like you said we're pretty far away from, cause I think people forget just how far even just the moon, how far away the moon physically is from the earth and Mars, especially as it is very far.

And I think people can fall into a tendency to forget just how much potential there is enormous. That seems like a really, maybe an overlooked untapped idea. Is that kind of what you sense from a lot of people? Yeah. I use a lot of opportunity in space, but you also to remember spaces, dangerous, the odds of you coming by you, the odds of you coming back are not great.

And that is that's the scary. Space is still a very dangerous thing. They haven't made, it is not as dangerous as you recall. I still more dangerous in your car. It's Niagara. And if you go to the drive to the airport is more dangerous than getting on the plane, even though everyone thinks flying is dangerous, right?

You have a better chance of dying on the way to the airport, the fly on a plane. You're going to space is very dangerous. It's going to come down. It's going to become less than one, the written with more and more risk-free, you're still, strapping yourselves to audio, a few million pounds of fuel.

And as far as lighting a match and you're wishing yourself luck that's a risk. It's a, it's quite a ride, but still it's your, the beginning. And sometimes they go, boom. But they will make it safer just like they made cars safer and they will, it's going to happen. And and then that's when things started getting really exciting.

Yeah. It seems like there's a lot to look forward to as far as the long run of space and a lot to think about too, as far as, how do we. Work through some of the problems we talked about. And also what are the amazing possibilities that seems like they're almost endless, I'm sure there's some end point to some of these, there's a lot of solutions you can provide by getting essentially eyes in the sky, but more eyes in the space, so for our listeners who are looking at this area of the capital markets, obviously it's. Hot topic. It's always fun to talk about space and space travel, but for our listeners, how should they be thinking? Obviously this is not, we don't give financial advice here, but we like to think, okay, how could we be thinking about space, travel about space businesses?

Like you said, it costs a lot of money. Just to put someone and, or something up into space right now. So it needs to be, there needs to be some sort of, from a business standpoint, there needs to be some sort of revenue driver there. And you guys are doing it from the defense side. It sounds like a bit, but there's also, other companies looking to do to supplement what you're doing.

Elon Musk is building the rocket. So there's a lot of different ways to create revenue. How should we think about that from a business perspective, this whole space area? Part of it is yo, the innovation from space, things like scratch resistant lenses, ear thermometers, shoe insoles, and visible braces for your teeth, cordless tools, tap water filters, memory foam.

Now satellite navigation all came about. From things in space, there was a company called maiden space that we had invested in that was on the ISS that actually made things in space, so there is lots of things in space that come out. Engineering-wise, there's lots of opportunities to build things in a zero G environment that you can't build in a gravity environment.

Like I mentioned earlier, perfectly. No gravity, certainly there's certain things. You've been manufacturing space. That's easier and cheaper to manufacture on earth. It's just getting it back and forth right now is the expensive part where they'll fit up. That cost will come down eventually. It's, there's lots of innovate innovation and there's a science, basic science or learning more about our planet, as we're able to watch our planet in real time, we'll learn a lot more about what.

We'll learn a lot more about global warming and how it's affecting us. We build more and more kinds of sensors to study our earth. And the goal is to, stop famine, figure out when storms are coming, sooner to do better weather tracking. It's, the list is endless, what can be done from space.

And that turns into dollars for businesses. You have people like us that are creating businesses that are we're enabling companies are enabling the governments to go ahead and solve problems from space that you couldn't do before economically. Yeah, it sounds like there's, again, a lot of possibilities.

I didn't even think about manufacturing in space. That would be totally different than manufacturing with gravity. That's just blowing my mind right here. Zero gravity would be a completely different you'd be able to build completely differently. And I'm sure, probably like you said, things that you couldn't build here on earth, where you have to deal with gravity because that has to be factored in everything.

That's very interesting. It's great to hear that that you have such a positive view. You keep saying it's going to get cheaper. The costs are going to come down and I have to agree with you. It seems like just what we've seen. At least in my lifetime, and I'm not that old. What we've seen is just spectacular as far as the ability for.

Things to be gotten into space and come back. Sometimes they blow up, like you said, but most of the time not. And that, that sort of long run optimism, I think can definitely help with this innovation here. It's pretty mind boggling to think that not, just flight in general is so new.

I've ever seen a chart, like showing human progress and it's like the Wright brothers. And then it's oh, first space launch is like very shortly after in the grand scheme of things, which is mind boggling. And I I think I'd say as we're running a little bit low on time here, I do have one question that I really want to ask, which is I've heard a lot of people draw comparisons.

To computing and how, we've seen computational technology gets smaller and more powerful and I've heard people say, okay, the space is going to be similar. It's going to go on this. This upward trajectory. Do you see that as a good analogy or is it different? Is it is it more complex?

It's going to take longer to move up that slope? I think you're not seeing things moving at a very rapid trajectory because people are in governments are investing a lot of money to make them. Before there wasn't a lot of investment that went on to make things change. Everybody was happy for 50 years with the status quo.

Now it's, everything's changing and everybody's everyone realizes you can actually do a lot more, a lot cheaper and a lot faster. And we're seeing, I visit a time when you'll literally be able to order a satellite on Monday and get it on Friday. And that, that is, so that is a desire of many to have satellites on.

Wow. That's incredible, mark. Thank you so much for infusing. At least me and I think you Austin, as well as some optimism on the long run of space, and it's just incredible to even just think about it. Thank you very much for having me today, gentlemen. It's been the longer end show with Mark Bell, chairman and CEO of Terran orbital, go check out tearing and all the amazing stuff that they're doing.

This is Michael O'Connor and Austin Wilson from the long run show. We'll catch you next time. .

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Guest:

Stuart Winchester  

CEO & Founder at Marble

Hosted By:

Austin Willson

Michael O'Connor

BZ: Can you explain what Marble does?

S: Over the years, Incredible progress in centralizing standardizing, and making more convenient, the methods of organizing these things for the household and insurances in the last to fall, it's still very balkanized.

You have individual carrier applications or it's in your inbox or email. And I saw this because I used to work in a mortgage company and no matter how much technology we deploy still. Shorten the window. It took to get the right insurance information for the mortgage because people just didn't know where it was, what the sand, what they had, who had it.

So we built this one hub for all your insurance and all your risk. And then we've layered this rewards element in it because rewards in insurance are really not, is also not really a space that's been pushed into. So consumers can have rewards for uploading policies, referring friends, telling us about their assets, their plans and then, cool stuff down the line that we have planned with.

Insurance it's highly regulated industry. Like a lot of, financial industries, but particularly in insurance, there's been this historical concept of rebate law, which still exists.

And that it's, it started for very good reasons in that. Life insurance agents back in the day would give big discounts, typically funded from their commission to people who they want to sell insurance to. And that, the turn of the last century, largely it was like, white men who looked like them.

And that led to much worse pricing for everyone else. Like a lot of regulations, it was written before the internet really existed. Part of Marble's concept is, we've done a ton of research and work with the regulators to say, Hey, Where can we do rewards where can't we cannot, incentivize buying.

We can't make anything cheaper to sell. And also what, can we stay, if we stay blind to who our members are, I would just a really, no sort of biasing impact can we offer rewards? Which is how we brought into it, because to that point, Insurance is you can't turn on the TV without seeing an insurance commercial.

There's so much money in this space and rewards provide this really neat mechanism. If you can be thoughtful about removing the biasing impacts to pull money away from. Sports networks and the social media platforms and put some incentive back in the pocket of people to engage with it.

So that's part of our founding thesis as well.

BZ: The rewards aspect. Do you see that also as a generational thing?

S: Exactly that like we, one of our biggest obstacles in fundraising was finding investors who would come with us on this first leg of the journey to see if we could prove that people would engage with insurance, cared about it more than once a year when, and, if even that really.

I think a large rebuttal that I had in the fundraising process to people who were objecting with this idea that, people don't care about their insurance. I hear that all the time, but it's we ha have we ever really tried, have we ever really delivered an experience basically?

Do they not care about the insurance or do they not care about the ways that we're the tools that we're giving them? Because I do, I would argue that people do care about how they protect. There's stuff. If you frame it on those terms it's something you should care about and people do. But if it totally sucks to shop for it and to manage it, and the apps look like they're out of 2006, if you're, in the same way, you don't want to send a bank wire, you'd rather send a Venmo.

It's the same exact proposition. So we've been fortunate. We see I mean we're not day trading like Coinbase, but we see, 30%, monthly activation rates in the app and thats pretty huge.

BZ: Almost like what mint.com did for budgeting and accounting personally. You're basically doing that for insurance. So are you actually selling insurance and are you an insurance broker for different types?

S: We make money, a couple of different ways. We don't operate as a broker agent today. That's a critical piece as well. Our regulatory position is that we don't touch pricing.

We don't negotiate pricing. We don't solicit or make any representations on policies. We sell leads. We do that in a pretty integrated way. So you don't have to, we want to avoid that thing where you click and then you click again and you enter all the same information twice which we can do because we have all your policy information.

So basically the user flow of Marble, and I'll get to the revenue part of this. As you come in, we built our own sort of plan for insurance. We've also partnered with some great companies who don't do that as our full-time product offering, we'll pull in, we'll like Hoover in, maybe your renter's policy, your auto policy and your pet policy.

We can tell us to take your life policy, whatever you have. We'll write that all to the database securely. Then when you want to shop, if, and when you want to shop, you can click we'll pre-fill everything we can, and then you'll get some rates. We then make $30 to $50 on the lead click.

That's so much money you can make on a non-binding leave click. Why don't we just incentivize people to stay engaged with the platform and put some of that back into rewards pool?

We don't display pricing, we don't inform pricing. And what we also try to do just as a couple of, cause we, we take the regulatory, the worst thing you can do in insurance, I think is not like respect the thousand year old industry that it is.

BZ: What was the process coming up with the idea behind Marble?

S: I spent about two years at Better.com, which has been in the news recently. I did acquisition for the mortgage side, and that was an interesting sort of lesson in acquisition versus retention, because people can refinance and there was some quite big product there.

It was not only getting the most efficient cost of acquisition but then could we stay with people through the first refinance and that'd be a lot cheaper, so that got me thinking about that model. I think. Hopped over and had the opportunity to launch its insurance practice. And that's how I became licensed as an agent. And in that, I was the GM, but I was the first one, the first salesperson and I was on the phone all the time. And it was just so striking to me. Better.com has a phenomenal technology stack and could do your credit verification, income expenses back. Anything you need for mortgage, basically pull it as quickly as possible. Even with a fully digital insurance experience it still would take 5 - 7days to verify.

BZ: What's the pitch to the user. Like why would a user want to engage with you guys? But what's the kind of the, the value proposition for the user?

S: So for us, basically the short answer to this is about 40% of our users come to us because they have, what we would call a more complex than usual insurance picture, which is about 3 active policies we will solve for them the digital frustration of not having those policies stacked and organized, and also written in a way that is like digital and convenient. And we say written, what I mean is like being able to pull the data often and a convenient way of being able to pre-populate if you want to shop and compare being able to share, parts or all of that with a financial advisor, maybe you have a life insurance policy, and you want to share that with your financial advisor.

Again, that's something that we can do with a sort of secure drop a link as opposed to downloading a PDF, attaching it to your Gmail, stuff like that. Again, these things that feel like they do feel a little bit like table stakes when you compare it to other industries, but insurance has just been slow to adopt them, but 60% of people come in for rewards and stay for those other pieces.

And I think where we want to go, or we do plan to go is to add this 3rd Feature set on, which is the more the more active maintenance of your risk, as well as the organization of your policy. So not only do you have all your possible policies in one place, are you earning some rewards where it not only can you shop and save. Full disclosure those leads are more valuable to us if you have more data. Your stuff's more protected. You become more valuable to the insurance company.

BZ: I have two, two last questions:

How do people sign up for Marble?

What's your general advice for the average consumer out there in terms of insurance?

S: To get Marble, you can get the app to make an account. The app is actually live on the app store too. We just went live last week. So we're still doing a friends and family only, but if you're listening to this and you've made it this far, we're now friends and please go download the app on iOS and leave us a review.

If you're going through this and you're particularly if you're transacting, what's the, like the best practices or how to think about it. For me, couple of big things come to mind, apples to apples on coverage is going to be hard to do, but it's really, either using a spreadsheet or.

In your Marble account, make sure you know what coverage you have and when you're comparing, make sure that you're at least getting something pretty, pretty normalized, because those things are gonna change. That'll really affect pricing. Make sure you understand all the terms as well in your coverage, look them up in advance, look them up during things like that, just deductible. Co-insurance just, again, have those handy. So you can refresh, unless you really know that. And finally is like really shop, pull, this goes back to the commoditization point, pull as many rates in as you can, use multiple sources.

If you have the time, really make the market compete for your rates because that. That's it, that's how you get the best price, ultimately that's the service that you can build for yourself. So really cast a wide net, dedicate the time to do that. And then the last sort of caveat is, don't be surprised if rates jump a lot.Until you answer those last final questions, you may be looking at a teaser rate and that teaser rate may change by two to three times at the end.

So just, don't don't get some quotes and think you're done, take them through, and that's going to be the price that you'll have to budget.

Support this podcast at — https://redcircle.com/the-long-run-show/donations

Guest:

Mark W. Yusko

Chief Executive Officer and Chief Investment Officer, Morgan Creek Capital Management & Managing Partner, Morgan Creek Digital Assets

Mark Yusko is the Founder, CEO and Chief Investment Officer of Morgan Creek Capital Management. He is also the Managing Partner of Morgan Creek Digital Assets. Morgan Creek Capital Management was founded in 2004 and currently manages close to $2 billion in discretionary and non-discretionary assets. Prior to founding Morgan Creek, Mr. Yusko was CIO and Founder of UNC Management Company (UNCMC), the Endowment investment office for the University of North Carolina at Chapel Hill. Before that, he was Senior Investment Director for the University of Notre Dame Investment Office.

Mr. Yusko has been at the forefront of institutional investing throughout his career. An early investor in alternative asset classes at Notre Dame, he brought the Endowment

Model of investing to UNC, which contributed to significant performance gains for the

Endowment. The Endowment Model is the cornerstone philosophy of Morgan Creek, as is the mandate to Invest in Innovation. Mr. Yusko is again at the forefront of investing through Morgan Creek Digital Assets, which was formed in 2018. Morgan Creek Digital is an early stage investor in blockchain technology, digital currency and digital assets through the firm’s Venture Capital and Digital Asset Index Fund.

Mr. Yusko received a BA with Honors from the University of Notre Dame and an MBA in Accounting and Finance from the University of Chicago.

Hosted By:

Austin Willson

Michael O'Connor

BZ: welcome back to another episode of the long-run show. This is your host, Austin Willson, along with Mike OConnor. And today we are going to be having another guest on our show. We have Mark Yusko from Morgan Creek Capital. He's actually the founder and CIO of Morgan Creek capital and the chief managing partner of Morgan Creek digital.

Hopefully I got that right, Mark. And we're going to be good. We're going to be talking about we're gonna be talking about a lot of different things today. Spanning many different aspects. Obviously, mark, you have a lot of experience investing money and allocating capital and also a lot of experience just with thinking about large long run issues which is the name of the show.

M: One of the things that I really don't like is everything is focused on short term and social media. And that just the explosion of content has made it even shorter and shorter. And really, if you think about investing, the art of investing, it really is about the longterm. And it's nice. You're nice to say I have a lot of experience. That's just a very nice way of saying I'm old and I am and that's actually a good thing because it means you survived all the mistakes that you made when you were young. But importantly it goes to. My whole career has been around. Long-term thinking, I a series of happy accidents. I didn't plan to be an investment guy. I planned to be an architect. And then I tried pre-med and none of those things really fit. But I went to work for an insurance company out of business school and the guy who was doing investments retired. And so I was now the investment guy. And what I found is it was the perfect thing for me as a science guy. And science is all about format hypothesis, forming experiment, gathering data, testing the hypothesis, and then deciding if it's right or wrong. And that's exactly what you do in investing, right? You come up with this form an experiment.You, you make exposure and then you test it. You gather the data and the market tells you whether you're right or wrong. And part of the. my aha moment over my career was that time arbitrage. So long run thinking, right? The title of your show is the ultimate win in investing. If you have a long time preference, if you have the ability to think longer term than the average investor, you will make more money. And that's kinda cool. And you don't have to be right as often either. That's the nice thing is you don't have to always be right or prove that you're right. Which is very dangerous and investing. Yeah. So quick. Went to school. I said to be an architect or a doctor then went to business.School, came out, went into investing. And my next happy accident was I went back to my Alma Mater. I went back to Notre Dame and I got into endowment management. And what I realized was I thought investing when I worked for the bond management part of the insurance company and then an equity firm. Was that It was just about picking stocks and bonds. That's what investing does. That's what the TV tells you. You should pick stocks IBM or GM or Ford. And what I realized is those were 15% of the longterm returns. 85% of returns comes from asset allocation. The big picture allocation of capital across stocks, bonds, currencies, commodities within stocks. Do I go international? Do I go domestic? Do I go technology? Do I go healthcare? And those big asset allocation decisions drove everything. So the endowment model of investing, which I learned at Notre Dame brought with me down here to university of North Carolina at chapel hill. Whereas the CIO there, that's what I learned. And all that endowment model means is you have a long time horizon. It's permanent capital. Therefore you have this ability to take advantage of time arbitrage. The second thing is you have to have an equity bias, because if you want to have a long term positive return, you need to outperform inflation and bonds just don't do that by very much. So you have to have an equity orientation, but equity doesn't mean stocks. You mean stocks? It means private equity. It means venture capital. It means commodity equity. There's all kinds of equities. And then the next stage was I left the university back actually now a long time ago, back in 2004, and I formed Morgan Creek Capital and more capital is just about bringing the endowment model to other investors, taking this idea of alternative, thinking about investments to the masses. Now everyone says what do you mean alternative thinking? I'm like I don't like the term alternative investments. People talk about it all the time. Hedge funds or private equity or venture capital. Those are alternative investments. alternative to what? you own stocks, you own bonds, you own currencies and you own commodities. How I own them in a mutual fund, in a hedge fund, in a private partnership, doesn't change the nature that I own. Stocks, bonds, and currencies and commodities. And the problem is whoever thought of the term alternatives, who was not a marketing guy or gal, they were not very smart. People don't like alternative stuff, alternative medicine, alternative music.They don't like alternative stuff. They're afraid of it. . And so what did he do? Tape put 5% in alternatives and 95% in tradition. That doesn't make any sense because if the traditional stuff isn't attractive, why would you want to own it? So fast forward Morgan Creek over the years has migrated from, this alternative thinking about investments to my big aha moment, which was investing in infrastructure around technological innovations. And it's a wave of about 14 year cycle is where the big wealth is created. on Twitter it's my pin tweet. The greatest wealth is created by investing in something that you believe in before others even understand. you will be mocked, you'll be ridiculed and it's worth it. And so back four years ago, we set up Morgan Creek digital subsidiary of Morgan Creek capital to focus on long-term investing in the digital asset ecosystem and having a blast. had more fun than I've ever had my career. And I love every stage of my career. But I'm having way more fun. Now I get to hang out with young smart people. I get to focus on this innovative technology. That's changing the world anyway.

BZ: I love the term time arbitrage. That is just such a great term. And I find it so interesting because like you mentioned, using the that's so interesting, the endowment model, because that seems so foreign to wall street of the last couple of decades, or, having this model that you're actually considering long-term implications. You're not just looking for the next big short or something like that. What's been the reception from others in the field of that. Cause it seems like so much common sense to be able to look at the long-term, but it's pretty uncommon. What's been the reception ?

M: We actually created a vehicle a number of years ago called the endowment fund and it took off, it was the most successful launch of a product in Merrill Lynch's history and everybody piled in and then something happened, gold financial crisis happened. We actually did well relatively well. We didn't do well. Absolutely. But we did less badly than everybody else. And, in investing the most important thing, right? There's three rules to investing rule. Number one, don't lose money rule number two, don't lose money rule number three, don't forget the first two rules and Roy Neuberger coined that phrase.And it's because of math. If I'm down 10, I got to be up 11. If I'm down 20, I gotta be up 25. I'm down 50. I gotta be up 100 to get even, God forbid you're like Russian market. I'm down 95 when it gets back to even which it will. Cause this has happened before. You'll be up 20 fold buying Russian equities. Great idea for the long-term not for the next week or the next month, but if you can buy spare bank at this price, you make 20 times your money, probably over a long-term period because you're down 95%. But that idea of avoiding the downside is what the endowment model is all about. And what happened though is after the gold financial crisis, the FED and other central banks around the world started pumping liquidity into the market. And that changed things. And what it did is it created this illusion that stocks, the S&P or going up every year. And so over the last 13 years has been pretty much a bull market in nominal terms, not in real terms, but in nominal terms. And maybe people not want to be value oriented. They want to be momentum players. They didn't want to take the long-term. They didn't want to make an investment today in a company that might take 10 years to harvest an S&P is up 15% every year. I'll just do that. So the endowment model kind of faded and can got out of favor and, necessity is the mother of invention that led us to say, all right, if nobody wants to think like long-term investors, then we'll find products that are, and the problem there was, we had an asset liability mismatch. We let people come out of the fund on any quarter, but we were making investments for long-term periods of time. And that doesn't work very well. It's like a bank. I give everybody, went to the bank to take their money. That's a problem. Cause there's not enough money for all the. Because they took $1 and lent it out 11 times and made lots of dollars. And there's nothing wrong with that. Fractional reserve banking is not in itself evil. It just, it operates on faith and custom where everybody doesn't run to the bank at the same time. And the same thing is true in long-term investments. If everybody wants their liquidity, they can't get it. So now we raise vehicles with longer-term lockups so we can focus on making those long-term investments.

BZ: Interesting. Very interesting. So this kind of shifts and long-term cycle, or I guess midterm cycle, you were saying the 14 year investing in something that you're very convicted about, how did that fit into the endowment model or was that a kind of the next iteration for you?

M: So it definitely fits into this endowment model of investing. But it was a discovery by being at the endowment actually. So I go back now and it's easy to tell the story because I grew up on the west coast. I grew up in Seattle and my dad sold and installed mainframe computers in hospitals. That's what he did cause they didn't have computers. And so if you go back to 1954, there was this innovation out in Boston, outside of route 128 around computing and suddenly companies could have computers. And 14 years later, there's an innovation out in Silicon valley on a microchip is suddenly computers can be smaller and companies like Intel and Cisco were formed and they did pretty well. Right then in 1982, 14 years later. And why it's always 14 years. I don't know exactly, but it's really because young people invent all the new stuff, because they don't know not to. And they don't know what they don't know. And so they just go ahead and do it. Marc Andreessen, 19 years old, he invented the browser. Larry and Sergei invented this company, Google, which I'll talk about in a second in their twenties. And so it's that young generation that gets innovation going. Cause the old guys are like, I'm fine. My flip phone is fine. I don't need a smart phone. And it's true. Confirmed myself that as I get older, but the key was I grew up in Seattle, many of my friends, they don't work anymore.They went to work for this little company called Microsoft. I was too stupid to do that. Now I defend myself saying if you've seen the picture of the original Microsoft 11, you wouldn't blame. Now there are multibillionaires. I'm not, I shouldn't make fun of them, but they looked pretty funny. We all looked bad in the seventies. Clothes were bad. Hair was bad. But look at the picture tonight, Google the original Microsoft 11, you go, oh my God, I wouldn't work for those guys either. So Steve bomber's mom said, honey, why would you work for that company? No one would ever want a computer in their house. He has 18 billion reasons. He was right. Mom was wrong. So 14 years later, I'm at my Alma Mater. I'm at Notre Dame and I'm working in the endowment office and we had the chance to make this investment in a company called Sequoia at the time. No one, not no one, but very few people knew who Sequoia was. It was not a famous venture capital fund. In fact, it was on the verge of failure because Don Valentine, the famous founder had hired this guy Michael Moritz, Michael was a wall street journal reporter. He had never done a deal before. The other partners like Don, what the hell? We're the future? Why are you hiring this kid? It turns out Michael turned out to be a pretty good investor, Yahoo, Google a few other things and maybe one of the greatest venture capitalists of all time, but we gave them 5 million bucks. They put half a million dollars in Google. And I actually remember. I remember saying guys, I don't get it. They're 20 search engines. There is web crawler and AltaVista and ask Jeeves, what do you need Google for? It's a stupid name. Now it's a verb, right? We totally reinvented search because Larry and Sergei young guys figured out that the way to do search is not to search the whole internet. There are 1.7 billion websites in the world. Half of them are owned by Google. What are you talking about, Mark? Think about it. When you start typing a question. They've set up a website for every question that has ever been asked. And as soon as you start asking the question, it directs you to a little tiny slice and they've already put all the information that you need to know. And sometimes maybe there's some bias, but that's how they do search and it revolutionized everything. And so we put in 500 K and we took out 200 million. So I now had this aha moment. This is a long story for an epiphany, but I had this epiphany that investing was about long-term investments in infrastructure companies around this cycle. And so 14 years later the mobile phone comes along and apple releases the smartphone The iPhone, their stock goes down 46. Think about this for a second. this iPhone and the stock goes down because people are never going to pay $500 for a phone.My flip phone is just fine. My Razor's awesome. Apple's now the biggest, most valuable company in the world. And I remember being back in Seattle at Craig macaws house, he was having an event for venture capital people. And Craig is a very famous pioneer in cellular telephony, the original flip phones. And I'm asked, as I asked his family office, guy said, do you think the mobile net will be as big as the internet? He's mark, you can me ask me if they want a computer? Yeah, whatever, ask them if they want a phone. Like I already have two, I don't need another one. So yeah, it's going to be a big deal. And what it did is it created the first network. 1 phone not valuable at all.2 phones, a little more valuable, 2 million phones, pretty valuable, 2 billion phones, really valuable. And the network effect is exponential and the people are bad at math. People suck at math, but that's just linear math. If I say what's two times two, both of you will say four. I say, all right guys, what's 17 times 23. I'll wait. That is the limit of human intelligence. The average person can not do 17 times 23 in their head. And so how are you at nonlinear? Exponential regression? Not very good. And so I do this challenge all the time. I say, take out a piece of paper, fold it in half, pull it in half again. I defy you to fold it seven times and it was a bag full of seven times. No problem. And they're like, whoa, okay. I can't fold it seven times. If you could fold it 20 times. It would be as high as your house. If you could fold it 30 times, it'd be the atmosphere. If you could get to 50, it'd be to the sun. And 100 is the known universe. So exponential growth is a really big deal. And so the network effect created these massive opportunities and the light bulb went off for me, just get in front of those waves. So buy things and you know how to find them, whatever the old people like me now say, will rot your brain or is a fad..anytime those two terms, come out, just buy it, tuck it in a drawer and go away.

BZ: I love that guy that was going to be, yeah, that was going to be my follow-up ETF. And the 14 year pattern Have you seen that be very consistent?

M: It's incredibly consistent and okay. What's amazing. So you went 1954 was the mainframe and they had four years, 1954 to 1958. We could make a fortune in deck and Wang and it's winching. Then you have a crash. Then 14 years later, 1968-1972 Intel Fairchild, et cetera. Then you have a crash then 1982 to 1986. Everything's great. Microsoft. Wintel. They have a crash then in 2010? No. Then in 1999, then in 1996, around the internet, 1996 to 2000, everything's awesome. Yahoo, eBay et cetera, Google, then you have a crash 2010 to 2014 to 2015. You have a little crash wasn't as big as the other crash, but there was a crash right now in 2024, which is the beginning of the blockchain era or the trust net as I call it. So the internet 1996, the mobile net 2010 and the trust net 2024. It's when everything in the world, everything in the world, everything of value, every stock, every bond, every currency, every commodity, every private piece of real estate, every piece of art, every collectible car, every private business, all $700 trillion of assets in the world will be tokenized. What does that mean? All a token is an entry on a block. It's an entry on a public ledger. That's all it is. It's not super crazy and exciting. It's really pretty simple, but it's code and we can trust code differently than we can trust people. And if you think about this, every technological evolution goes to making that trust in code better. When the internet first came out, people are like, I don't know what this thing isn't. It doesn't really work very well. And Netflix started a company and they're like, all right, we're going to use it. We're going to have video on demand. If demand is defined as four days, it took four days to download a movie. No one's going to wait four days to download a movie. So they almost went bankrupt and it wasn't until bandwidth was increased because South Korea innovated around broadband and suddenly you could deliver it in less than four days as a Netflix done pretty well. Pets.com. I'm going to deliver, pet food over the internet.Failed. It's the poster child of the failure of the internet, chewy.com. It's the same damn company, exactly the same, but we needed GPS tracking. We needed instantaneous access to information, to broadband. So it's these inflection points in technology and why they're 14 years. Again, it doesn't really matter, but it is very consistent. And so 2024, as great as it's been in blockchain and Bitcoin and all this other stuff, it hasn't even started. The players have entered the stadium, they're warming up. We haven't even played the National Anthem. And I was like, oh, it's the third ending? The eighth inning game. the game hasnt started.

BZ:I think that's a phenomenal point because it's amazing how much we're already talking about Bitcoin and blockchain and web3. And it's The current figures are maybe 5% of the world has cryptocurrency. Like global adoption is still so early that it just seems like it's the next huge network effect

M:If you overlay Mike, to that point, if you overlay the internet adoption and web three adoption or blockchain adoption, we're in 1997. Around the time when we invested in Google. And E-bay, I remember taking E-bay to our board at Notre Dame and they're like, let me get this straight. You want us to put money in a garage sale? Really? No. Think about this. So they were against it. The firm benchmark capital, some of the best investors on the planet they put in, they raised an $85 million fund, $85 million, not a lot of money. And they put a bunch of money into eBay, not all of it, but a decent amount. They took out $10 billion. The whole fund was a 96 X the whole fund. So she put it in a dollar, you got $96 back and on a garage sale company because people didn't get it or look at the market cap of PayPal today. And how many of the PayPal mafia are out there doing amazing things. humans are optimistic, right? If you weren't optimistic, you'd literally sit in your house in sheer shuttering because you wouldn't go outside. Cause you could get shot. He get eaten by a bear, all kinds of bad things could happen, but we're optimistic. And so we go on it's I always say, who was the third guy who went out to try to get a Mastodon with a spear? Cause the first two didn't come back. So who was the third guy who figured out, if he hit him right under the chin, you can kill the Mastodon. He was a hero, but, or who was the first person that tried surgery on without anesthetic before we figured that out. So we're optimistic and we try new stuff and that's good. And we have progress, but we're unable to imagine the unimaginable, right? We can't imagine. Right now we are talking to each other. We're actually, we're not talking to it. We're talking to a metal box, right? A metal and glass box. And it's coming in my glass metal and glass box into the airwaves, into a cell tower down through fiber optic cable out another cell tower into the airwaves, into your metal glass box and into your earphones in real time. Are you kidding me? I could imagine that 20 years ago, 30 years ago, no one. So it's really hard to invest for that long cycle opportunity set because you can't imagine. So who could imagine that money as we know it, which isn't money it's currency, the only money is gold because money is something exist in the absence of a liability dollars are not money they are currencies. But who could imagine that all of money will eventually be entries on a book? Not very many people. Yeah. It's amazing to me. And you spoke to this. The thing that we are the worst status imagining unimaginable, right? Cause we have a word for it that, that just goes to show you how big a bias it is.

BZ: We have a word for it. It's unimaginable. And so I think the bias is to go, okay I can't do that. Or I guess the thought process is, I have this bias. I can't really know what's next because I can't see it. So therefore, I'm going to tighten my time horizon. I'm going to look for the short play I'm going to, and nothing against day-trading.I've seen it to be profitable, but I'm going to look for this short, interim intraday play or a week play or month play. At the expense of a longer term play, that may be an investment that may pay off 96X like, like the eBay story. And so it's a great, it's interesting that biting, there's nothing wrong with trading.

M:There's nothing inherently bad about trading. It's hard. It's work and it goes to income and passive income and investing, we all work hard, right? We're doing what we do. We either create content or we manage somebody's assets or we make widgets, we all have this work that we do, but you think about it, the return on that, that work pales in comparison that if you can have something, take up a piece of real estate that you own, that someone else pays you rent and you make money while you're sleeping, it's actually a pretty cool or a Royalty. Think about Qualcomm that every time somebody builds an Android phone, they get paid. That's cool. And so they monetize their intellectual property and then you get into investing. Sure. If I can figure out if CEO, Adam tomorrow is going to wake up and do another great deal, like buying a gold mine, maybe I can get out ahead of AMC and it'll go up and I'll make some money, but what if he wakes up and he makes a bad investment, actually gold mines are usually are bad investments, but maybe this will be a good one, but what if it makes a bad investment? And it goes the other way. That's that? I don't have control of any of that, but if I can Intuit that, let's see. All right. Blockchain technology is really just an operating system for this injured, connected everything. Okay. That's interesting. So what makes money. When goods get traded marketplaces exchanges.

So what if I just own a little piece of one of the exchanges like Coinbase, it doesn't matter if the price goes up, price goes down, people got to trade it. They take a cut. That sounds pretty good. If you look exchanges or there's the NASDAQ exchange with London stock exchange or the Brazilian , all of those have been great investments over the long term. Even the LME before they killed themselves the other day, by letting the Chinese billionaire say, "oh, I'm sorry. I know I lost money, but I'm not going to let you take it from me." And they screwed everybody else. Just mind numbing, how to destroy the capital of a business and one easy lesson, but there's time arbitrage. Right? There's short-term thinking I got this angry Chinese billionaire, right? Who's given us a lot of commissions saying he's not going to honor his margin call and I'll just cancel all the trades. That sounds good. Oh, shit. I just killed the golden goose because now no one will ever trust my exchange again, ever. Let's go to a different exchange. That's negative time arbitrage.

BZ: So the way to, and I guess I, wasn't trying to position, day trading versus long-term investing because you're exactly right. They are very different. I guess my question that I was building to is with that bias in mind.How do we look at all of the trends that are out there, right? Because we could make an argument for metaverse right. that is the next 14 year cycle. Not withstanding there's crossover between the two, obviously, not withstanding that crossover. Okay. This is what I'm going to do. Or quantum computing, this is going to be the next large leap in computing technology. We're going to be able to calculate things we've never been able to before. So how do we think through these things that we might be seeing as trends or fads? And I like your rule earlier. Okay. "If some old fart says, oh, this is just a fad buddy, look into it." But how do we think through that? I tend to be more cynical. So I'm thinking, all right, great. We have all these trends. But how do we imagine the unimaginable? Sounds like a riddle

M: it's the question that all of us should be spending at least a little time on, in fact, one of the best things to become a better investor is to spend some time every day or at least every few days just away. Not staring at your screen, take a hike, take a walk, meditate, whatever it is, and actually just think and try to cobble together these ideas because you're a hundred percent right. But the metaverse oh it's just Facebook. No, come on. Just think about that one for just one second. The metaverse is the decentralization of technology and the eraser of nation states and industrial conglomerates. That's clearly what the decentralized world is. So the idea of a centralized organization being the metaverse, it's an oxymoron it's jumbo shrimp, or military intelligence or whatever, and it just doesn't work. but the metaverse is big. Okay. So most, so maybe the metaverse is this next trend? And my 14 year cycle is all about computing power mainframes, microcomputers personal computers, internet mobile net trust net. And to your point, maybe the next is quantum net actually like that. I'm going to think about that a lot. Im going skiing next week with my son. So there are other cycles could be coincidence with the same 14 year cycle, or maybe they could be offset maybe within the 14 year cycle. There's a seven year offset for these other secondary or second order effects. Yeah, the metaverse is clearly something that, that is created out of this innovation around computing power. And so we do have to think, okay what does that mean? Does it mean I should invest in these centralized organizations that are renaming themselves? It's like when we were in long island ice tea named themselves long island blockchain stock went crazy for awhile, but what do you do? You don't do anything in blockchain. you make tea, but it's a great meme play, right? But they did it in 2000 and last bubble. I lived it and I, we invested in a company, true story called art technology group and what they did all this company. Did they help companies change their name to die? Because if you change your name to.com price went up. So these guys actually then listed as a public company. They were consulting company, long story short. We'd put some money in, through a firm called tutor ventures up in Boston. And our cost basis was 50 cents. The stock went public at a hundred dollars. Okay. So maybe 200 times our money. And I called the principal and I said, what should we do? He says, I'm an insider. I can't really talk. But I can tell you two things, revenue is 6 million market cap is 6 billion. And there was a silence. He's mark, did you hear me, Mike? Yeah. I heard you ı was like SELL, GET RID OF IT NOW! Here's the crazy part. It went to four. So it went down 96%. And I think about that at four, it was still an eight. Off our call list, but we sold at a hundred made 200 X. But the thing is that company didn't do anything. And these, so the third part of the question is, so you've got the main wave then how do you have then do you have these other opportunity waves, but then you got the scams that come into it that you want to avoid. So there's lots of crosscurrents and how you try to think about these big themes. But then the other thing is if you spend too much time thinking about it and not enough time acting on it, right yet, paralysis by analysis, you miss all the opportunities. And this is, to me, one of the things that's most, most important about investing is winning investors.Great investors lose more often than bad investors. They do win a lot, but they lose a lot. The reason losers, bad investors don't win or lose. They don't do anything. They're so afraid of losing that. They don't actually commit capital. So to your point, rather than try to figure out, do I, can I figure out which is the one I like to put bets and there are bets in a lot of different places. And then when things start to go double up, most people want to double down, right? When things go against them, they want to put more money in to prove that they're right in the market's wrong. The market is never wrong. The market is always right. You are wrong. And when we make mistakes, it's okay. As long as you Ralph. Okay. And we need to talk about this. Cause cause from Dean Smith and it's March madness and Tarell's play tonight, so recognize them. Not that hard. It's usually right in your face. Here's the hard part. Admit it. Yes. I made a mistake. there was a show on TV a hundred years ago called happy days. And there was this guy, Arthur Fonds rally, the cool guy. He said, Hey, and he couldn't say the word wrong. He couldn't say the word wrong. You got to say, you're wrong. Then you got to learn from it. Most important thing. And thinking investing is with every investment we get richer or wiser. Never both. We either learn something or we make money because when we're right, we don't actually analyze. We just say, oh, look how smart we are. Whoa, of course it was so good when you lose money and then you've got to forget it. And the forgetting is really important. And this goes to the other great coach who is still in the tournament as well. University of duke at Durham down the street, coach K has this great line. He says, you know what? Separates great. Players slash investors from the average? No, he says the greats focus on the next play. Watch the tournament game tonight and see how many times did you, so miss a shot go down and commit to a stupid foul. Cause they're thinking about the shot, a great player, doesn't even remember taking the shot, goes back, plays good, different defense steals A ball makes a layup.

Bad investors they're constantly focused on, oh man, I'm a mistake. And I just can't believe it. It. Got to learn from it, but you got to erase it, forget it and go get the next up.

BZ: Individual plays versus ETFs?

M: You guys probably both play Fortnite. I watched my son play Fortnite. Does he take a shotgun or a sniper rifle? He takes both. Cause a shot is really good in some situations and the sniper is really good at another. So yes, the answer is yes. You definitely want a spray and pray and the whole spray and pray.

I prefer spray and then water, the seeds that start growing. Okay. That's better to me and I pray a lot too, but hope is not an investment strategy. Hope is a four-letter word, particularly in investing, but the sniper rifle a hundred percent. And here's the thing. If you're willing to do the work, the sniper rifles really awesome, because if you actually will do the work that most people won't, then you get a better shot. And if you take that better shot, you can make a lot more concentrated portfolios, make you rich. Every great fortune in the world came from constant. Concentrated stock position, concentrated real estate position, contrary to business ownership, every fortune start with concentration. Now the joke is how do you create a small fortune start with a large fortune and stay concentrated, concentrated long enough competitors will come up and chip away and take all your wealth. So diversification keeps you rich. So if you are in the business of making money, which when we're young, we should be and ice. And I'm really good at talking because I sucked when I was young. I didn't do any of this stuff. I talk about. In fact, I sent a pre out to myself the other day, maybe a year ago, advice to my younger self, all the things that I did wrong, that I want people not to do wrong. And the key somebody asked me, how do you become a better investor in. Like all the time, a lot, like all the time and do the shotgun and do the sniper. And, but when it goes against you just move on, just sell and move on. And when things start going, don't pull your weeds. Don't pull your flowers, right? Peter Lynch has this great line. He says, investing is super simple. You pull your weeds and you water your flowers. But he says, the average investor does the opposite. They pull their flowers. Cause they're so afraid to loosen and they water their weeds because they want to prove they're right. Soros is not whether you're right or wrong. That has nothing to do with anything. It's how much money you make when you're winning, how much money you lose when you're wrong. And if you can constantly minimize your loss. First loss of the best loss and let your winners run and then do that work so that you think about a sniper. You guys have seen the movie sniper? .Does he just like randomly pull the thing out of his bag and then start shooting? No, he plans. He sets the stage. He gets where no one can see him. He's got the stuff, the cammo on. He lines up the shot, he waits and he makes the kill. So it's not like that's planning. And so if you do the work you set the stage, you do the plan, you get the cammo, you get the right rifle. You get the right ammunition. Yeah. You'll make some, you make some great investments. But that does mean an ETF is bad. Now the problem, the only thing on ETS, just make sure they actually do what they say they're gonna do in what you name the ETF. So you could have value ETFs that are filled with 30 times revenue. These is crap companies. Yeah. It's not value now, but the new value when it goes down 95%. But, and again, this personal experience. So when I, my first job, I had a 401k and, we had six options and one of them was the blue chip growth fund. And I had a thesis that the world was going to get lousy. This is back in 1991, 1992. Oh, we're going to have recession. I'm like, I'm going to put my money in the high quality blue chips. So I moved all my money there and we had the recession just like we thought, and this thing went down 40%. What the fuck? Probably shouldn't say that, but what the hell? And I go on, I look and it says in the footnotes though, "the blue chips of tomorrow" What the hell? This is my fault. I didn't read. I gotta pull that prospectus.

BZ: It's interesting. I want to go back to what you said earlier, And I agree with everything you said, and I think it's actually one of, one of the episodes we recorded about two months ago. At this point we talked about just thinking about. How you invest in approach money and what are your biases and knowing yourself. And so for me, I know that I am very bad at acting quickly.I take, and I do the analysis paralysis. For me at certain points and this is one of them right now. I don't have the time to go and research and then implement and act quickly. Cause I know I won't. So I'm just going to buy a bow broad basket for now and hold it. And then like you said, in your answer, there's different ways to double down and concentrate, right? Whether that's your skills, whether that's, I'll say starting a business, right? So there are different ways to think about investing, especially as an individual. And so I, I'm interested to hear what you would say about the asset allocation portion that you said earlier, that's almost more important than picking the winners and losers because it seems like you can build a great portfolio that has a phenomenal asset allocation out of individual stocks, right? And individual positions. You can also do it with ETFs and it might be easier for the individual to do that. Factor in a lot of things. You've got to do your research on those ETFs. You can't be buying on the name of the tick thing, but it's that's the answer more than one or the other, right?

M: Yup. No, you're a hundred percent right. Austin and the ETFs are an amazing tool because they give you big swaths of the canvas. So if you think of a canvas and it's got all the different colors all over and, international and emerging markets and developed markets and equities and fixed income and commodities and currencies and derivatives and leverage and all the things that you need to build a diversified portfolio. Using individual securities, you can do it. It's hard, like super hard because you got to decide, okay, I want autos, but do I want European autos or Japanese autos? Or, what about this Tesla thing? Is that really a car company? Oh, I thought it was a software company. It's a car. It sits out, it collects dust, just like every other car. And, oh, by the way, you're only in your car 3% to 4% of the time. Think about that. You're inside your car 3% to 4%. So I would say don't spend a lot of money on cars unless you're like really into cars. But the interesting thing about all of this is how you build that portfolio is important. So if you think about the four steps of investment asset allocation, manage your selection, portfolio construction and security selection. So the 85% is in those first three, that is the allocation piece. And then the security selection piece is the 15%. So it really doesn't matter over the term, whether you own Ford or GM, it actually doesn't. In short periods of time, it can matter a lot for sure. But over long periods of time, it's less important than knowing should I be in automobiles or should I be in flying cars or should I be in, whatever. So the big picture asset allocation, should I be in stocks or bonds? Credit or equity, should I be in currencies or commodities? Should I be long biased or should I be long short? Should I be fully hedged? Should I be in cash? Should I be in, in emerging markets or international? Where's the growth, all of those big pictures. It's those asset allocation decisions are really important. So that's where I always start. And I try to come up with five big themes 10-year trends that I think are going to drive investment and growth. And one of mine is the middle classification of the emerging markets, right? There's about 3.5 B that live at middle-class or below around the world. Most of them in Southeast Asia and. Most of them are going to move up. And it's just math got to move up. Now, China alone, China took 750 million people out of abject poverty and put them in the middle-class over the last 30 years. I don't know. Maybe those people that want to move up. They've seen Dallas. They want that life. So there's probably some opportunities in retail and consumer in China over the next. Give or take giving us the size of the U S and Europe put together. So that's a big thing. How do you play that theme? I could buy a and have bought this ETF called K web. Why? Because it owns technology companies that are making those middle-class lives better now marked I think is down 90% in the last year. Yup. So I bought it two weeks ago because anytime something's down that much, you gotta buy it. It doesn't matter what it is. If something's down 90%, you got to buy it. And so how else would you play the growth? The Asian consumer commodities is going to be more in demand. So I play it that way. Then you got to say how am I going to implement? That's the manager selection piece. So manager selection. I could do it myself. I, Mike and I could go decide, we're going to go rifle, shoot. We're going to sniper. And we're going to pick the stocks. SoI'm going to buy Alibaba. I'm going to buy jd.com. Totally fine. Totally acceptable. But what if we miss Mae Twan? What if we miss Pendo that K web is going to have them all. So that's outsourcing the manager to the group. That's doing that. Now the challenge with that is you got to pick between the managers and Howard marks has this great line. He says the problem with picking managers and picking people to manage your money is you have to decide between the good person who sounds good and the bad person who sounds good. They don't let the person who sounds bad, make the presentation. And it's so true. They all sound awesome. But then there's portfolio construct. This is, let's say I pick 10 things, either individual stocks or ETFs or hedge fund managers or mutual funds. I got 10, 10%, each 50% to one and 5% to the others that matters. It matters a lot actually. And there's capitalization waiting. There's equal waiting, there's rebalancing or not rebalancing. So all those portfolio construction things matter. Now the nice thing is most of us, we have lives. So it's like the cobbler's kids who have no shoes. We intend to manage our portfolio and we intend to rebalance and we intend to do all the work, if I look at my IRA, I have this little IRA from your way back when, and I look at that relative to the things that I do, or I just put it in my funds that are managed by people in my firm. It ain't close. You have all these great ideas. Why didn't you just put them in your IRA? Because I got busy and I didn't do it. And I wasn't smart like Peter teal to put in, private shares, which is what I really should have done, should put private shares at Morgan Creek. And then I should have written them down to the, basically zero in the global financial crisis like he did. And so then he gets this big basis and it created billions of dollars. Now I wouldn't have created billions of dollars, Peter is a genius. He's a mad genius, but anyway, so it's a long way of saying allocation first, spend your most time there because it's the most impactful. And particularly for younger investors, I have this thing that don't listen to anything I, or any other pundit on diversified portfolios and portfolio management. Under 60 years old, don't listen to that. Just concentrate on venture capital, equities tech. Like I believe it's not hyperbole. I believe it should be against the law for 25 to 65 year old people to own bonds. It is the waste of time and money. You don't need the volatility reduction because your volatility reduction comes from your future earnings. That is your fixed income.

BZ: What are your emotions and feelings looking at blockchain now? Is this kind of is this really exciting?

M:Oh, my God. It's the greatest look. It's the greatest wealth creation opportunity. I'll see in my lifetime and I'm gonna be around a long time. I got an 11 year old still. So I, I have this funny thing, we're a good Catholic family. I joke we had nine. We just skipped the middle six. So we have two older kids and a baby. And so we're going to be, I'm going to be around a long time. We'll be working for a long time. And so I'm not going here, but this is the greatest wealth creation opportunity I've ever seen because we're building on great tech. When you built the internet, you were building on shitty tech client server technology is really bad when you built the mobile net. You're building on pretty good tech. The internet was pretty good, but now you're building on top of an installed mobile net infrastructure. That is extraordinary and blockchain is a technological advance that is not linear, but exponential. So all these things are incredibly powerful. So I look, I got exposed to blockchain and Bitcoin in 2013. I didn't understand it. And so I was not a cryptography student and I missed it. I got blockchain, I got infrastructure my whole 14 year cycle thing and have done quite nicely. We've made good investments in infrastructure but I missed the opportunity of, a generation to really be early in, in behind joke that I got introduced to it the same month as the Winkle vie. And they're multibillionaires and I'm not. but there's a movie called the graduate and the graduate. There's a scene where he's asking his uncle for advice is one word plastics, go into plastics, which was good advice in the sixties. And today I said one word, "Jack blockchain go out to California. He wanted to live in San Francisco, said, go work at Coinbase." And he goes out and he interviewed and talks to people and it's I don't know, dad, maybe it's gonna be a big deal. I'm just going to KPMG safe. Gets me to San Francisco. " you're going to hate it whenever he did hate it. Quit after nine months" Coinbase goes public. Cause I find the right should have gone to Coinbase, but not as bad as you think you are. I might go, oh, do tell. I told you to go to quit, but you didn't lever up the house and put on Bitcoin. I'm like, "oh you a little shit." Okay. That's fair. No, one's crying for my son. Cause he works for snowflake and he's doing great, but, and I'm really proud of him, but I think it's interesting. It's a long winded way of saying I have never been more excited in my life. I've never had this much fun in my whole career and I loved my career. I loved every stage of my career. But my career has been in chapters, right? Chapter one, I work for not-for-profits. I was an allocator. I had fun. I loved it. I got second income working for the universities. Chapter two, I built a really nice asset management company, Morgan Creek, capital chapter three three years into a 20 year stint of tokenizing the world. And I really am having more fun. Now I get to hang out with young, smart, really creative people. I'm seeing technological innovation like the world has never seen. I now spend all my time doing venture capital, which has just so much fun backing founders and watching them build things. And it's, again, back to that long game, if you think that there are only four ways in the world that you can make money, all four require you to take risk. If you leave your money in cash, you get the risk free rate. Hence the name because you're not taking any risks. And unfortunately, if you do that, all your wealth is chewed up by inflation, right? Leave your money in the bank today, you get less than one. Inflation is eight, that sucks. So you gotta take risks. You can take credit risk, first risk.You can buy a bond. Now bonds are an actual claim. If you don't get paid, you can Sue pretty good deal. But you don't get paid a lot. You can take 2% above Risk-free rate not a very good deal. Look at bonds day, 2.4%. Woo big deal. And then you can take equity risk. Second risk equities are contingent claim. Meaning you only get paid if all the bond holders get paid. And so that's, that makes 7%above risk free rate. That's pretty good. So equity should be at the core of your portfolio. Then you can take illiquidity risk, private investments, private equity, private real estate, private equity, private debt, better get 5% more, 12% above risk-free. Awesome. 14, 15% compounded venture capital, even higher. And then you can use structure or leverage and leverage cuts both ways. Sometimes it's good. Sometimes it's bad, but illiquidity and venture capital and innovation as an asset class. And for all the ribbing she's taken, Cathy Wood is exactly right. Innovation is an asset class. It is where you want to invest for the longterm. And that's what I'm doing right now.

BZ: That's amazing. Mark. It's been so good to have you on, I know we're running out of time here. But it's just been an absolute pleasure for both myself and Austin. Thank you so much for the time.

M:I appreciate you guys having me on the show. I love this. That you guys are doing a show on the longterm, instead of all the day trading stuff again, nothing wrong. Day-trading totally fine. But sometimes you got to step back, take a hike, think big thoughts and really enjoyed the conversation to appreciate all your hard work, getting ready for it. And we'll talk again soon.

Support this podcast at — https://redcircle.com/the-long-run-show/donations

In this episode of The Long Run Show, we are going to be talking about energy , how effective the sanctions will be on Russia in the long run.

Hosted By:

Austin Willson

Michael O'Connor

Transcript:

welcome back to another episode of the long run show. This is Austin Wilson. I'm here with my cohost. Michael O'Connor. And today we are going to be talking about energy very timely subject at the, as we're recording this, there's the whole Russia, Ukraine, conflict, war invasion, aggression, whatever you want to label it happening over in Europe and obviously with Russia being one of the top producers of natural gas and.

In the global economic system we thought this would be a very timely subject. We've been wanting to talk about energy for a while though. Mike and. This is just there's a lot going on. There's talks of sanctions being thrown around. And how is that going to impact European countries in the U S and  Western countries.

 So China's role in all that is, there's a lot of moving parts here and some interesting solutions as well, maybe. We don't know all of those. But we'll just talk through that and try to think through what this means for oil stocks or companies and anything related to oil, which has everything.

So it's true. That's a good way to put it. And like you said, we've been talking about this for a while. We've hinted at we've definitely run into your energy discussions, especially in our ESG one the whole. Green energy thing. And then all that, there's a lot of been a lot of different opinions and different kinds of paths that different companies and especially national governments have taken.

 We've seen countries in the last decade, really abandoned nuclear war. I don't know. I pretty severely disagree with it's clean, enormous amount of energy. You're not necessarily reliant on other countries to supply the fuel. Maybe you don't have uranium mines, but you usually can usually pretty dependably get uranium as a national government.

So it's that's a whole thing. I'm a big nuclear guy. I think I've heard that you are as well. So we might, this would be maybe one where we're not really adversaries at all. We're just agreeing and on our soap box, but. Hey, what's a podcast for if not a soapbox. Exactly.

So it's been interesting though to watch okay. We've seen different, like energy has driven. Or it's driven the us going into the middle east and mulling around, over there doing different things. And so it drives a lot of foreign policy but also I think that the less more.

Commodity gas. As far as energy goes, that's very important for heating homes and businesses, and a lot of different things. Obviously oil touches everything.  Just about everything you've touched during the day has something to do with oil because of plastic and parts and.

Yeah, literally everything. My, my phone case here is got oil in it. The cord that's connecting my headphones to my laptop's got oil in it, essentially.  It's  in everything, but natural gas is also a huge factor as well, especially if we're talking Europe, they get a lot of their natural gas, like Poland to Germany, get a lot of natural gas from Russia.

And what is this whole conflict due to those supplies?  It's the middle of winter, so you're going to need to heat your home, whether you're in Southern Europe or Northern Europe and natural gas is is one of the things it's not a lot of people with. At least in Europe that I know of maybe some more in, in the Nordic countries  with their interesting cozy hygienic, he, I forgot how to pronounce it quickly or something like that.

Yeah. Going to pronounce that, but a nice cozy wood burning furnace. Yeah, exactly. So I think of the two almost at this point, as far as energy goes, Natural gas is something that hasn't been explored as much. Now I know that doesn't drive as many economic outputs, but it is definitely from the consumer, like direct directly of consumer impact.

 That is definitely a factor that I think hasn't been talked a lot. What are your thoughts there on the natural. End of things. That's an interesting point because we definitely live in a very oily world. We're very, everything's viscous and wonky   but that's a good point. I In order to so many, I'm a big.

Cooking guy. I like gas more than electric stove top. I'm a big gas ranger fan.  I love my natural gas Austin. I'll tell you what. And so the heat a house or to cook a steak like that is such a huge those are two very basic survival necessities heat. You got to stay warm to stay alive.

You got to eat to stay alive. Now you could just eat refrigerated foods instead of cooking steaks. But what's life that a good steak net here. And again, maybe I'm vegetarian listeners but Hey you could roast some nice broccoli or something with that, but here's the thing.

Even if you're roasting some nice broccoli or eating raw refrigerated foods, your refrigerator uses natural gas. That's a problem and it might be heating your home. So I think it's one of those things where people definitely focus on oil for good reason, but natural gas is also a somewhat of a large resource that I don't think it's enough, quite enough.

And it's w it's winter in the Northern hemisphere right now, too. It's smack dab in the worst, my least favorite part of winter, when Christmas is long gone, it's just cold and you just freeze your nose and you're just sad and just waiting for spring. So this is where it's time for no gas. Exactly.

Exactly. This is about the worst time to have a cold house. So it'll be thing to see what's done as far as sanctions. I know. This is a very evolving situation and I'm sure by the time you might be listening to it, it's going to be different than what we you time. But just a month ago in January, nobody would have been thinking that there was going to be any impact on oil or gas or sanctions in that realm.

And even at the beginning of the invasion, Eh, people were okay. There's going to be sanctions, but commodity markets are going to be. We're not going to see sanctions on oil or gas. That's a bridge too far for Europe, but it looks like the European union is trying to support Ukraine and however they can.

And so it seems like that options on the table and may by the time you listen to this, maybe a thing there might be sanctions out by that point. So what is that what does that do here in the us? I think we're very far shielded from. 8% of our oil imports actually come, we get a lot from Canada.

Like over half of our imports come from Canada and we produce enough oil to be self-sufficient. Now we still important export oil for various reasons. In the U S I don't think we'll be quite as hit by that as they will in Europe. But you're, what are your kind of thoughts on that? As far as what's the.

 As we look at Europe, having trouble with not being able to get enough natural gas or oil coming through their pipelines. Yeah. It'll be really interesting because we've seen a few days ago, Germany stopped the the Nord stream to a big pipeline. And that's interesting that the. I think the invasion was not what a lot of people expecting.

Like you say you're expecting a lower impact on commodities markets, lower impact on economic situation worldwide, less impact. Russia, because I think a lot of people thought it was going to be just a replay of 2014. They go in, they just make a lot of weird statements like, oh we're just protecting our, I said  this is insane.

I  Munitions and rockets on civilian buildings and stuff. It gets, it's very different. This is a kind of a war of attrition style invasion. And which is just so sad to see and so scary to see. And I think the interesting thing is. It's really galvanized the European union to say, Hey, you know what?

We're not afraid to lose out on some natural gas. We're not afraid to lose out on oil if it means having the safety of our citizens and of our neighboring countries. So I think the interesting thing is it's probably going to hurt the sanctions and the actions that are taking place are, I'm sure it's gonna.

Pretty much every country in Europe's and every citizens pocketbook, but I think it's the right call. And I think that in the long run, as we always talk about I think that it will push more energy independence on both the constituents of the EU and the EU as a whole. I think that you will probably be strengthened as a diplomatic entity and they're going to have to say, okay, let's maybe let's figure out.

Some sort of energy sharing program where member states are able to frequent. By cell transmit energy. Maybe I personally, I don't know if this already exists, but I would imagine if it doesn't that this will probably happen where you'll see. I would imagine and hope that a bunch of nuclear energy generation being built France has I think the highest penetration, highest amount of.

 Energy is nuclear of any country in the world, and I'm sure they have the the companies, the technicians the expertise to be able to rapidly scale that in the EU. So I think. A lot of collaborative action being taken, which I think is really interesting because at the end of the day, in the short term, it is going to Jack prices up.

It is going to hurt the pocket books of likely every European citizen. But what Putin's done is essentially galvanize all of your up against him and against his imports and his products. And really become a pariah that you know, is at the end of the day, I think simply going to integrate.

Collaboration and cooperation, especially on energy, which was this Trump card. Trump Putin ironic a Trump card that was holding over Europe. And now it's  all right there, Take it is what it seems like. Yeah. It's interesting because, and we've spoken about this a little bit. How we're we have grown up in, in the last 70 years has been some of the most peaceful times in the entire world and we've grown this interconnected global economy and of course that leads to.

Typically more peace. There's always people taking advantage of it, for sure, but there's typically more peace if everyone's relying on everyone else for resources and trade and imports and exports, but then The winners and losers in all of this, right? You have smaller European countries that are just going to totally pay the price for being dependent on Russia and gas and oil in the short term.

Now, hopefully like you're saying, I really hope that the European countries can figure out a way to satisfy their need for energy in them in a more efficient manner. But my it's interesting because I think energy independence is probably has been up to this point. I think this is a great global example, but it has been an underrated kind of national security protection that most countries have not thought about before.

 But I think they're going to think about a lot harder in the future and I wonder what that does for. This is not a political podcast, but I don't know what that does for relationships between countries, because economics obviously has played a huge role in the piece we've seen in the world over the last seven years.

 And I don't think that is at all by mistake. I don't think that's at all by coincidence. That's clearly been the case, but then  you. It's going to hurt European countries to not have this natural gas and oil. And also in the short term, Russia is creating its own rift with everyone else.

Besides some countries, China, North Korea Iran, some of their allies  and friends national friends. Russia's kind of creating this rift for itself over the long run. If we want to get back to a more peaceful world, how does it look? And obviously this is not to like, try to excuse what Russia is doing right now, because it's absolutely abhorrent.

But what does that look like? If we get past all this and hopefully no war like global war breaks out, it looks like. Country back into the fold after you've gained energy independence, right? Because Russia, some people have said Russia is just a gas station that happens to have a country connected.

 They're there Saudi Arabia that they're very heavily dependent on oil.  What is, what are the long-term impacts of this from a, both an. Economic standpoint and also a peace standpoint just because  the, those ties, those global ties and interdependencies really disincentivize people, countries, not people but countries and their leaders, whether rational or not to go to war.

  If you need something from another country, probably not gonna attack it. You're probably gonna find a better way to get whatever you're trying to get from it. And so I think energy independence is a good national security kind of strategy, but at the same point, how do you still. Or balance that with being somewhat dependent to be peaceful, it seems to me account everybody just being good pers clearly.

So there has to be some incentive, usually monetary to, to promote that. And here's the thing that has been blowing my mind is imagine 60, 70 years ago, right after world war II, Europe is rebuilding. Asia's rebuilding everything who would have thought that Germany and Japan would be our two.

Primary economic and diplomatic allies in this kind of a situation and the buffers to Russia, which was the ally in world war II. It's it's pretty crazy how in which I think that gives hope that in the long run. Over decades, whole countries can really be brought back into the global sphere.

 Germany is now a leader in European, the European union as a pretty much the diplomatic center of Europe, I would say. And Japan is absolutely economic powerhouse. Both countries have seen. Incredible regrowth and rebirth. And there's no reason why, you know, after all this, even in a worst case scenario, Russia, wouldn't be able to come back and I'm sure that the global community would be happy to receive it.

  Barring some sort of truly horrific apocalyptic event, I think in the long run countries. Are extremely resilient, similar to a person getting a cold or something they can knock you out for a few days. But I think that at the end of the day, the people of of a country. Always attempt to, to come back towards the community.

 The interesting thing in this situation is that just the amount of relatives across so that Ukrainian and Russian citizens are very close in terms of bloodlines and in terms of cultural heritage it's such an interesting situation to see, and it's sad to see such close nations fighting.

   And such aggression from Russia. Can you imagine if we just invaded Canada? It's wild. It's wild to think about. But I think it's also been a wake up call for the world and that wars do happen and it's important to be vigilant and be focused on the long run and say, okay, just because things are good right now.

It doesn't mean things can go crazy things mean things can't go crazy. And a few days think about even just a week or two weeks ago, it seemed like it was all just talk on, oh  it's probably just positioning whatever and that it's real.

So I think it's a good reminder. But in terms of back in terms of energy I think, like you said  going to a. Looking at energy as a national security interest and not to not to go too much on the Ukrainian situation right now is is powerful. Being able to provide energy to your citizens is.

Crucial in this day and age with the amount of infrastructure that relies on it. Refrigerator, washing, machine heating, we're talking natural gas heating. You're getting your house, cooking your food. That's about as basic of a national security interest as it can get almost. Yeah. It's it's amazing when you put it that way.

 It's like a. Pretty much all of the 21st century gins that we appreciate and love are our washers are just wash it. Here are our refrigerator, our clothes drying and washing machines. Those are all rely on energy. And so if you don't have that, you're really launching yourself back hundreds of years.

 If you can't provide energy, clearly a big issue. So let's dive into energy specifically, cause it's the broad term, right? Involves oil Metrocast, anything otherwise known as turbines. Sorry. The you can tell I'm really big on turbines anyways. Wind solar might be a thing.

 Nuclear, you mentioned earlier, you really  there's coal, which pretty much everyone agrees is one of the worst. So there's hydro hydroelectric power. There's a lot of different ways to create energy. We don't have a lot of good ways to store energy. That's one of our biggest issues.

 Humanity a thing. We don't really have a good battery yet to necessarily store  some less reliable forms of energy. But what far as the landscape that I just laid out? A lot of people break it down into like renewables and fossil fuels. That's the normal terminology. Is there a better way to approach that?

Because I feel  I feel like that's not always helpful to just break it down to, oh, this is renewables and green and these are fossil fuels and black and dirty. And. It seems, it must be a better way to, to look at this because from an innovation standpoint, usually you gotta come in and at a problem from a different angle  and approach it in a new way.

And so I like what you were saying about nuclear. I, for one have heard very convincing arguments on its benefits. And on its long run capabilities, obviously we've seen stuff like Chernobyl and what happened, I believe. Japan or it might've been in China with the tsunami hit a large nuclear reactor Japan.

Okay. Got it.  Obviously we've seen those disasters, but it seems  the way nuclear has evolved and the point that it's at now this is a beautiful case. Study run more than 70% of their country's electric grid on nuclear energy. And they're in for the long haul. Clearly they built up a lot of facilities for it.

 And so not just nuclear, but hydro electric power. That's another huge resource that's untapped, especially here in the United States.  Actually I talked with a company that was making  a process to allow fish, to go past dams so that they could hydro and more dams and basically not impact the natural environment around the dam and have free flow.

Wildlife, but also have electric power being produced there and balancing both sides of it. So what are your kind of off the wall, thoughts on energy? Like how do you think about it differently? Because I don't really like being forced in those two boxes. Okay. Green or fossil fuels.

That's the only two. I think it's very unhelpful when it, when we try and look at this problem, I actually really, I really appreciate that because I think. That's pretty spot on because if you just, if you're just categorizing all energy in terms of does it emit fossil fuels or not, or does it emit, does it use fossil fuels and emit some sort of  side effects into the environment?

 It's almost going back to our ESG episode of that's a certain methodology. I think that it doesn't describe what's actually going on at a deeper level. It's a methodology to ease. Look at the broad scope of, okay.  These things and it hearkens to. To design thinking and specifically called a one input system.

So let's say your car on a good day when your car is not breaking down, it's a one input system. So you just input gasoline and it works as a system is at least in terms of your psychological perception of it. Sure. You got washer fluid, you got oil, all those things, but in terms of your psychological perception, it's a one input system which makes it very easy for your brain to get.

Categorize it very well. And when it's working well, you have to use very little psychological energy to keep track of your car. Even better for a, something like a Tesla or an electric car where really pretty much is a single input system, except for windshield washer fluid. I think it's the only fluid in a Tesla.

 So in something like that, it's like a pretty much a true single input system. You put electricity and maybe you've got to worry about the washer fluid every three, four months or something like that. But it's really not that big of a deal. And I think that there's a tendency for both in terms of regulation on the governmental level, down to the consumer level to think of, to try and categorize.

Energy forms in a box and think of them as a single output system, almost okay. Wind and solar that doesn't put anything out. So that's a good, that's putting out like goodness into the environment. That's a net. Good. And then if you like, ah, coal, natural gas, that's a net bad.

That's putting bad things into the environment. And then if you see pictures of nuclear, Power plants. Whoa, what's the, all that like crazy smoke coming up. It's just water vapor. It's literally just water vapor, which always blows my mind. How many people still are like looking at crazy stuff coming out of the nuclear plant over there.

Oh. And you're like, yeah, look at the crazy stuff coming out of your bathroom door. When you're taking a hot shower, it's also called water paper. But your  your other housemates, don't worry about that. Cause it's water vapor. Exactly. Exactly Steve, you can you can, you don't have to worry about it.

I don't know who Steve is, but maybe he's our escape go to the show. But anyway, there's a human tendency to try and simplify these things into kind of single methodologies. And I think that the idea of the black and white of this is good for the environment, quote, unquote, or bad for the environment.

Quote unquote it's it's. At a ground level. You can't there's so much of a difference in nuance in really every single method, because solar it's okay, you only have it half the time. And that's, if you're lucky, if there's no clouds all sorts of stuff, so sure. If you, and they're expensive to build so sure.

If you can get them up, you can get the sun going. That's great. Wind is tough. It's also intermittent. So that whole battery problem is very prevalent. And yeah, with like cold yeah, that's a lot of, there's a lot of stuff coming out of there and there's more and more, they're more and more companies coming out with new and innovative ways to capture or even turn some of those emissions into good things.

But at the end of the day, it's still a process, but I think the part of the danger is. Saying that okay. We need to just shut down all of that stuff like that. That's just not going to work. And that's why I'm a big personal advocate for nuclear because that's nuclear is one of the few. Methods where it's okay.

 We have both the thing needed. We have tons of uranium. We have the capability to use it immediately. It would take, it takes a few years to build an and get a nuclear power plant operational, but it's not like Jesse, just a few years. It's you've read a decades of transitioning to wind and solar.

Like you. Pretty realistically, you transitioned to co like net zero energy production for most of the world, if you use nuclear energy and it wouldn't be that difficult within a decade to 15 years, which is mind-boggling. Yeah. Yeah. Okay. To push back and also support your argument. So  the output effect, I think people over.

 W I guess, value or think about they F they overemphasize. So it came out of  the plants and underemphasize, the inputs going into some of the, for instance, solar panels or some of the impact that it like wind turbines have directly on bird populations and local environment. Clearly bad outputs for both fossil fuels and both solar and wind.

There's obviously outputs that are negative and a negative consequences from hydroelectric. I'd like the company I mentioned earlier, there are some companies looking to solve those issues. I think what's really. Probably the best best course of action. And there's also problems with nuclear too, right?

Like what do we do with all of this uranium that we've used up that you can't really use anymore? And now it's radioactive and that's a problem for humans. Where do you store it? Is there enough space to take it out? Like mine it from the earth, use it and then store it safely. The capability for that whole process.

That's a whole kind of other question that we get into. Clearly every form of energy has some sort of negative output because we're humans and we're running around doing stuff and we're bouncing and bashing into things and screwing things up. Okay. So energy. It's always a problem.

There's always negative outputs. What I think makes the most sense is it. And it's interesting because this conversation always gets very dogmatic and political very quickly. It's oh yes. You're on the left side of the political spectrum. You line up with green energy. If you're on the right side, you just want fossil fuels and then they just go after each other.

 What's what seems like the better angle to come at it from is okay. We acknowledge that each has problems. Worse than others. Probably what we probably should do is take what we have now, whatever that is whatever's in place and make it less harmful. And then continue to look for motivation on the kind of  the solutions based around our current technology and reducing the harm of our current technology while also building.

Completely new technology to harness energy from our natural environment.  And so whether that's making solar and wind more efficient, whether it's companies like the one I spoke about earlier using solutions for transporting fish across hydroelectric dams. Great. Whether that's emissions companies creating solutions to.

Sure. Some of the negatives of  oil and natural gas and coal cleaning up the process while looking for better solutions, I think is probably the ultimate answer, but nobody ever wants to say that. Cause that's a bad sound bite that doesn't look good on TV. It doesn't look good on Twitter.

 But that seems like the best way to go about it. And oddly enough, it seems like the way that would pay off the best. Okay. Because a company, an energy company, who's only focused on one one resource, one way of making energy. It's very risky.  That's completely undiversified. So imagine if you had an energy company where you're yes.

You're you have some oil exposure, but you also have some nuclear exposure and then, oh, by the way, you have a subsidiary that runs an emissions company that reduces the emissions from both your oil and natural gas section and in the nuclear section. No, by the way, you have some windmills and solar panels to boot, it's tough to beat.

It is one of those subjects that will naturally create a tension and there can be contention pretty easily on it. So it's something where energy is a classic, especially in the last 40 even 50 years has been a classic political debate. When I think you're right, I think at the end of the day, it doesn't necessarily have to be, it can be a debate that is ensconced in moderate TISM and the.

It's enabled to be both sides can understand what the other side is coming from. I think that it's exactly like you're saying it just takes a cooler heads to prevail. Now there's an interesting point with the energy companies being diversified. It is really expensive to, especially especially nuclear is very expensive to get a nuclear plant up and running.

I'm sure you're going to, you're going to make that money back over the course of decades and then some, but it is very carefully. Heavy and with all the subsidies that been going on for wind and solar, there's been a lot of development there, but how long is that sustainable? And is that even a good thing that the government is offering subsidies?

Maybe not, maybe better off subsidizing nuclear or geothermal or hydroelectric, who knows? Yeah, there's some interesting there's some interesting. Talk and research and inventions being done on the hydrogen side of trying to create like hydrogen fuel cells to power vehicles or like small theaters.

 So there's some interesting things that we didn't even mentioned, like geothermal, you mentioned that we haven't even talked about that being a, an option as well, but there's Conversation with someone. Yes. Even when you're talking about Iceland, they run most of their infrastructure on geothermal, because it's basically just the one big volcano over there.

So they were lucky enough or lucky enough to live on a keynote. You call them lava land. So the Iceland There you go  the Vikings didn't get that one. But that's okay.  We won't hold it against them, but it seems like there's a lot of options out there. And  I hear what you're saying about the nuclear being expensive and obviously government subsidies planned all of that.

 But it would seem  and maybe we should go consult for some of the big  oil boys, but it seems. If they wanted to, they shouldn't have the margin to go off and try and do a nuclear power plant. But I would imagine that, and it's we were just talking energy for some reason. I really don't understand why, but it gets political at least in the U S very quickly.

And if I bet since oil has had a bad rap for the last few decades here if they went off and did nuclear, it would be the worst PR move. I'm sure their marketing department who would just be in their faces and do the desk going, no, why are you doing this? So it'd probably be a bad PR move, which is why you see a lot of oil companies.

 They're throwing money at wind and solar because it looks good, but it might not actually be. While for them, or they might not even be using reports of large oil companies putting up a solar energy, a field, and then they never connect it to anything. They just leave it unplugged, but it's just a PR stunt.

So they don't care. This is spill a little oil in the golf and build a solar cell, a couple of solar panels. It's all good. Anyways, it seems like maybe the real Kind of brunt of the energy question is look for more innovation and try to reduce the tribalism or political.

Political influencer or issues that arise in that sector. I don't think you're ever going to reduce the influence, but at least try to reduce the politics of it all because  when you get down to it we're talking about things that everyone needs, which is why, again, it seems like.

Interesting that it gets so divisive so quickly because everybody, I don't care how rich or poor you are. You still need a warm house to sleep in.  And that's something that we should all be able to behind. So it seems like it, it just needs to, like you said, cooler heads need to prevail and hopefully  we can see some of this  coming to a head I've seen.

Like with with Germany, we were talking about earlier and versus France Germany has gotten rid of all their nuclear has a lot of nuclear. Like I said, 70% of their grid is from nuclear power. It's going to be interesting to see how this plays out. Yeah. And I think on the international scale  the interesting thing is that France is such an interesting, I love that you brought up France again with the nuclear, because the.

The one other big input that nuclear requires is vigilance as human vigilance, which is not that easy to have. It's, it could, I'm sure it tires out and nuclear engineers to sit in the reactor room and know, you're constantly watching dials. Maybe it changed a little here and there, but usually nothing's going to happen in 10 seconds where everything's, everything matters.

It's the right once in a career. If that hopefully never ending. But maybe it does. It's like that's a really such a unique requirement. And maybe there's definitely been attempts at fusion power becoming realistic cold fusion, maybe as the holy grail of energy.  It's interesting.

And at the international level yeah, we'll see what happens if Germany kind of changes. Course. I think they're going to have to change course at least some direction whether that's nuclear or otherwise. Considering they're pretty much cutting off a lot from Russia, so it's going to have to be some, something's going to have to pick up the slack there.

Yeah. And I think the interesting question when it comes to that is, does this kind of. Increase the innovation that we see in the energy sector, or does this whole situation with just, and I don't just mean Ukraine specifically, but does the whole situation now where it seems that. The ground is shifting partially because of what Russia is doing, but also partially because we've been in this trend towards green energy and I say green, see, I'm using those terms again, but we've been to shift whatever green energy is.

Usually it's like solar and wind. Everybody's been trying to towards that, does this accelerate the trend towards solar wind and. Or does this decelerate that trend and then make everyone look differently. And which I think if the latter is done well if that kind of re-evaluation of what energy is, where we get it from, if that's done well, I think that could be a positive thing.

  I think probably solar and wind have up to, I'm not saying they don't, but It seems like this is a time for reevaluation. Obviously there's a lot more than that we need to focus on is more important.  We don't, I want, I don't want to minimize what's happening in Ukraine and use that as just oh, this is the energy game.

I'm not trying to say that.  But once this is over and the situation is a little more stable, I think there's gonna be a very big reckoning when it comes to the energy sector and how people look at it and move forward from. Yeah, I think that's a good point to bring up because the effects of everything that's going on will not be visible until after  so we're not going to be able to really understand exactly what's what the short, mid and even long-term effects are going to be.

But speaking of the long run what do you think in terms of everything we've talked about? What do you think are some action steps? Because it's interesting in terms of. Investments. I do personally. I have some portfolio picks that I have and I've been looking at that are long run energy plays, but I think even just from the last, the week, the last week of things that have going on, it might be rebalancing a bit.

I don't know. Yeah. Oh, even the, even the big energy companies are rebalancing. BP's divesting from a Russian holding. So is so shell there's some wild stuff happening. If you own those stocks, you're already divesting from some of the political conflict, but what's say is I think and this is my thesis going into it.

Almost if you could phrase it as follow the money. So the money right now is in all the fossil fuels that's where it is right now. Now we may, and I use fossil fuels, meaning oil, gas, coal. That's where the money is right now. There is probably going to be a shift from that. It seems like no matter what, there's going to eventually be a shift.

I don't think it's going to be a hundred percent or excuse me, 0%. No fossil fuels at all. I don't think that's ever going to necessarily happen, but there's going to be a large shift, but that's where the money is now. I think if the companies  that are have the capital. The large oil and gas producers, they're the capital.

They're going to buy up the next energy companies coming up just as a protection measure. And so I think at the moment, and this, I may change my opinion on this going forward come back to it five years later, I may change. But I think. Your long run play is probably better served by looking at some of the bigger names in energy and sticking to those rather than trying to choose, pick and choose  smaller cap energy companies that say they're doing something interesting.

Now, I think. If you are looking at let's say you have a portfolio and you're like, you have a subset that's just dedicated to energy. It would, it might be worth your while to allocate a portion of that energy section to picking some kind of moonshots. But I think what's going to happen is as those companies mature, they're going to get gobbled up by some larger players that have the capital to do  for some reason, see the large players actually being the innovators early, but I see them buying up the innovators.  I think that's just probably going to be their strategy because they'll see it as either competent. Hopefully they'll keep the innovation going. Hopefully they won't just buy 'em up and shut them down.

  And if we start to see that, then I might say, okay, But I think to change my thesis on that, but for the moment, I think that's probably the better long run play rather than just trying to focus on. Okay. Who's the big nuclear player. Who's the big solar and wind Claire. Who's doing hydro.

I need to find that company.  That's what I would be doing just to think through  how this is going to play out in this transition phase. And again, as we see with everything happening politically and internationally  it seems  there's going to be a reckoning of energy somehow that comes out of all of this after the dust settles.

So that would be my thought. But what are some of your thoughts on this? This is funny, cause you're going the risky. Innovation centric, small cap play. And I'm the opposite. So know I'm saying own the large caps because they're going to buy, they're going to buy the innovators. That's a thing.

 I don't know how it would be crazy if you could get in on the small cap ones before they're bought out. But how do you know for sure that's the million dollar question, but for me, yeah.  Putting bones on it, I just recently took a position in general electric.

 I think that their decision to split to break up the conglomerate in the few years down the road is a great idea. The whole list of fundamentals behind that, but essentially G energy will be its own stock as far as I understand if the plan carries forward. And if you just look back at standard oil, you look at John D Rockefeller.

Most of his massive fortune at its height was because of the stock value of the separate companies.  Over after standard oil was taken apart, all the companies still did very well and did better on their own because they were able to a whole host of things. But I think that the GE breakup is actually really good and will be good for GE because I think GE energy might do exactly what you're saying is that once they're their own thing, they might go grab some really innovative companies, integrate them and have a smaller  they're not have be to.

The budget, the big general electric methodology and shareholders it's they could be more agile.  Maybe they're going to innovate on a host of different things. And I think GE is a great play because they manufacture so many durable goods that go into electrical generation in the U S and across the world, whether that's wind turbines or the manufactured, I believe.

Second most nuclear reactors in the world. I pulled up, I Googled what companies build nuclear reactors, and I did that. They came up with the list and Rosa stone, or that's probably not how to pronounce it, but in Russia is built 68 nuclear accurate. So a Russian companies built the most nuclear reactors, but second is a general electric and Hitachi.

So I'm guessing. Joint venture, but together they built 64 nuclear reactors. And third place is very far away with KEPCO, which is a south Korean. But they built 20 themselves. So maybe KEPCO is a good stock to grab to. We'll see. But I personally recently got a position in general electric. I think another energy play that I've been in for awhile, I've mentioned several times.

And at this point I've lost a lot of money on, but I'm still in for the long run. Is I Tron? I think they have really good solutions for industrial electrical inputs and smart. The stock has not been doing. So take it as you will. Maybe it's a buying opportunity now. Maybe you shouldn't buy it.

Maybe you shouldn't dig my advice, but I'm still along. And I try and I'm not necessarily planning on buying more anytime soon, but still long on it. We'll see what happens with GE. Maybe I'll buy more of it before it actually splits up, because I think there's real opportunity there. That is pretty uncommon.

I think that the GE play could be a soft. Long run played like a three to five decade play. Could you make a lot of money on, but that's just speculation, not financial advice, like all this financial advice but yeah I think of a good point in looking towards nuclear. I just think at this point we have to  also.

I guess my reason for not looking to it quite yet, is it hasn't seen mainstream us adoption or like very good PR yet in the U S there's still a lot of people who think it's very unsafe and just, it doesn't have a good image. So until it wins me, not me, but until it wins the hearts and minds of the American people until it wins over one of the largest consumers of energy.

 China's there too, but I'm not looking to them to take on nuclear anytime soon. It, until it really wins some more mainstream adoption. I personally think it's a little far off, but like you were saying, if you can get in at the right time and early enough, you can definitely see some payoffs that are.

Impressive ginormous somites opportunity for alpha is what is, ah, there we go, which is a whole separate discussion because I don't know if that exists, but oh no, he's not. I set my golf. I knew that would put you off. So anyways, I think at this point we've about energized ourselves right out here today, but it's been a better pleasure talking with you, Mike, on this episode, a long road show.

And thank you again for listening. If you would give us a review. That would be amazing. This has been another episode long run show with your host, Austin Wilson and Michael O'Connor. We'll catch you later. .

Support this podcast at — https://redcircle.com/the-long-run-show/donations

In this episode of The Long Run Show, we chat with Richard Chan, Chief Executive Officer, and Co-Founder at CoverRight about customized medical insurance.

"I got into Insurance specifically because that was a space that is about five or 10 years behind lending in terms of innovation."

"Medical Insurance was always kind of focused on the younger population assuming, they use technology more anyways, so we'll create solutions for them."

"There are 10,000 people retiring every single day."

"The statistic is there's going to be 20 million net new retirees over the next 10 or 15 years. And so it's a big population."

"Most of the industry that we're in doesn't believe that seniors can't use technology, which we fundamentally don't agree with"

"The problem that we saw was that the current experiences that are in the market really disempowered consumers, particularly Medicare. "

"What we sold was it's a very high anxiety decision for someone turning 65 for a lot of people"

"health and finance. as you get older, those two topics start to intertwine."

"And so on average, a person has over 60 options to choose. And our goal really is to build a, we call it a digital concierge model and sort of internally we call it TurboTax of Medicare, where it is sort of a concierge service where you can start online, get educated, be part of that decision and really empowering the consumer to own that healthcare decision that they're making, which is obviously important one as you get, get older."

Guest:

Richard Chan

LinkedIn: https://www.linkedin.com/in/rkfchan/

Website: https://coverright.com/

Hosted By:

Austin Willson

Michael O'Connor

Transcript:

Hey everyone. And welcome back to another episode of the Long Run Show. This is Michael O'Connor here with the lovely Austin Willson.

That's me the lovely Austin Willson

And here with our extra special guests today, we have our second guest-based episode. I am, I am loving this. I'm loving the conversations Austin.

Q: We are here with Richard Chan CEO and co-founder CoverRight. How are you doing today, Richard?

Richard: I'm well, and thanks so much for having me on the show. I'm excited.

Great to have you. I know that a lot of, a lot of the discussions we've had recently have centered around psychology have centered around a bunch of, kind of. Broad topics. And we just had an episode about insurance. So the timing seems to be perfect, to really pick your brain on CoverRight. Pick your brain on insurance as a whole, where you've been, where you're going. Uh, so I'd love to just start off with like, you know, who are you? What's your journey?

Richard: absolutely. So in case your audience is wondering, accent is from Australia. So grew up in Sydney, been in the states for the last five or six years. but started my career really on the financial services size and capital markets, and providing, advice to companies in the financial services and FinTech it tech and consumer sectors. I'd always been. You know, fascinated about how important the five natural services industry as a whole is to both the economy and in everyday lives. And I think- the issue is not everyone understands it well. And so I was really drawn to FinTech at my time, covering these financial services companies the ability for technology to help the broader population on items like personal finance.

And so in 2017, I actually left that career to join a company based out in San Francisco. That was actually tackling a very interesting problem. on the other side of the demographic spectrums, what I'm doing now in the student loan space which I found fascinating at the time you know, there's been this whole wave of student loan refinancing.

The company is credible.com is one of the first student loans refinance marketplaces at the time. It was, you know, you guys probably remember I know. And it was like just after the financial crisis and just prices were really low. Uh, and, but the federal rate for student lines was like high single-digit.

And so it didn't make sense. It was kind of a weird dislocation. And so that's how it goes. when FinTech that company ended up, selling a couple of years ago. And, you know, I wanted to dive in and do something else in, in sort of the personal finance space. And we looked around, insurance specifically because I think that's a space that, you know, it was about 5 or 10 years behind lending in terms of innovation. landed on, on, you know, CoverRight which is in the Medicare space. the same use demographic, primarily, as like a super interesting problem that, that, that really hasn't been solved yet. It's like the textbase is always kind of focused on like the younger population assuming, they use technology more anyways, so we'll create solutions for them.

So what was the, what was the impetus behind going after kind of the. kind of older demographic and making a solution that's FinTech based, obviously it has a tech solution to it. So it's going to, you're going to need to make sure that they're tech savvy enough.

Q: What was the, what was the impact?

Richard: I think a rapidly changing dynamic, in the way, people who are aging into 65 today, I in the digital savviness compared to those a decade ago, the demographics that are aging of 65 and English statistics and the 50% more of them had a college education. And then also the fact that one of them has spent the last 30 years within the workforce and have actually been part of this whole internet boom. And so it's really no longer the case in my eyes that people turning 65 are not digital savvy. I think everyone's got a smartphone from my own experience, on CoverRight. People are going through these experiences. I think there's a little bit of differentiation between the millennial generation, where there is sometimes still a. need for a concierge type service versus purely digital. And that's kind of what we cater for. but I think what we're seeing is a huge change in demographics.

There's 10,000 people retiring every single day. There's been no technology really to seniors at all. It's been a very overlooked part of the industry and frankly, most of the industry that we're in doesn't believe that seniors can use technology, which we just fundamentally don't agree with. Right. I had a little bit of background, in the kind of financial services space myself in a financial advising firm for about a year and a half.

And, and it was the case that, the underlying assumption was always the case. they don't want to use E forums. they don't want to use e-signature and free clients out, you know, and I think there probably is some truth to. Some of these advisors, you know, they had a 20 year old practice. So some of their clients would not be comfortable with that.

But I would say probably the newer ones definitely be comfortable with that. I mean, like you said that a lot of the folks that are retiring right now, I've been a part of this big boom in computing and the internet, and that they've been in the workforce during those, those kind of addition years. So they've been a part of that.

Q: So that's a good insight and probably a good, a bias to check. At least on my end, I would probably assume like the rest of your competitors in the space, you know? Oh yeah. Seniors. They might not, they might not like that. And I probably shouldn't even say seniors, that's probably insulting to some of your clientele.

So lead us through insurance. We were talking about this last time.. it seems antiquated a lot, especially when it comes to health insurance, life insurance. It's always very difficult. So what was, the idea we want to make this like a one-stop shop or is it more we want to kind of basically facilitate via technology and easier experience for Medicare?

Richard: it's a bit of both actually. And so the problem that we saw was that the current experiences that are in the market really disempowered consumers. And so the way health insurance, particularly Medicare. So there's either a field agent comes to your house, sits at your kitchen table, which obviously not happening as much the last 18 months.

typically that agent might only represent 1, 2, 3 plans. And so you never know if you're getting a full, comparison to the most. The second experience settings that is prevalent in the market is like tele sales. And, you know, I'm sure you can imagine, like how that goes. Then you say you see these ads on TV, you call in and kind of get sold a policy.

And it's never a great experience. What we want. What we sold was it's a very high anxiety decision for someone turning 65 for a lot of people. It's the first time you're sort of leading group insurance and having to pick your own individual insurance plan. There's a lot of red tape because there's public and private programs in Medicare.

And so on average that a person has over 60 options to choose. And our goal really is to build a, we call it a digital concierge model and sort of internally we call it sort of turbo tax and Medicare, where it is sort of a concierge service where you can start online, get educated, be part of that decision and really empowering the consumer to, to, uh, own that healthcare decision that they're making, which is obviously important one as you get, get older.

The best way to think of us as a digital concierge service, it is a one-stop shop. We help you understand, we educate you and we advise you on which, which plan is best to you. So this being the long run show, obviously you must believe in kind of the law. The long-term adoption of a more technology based model for selling, uh, Medicare insurance and specifically Medicare insurance in this case.

But you can speak to other insurances as well. have the background clearly in FinTech .

Q:So do you think that, what, what do you think, or I guess where you think we're at, uh, Sort of adoption phase. What are you seeing with your platform as far as you know, how many users versus, you know, market share out there?

I'm sure since it's a, it's a fairly new, you're still breaking in, but, but where do you see kind of the, the entire space going? I know we've seen robo-advisors in the last few years. Um, there's a lot of debate around whether those are going to replace or compliment regular financial advisors or financial planners.

Richard: We've seen into it with, with TurboTax. when it comes to insurance, what are we, what are we seeing as far as kind of where we're at in the adoption phase of the FinTech solutions there? There's always like a few different ways., insurance, you know, for, from our perspective at coverright, I, we obviously believe this next decade of people who are aging into this 65.year old phase of their lives is going to be much more digital. And our goal is to actually follow them through that process and continue to be a partner and have a conversation around health and finance. Because obviously as you get older, those two topics start to intertwine. I think taking a step back in terms of, you know, where insurance is, uh, we're starting to go through this first wave, which we saw in lending as well as, um, digitization of the distribution and the consumer experience, which is where coverage sits as well. It's already happened, you know, a little bit earlier within other types of insurance in auto, uh, in life through companies like PolicyGenius. Um, and it's, you know, Medicare for us, it's kinda like one of the last frontiers really, because no, one's really focused on the demographic.

I think where you go from there similar to other pots is, um, FinTech is the next wave of InsureTech will start coming from areas that are more behind the. Uh, more sort of infrastructure based, uh, improvements where there's, you know, interconnectivity issues at the moment or the inability to share information or underwrite quickly.

Q:I think that's where, you know, as we move over the next decade as well, you'll see this first site, which is tackling the consumer part and the second wave is really tackling infrastructure behind it. Gotcha. So it's almost like we got to build out the infrastructure now that it's like, okay. Proof of concept people like.

And insurance, I would have assumed that because it makes it way better. It makes it a far better experience. So then it's like, okay, we've, we've proved that the consumer likes it. Now, the, the companies are willing, or the investors with the capital are willing to, to put capital behind the solutions for the infrastructure side.

Richard: I think that's right. Cause the, the, you sort of solve the consumer issues. That's really what, a lot of cases, the first problem, uh, it's going to be a better consumer experience and you kind of, um, allow some of the accumulation on the backend of the process that you kind of take that away through a digital experience.

Q: That's nice. And then over time as a consumer drives what the experience needs to be, you start figuring out like, okay, we really do need to build some of this infrastructure to enable that to be a much better excuse. And that's, what's going to continue driving eventually. That makes sense. So another kind of tangentially connected question, cause, of course, this being the long run show, how do you guys see or position yourself or future changes?

Because, you know, you're, you're planning, you're going to have to be planning years and decades into the future. Future changes with, uh, when it comes to the political landscape. Medicare, because that plays into the insurance world a lot and different administrations, different political powers have different ideas of where to take that.

So how do you, I guess, almost hedge against the risk there, the political risk involved in the, in the space it's kind of almost baked in.

Richard: that's a, that's a good question. I think, I think for the listeners who don't know Medicare, just to cover that, that base is the federal program that basically provides health insurance when you're 65.

So whether you are taking it directly from the government or through like a private plan through United health care, that's kind of the general. Grouping of sort of these Medicare plans. there's, there's a few reasons for that. I don't think Medicare is going away and that's one thing. And secondly, I don't think Medicaid baggage is going away. private Medicare plans that are become. More popular. That is expected to increase about 70% and the reason for that is this strong bipartisan support works.

I think that only plays into our platform because there's more choice for. there's more players who want to increase in terms of the benefits that they're brand new consumer, like how they position themselves and more choice in my eyes is always better for the consumer. So I think that basically enables us to have add more value because you need more of navigation through that.

There's some other things that also are tail winds. You know, the current administration wants the Medicare to succeed, The digital savviness is everyone who's sort of going onto the platform. there's talk about, you know, adding routine dental, hearing and vision care into regular Medicare, which again, we think is better for the consumer and it will drive the private plans to innovate in more.

So they, a lot of these plans over the last few years, dental vision and hearing have been like a great. extra benefit that the provide that the default government program doesn't have. but if that becomes standard, then they really have to start innovating on other areas to provide better services to the consumer.

we get asked about Medicare for all. I think, I wouldn't say I'm qualified enough to talk about the fiscal budgeting issues around that, but obviously that, that would change the scene entirely. I don't think it's really going to happen.

That's kind of my, my sense on, the landscape. It's hard. And I don't think for a single-payer system, you know, you look at the, you look to the UK where they have an NHS system, and it's really just, you end up with a system where you get average health care for everyone, which is probably not necessarily solution.

Q: I think it's a great point on both. I like, because I like the question Austin , those political, it's such a unique spot that you guys are in. Um, because it's like, you know, there's almost a, kind of a classic idea. Have a working tandem with government of like defense contractors.

Some, this is, this is so different, but, but, so that's an interesting spot where, and I mean, correct me if I'm wrong, but I feel like there hasn't really been innovation where you guys are in decades. I mean, is, is this kind of, I I've never heard of anything in the sector and I mean, I've got older family members who could use your as services.

I mean, correct me if I'm wrong, but it seems like you guys are really the prime movers here. Yeah, it's definitely an industry that has, um, that hasn't had innovation. There's actually a few good reasons. Not good reasons. A few reasons. I think that that's that's happened. One is it's an actually a mandatory decision.

Uh, Medicare, when you turn 65, if you're not still working. Uh, and so what that allows is the, the incumbents basically go, well, they're going to have to make this decision anyway. And no matter how hard it is, they have to go through it and do it. So there's actually no impetus to actually innovate, uh, on that experience with they're going to come basically.

Richard: that's kind of exactly why we think, you know, building what we're doing right now is, is the right time. Like we think we consume. Mindset for that age group is, is changing rapidly. Um, and alongside this whole theme of consumerization in healthcare, um, you know, people want, they're only going to be looking for better experiences and they got to really vote with their wallets really over time in health care and in health insurance.

Q: Yeah, and I love the idea of bringing more choice architecture, um, because that's, I mean, I didn't even know that that was a mandatory decision. You just, you just forced to choose, make, make a decision. So that's having. Having that for the consumer is, seems just like a no brainer, but I mean, it makes sense that there's been constraints.

There's been less incentive to innovate. do you think that's kind of a, where insurance as a whole seems to be trending? Cause we've talked about, you know, we talked about specifically with Medicare, but I mean, Austin, like we talked about a couple episodes ago of insurance going more digital, more choice centric, consumer centric, seemingly

There's kind of these broad currents that are moving insurance in general, more than that direction.

Richard: Yeah. I definitely think choice is going to become a huge thing, particularly, uh, in health insurance in general. So the current dynamic in the health insurance market is the shift is there's a shift in the burden. the cost of healthcare that is moving towards the consumer. I think the statistic right now is like over 50% of people gain employee group plans are in high deductible health plans, which means consumers pay more, um, for their health care and. The healthcare system in the us has historically being one where there's been a lot of inertia because of The prevalence of group insurance.

And so what that, what group insurance does is the person who decides what you do with your health and the person who pays for what you do and the person who gets the benefit of 3g, different entity. The person who decides is typically your doctor, who, you know, you have to go to the doctor within that health networks choice.

The person who pays is the health insurer and the person who gets the care is the ultimate test is basically you. That's not the case in anything else that is consumer product. Those three are the same. And so as the burden shifts, you're going to see a healthcare move to a more direct to consumer model where people are going to start.

Like I said before, voting with. and we've already start starting to save. These people are circumventing the healthcare system going to health insurers like direct primary care models. One that one medical is like that, where you pay a subscription, just get access to primary care. And what I think is going to happen over time is, and I think, yeah, you guys actually mentioned this in your last episode, health insurance is going to shift to catastrophic coverage

And you're going to see employers going to provide more benefits, uh, that, uh, relate to these direct consumer, um, experiences. And it could be, you know, uh, and that's because, you know, people are going to want to be able to compare like how much the knee surgery from here from A versus B overtime, if they're gonna be paying for it.

whereas before, if you're not paying for anything. Th the insurances is working with your employer directly. Then you have, you have no say in where he's at to get that care. But I think I'm always going to stop start changing rapidly.

Q: It's really interesting. I've never heard the breakdown into those three categories of the person who decides what you do, the person who basically pays for it. And then the person who perceives the care. It's a three different. Um, and that's very different from even, even other, other insurances, right? Like auto insurance, you can shop around. You're the one paying the premium and you're the one also receiving the service. you're obviously not the.

Yeah, right, but you're, you're the, you're the person directly choosing right?

We're in healthcare. I think that's really, probably the only product that I've ever have. Where three different entities, all involved in that choice. What's driving the shift. What's the, what's the leverage point there. Uh, you mean as in the shift to, uh, the consumers or paying more or what's driving that, that shift in the burden you were talking about?

Richard: I mean, it's really, um, again, it's, it's the way the system is set up. So if you think about employers are trying to shift the cost more to employees, because the cost is. And then cost is going up because the person who is paying for it, um, uh, you know, the, the providers, basically, when you go, when you go to a doctor, they basically charged the insurer. The insurer doesn't want to pay. And so you have this perverse incentive where the provider will start pushing up the prices that they're quoting to, to the provider. So you have this negotiation in the background. And so there's this whole, uh, opaqueness around what healthcare costs are, which are drive overall dry. No, just healthcare costs in general. And so people are now going well, we can't really afford this. We have to push this into the consumer. And I think as that burden such shifting more to the consumer, then, you know, consumers, then that sort of alignment between the person who decides specific pays and benefits starts, you know, consolidating again. And that's where we will start seeing, you know, people again, like circumventing some of these, uh, insurance. Networks to go get care and direct primary care is a good example. There's like startups like RO and like these men's health, where people are paying out of pocket themselves. and I think an interesting thing that will happen over time is as, consumers take on more of the health burden health will actually become a bit of a financial asset to people, right? Because the healthier you are, the less you have to stand. And I think the services. Help you stay healthy. Uh, are going to be the ones that, that are going to win and what you're going to say. Like I said, particularly in over 65 insurance where we play is kind of slightly different, but I think under 65, I think you'll probably start seeing, and it's already happening because it's high deductible health plans, catastrophic coverage becoming where the health insurance play in. You know, I I'm, I'm from M&A capital markets, like a very well with this really plays out, you know, 10 years down the line. You could probably say some of these insurers acquiring these direct to consumer health services and really health insurance becomes an ancillary product at the back, the catastrophic coverage.

Q: Interesting. So over time, do you think we're going to see, as, as we see these kind of tectonic shifts in where, how everything aligns with health insurance, do you S do you think we're going to see that? Um, I guess maybe a better question is how are we going to see that chain when it comes to employer benefits? Is it gonna go like completely away from employers trying offer that. Fit and so much so that it's, you know, it's such a super biotic. Now we get very far away from group, you know, over the long run. Is that where we're headed? Um, or, or do you tend to see it as maybe a complimentary situation where the consumer has their own direct to consumer product plus some benefit from their employer? I would imagine there's some transition process in between, but yeah, the long-term and.

Richard: I think it's, it's, it's hard to say exactly because you know, I've done, it depends on how the incentives play out over time. But I do think, and I think it's already starting to happen. You're already starting to see employers provide these ancillary benefits that are not.

Typically like health insurance land and et cetera. And so I think one medical actually has a program within employees is, is, is an example. And so I think you might see employees because of the cost burden is increasing start to ask for some subsidization or some of these direct to consumer experiences.

And then that means the role of the health insurers starts to narrow as well. I think that's, that's probably the dynamic I think we'll start playing out over time. but you know, It's hard to say. It's like, it's, it's, there's a lot of moving parts in the healthcare system.

Q: One question I have kind of going off of these, you know, we're seeing these big changes in a lot of these large systems. What do you think generational differences has to play in that deep? Because one thing we're always talking about, you know, boomers versus millennials versus like, do you think that it seems like as we've seen, I mean, pensions are another kind of example, just talking about moving away from the employer on the consumer, is there a. Especially as we move through the generations closer to more of the digital generations. Do you think a lot of these trends will continue or kind of shift? Or do you think a generational differences is playing a part in this?

Richard: I definitely think generational differences. Um, do play a little. Into this because you know, you, and I I'll say more open to having these direct to consumer experiences. And, you know, as the, the, the generation that is growing up in these sort of high deductible health plan environments, like, yeah, like I do want better care, better quality. I don't want to have to go down to, you know, um, X plans specified doctor. I would rather. You know, like a one medical, I keep saying that name, but all these other direct primary care as well. I know I have access. Like I pay $100 a month. I'll have access to it. If I can get that subsidized by my employer in bed. And these services are proactive, like educating the healthy like there's using technology to talk to me. over time, like if, if this all works out correctly, You know, health care should move away from this model where there's this huge, basically these huge real estate companies, where you have to go to the hospital, the one centralized location we should be, you know, staying healthy monitoring our health outside of that whole system becomes much more. I think that's kind of, I think that's kind of where it said,

Q: yeah, that plays into something you just said, being more proactive with your, with your health. And I think that's something people probably over the last two years, of course, nobody wants me to say COVID, but I said it. Okay. But, um, as to, you know, two years, all this craziness has really put like your health and. And how you're treating your body and how you're prepared to fight off diseases or pandemics or any of that. It's put it into everyone's front of their minds. Right. Because it's just been there for everybody. Right. And so I wonder if the, the shift from healthcare being more kind of reactive, proactive, Well kind of, direct to consumer model where the consumer is looking to be more proactive and preventative with the care, because it seems like to me, whenever I've kind of looked through a health, health benefits at an employer. It's always been kind of more on the reactive side, right? Like, oh, you need care for this. Okay. Well, we'll get you care. You're broken. We'll fix you, but let's prevent you from getting broken. That'd be, that'd be a cool idea. Right? Obviously breaking an arm skiing. That's different, but let's, let's prevent you from getting sick. That seems to be like an afterthought in general, across healthcare at the moment. Um, so maybe that may be part of this is, is kind of spurred, who knows what, what long-term, you know, shifts we're going to see coming out of the pandemic and how people just following up on Austin's thought there. I love the Warren buffet quote. and I'll paraphrase a little bit, but that your, your own body is one of the most important assets has missed the most important asset. You have that to take care of it and to, uh, to keep it running fit and fiddle is, is so crucial. And I, yeah, I have to echo what you were bringing up, Austin.

It seems like a lot of healthcare is that, that reactionary mindset. Um, do you see that as a trend coming up that proactive? And are you seeing pushback? Because it feels like there's a lot of incentives for maybe, maybe I don't want to, I don't want to speak too, too, too harshly, but it seems like there's a lot of incentives for the big insurance companies and a lot of the legacy players to kind of keep things the way they are.

Richard: there's definitely, uh, incentives to do so, but you are seeing them starting to move in that direction. Uh, and I said earlier that I think, you know, there's some differences between under 65 and over 65, because I think, you know, over 65 they'll always be a Medicare program. But what you're seeing is that the Medicare advantage providers, which are these private plans are focusing a lot more on preventative benefits and they are competing a lot more as a plan themselves as a consumer product. Because they want people to select them and use them for, um, you know, also use them as their benefits provider and use their systems and things like that. And so, you know, there is like a whole,world of sort of health campaign or value based care that is starting to take its own sort of. Form and traction across the country. And people are focusing on it more because people assigned to realize that this old model of service, where it's really, you get paid for how many operations or surgeries you have in the, in the hospital, like doesn't benefit the consumer.

Q: Going off of that a little bit, you know, looking at the ecosystem that you guys are in right now, um, pushing that change forward, pushing, you know, for the productivity, what's the long run view for cover, right?

Like what do you guys kind of have in the pocket right now? And what are you excited to do in seeing the.

Richard: Yeah, we're really excited about, uh, one of the buildings, counties for product within the Medicare space, as a navigation platform, to help consumers through this difficult decision and high anxiety decision where we see a lot of opportunity is no one has really built a platform that follows through on this phase of people's lives, across personal finance.So Medicare is a very interesting conversation for us because one, we get to build a brand new relationship with a consumer because, you know, The positive for the 65 to, we have an interesting angle because we're talking about insurance. Uh, and what we see within the technology space is there are a lot of companies building in FinTech and health tech for this population.

And I think if we over time, what we're excited about can become this concierge. We just kind of where we started in Medicaid and help guide them through. Okay, these are some financial. Product of situations that we can help you with give you some advice or like, you know, even on the health side, Hey, these are some services preventive services that you should be using.

I think there's a really interesting conversation for us to have with that. Consumer has the agent to, uh, you know, this retirement phase of their lives. And that population is only growing. I think the statistic is there's going to be 20 million net new retirees over the next 10 or 15 years. And so it's a big population.

Q: That's crazy to think about. And to, I mean, globally, it seems like there's a lot of, uh, talk of aging populations, uh, around the world and kind of the need for better health coverages, insurance, you name it and it's, it's a, it's a growing long-term problem. It seems that needs, uh, needs smart people like you guys working on it and kind of to follow up on that a little bit. 'cause talking about the kind of the here and now, like how did you guys get to where you are now from the past? Like what, what did it look like? The journey from, I mean, a ground level to, you know, operating the way you guys are right now. It seems like a big leap. How did it, how was that journey?

Richard: Yeah, I think like, every startup founder will probably tell you it's it's like a. Eating gloss, sometimes trying stay up as a startup company. It's been a, there's a lot of twists and turns. Um, you know, at the end of the day, like we're a small company and we have to work with these big carriers that are in the space. And not only that there's insurance regulation, there's Medicare regulation.

And so there's a lot of navigating around regulatory pastry on the carrier piece. And then not only that we have to build the platform. Um, behind it. And one big difference that I think a lot of FinTech or insure-tech firms would tell you is that, and even health tech, like it's unlike, you know, e-commerce or these other consumer products, you can't deliver something that is broken.

Because you lose a lot of trust and everything in financial services is just about trust. And so it was a long, like a long we knew what I'd say. It's been, it's been an up and down journey. There's a lot we had to do, um, you know, the platform, you know, kind of, I think we currently take in about 23 million data points on benefits, available, , and.we got, uh, 12 carriers, uh, which represented about 20 brands across the country. And so, yeah, it's been fun, but it's a, it's been a hard journey as well.

Q: Definitely. I can imagine that one thing we always try to do in the show is we, uh, try to pull something, pull something out for the listeners of actionable tips or, uh, just kind of stuff.

So like what, what would you recommend for the average. The average listener, who is either interested in the healthcare sphere, what's going on, what you guys are doing, um, learning more, or, you know, if they're older getting involved or for like loved ones, what would you recommend this kind of action steps for, for anyone who's interested?

Richard: And obviously I want you to print out and promote ourselves too much, but you know, if you're turning 65, it is, uh, it's important to find a partner that can help you through that process. And obviously say, come to coverup.com. Um, I actually think there's an interesting, um, conversation in for those who are under 65 and maybe you're making a decision for your parents. Like you said earlier. There's a, there's a lot of people who helped with that decision. Um, I think, you know, if you're interested in, in healthcare in general, there's a lot of problems to be solved out there and a great place as a book. , I think it's called unhealthcare. Um, that is a great place to start it's by,a partner. I think who's at general catalyst who just said venture capital fund and they talk about where they see the world going. I think that would deliver a lot of inspiration. If anyone out there who's. Trying to figure out like where we've been, where we're going in terms of healthcare.

Q:Awesome, awesome, great resources and kind of, uh, just a final personal question that I had. Like, how did you, how did you get from Goldman Sachs? You know, the M&A all of the finance deep in the trenches to, to insurance, because it's such, it seems like such. A wild leap, but I mean, you know, like I said, it's financial services at the end of the day. It makes sense. But I'd love to just hear a little, a little backstory on that.I find that fascinating.

Richard: So, like I said, when I was at, in sort of in, in banking and M and a, I was covering financial services. So I did sort of have a more traditional view of, you know, banks and insurers. And I also, at that time, FinTech was starting to become hot. This is sort of early in 2012, 2013. So Pfizer was starting to come out and so. I just got really fascinated in FinTech in general. And to me, you know, whether it's companies like a buy now pay later companies that are really popular, whether it's infrastructure companies like plan, like I'm fascinated by all pots in tech. And I think, you know, I would say I actually, uh, came across Medicare just by accident.

Cause I was looking at insurance in general. I spent a lot of time. Uh, property and casual, a lot of time in commercial and, you know, coming from Australia, we don't, we don't have a program that's similar to this. And so I just thought this was a fascinating, um, a fascinating space. And then too, like I do think, you know, with 10,000 people retiring every day, there is the need for technology for this demographic.

And so someone wants, needs to go and build it. I think we have a really exciting, interesting conversation to have with people who are going through this retirement.

Q: Awesome. Awesome. Thank you so so much, Richard. Uh, this has been a great episode, loved the conversation, loved to be able to deep dive a little more into health insurance.nSpecifically, we get to talk about insurance in general, but now hopefully for our listeners, they have a lot deeper understanding. please go check out all the things that Richard Chan is doing over at coverright.

Thank you so much for being on the show today.

And this has been The Long Run Show here with my co-host Austin Willson.

Support this podcast at — https://redcircle.com/the-long-run-show/donations

In this episode of The Long Run Show, we chat with Matt Gaser, Chief Executive Officer at Fabricated Madness about the future of NFTs.

 

"I think the creative side of NFTs is just a small portion of the kind of utilities that NFTs will bring"

 

"Your medical records will be an NFT, your mortgage is going to be an NFT because it's totally encrypted."

 

"I think NFTs are going to be an integral part in the sale of goods, the transfer of  funds"

 

Matt's impressive resume includes well-known projects such as CG animated TV series Star Wars: The Clone Wars.

 

Matt recently left his career of 20 years to start his own business in the NFT world working on many projects, one of which is The Chronicles of Dr.Zammys where a fantasy doctor in a whimsical universe called Gallagan, fights a virus coming from another dimension.

Dr.Zammys is also planned to be an animated TV series.

Guest:

Matt Gaser

LinkedIn: https://www.linkedin.com/in/mattgaser/

Project Website: https://www.drzammsy.com/

FAQ: https://www.drzammsy.com/faq/

Links to purchasing our NFTs: https://www.drzammsy.com/get-nfts/

Personal Artist site: https://www.mattgaser.com/

Wax Blockchain: https://twitter.com/WAX_io

FAQs: https://www.drzammsy.com/faq/

https://wax.atomichub.io/

Hosted By:

Austin Willson

Michael O'Connor

Transcript:

So welcome back to another episode of The Long Run Show. This is Austin Willson, along with my cohost, Michael O'Connor.

Matt: Good to be here.

Q: We actually have our first guest today. We're gonna be talking about NFTs over the long run and our guest is actually deep in the space right now, creating NFTs is he's got quite the resume to back it up too. He's not just a guy in Microsoft paint, making pictures. He's got quite the artistic portfolio.  I'd like to introduce Matt Gaser. He is a part of the project of The Chronicles of Dr.Zammsy.

So Matt, welcome to The Long Run Show.

Matt:Hey guys. Great to be here. Thank you. Appreciate it.

Q:Our first guest on this is wild, right?

Matt:Hey there's always a first, I'm happy to be be here and talk everything about NFTs, the future of NFTs and yeah, it's an exciting time.Totally amazing time for this kind of thing.

Q:Yeah. It's wild. It's bubbled to the surface over what really the last two years here. So you're in a very exciting space right now. What's it? What's it like finding your way 

Matt: Very adventurous. I quit my job, doing what I did for 20 years to jump full steam into this. My partner convinced me about this time last year, Ralph. He helped found fabricated madness with me. And last April, we launched our first real NFT project that I incorporated trading cards as NFTs. And we sold. In April, our first set within an hour made 200,000 and we were like, oh, okay. This is real what's. Wow. What? But but it was a fascinating year last year. We learned a lot about the space. We learned a lot about what collectors are looking for. And it's changed drastically since that launch in April. And it's just insanely challenging. And the growth is exponential, but it doesn't come without its challenges. And yeah first time business owner out of this  I've got a staff now it's, we're partnered with a bunch of people and venture capital is involved. It's just a crazy time. And  we've got multiple projects in the works right now.

Q:Wow. That's fantastic. Yeah. So it's like you said, 2021 we're in 2022 now. So 2021, I know that flew by quick, but it was a wild year for NFTs. And you said your first sale was, it was 200,000 for how many NFTs were included in that drop

Matt: 5 different unique trading cards, but there was sketch cards, animation cards. Variants like epic, common, uncommon, legendary, and mythic all those kinds of things. And the collectors really grabbed on that, on the Wax Blockchain, by the way, we were on the wax blockchain. Okay. I think it's @WAXP if you're looking for investing into that crypto, but  yeah it's a specific. Blockchain, that's really geared towards gaming and FTS and no gas fees.And it's carbon footprints pretty low in fact almost non-existent.  It's but beyond all that, it's just like a fascinating place to sell NFTs and create games that are relating to the play to earn model. Yeah. So it sounds like there was a bit of a concept behind it, as far as like playing cards, 

Q:Pokemon Mike, I think you might've had experience with Pokemon growing up.I have always been a I've been a trading card guy, my whole life. I love the Pokemon cards and then did a little, a Hearthstone in my teenage years.

Matt: I'm an artist from that I've actually painted illustrations for Hearthstone. Imagine.  It's been a, it's been a really weird twist to be on the production side instead of just being a hired artist for those kinds of things and hiring other artists to do art as well. I just never thought that would ever happen. I thought I'd just be painting stuff for people and their movies and things like that forever. But yeah, it's been a really cool experience actually hiring other artists and getting them work colleagues of mine that I've known for 20 years and some new guys as well.  And employing them. It's just such a weird concept, but yeah, that's, what's going on.

Q: it seems like really from the story that you've already had from the founding of fabricated madness and the trading card collection, everything, that's just, I love that you immediately jumped and you're like low carbon. No gas fees, everything. It really feels like you guys are already, you've already taken the long run approach to you want this to be a trading card game that is around for years. It's not just a pump and dump NFT thing. It's not just a short-term thing. How did all that come about? What was the process for you of creating that, I guess a plan 

Matt: it came out of survival. The moment we launched our packs in April and sold out the first thing, all the collectors said was like, where are you going to be able to, what am I going to be able to stake your name? Where's your game, where's your white paper. Where's your game design doc. And we're like we don't have any of that. I thought we could just sell stuff and you'd collect it. And so we had to radically change our business model and it totally, re-invest almost everything we made back into production for two different games. So we're making a 3d adventure game. We're going to be releasing videos of that production here at https://www.drzammsy.com/

And then we partnered with some good long-term friends longtime friends of mine that have a gaming studio called robot Cmonster games. And we asked them to take our trading card line and convert that into Flash Royal style video game. And so you're going to be able to collect our NFTs. I won't get into the whole details unless you want me to about the game, but it's just, you essentially play your cards in on this cool table. And they convert to actual 3d characters and they battle each other. And yeah.  The idea for the game came from Ralph and I but the actual implementation of the whole production of the game is through our partnership with robot Cmonster games. But we have an entire team of 3d modelers, character artists animators that are helping us as well. So it's a really cool collaborate.

But the 3d adventure game. We hired a tech guy right out of school, out of Scotland.  Our 3d team is working on Dr. Zammsy laboratory and you get to shrink down to the micro realm.

Dr. Zammsy is basically a fantasy doctor in a whimsical universe called Gallagan, and he's fighting a virus coming from another dimension. So he goes down into the microscopic level and fights these weird internet soldiers that are attacking his world, spreading this virus. So it's really timely the concept because it has to do with COVID in a way, but it's told in a fantasy star wars, Indiana Jones kind of setting Harry Potter kind of thing.

On top of all of that, we partnered also real quick with a friend of our ours called his name is Matt Lyon. He's a creative director in the Hollywood world. And we're, we've actually structured a 10 episode treatment and a pilot episode, a script for this to actually be an animated series.

Q: Wow. So yeah, very long run approach. You've got a lot of a lot of moving parts and it, I appreciate, especially in the NFT space, I appreciate something. That's a project unto its own and has things that, that can branch off of it rather than just. A collectible item. That seems to be where it seems to be, where everything's moving. There was obviously the big craze at the beginning of 2021. Everybody was like, oh, look at these collectibles. Just sell it for millions of dollars. Yeah. And I'm sure there's a space for that. But. I took some, I didn't buy an NFT until last fall. And it took some very heavy convincing by my co-host Michael to actually buy NFT

 Matt: It comes down to utility. That's a big word in the NFT space now. And know a lot of people don't just want to collect art. They want it to work for them. And have some kind of value. So  real quick, you can actually stake our NFTs on the site called whenstaking.com. And by staking our NFTs onto that system, you can actually earn void and you can go to our FAQ on our website to learn more about that. But but it's so bizarre how you can actually. Purchase an NFT and then make money by just putting it somewhere. But the benefit of that is a utility, like I said, and that's why we're making two games and wanna wrap NFTs around our animated series. Our concept is that once each episode airs you'd be able to collect limited NFTs from the show after each episode. And then those would also be playable within our two games. So it's this like circular. Ecosystem that's involving our project in, in, on different platforms and

Q: something that just jumped out when you were talking about staking, these NFTs specifically with trading cards is a mind boggling proposition. Cause if you're talking like Pokemon cards or anything, like those have gone up so much in value, and if you're in house able to provide the means. Like renting those cards out to other players or selling them in your own ecosystem. That's huge. That's insane. 

Matt: That's yeah. All ownership is a big deal. If you think about it, like Fortnite, you put in hundreds of dollars as a player and you don't actually own those skins or guns that you're buying in this ecosystem in this space for at least for wax regarding NFTs and gaming. And you can either sell that on the secondary market, if you've grinded and beefed up that item or you can keep it for yourself or whatever, but you actually, there's true ownership in that. And a lot of games they're really, they can be really popular. You can shell out hundreds of dollars being up your character's assets, and then maybe the game goes away or you just. Have any interest in that game anymore? The idea about the metaverse is really interesting too. The long run is that I'm sure there's going to be  partnerships with other projects where  a gun or a car from one project can be shift shifted over to a different game because you own it. And then you're still playing with the same assets in a totally different game. I don't know how cool that would be, but that's the idea is true ownership.

Q:Yeah. Yeah. And like you said, the circular nature of your ecosystem seems to be a that right there is interesting because you can not only do the players and the participants and the NFT owners, not only are they able to drive some of the value because they're playing it and it's becoming more popular, they're spreading it, but you also can drive value through creating more common. Based on that same IP to use an old kind of term there. So that's really interesting. What was the impetus to that you said at the beginning, some of this was survival to create the game and all that aspect, but creating this kind of circular. I almost value stream. What was the impetus there? 

Matt:  For the animated series, that's actually was my original vision 20 years ago for this project. So Dr. Zammsy came out of me, graduating from college at art school and just, I had this cool idea of this world and this universe and this character, it didn't really go anywhere. I just had lots of ideas. Until this NFT thing hit. And Ralph was like, man, we gotta make an animated series. And then our fans were saying make the game first. And  over the course of the year, we made a lot of great connections and really. And Matt lion, when he came on board was just like, look, I got the animated series thing give me all your notes, give me all your bios to the characters. Give me all the art. And we literally just finished the pitch for that  last weekend.  It's looking absolutely freaking beautiful. And we're really hopeful with all our contacts that we can get into a streaming service and get this into production. As far as the game.  We, as a Fabricated Madness is we started the 3d adventure game first, but then it seemed easier to actually accomplish the card game first. That's kinda why we ended up doing two games at the same time because we shifted gears. We're still working on both, but the card game is our highest priority right now, because that actually incorporates  our product that we sell a weekly. We do weekly drops cards, utility cards that are based on the game as well for a limited time each week. And then  it's just Positioned to offer a game that's relating to a direct product to our customers. Yeah. But yeah. Yeah.

Q: What a story too. Cause I love, especially in the long run we're talking about long run stuff. You it's a perfect example because you left your job. You said this is your first time starting a business. You obviously believe in this sector in the long run. What are your thoughts on NFTs in the long run? Like the whole thing. What's your, where's your mindset?

Matt: I think the creative side of NFTs is just a small portion of what of what the kind of utilities that NFTs will bring. I think when you buy a house, your mortgage is going to be an NFT. Your medical records are going to be an NFT. Things you would even expect are going to be NFT as receipts because it's totally encrypted.  It's on the blockchain, it's there for everyone to see and track. And  I just think it's. Decentralized system for information.   But big talk in terms of the metaverse I think NFTs are going to be a integral part in the sale of goods, the transfer of  funds all kinds of things like that. Crypto's obviously gonna be a massive player in the metaverse as well. I just can't wait. I want. Metaverse of Dr.Zammys and the world that we're creating here. There's giants, crazy vehicles, airships slug pirates. You name it. I just to be around that crazy metropolis cities that are multilayered for different scaled creatures and from three-inch little dudes to 40 foot giants and all living and working in the same space.

To actually play a game where you're in that environment and maybe even making money in that environment, it just be Wild. It's basically ready player one. So yeah,

Q:we have arrived.

Matt: I know. I didn't mean to blow your brain there,

Q:but yeah we love getting our brain blown. That is wild.  I've never been that into video games.  The kind of idea of the metaverse is quite enticing.  And also really what to me is most enticing is like what you were talking about, these different worlds that you can go into. I don't think that'll be the initial application. I'm sure it'll be some boring business thing where we have meetings virtually. That'll be the initial one. The businesses will be like, oh, we got free cash to spend. We'll spend it on some virtual headsets and everything. Exactly. But we'll get there. Yeah, exactly. We're in avatars with no legs. Yeah.

Matt: But a good example of where this could be applied is actually I don't mean to plug this, but there's like a daydream festival, a huge EDM concerts that I designed their posters and stages for. I'm actually in talks with them about a metaverse concept where if you can't afford to fly over to Europe and see these massive  EDM concerts maybe you can jump into the metaverse and see it live that way either virtually or entirely built out in a whole new way where a avatar. Of DJs that are like, that are playing at the event are in a totally original world spinning live. And you're one of the avatars in this virtual space. So  the ability to engage with the world real time through a virtual experience could be really beneficial.

Q:Yeah. Yeah. I've heard some really interesting, that's another very interesting application for this kind of VR slash like metaverse meets universe collide. Those sort of those sorts of solutions are really interesting because there are a lot of people that, where yeah. They might not be able to fly over there, but they could afford a headset and. The ticket price to just get in.

Matt: Exactly. Yeah. So there could be very interesting and that event's really interesting because they have actual campgrounds. It's like a two day event and you actually stay there for a weekend. So maybe I can only imagine the eye strain, but maybe you're there for  essentially two days porting in, on and off. Yeah. Pretty wild stuff. Yeah. Yeah.  I do think Ready Player One the movie is a perfect example of where this is all heading.

I know it's very SciFi and all that, but the power of gaming, the power of the technology is just getting so good that I think in the next five to 10 years, it really is going to be here easily.

Q:Yeah. And that's something that we've seen. The last decade you've seen e-sports. Oh, it's this incredible niche thing to more people watch a specific game, final world championships things on the super bowl.

So it's it's more popular than the biggest sports, normal sports events. Yeah.

Matt: league of legends. Actually, I worked for them. Like almost 10 years ago, back when it was just a very small game. And then I moved on a bunch of other different things, but Morgan Spurlock on his show had an episode about gaming and he referenced league of legends and they like they full on  have an entire audience in a football state All watching these gamers and it's just huge millions of people pouring in to watch these matches. So yeah, e-sports is massive. It's pretty wild.

Q:And I think one thing that, that boggles my mind too sometimes is like you were talking about using NFTs for receipts, for tickets to these types of events. I think probably 99% of people. If they know what an NFT is, they think it's just a piece of art or some image, some JPEG that you can right. Click on whereas it's totally. It's just a method of ownership on the blockchain and that's so powerful. And I think a lot of people just haven't necessarily seen the power of NFTs yet. What do you think? Do you think the timeline on that is it everything's going to start coming together soon. It's okay, shoot. People are going. Seeing what's going on or do you think it's more of an evolution?

Matt: I honestly, it's a really tough sort of hurdle to get over. I think the technology has a long way to go to make it easy. You gotta get your crypto and you got to get your wax cloud wallet and you got there's all these different things that got to click into place, move your funds from your bank account and turn them into crypto. And if you're not computer savvy, I can see that hurdle. But when it gets as smooth as Apple Pay and going to whole foods and blame just paying for a a bag of lettuce. But instead it's an NFT somehow. I think that's when everyone's going to jump on board right now it's a very niche market. The people that are involved understand do their, do the due diligence and read the FAQ's on these sites and learn about what they want to collect. A perfect example of the use for an NFT that's different other than just collecting his physical goods. So I did a lot of Comicons for about 10 years, and I have a ton of merchandise that's just stored in my garage because of COVID. I can't get to as many Comicons to sell my goods anymore. So a lot of our fans are interested in. Turning digital NFT into almost like a redeemable receipt where they can then summon the physical good whenever they want. So if they don't want it right now, they can hold onto it. But then I'll get an email that will say, Hey, this fan that bought this NFT wants your toy or whatever. And or a book, and then I can ship it to them. It's like a. A totally new way to look at a, an industry that I've been involved in. That's not accessible anymore, but through NFTs, I can somehow sell goods through NFTs. It's just a, it's a wild experience, but that's what's on the table right now. As well with music too. We partnered with Yoshi drops, Michael blues company. I'm not sure if you've heard of them. They're all music based like MP4s and we're doing a whole other separate project away from Dr.Zammys that involves my world building art with  generative  art that you would see through  board a yacht club.  But it's also done through original EDM music that Michael blue wrote for each piece.   NFTs as music

.Q: Yeah. Yeah. I've seen those. I've actually really liked those art pieces where it is some sort of sound and picture in a loop, some sort of animation that's super engaging to me. I'm a musician have been for a while. So the concept of the musician not having to necessarily go to a record. To sell their IP and just being able to release it direct and then own it. That's a wild concept for music because traditionally there's so many gatekeepers in the music industry and yet streaming sort of level the playing field, but then it also just completely wiped out the ability to sell records for any amount of money as  an artist, a single artist, right?

So now you have this ability to. I can go create a song right now. You can go create a song. We can all go create songs right now. We have the technology to do that digitally very easily. We don't have the technology to own that. And sell it. So that's a really, that's a very interesting application. I wonder what the world will look like when the big, bigger companies realize they don't, they can't necessarily just buy an artist anymore. The artist can sell themselves direct. 

Matt: I think. Bigger picture too, is that you have a lot of creatives that are very talented about with storytelling and all that. And if if the sale of their NFT gives them more cash in the pocket, more capital, I think if they play their cards like I'm doing it opens up more doors to actually provide the world with more entertainment, more content. I read an article like streaming services. Basically tasks with creating the same amount of content per year. That would be the equivalent of every movie and TV show created from the eighties and nineties all at once, all in one year annually.   A lot of these studios and also gaming companies too, are just constantly struggling to to fulfill that demand.

But I think if NFTs can create a whole. Brand new sector of creatives that are, we're just work for hire that are now creating content and managing it themselves. I think you're going to see an explosion of new TV shows, new games the likes of which we've never seen because that capital is being reinvested in people that really understand that space.

Q: So that's actually, that brings up a really interesting question for me is you've been on both sides. Now, you're now owning a business, running a project, you're building it out. You're now hiring people that you might've worked with on past projects. And I also looked through your LinkedIn, you have a very impressive resume. In fact, I got to say, you worked on my favorite star wars movie of all time. I love Clone Wars. It's the best.

Q: What would your. Advice, I guess be for people looking to do that who are on the creative side of things and want to make that journey. What does that look like?  

Matt: First off you just have to have good high quality art. I think there's not enough. Good high quality art out there. Although the market has proven that high quality art doesn't, it doesn't have to it doesn't have to be amazing art in order for it to sell. It just has to be marketed properly. I think the marketing hurdle on these things is super massive right now.  Factor that has been a struggle of ours all year long, but we've overcome that many times but then gone back to square one. Finding the right marketing team and the right marketing channels we use discord telegram. I didn't even know what these things were before I got into NFTs. And now they're my everyday source for connecting with fans, releasing information  and the fan base. The people that collect these things, they're super passionate about it. So they, they want engagement. They want, there's a lot of our time, isn't just about building new content. It's about engaging with the fans and they have a million questions and you have to just always invest that time every day into that. I'd say I wouldn't have gotten into NFTs if it wasn't for my partner, Ralph, he was collecting NFTs back in 2017. He's super involved in the wax blockchain. He knows all the major players that are getting involved or that, that are running that, that ecosystem. And so it was a natural step for us to go into that blockchain, but there's so many more there's flow. Etherium all these different ones. So pick the one, maybe that you have connections with.  Or it's easier to dive into if you don't know anyone, just do your research, do a lot of reading. Go to Benzinga.  All these different places on the internet have tons of resources to get to the information you need. I'll say if you go to https://www.drzammsy.com/faq/, we have an FAQ and it explains everything on there on how to get a wallet. We're more than happy to share information. That's one thing we learned is that it's a place where everyone's just giving away information. , it's not this secretive world where everyone's like really protective on how they did it. That's how we got into the game is by asking a lot of questions to our competitors. And they turned out to be friends.   It's a pretty cool space. In the past before NFTs, everything's so secretive. If you wanted to learn about a game and production, it was very secretive. Now everyone's releasing the entire Bible on how they're making a game in real time. All they're making it. So it's just so different. It's very transparent, but I think that's  the vision for crypto and the vision of the future is transparency.

Q: And that's one thing that I don't know if you've noticed this too, Austin, I'd be interested to hear your thoughts, but. In terms of just crypto in general transparency  the very form of blockchain itself, but then devs like crypto devs are some of the nicest people they'll share the whole code block with. You have to do it. Like it's amazing to see the crypto devs and then the people. Artists in the NFT world. It's incredible. It's like the best people from every industry. Just come to a discount to crypto and blockchain.

Matt: Yeah. I've yet to meet a, an evil person or someone that was rude or anything. Everyone's been so nice. I think we're all just so excited. Cause it's totally brand new. You can get really successful. And just sharing information. I think if someone had Dr. X. And instead of a virus, it was something similar. And they wanted to do a project with a character with a top hat. I'd be a little reluctant to help them cause it's directly ripping us off. But but that hasn't happened yet. And. Know, we're just so happy to have everyone get involved in this whole new system.

Q:  Yeah. Yeah. That's, I don't know that you'll probably have that cause you've got first mover first mover advantage there, Matt. So you're probably safe if you're listening to this and you're making a doctor. Just don't come and talk to my man. He's about to crush you. So usually what we do at the end here, Matt, is we give a somewhat of a, like a portfolio tip or action item. Again, we don't give investment advice obviously, but we do want to put some meat on the bones. We talk about a lot of use a very good term. Concepts here.  And very very abstract stuff. So when it comes to what somebody listening to this episode, what can they do to get involved? It sounds like buying a, NFT is probably the first place to start just dipping your toe in. But even before that, how can they get comfortable with NFTs? Even with your project how does someone just dip their toe in and figure out this space,

Matt: My experience is just directly with wax I would go to again, our website read our FAQ. It explains exactly how to get wow. How to create a wallet, how to put that wax in your wallet. Once you have your wallet in place, you go on to these markets you find the entity you want and you connect your wallet to the purchase and boom, suddenly it's in your wallet and you have an NFT in there. It's a little more complicated than that, but that's in a nutshell what the process is like.

And and then if you get lucky, maybe you collect an NFT that goes up in value for whatever reason. And then you go back onto the secondary market and https://wax.atomichub.io/ is really great for that, where you can sell the NFT you bought for maybe a higher price. And then that's where the game changes. You've actually invested in something that's gone up in value and you're making a little money. Plus a wax is so volatile in a good way. And if you, and this goes without saying in terms of just crypto in general, but you always want to sell on a high and a and buy on a low. And th there's there's a great advantage to that.   When it seems almost too good to be true in terms of its value, sell it.Yeah. May go up even another dollar you missed out, but inevitably it always comes back to. There's a massive crash and then it goes back up again. Maybe someday it will never go up. And then that's when entire system just fails, but I hope not, but as it stands right now, I really do think it's the future. And and just to answer your question. Yeah. It's as easy as just doing the research. Our website's great. Benzinga is another good one, honestly for learning all these things. And then there's other ones that I can explain, but I'd rather not because I'm on your show, but if you just do your research, you can find tons of information on all the blockchains that are out there. The ones that are specifically related to NFTs and how to get in.

Q: Awesome. Yeah, I think the education component is key. It took a lot of, for me, I'm a very like cynical, kinda old at heart and kind of guy. So it took a lot of convincing for me to even buy my first like NFT art piece. And it was an interesting experience, but it took a while. Like conversations with people reading a lot to understand the process. And so I think you're right, that the education piece is definitely the first component to start.

Matt: I was just gonna say there's a lot of scamming out there and I can see why people are fearful. I've had friends that gave away their wallet information in a way where, you know, everything you had was stolen. So you really want to vet people that are trying to poke at you. Double check those emails that come into your inbox that are saying the claiming Hey, if you get, if you do this, we'll give you this. And then it ends up being you're just wiped out  just make sure if you do the right research that won't have. It's just, be really frugal about it just keep your cards tight in terms of your personal information. I think you'll be fine, but people that just think of this as just like a hobby and they're just kinda toying around, they're going to get hurt. You got to take it really seriously.

  Q:Essentially it's it seems like it's different folks have. Different ideas and different ability to just jump in. Like for me, it was, I was buying stuff on nifty gateway last April, and telling Austin all about it and all sorts of stuff and constantly, and he's trying to get to do the research.You got to read up on this, I gotta do this. And then so it's definitely. Different strokes for different folks, and it's, it is a, it's an amazing world to be a part of right now. Like we've talked about where the majority of the world doesn't even use crypto yet and we're getting there. It's rapidly increasing. So it just seems like that kind of long run. Wild world to be in right now.  

Matt: To your point  it was so bizarre to have contractors that were paying to do specific things for us on our projects. And they're asking to be paid in WAX or get paid an ETH or something like that. And. It's just crazy. Cause you know, we have plenty of that. We have cash too, but it's just so much easier to just to send crypto to someone and  you don't have to pay for a wire transfer fee or something like that.  I'm slowly seeing that at least in my industry more artists are accepting crypto as payment. So it's yeah it's changing fast and it's here. It's literally right now.

Q:  Awesome. That's about all the time we have today for this episode, the long run show. Matt Gaser. Thank you so much for coming on our first, our non-real guests and what a guest to have on today.

Matt: Very honored. Appreciate it guys. Thank you.

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In today's episode of The Long Run Show, Michael and Austin talk about insurance.

• How people think about and approach insurance.
• which insurance life, health, auto, electronic device insuranc edo you actually need?
• Using Options to insure the investment portfolio
• The origin of insurance? How did insurance companies come about?

Hosted By:

Austin Willson

Michael O'Connor

Unedited Transcript

Hello and welcome back to another episode of the long run show. This is your co-host Austin Wilson and Michael O'Connor. And I have to say right off the bat, I don't know if anyone else has noticed, but we've got a snazzy new intro outro combo.

Big shout out to Nick Thomas. One of our lovely British writers on our TV, that the good graces to provide a little color commentary at the beginning. And I just love it. What are your thoughts, Austin? Oh, I love it too. I feel like we're at the BBC every time we every time we do the show, it's just a, it's just a grand old time.

And also shout out to our amazing producer, Asli. She did a great job putting that together and coordinating everything so that we sound good and we look good. You can't see us, but we look good anyways. Today we are going to talk about and hopefully do an interesting. And compelling job talking about one of the most boring topics ever, which is insurance.

Okay.  We thought this was actually a great fit for our podcast because this show's all about the long run. And there's nothing more long run than insurance. Insurance is all about risk mitigation. And you're talking about some, sometimes decades, long risk mitigation, some of the risks that are a hundred percent going to happen, like your death, or sometimes it's risks that may not happen like flood insurance for your house.

So we're going to cover all of that today. Maybe even get into what might be dubbed insurance for your portfolios, with the options. We went, talk about that as well. But right off the bat, Mike, do you want to say something real quick and then we'll hop into the different types of insurance and kind of lay some groundwork.

Yeah, I think this will be a fun one because this is one where you definitely have. The more optimistic view on the subject matter, which is a little flipped, I think, compared to some of our previous apps I'm a big game theory guy. And 90% of the time insurance is a bad bet for the insurer  it's if they weren't gonna make money off of it, why would they be offering it?

So it's a really unique value prop where you have to, at least in my opinion, you have to have psycho economic benefits that outweigh. The cost, which I think is a hundred percent there and life insurance, or fire insurance for your house, car insurance, stuff like that, where it would be just absolutely awful to have something happen to not have insurance.

 But I dunno stuff like electronics, insurance, appliances, stuff like that. It's really hard to make a compelling value prop in my opinion, but I am excited to dive in and yeah so I think you're, you might be right on the surface. We may have some different. Or flip-flopped I guess opinions here usually I, you can go back and listen to other episodes.

I'm usually very pessimistic when it comes to things or at least at the very least cynical or noxious.  Yeah. So this is right up my alley. Now I think it would be important to just define some of the different things. So we usually, when people think of insurance, they think of like auto insurance that's the first thing they think of something you're required to have by the government.

 It's just there it's a necessary. Yeah, I guess evil is some people might I've. I have been in a couple accidents. I will tell you it's pretty nice having having auto insurance. Even though we are required to have it to drive  in the U S at least. So that's probably the first thing people think about insurance.

 W when the topic comes up auto insurance. Okay, cool. There's a lot of other ones out there's renters or home insurance. People are very familiar with that. Then of course, you've got the life insurance side of things, which is it's whole other beast. It's its own monster in and of itself.

 You've got people saying, oh, it's an investment. Oh, it's a, it's an insurance product. Oh, it's this. So it's that I can do 10 different things at one time.  That's a wild world. And then you have the other insurances, like. Where it's insurance for like electronics. Like I've been tried platforms, try to upsell me every time I buy an electronic, whether it's through best buy or Amazon or eBay, they're always like, oh, you want to ensure this electronic device?

And I'm like, oh no, thank you. I don't really want to and Midwestern insurance selection  I think they know their customer. I'm pretty sure they they've got my IP address and have geo-fenced me in with a different. Voiceover anyways, I digress. So you've got those like device or appliance based insurances which never I never get them.

I'm not that cautious, so I've never gotten them. And of course you've got health insurance, which we, that is such a big topic in and of itself that  we can touch on it, but we're not nearly going to scratch the surface on that today. So those are the main consumer insurances.

Now there's really funky things that happen in the insurance world. So there's actually a subset of insurance companies for insurance companies, which is wild. There are insurers for the insurers. So they're insuring the risk that the insurers take on. I know that sounds very meta and ridiculous, but it is a thing because insurance companies, if they don't pay.

On a legitimate claim of some sort of, whether it's let's say a death claim for life insurance or some sort of health, insurance claim or  house insurance claim, if they don't pay out on it that really ruins their reputation. Most of insurance is about trusting the company that you're with.

 Because you're  there's a higher level of trust because it's an ongoing transaction. You're paying premiums usually monthly or yearly for the insurance on whatever it is. And that's different than. Then a one-time buy or even a subscription product where you're getting a magazine monthly or an email monthly it's very different.

It's intangible. And a lot of the value is based on trust. So there's that subset, which is other part of the insurance world. And then of course there's really interesting things like life insurance companies do really interesting things with their portfolios where they will use options to basically ensure or guarantee a return on a portion of your dollars  put into the premium dollars, put into the policy.

They'll guarantee a portion of that. So there's lots of moving parts within the insurance world, but that's the main breakdown did I miss anything there?   I always enjoy the origin story of insurance. When the the east India and Western Nia trading companies and the, all the big shipping companies were dominant any smaller player, they could maybe afford one or two big trading vessels a big sailboat sailing ship.

And if it's sunk in a storm or got looted by pirates or something, the company would just go bankrupt, you'd be completely hosed. And so the very first insurance companies were for merchant vessels and to ensure, so if you get sunk by a storm, everyone doesn't immediately lose all of their livelihoods and go bankrupt, which I think is it's so wild.

And that's where Vanguard's logo comes from  the ship with the so the, at least I believe that's originally their story behind the logo. These, I think it's a fascinating thing where you have the, this idea of a cataclysmic event. It's such insurance is such a human thing.

And I mean that in like only, it's such a unique Like all of the idiosyncrasies and funky heuristics of humanity just seem to come out and insurance, like it's such a unique and just I honestly think it's fun to talk about even how boring most people think it is. It's like the psychology and the ramifications of every layer of insurance are just so interesting to me, at least.

 Yeah. Yeah. And it's, and I've seen  I, in a past life was a financial advisor for awhile and that sometimes involved insurance and there were more there were advisors in where I worked that were, we're selling more insurance than others.  Some didn't do hardly any, or they found it out to a different advisor or something, but I've been in meetings.

Talking to clients  watching advisors present to clients and it is always the insurance conversation is all of money is emotional, but the insurance conversation is more emotional than pretty much any other part of the whole financial planning or financial advising kind of conversation.

 And so it's really interesting that you bring that up because it definitely is a human thing. Like only us humans can abstract enough to think into the future to go, oh, that might be a horrible situation. Can I get away from that somehow? Or can I like lessen that future potential blow to my, whatever.

Appliance or life at legacy  w can I lessen that we have we have a ridiculous ability to abstract and think into the future. And so it is interesting. You bring that up because  the conversations that I've seen just on a personal level and on a human level are always very emotional.

So that kinda makes sense. It's just about the most long run topic we could even talk about  in terms of human long we could talk about the heat death of the universe if we wanted to but in terms of the long run show, being about people and finances and everything, and I think it's just about the epitome of long run than we could talk about, because it requires in order to even perceive a benefit, you have to take a very long.

Look at things and imagine your future self reacting to things you can't imagine your current state engaging or losing something you have to step out of and have empathy for your future self, which is extremely interesting. Yeah, it is. It is very interesting. The different topics here are the different pieces of insurance.

I laid out what let's go through those because you have an interesting view here. You said you don't think insurance is worth it 90% of the time. So I guess first explain yourself and then second let's walk through those different pieces of insurance and see which you think might be worth it or not worth it.

 Cause it sounds like there might be different kind of arguments with each one. So go ahead and explain yourself, Mike. Yeah. That's I think the best way I can explain it is with an analogy to blackjack if you ever played blackjack, there is this almost always. I've never seen a game where they don't have it, but there's always a bar with just as insurance.

And so that's, if the dealer is showing a, an ACE or a 10 card you can buy insurance. And if they get a blackjack, you get a payout from that. So it's a way to bet on the dealer having a blackjack. So you're instantly gonna lose. So it's this kind of psychological benefit to, to it's oh shoot, he's got a blackjack.

 I gotta make some money off this or not lose all my money. And it's the probability is always, it's never in favor of taking the insurance near all. You're always significantly better off by not taking insurance. And that's a, just how insurance works and the broad scheme of things.

Because if you think about it, no, no insurance company could be in business. If it didn't work that way the B there'd be no way to, if everyone was crashing in their cars all the time, insurance companies wouldn't exist because he couldn't, or the premiums would be so incredibly high that only only a very small segment of people could afford it.

So you have to. And this isn't necessarily a bad thing. So it's, I think a qualifier to my statement of I think most, most possible uses of insurance out, there are not a net benefit for you. Like it's not necessarily, it doesn't necessarily make sense economically to engage in it.

So like a classic, like appliances phones a lot of stuff that computers, a lot of stuff, and that stuff has come out more recently that more and more companies are pushing that because at least from my perspective is because okay, you can make a lot of money charging premiums.

 When, whenever anyone buys an iPhone, just charge them three bucks a month or 10 bucks a month, whatever, it doesn't seem like much. But the probability of them breaking that over the course of the plan without it's very low comparatively. So you can make a lot of money with insurance because you're playing on that loss aversion  those kind of natural human tendencies.

And on the other side you have the really big stuff like life insurance, home insurance car insurance, where the effects  if you run into a situation that you would utilize it, the effects of not having it or are very high and the health insurance is a great example.

And that's something that very can be a very political discussion, can be all over the board in regards to how health insurance works in the United States versus other places and everything. But I think just to sum it up very briefly is it's a very interesting scenario where  it's another situation.

Where things can go very wrong. And in the, I think the psycho economic benefit, so the kind of deep understanding of value in the human brain that's outside of dollar signs or anything like that kind of understands the value in those kinds of insurances. And I think that is significant and not necessarily to be disregarded.

So I, I definitely, I've definitely met people who say never do any kind of insurance because of just the probabilities, like never, ever do anything insurance, like you just, if you're gonna do life insurance, just save the premium instead and then give it to your kids or something like that.

So there is some very, there's some very interesting takes out there that are like, oh, never do any insurance, which if you're purely looking at the statistics, like sure, like purely looking at it or probabilistic way, but at the same time, it's I think that there's real value in that that the psychological side.

  Okay. I'm just confused by the guy who said don't ever buy insurance ever. And because I'm like if anyways, the probability of that person who's told you that dying is a hundred percent. So he's looking at this, that's beside the point. We don't need to argue with an imaginary person. Who's not part of this podcast okay.

So it seems like what you're saying is insurance, for things that can be pretty easily replaced and, or things where you you're not going to get rid of car insurance. You're required to have it by most states laws. In at least in the U S here. So you're saying like, okay, barring anything that you're required to have or anything that would be.

 Easy to replace, then you can look at getting insurance and then it's really just a cost benefit from a  emotional perspective.  Is that what you're saying? Pretty much is a good way to sum it up. I would say so, because the same thing with I just recently I traveled pretty routinely.

I never, ever booked travel insurance. I never had before, but then I just recently did purchase travel insurance for a big trip coming up just because I was like the cost benefit of. Okay. If this gets canceled and you gotta you can take risk into account. There's always the risk of COVID lockdowns or flights being canceled, et cetera.

So it depends on  the full scenario of risk as well. So that was the first time I've ever bought travel insurance and never buy like a U haul insurance when moving or renting any objects or anything like that. And so I think what you said is pretty spot on because it's the you have to have kind of an internal conversation and say, do I actually consider this worth the extra?

And I think one of the, one of the really important ways that insurance can masquerade itself as this, just like a no brainer kind of thing, even on small products like that is because if you're looking at a phone, like if you're getting a new eight, $900 iPhone and they say, look, you can just add on insurance on this full coverage for 10, 15 bucks a month.

Something like that. It sounds, oh my gosh, like $15 a month compared to $900. That's so little money. I don't care about that much money compared to the 900. So it's okay that's a great deal. Who knows? I might break it. I don't wanna have to repay the $900.

And then the next day you could be buying a meal for $15. And so  it's, there's a lot of anchoring that goes on as well. That makes insurance seem cheap when you know, the product itself is expensive. And I think that's a very common, psychological phenomenon as well. It's like that's an easy way to create a subscription plans towards just the psychological benefit of not worrying about whether it's going to break or not, which is, I think it's a really fascinating for now.

Interesting. Okay. Yeah. That's fair. So I would probably agree with you on like phones and appliances. And I think it, like you said, depends on the whole situation, but like for a long haul move using U hall, I might just buy the insurance cause I'm like I've had an accident before, so maybe I'm going to have one again.

Maybe I'm just that bad of a driver. I'm like don't tell my insurance company, but the thing is okay, maybe I would do that, but that's considering my scenario. And so it's not necessarily true for everybody. I did want to go back though, to something you said in your explainer of, oh if if there was.

  If the insurance was actually worth it, insurance companies, wouldn't be making a buck. And you said something about premiums would have to be super high  for there to actually be any, if everyone was crashing their cars and using the insurance premiums that have to be super high because everybody would be using it.

And so since not, everyone's using it, therefore no one should get it. And that was that was kinda what I heard. So please correct me if I'm wrong. But the, that thought process for at least some insurances, so I'm thinking  let's just compare apples to apples. So let's go term and term life insurance, which term life insurance you pay usually a monthly or a yearly premium for.

15 years of coverage or 30 years of coverage or 20 years of coverage during that term, if you die, you get paid out the amount that you're insured for. So term life insurance, car insurance, renter's insurance, home insurance. Let's compare those because they're all the same. You're paying for a term you're paying usually some sort of monthly or annual premium price for that.

 The reason, so to push back on what you said it's, it doesn't work because it's not worth it because they're taking advantage of you that the in life, the insurance is taking advantage of you because there's just more are there, people are not using it enough, therefore you shouldn't get it.

Hopefully I'm not strong. Meaning you've stepped in if I am, but pick a little bit, but I'm interested to hear what you're about to say. The idea behind it is that. Actually what you brought up at the beginning where the ships were insuring each other on a long voyage because they if one of them, or many of them lost the ships that were in their fleet, they didn't want to have to basically bear the brunt of that all themselves.

They wanted to spread that burden out across multiple people. Th the same idea holds true that the, what you were saying about yeah. If everybody was crashing their car and using the insurance claims then you know, the insurance company wouldn't be making a buck, you might be really getting the best out of your insurance.

You might be getting a new car for a couple of hundred bucks in premium. But there would obviously be opportunity costs there anyways. You might be getting a new car, but then the premiums would all just have to go up. The idea with having a large pools of people insuring one another is that you spread around the risk and the burden.

 And I guess what I'm saying is that the idea that, oh the it's just  the insurance company making a book on a low probability event that is somewhat true cause they do have to make a buck, but also the main the main mechanism for that to happen is not that the event is low probability or the risk is low probability, but it's, there's enough people to spread the risk around so it can reduce the burden for any individual risk.

It can reduce the burden where as if they didn't have the risk spread around or the burden financial burden in this case spread around, it would be a full a hundred percent. Whereas it can maybe be 10% of that burden. Does that make sense? No, definitely. I, and I totally agree with that.

It's something. It's similar to a credit union where you have a conglomerate of individual players that creates a situation where the risk is significantly lower for everyone. So it's I definitely agree. It's I guess maybe I threw my perspective out a little too harsh in the beginning of, I think my perspective is more just if you simply take like the individual's perspective from each like each individual player in that whole games perspective sometimes it can be a hard sell  to be willing to take on the risk of the group as a whole.

  But it's a very good point. It's I don't. I think that insurance companies are fraudulent or just taking people's money or anything like that. It's not, I definitely agree that  insurance is a necessity in this day and age and it's it's a good thing. It's not at all a bad thing.

 And I, maybe I came off like that a little too pessimistic, like short term insurance companies. Definitely. Don't, that's a bad as the good thing, you're not anti insurance, otherwise you might, I don't know. Maybe you disappear insurance coming true. It's like messing with the fed big pharma and insurance companies.

It's just let them be there doing their thing. Anyways. That's a whole, maybe a better qualifier to my original statement of 90% of insurance. I think I meant more like 90% of the offers for insurance that you'll come across over the course of your life are not worth it. So the kind of, a lot of the.

More like substandard like regular events, like getting a new phone, getting new appliances, getting new products moving, traveling, the kind of insurance is that ironically almost a weird negative correlation between the amount of times that you would use the insurance in your lifetime compared comparatively.

It seems like the amount of times, if you're only used at once, like life insurance or hopefully your house only burns down once it burns it down at all.  Like insurance is that you would worst case scenario only use one, maybe two times I think have the most intrinsic value and are probably the best, like the best value, both simple economically and psychoactively as well.

Whereas the insurance that you could end up using many times you could break your phone many times  the possible risk to the insurance company of someone who is is maybe just drops their phone a lot. And they have to average that out. So they probably have people who dropped their phone a ton of times are the outliers on one end.

And the vast majority of people don't, but they end up having to pay extra for that. And that's a whole funky situ situation. So I would amend my statement and say more like the number over the course of a lifetime, most of the insurance, most of the possible insurance things that you'll be offered are not worth it, but does that.

 That I could see where you're coming from on that, because I guess I would probably agree mostly with what you said, or I would greet most with what you said.  There's almost a weird negative correlation where if you're going to use the insurance a lot, it's probably not worth it.

Whereas if you don't use it a lot but I guess actually, let me go back let me say this. I think it's actually, if the burden of the risk of that thing happening, it's not necessarily that thing is likely to happen, but that if it did happen, it could be catastrophic. I think that's when insurance makes sense, rather than if there's a high probability or low probability.

 Because there may be a higher probability that. I'm going to get in a car accident rather than my house is going to burn down, but both are still really bad. And they would both be very damaging and burdening if they happen. So I want to ensure both of those risks. Yeah. So it's almost like a burden, like what's the burden of the risk, not what's the probability of, Ooh, that's an interesting definition.

I like that. How does this, because we know there's a lot of ways to have quasi insurance on your investment portfolio, whether you're using hedging tools, whether you're using a funky options plays whether you're buying interest rate swaps or treasury swaps, or there's a lot of different ways to have quasi insurance in a portfolio or over the course of a lifetime w we still didn't get to, I want to dig more into your you're comparing, contrasting each of the, more common long run insurance.

 Things, but what you just said, it almost makes me think that it's maybe not a great play to, to be regularly insuring your portfolio, ensuring quote unquote using hedging tools that perhaps may be reducing your upside. So it's an interesting if there is that kind of actual correlation between the amount of use, like the amount of times, if you're hedging, and this is just financial tools and instruments in general, there are so many hedging tools out there.

 You gotta think about the premium involved and that's say it again, but it's like this if these tools are being used extremely regularly   maybe they're a funky value prop going on there. So that's just a thought just to put meat on those bones, I think you're probably right.

 Because I just read through a. An ETF. I was doing some research on this ETF company and they basically offer some ETFs that will try to basically ensure whatever you put in the ETF for 12 months. So they want to ensure or reduce the downside. They don't use insure because they can't, it's an ETF company, but they want to reduce the downside to basically shave off the first 10 to 12%, excuse me, downside for that year.

So the idea is they're all pegged. They basically use option strategies on the S and P 500. And they're pegged from, let's say February one, two of 20, 22 to February 1st, 2023, same thing. They have 12 of them for each month of the year. And so you can buy this, buy into the strategy, essentially through an ETF where you can insure against the.

10 to 12% of the market dip. However, the rest of that, let's say the market drops 30% of the year. You're only going to save the first 20 or the first 10%. They are not going to be able to save you from the huge drops. So their idea is we can, and again, this is, it's an ETF, so it's very hard.

They use a lot of qualifying statements, but essentially their idea is we want to help you with the little  smooth out the bumps in your portfolio. And we want to help you with the little downswings while maintaining upside rather than totally protecting you against the largest bear market that we might have in that 12 month period.

 So an interesting. Thing, because I don't think they were close to 1% for the expense ratio. And I was like, yeah, I don't think that would really be worth it if they're not going to fully protect the downside. If they're only going to protect the first 10%, I don't think it's really worth me paying them 1% of all the funds invested for that insurance, because it's not the biggest risk.

The biggest risk is a 30% downturn like a 2008 or something. And so I would want to protect against that risk, which there are other products out there, usually an insurance where you can do that. You can basically have zero downside with a cap on the upside, which is really interesting. The only reason they do that is because they think they have a lot of money, so they can ensure that that, that.

Kind of floor and ceiling approach, but they also use options. But they're very effective at it because they have a lot of money. So the options and the fact that they have a lot of capital behind it, make them able to offer those sorts of products, but a very interesting kind of scenario there where it's yeah, this isn't really worth me insuring quote, unquote, that the first 10% of my losses I don't think that would really make sense.

That's a really, yeah. That's a really interesting situation. A very interesting ETF. Cause it's like on the one hand it's so interesting. Cause it's I wonder who first thought of that. That's a very unique product to where  that is very unique and  maybe worth it if you're very convinced that this is not going to be much downward volatility in the market.

  If you think the market might go down 5%, but since was such an awful. An odd way to think about it. Cause I think the majority of retail and a good portion of institutional, like you said, watch for the 20 to 30%, you just want to not be in the market when that happens, is one of the easiest ways to consistently make big returns.

So that's a very interesting, and maybe it's a thought process of if you see it getting towards that 10% bound and you pull out, you say, oh, perfect, okay. This is right at I'm about to not be insured anymore. This is what I sell or I don't know exactly how it works. Yeah. I didn't dig in hard enough, but I don't think that would be the case because it seemed like it was a reset.

It was a 12 month window that reset exactly 12 months later. So they couldn't guarantee the insurance in between that period because of the option strategy they were using. Eh, I, again, didn't see the value in it, but that just is putting some meat on those bones of it's probably worth looking more at the burden and less at the probability that should probably be your first impression or your first factor that you consider is what's the burden of the risk here.

Not what's the probability that this risk is going to happen. I think that's probably maybe third, the probability factor maybe third, second, or third in the list. But the burden has to be the first part for sure. In determining if it's worth it or not. That makes since to me. And I think that cause otherwise you go go down the weeds of Monte Carlo options, pricing, and all sorts of fun, fun equations and stuff that  a lot of the times it works.

  For the average. So the average investor if you want to have relatively safe blue chips with covered calls is pretty classic. Get a little extra premium on the side from the pharmacy. Want to be going a little crazy, but   yeah. That's definitely a good positive, but that's not really, that's almost a risk in and of itself like you may if you're doing a short-term, if you're writing a short-term call, I guess it's not gonna be that much risk if it's far out of the money, but cause we've got a lot of Robin, Hooders sorry for anyone who use Robin hood.

 But got a lot of Robin hood is just buying way out of the money options companies. That's what it should be. We got a lot of hoodies because there were a hood I'm just kidding. We're insulting our audience. No no, it, that in and of itself could be. As well, because you could have to sell based on how the option plays out, could up sell if you're writing the call.

So you're losing out on some upside possibility. Possibly, but if it's far out always, there's always chances of everything in the long run that is the best quote ever. There are always chances of everything in the long run. My, my long run, my, my long run forecast for you, Mike is that there is a as a high chance of everything and not financial advice, but general advice.

I would say none of this is financial advice, but that's life in general advice, all the high probability of anything at any time in the long, pretty much that's that's just life advice there who knew you were going to get, be getting a grandfather wisdom from Mike and Austin here on the line.

Exactly.  I want to jump back. We talked a good bit about the stock stuff, but I want to jump back to your example of the contrasting kind of the more standard insurances that everyone is probably going to be looking at whether or not. Hoodie or you're active in the market. Maybe here, your problem might be looking at life insurance or already have it and optimizing it.

And that's a lot of stuff that I'm not as well versed as you are. So I want to hear what you were talking about and get a little compare and contrast for our listeners before we have to wrap up relatively soon. Yeah. So the  the nice thing is we don't have a hard commercial break Mike, so we can just, and go and folks you're a long, we can make this, the longest episode that the long, long running, it would probably be appropriate with insurance.

 No.  Just to sum it up. So let's go through them relatively briefly. And then you can ask questions where you think would be helpful. So life insurance kind of its own behemoth, but essentially two different types. You got the term which we just discussed. You pay a premium for a period of coverage where you'll be paid out the better.

Of dying. You'll get paid on a death benefit if you die during that term period during the coverage period. So you're just paying for you're basically just paying for coverage during a set amount of time 20 years. Let's say, if you outlive the term and you're not covered anymore, then there is permanent insurance, which always pays out.

 Th there's actually never been a life insurance policy. That's not ever paid out. Every insurance policy always pays out as long as there's a legitimate death claim filed. It always pays out. Now, some people don't file a death claim. Totally separate. Maybe insurance companies make it hard to file death claims on purpose.

I don't know, but I like living. So I'm not going to go tread, tread too far into those weather. No, but so you've got the permanent insurance, which always pays out when you die. You're paying into the policy the whole time. There's a lot of different calculations that go into that. If you're buying a policy, when you are, let's say 75 or 80 versus buying that same policy, when you're 35, you're going to be paying a different premium because the risk that they insure you for is adjusted over the life of the policy.

But the initial, like your personal risk is determined when you start the policy. So at 75, you're going to be way less healthy than you are at 35. That means you're going to pay a larger premium at that point. Sometimes it doesn't make sense to buy insurance because they know that they're going to have to pay that insurance out very quickly.

And like you said, at the beginning, they're not going to make a buck on it. So if you're paying premiums in for 40 years, from 35 to 75, then they're going to be able to make a buck on it because they're going to take some of that money and invest it. And then also have some of that earmark to be able to pay your insurance your insurance claim, your death claim when you pass away.

Now, if you set it up  the amount you pay in from 35 to 85, let's say, or 95 over that 50 to 60 year period should be less far less than what you get in return. And the reason that works is because they could take that money and invest a large portion of. There's also going to be people that live far longer and actually get less.

There's gonna be people that live live a shorter life and actually get more compared to what they paid in. It all tends to even out, but you should be able to make more on the death claim than you paid in premiums. If you didn't, no one would buy insurance. Now, some people will still buy insurance because there's really good scam artists out there in the insurance world.

It's very unregulated compared to financial advising very unregulated. So you can read some wild stuff. And it gets very annoying because they also can just call themselves financial advisor because that's not a. Like a regulated term. So a person can be a quote, unquote, financial advisor, but they only sell insurance.

And  if all you have is a hammer, everything's a nail. So everything gets solved by insurance for those guys. And that's not necessarily appropriate. So that's life insurance, there's permanent and term permanent. You're going to get paid out at some point term. You may or may not get paid out depending on when you die.

Then you've got the home or excuse me, I should back up. So on in my estimation, usually it makes sense to do some sort of life insurance usually, but you want to optimize it. You pay in far less premium than you get paid out. And you want to be aware of how the whole game is played in that world.

Usually it helps to have someone walk you through it. Who's independent and can look at a lot of different options for you. And so that in my estimation usually makes sense whether it is some sort of term product with the option to become a permanent product later, or it's some sort of permanent product.

 Again, like we've said in a couple of other instances in this podcast, it depends on the whole scenario at that point, determining if it's a good fit or not. But usually there's usually, there's a reason for life insurance. Now, the only reason there wouldn't be. Is if you had no risk. So if an example of that, which might sound weird because everyone has a hundred percent probability of dying, but there may be no burden attached to you dying other than I'm sure an emotional burden for some people, right?

I would hope you have friends and family, and it's emotionally difficult when you pass away because you were loved. But there may not be a financial burden attached to you passing away because maybe you are you don't have a. Necessarily kids. You never married. You just were riding that single wave all the way into your nineties and you pass away a happy, jolly single guy.

Okay, fine. Then you don't really have anything to insure because there's no burden there. You're not leaving behind a spouse who needs some more money to be able to live the rest of their life. Not leaving behind kids who need to be taken care of or kids that are adults, but you want to pass on some sort of legacy to them.

 At that point, if somebody is single, sometimes people will write an insurance policy on themselves and use it to pay for an endowment for a college to, to fund some sort of charity. You can do a lot of things with insurance, but there may not be a super good reason if there's no burden, which is why I think burden is the number one factor in determining the usability or the value of insurance.

And then probability, there is no burden. You don't even have to talk about the probability. Yeah, I would say for most people, life insurance will make some sort of sense  in their life home insurance. First, let me stop there and you can ask questions. Did that make sense? No, that makes sense. And  I liked that definition of looking at the burden right upfront  which brings in an interesting one because it's that's a tough call.

If you're very young and single or then you might not imagine you, you're not, you don't have burden in the moment, but like you said, if that's the easiest, the cheapest way to get good insurance when you're young and healthy. So it's a, it's an interesting conundrum. Yeah. It's. It's almost go ahead and you insurances, like when you really need it, you can't get it.

And when you don't need it, you can get it really cheap. That's pretty much all insurance, except for phone insurance. Sometimes you can just buy that and then be like, oh, sorry, I dropped my phone anyway. So I would say that there's probably, for most people, there's probably a situation where life insurance makes sense, home insurance.

 We don't really probability may be very low, but the burden of you being in the street and homeless might be pretty high. Now, if you have multiple properties, maybe you've reduced the amount of coverage depending on the property and the utility it has for you as the owner. Maybe I put less on my vacation now, cause I don't really care.

Or maybe I put more on my vacation house because it's worth more. And I actually really care about it. It's a family heirloom passed down five generations and I really want to make sure that it doesn't. Dye, and then I die. I'm still there. It doesn't get destroyed and I can't pay to repair it. Somehow death of houses is always a sad thing to see.

It is always a sad thing to see. So that home insurance, I think the burden is pretty steady there really interesting one. And it's almost a subset of this renter's insurance is interesting. Sometimes it's required by your landlord sometimes not. And I don't know. I think it's a personal thing.

I, I think it also depends on the scenario. If you're living in a situation with other roommates or your, in a huge apartment complex, may definitely be worth it to have some renters insurance, because then there's more risks involved. There's more potential risks involved because you have more humans and humans are inherently risky.

 So then it maybe makes sense, but if you're living in a house by yourself and you're just renting the house, maybe it doesn't make sense at that point. Like you don't own the thing. Yeah. You have a lot of stuff in it, but you're the only variable or you and your wife or husband are the only variable or what have you then probably doesn't necessarily make sense because  the at that point, yeah, the risk is high, but the probability is far reduced.

  And maybe even the burden isn't that high either.

So that, that can be  Kind of a sticky wicket that's, again, case by case scenario for that one. You, have you have anything to add there, Mike, as far as like home or renters or what would you do for renters? Yeah, that's an interesting cause I do, I actually have renter's insurance, but I w I'm actually planning on canceling it.

So that's an actually really timely, a timely thing because it's it's interesting, like you said, it's all about the variables and the risk factors involved and  And it sounds like we at least from my perspective, I've definitely taken a very pessimistic view. It sounds like I'm taking a very pessimistic view over this episode of insurance, but I think it, it really is in some ways similar to investing in that it takes a lot of self knowledge of your risk profile.

And if you don't have house insurance, will you be constantly worrying about how did I leave the, that I leave the stove on? Is the gap there going to be a fire? If you don't have life insurance, you got constantly be worrying about it. So it's something where I think  like we talked about, I think in the previous episode of knowing yourself and understanding your risk profile, understanding the things that you value, the things that.

Going to worry about or not worry about is really important. I think for, I think the majority of people, like you said, it's a lot of those long-term insurances, home insurance, life insurance. It really makes sense because it's it's things that people will likely have to deal with at some point.

And are you going to be worried about it and constantly thinking. Yeah. It's almost yeah, like you brought up at the beginning, there is some psychoactive value to it as well. It even if you decide that yeah, the burden is catastrophic and I need to ensure this risk.

Yes. It may happen. The probability is enough that I shouldn't share it. Okay. Also, there's just like the mental strain associated with it. That could be very valuable to, to mitigate. Or it could be a relational thing  oh my goodness. If I die is my, are my wife and kids going be taken care of?

 That's like a common one for young families.  That's a very common worry, especially if  you're the primary breadwinner. Or even if you have two two spouses working, you still got to take care of the kids. Somehow they got to go to daycare. There's an expense there.

 So it definitely. Mental strain as well to think of as far as the other types of insurance auto insurance and the next one that comes to mind that I think probably everyone's going to run into that. You have to have it. I've I tend to be more cautious. I'm interested to hear what you think about auto insurance.

I tend to be more cautious just because I, this is a mental, this is a perfect segue because this is a mental thing for me. I've been in a couple accidents before. And so I know that, okay, having insurance to be able to pay for this vehicle and or damages outside the vehicle, if it's property or hopefully not.

But if it's people, if someone goes to the hospital and I'm at fault, if I need to if I could get sued for that, then that makes sense for me  to reduce the mental strain and concern to have a larger amount of liability coverage on. Policy, but that's me, I'm more cautious.

And again that's my scenario. And I value that insurance probably differently than other people would because I just have a different history, a different experience with driving. So that's weather, whether good or bad, that's just how it is. And so I probably value having a little bit more coverage.

I don't know  what's your perspective on that? Yeah, I think I'm actually in a similar boat to you on this one of a for car insurance. I think I had a similar experience where not driving and been in an accident and been driving and been in an accident and never in a, an a fault situation.

I haven't run any red lights. Like it's never I've never been the cause of an accident, but it's interesting to see what if you didn't have car insurance and you didn't cause an accident  and then some states are no fault. And it doesn't matter if you caused it or not.

If you're not getting the payout from the other person where some states are where you'd get covered, but that's scary, especially if you're traveling across state lines regularly if you're moving around at least for me I'm in a similar situation where  I'm willing to pay the extra money to have a better coverage.

 And I think car insurance is oddly in a similar situation as health insurance, because health insurance has. So both car and health insurance, there's so many different options, at least the variable. Exactly. At least in my head home and life insurance are similar in that there's one kind of thing that can happen.

  You die or your home is destroyed and maybe there's different levels of. Moderate damage to a house. I don't, I thought you were going to say different levels only, mostly dead only what's the princess bride girl only, nearly he's only nearly dead, something like that. Only nearly dead.

Yeah. But but I think that car and health are in this interesting category where there is a lot of different costs, possible, a lot of different variables possible. And for me, I'm actually, I would say I'm probably more on the cautious side, similar to what you're saying on both where  I would rather spend a little more on, on both car auto and health insurance and have that added protection.

Yeah. Just for the edification of our audience. I'd looked up that quote it's mostly dead is slightly above. Nice for those who are trying to string the quote together. There you are. Yeah. I see what you're I see what you mean, thinking of them similarly   they do seem to have some kind of cross over there and health insurance.

Everybody's going to probably bump into that at some point. I've surprisingly had different experiences than I thought I would have with health insurance. Not and this is just me, probably just being a young guy and not having used it a lot yet, but I haven't yet seen the value of it, even though I totally understand it.

 And definitely pay a premium for it. I pay a premium for good health insurance, but. I haven't really seen the value yet just cause I haven't used it. But I've seen it in other in others or family members or friends that, that sort of scenario seems again, most of this stuff it's  yeah, health and health insurance is its own behemoth, but it seems yeah, it's probably makes sense.

 As far as the other pieces of insurance I don't think appliances are, we've been over this appliances devices. It doesn't really make sense to me. It sounds like it doesn't make sense to you either. That was when he said insurance, I was thinking like life and auto and then you S you brought up the devices and appliances.

And I was like, where I forgot there was insurance on those. Cause I think it's so dumb. I never used it and best buy insurance or apple insurance or any of those companies feel free to send us. Stats on LinkedIn or started arguing with us or that could prove us wrong. I'm more than happy to change my mind on something, but for me, it's like that kind of insurance, which is so common.

 You're going to be buying so much of that stuff, especially as phones have become more and more disposable, you will just get in your phone so often or planned obsolescence. Exactly the thing to exactly. Be careful with those updates folks. So I think travel insurance, a case-by-case scenario, I'd never used it.

I don't see the point, especially now post pandemic. A lot of airlines are just essentially offering you insurance via vouchers are really flexible, change rules all of that. So it doesn't seem to be super valuable. Lastly, before we let these fine folks go, the portfolio side of things, the investment side of things, it seems like maybe we should.

I think that is super valuable. I guess I'm speaking for both of us here. My opinion would probably be that everything I've seen thus far seems like  the premium would probably outweigh the benefits of ensuring any sort of like downside risk because you're going to have to reduce some of the upside.

 There's no, holy grail that's like zero volatility and a hundred percent of the upside. That's just not the thing. So that's just where I stand on that. But maybe there's scenarios where. I wouldn't really call it insurance for your portfolio, but maybe adjusting the riskiness of your portfolio based on other factors like timeline, as far as when you're going to use the capital.

 That probably makes more sense to me that I don't think there's that the re the reward is far smaller than the premium you'd pay for it. In my, especially if we're talking in the long run, it seems like if we're talking about short-term, if you think of the next three months, something crazy is going to happen.

Maybe you put some shorts on something, put some shorts on

come on and then go for a dip, go jump in the lake. But it seems like insurance in terms of a portfolio perspective is usually for short term actions. If you're talking in the long run. If you think in the long run, the market is going to keep going down. Why are you in the market? Either you need to, your strategy should either be you're shorting the market over the long run, which would be your strategy.

And so if you want to insure against that, then you just buy some of it. So you buy it is, I think the long run methodology, I think almost insurance for portfolio is maybe all investments, maybe it's real estate, maybe it's wine or it's  those kinds of cool alternatives seem like a better form of quasi insurance where diversification is kind of insurance in one way.

 It's not necessarily tendered by a company that is offering you a payout. If something happens, it's more of you creating your own insurance by diversifying and changing your risk portfolio to. Different things. So I think in terms of a portfolio, it seems like the best insurance from my perspective is diversification.

According to how you perceive your own, a bit of ability to handle risk in different scenarios. Yeah. And I think also it might be helpful to zoom out from. Thinking about your portfolio in terms of your one log into your investing account, your portfolio should include, if you're taking a, taking everything into account should include the cash you have in the bank, and your emergency fund and all of that. So maybe the insurance in air quotes that you would be using for your portfolio is, could be dubbed like a war chest of cash sitting on the sidelines, ready to go by when everything else dips. And yes, your portfolio is going to dip along with that, but you've got cash to go in and buy it at fire sale prices.

So that would be the only thing I can think that's close to some sort of insurance other than of course, diversification and spreading out among different risk profiles and asset classes. But that's the only thing I can think of that would be quasi insurance for your portfolio. That would actually be.

 Yeah. Again, not financial advice, but would love to hear opposing perspectives or agreements or anything. So feel free to drop us a line and let us know what you think about the world of insurance though. The wild, wonderful world of insurance, the wild, wonderful world of insurance. That is quite the alliteration and we're going to have to put a pin in it there.

This has been another episode of the long run show. Hopefully you will join us next time.  One of the future episodes we'll be talking about, actually what we just talked about in the last five minutes. Some of the more personal side of investing and thinking through what it looks like what your whole situ situation looks as a investor now, You're one login to your one investing account.

 So that's that look for that in an upcoming episode. But until then drop us a five-star review. Like I said, last time, if you want to drop a one-star, don't go to LinkedIn and argue with us there. Hopefully publicly, if you're rude, I just won't answer you, but I'll answer, I'll be the dedicated answering Mike.

Michael definitely answered but no, feel free to drop us a review that definitely helps out and share the podcast. If you know somebody who's has questions, we have some we have a decent library building up here. So if people have questions like crypto, they have questions on inflation questions on NFTs all that sort of thing.

What is value? We did a show on that. Definitely share, share some episodes insurance. Obviously you're here. If you liked this episode, share it. Getting the word out definitely helps us out. So if you found this valuable, please feel free to. And what will be a little exciting aside as well. We'll be having some guests on, in some of our future episodes as well.

It should be a lot of fun  branching out and bringing in perspectives and looking forward to not just the two of us rambling on, but having some fresh perspectives and fun discussions. Exactly. Maybe we'll find a another cynical bloke and another, a optimistic bloke to join the wild show that this is awesome.

 As always, thanks so much for listening. We'll catch you next time. .

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 "As much as people joke about it, saying investing is like gambling. It's not, but you can have very similar experiences with it."

"Any trader or investor should understand how they perceive losses or gains."

In today's episode of The Long Run Show, Michael and Austin talk about the psychology of investing and how to manage FOMO and impulsive trading.

Hosted By:

Austin Willson

Michael O'Connor

Transcript

 Welcome back to the long run show. Austin Wilson. And I'm here with my co. Michael O'Connor and we are going to be talking today about the psychology of investing and  we might broaden them a little bit more into the psychology of money as well.

 There's definitely a lot of interesting biases and psychology. Problems and downfalls and pitfalls and a whole roller coaster of of things when it relates to how we think about investing, how we think about money, how we relate to it. So this topic kind of has coming up. We decided to talk about this because of the pullback we've seen in the markets recently.

 Just, it was actually interesting timing wise, because I think it's been almost precisely a year since since GameStop. I think that was last week. Was the one year mark of the game stop mean stock craze. And then this January, instead of a crazy meme, stock rally, we're having a little bit of, a little bit of red on the ledger.

  It's been been an interesting couple of months after all the run-up of 2021 nothing new here, but if we do start dipping down into a bear market territory, there's definitely some Ways, different ways that people react both positive and negative. So we're going to cover all of that today.

And I think this is an episode that we've done so many similar episodes. Like it's weird because we've talked about what this is the psychology of investing. We've talked about value, like all these things we've touched on. So many of these points that I feel like this is a great episode to dive deeper into that because it's something that.

I think any trader or investor should understand how they perceive losses or gains or knowing what they're going to do in the future. Understanding how you can be affected by that is so important. And we've just, we've touched on a lot of these topics. We haven't taken the time to dive deep and I think that's really helpful, like you said, at a time like this.

 So I'm really excited same here. And actually I'm going to call you out. You have a little bit of like a, like an insider expertise, upfront, close knowledge of the crazy psychology. Of investing cause you did a lot of day trading back in the day, back in high school, I think, and a little bit in college.

 And you were doing like crazy diametric trading. You got into some wonky stuff but you like definitely experienced that firsthand. And I've since through. Whether good or bad we'll call it neutral influence I've ventured into some more speculative kind of trades myself recently.

So I'm just like slowly dipping my pinky toe in the kind of speculative end of things. And it's interesting. But I've definitely experienced some of the. Oh  the call I bought is up 134%. This is amazing. Then the next day is down 40%. I'm like, wait, what's going on here. So I've definitely experienced that before, but you were experiencing that like on a daily basis for a long while.

  What were some of the kind I guess we'll go with like key downfalls you saw whether in yourself or in  the traders that you were talking to and learning from it as well. That's a wild, I like that question because, and yeah, like you said I did a lot of trading When I was younger and to be honest, I burnt out of it.

Like nowadays I, I do research, moderate amount of research and then pick a stock to hold for anywhere between four months and three years. It was my horizon now. So I'm too busy and too tired too. My joints are too creaky to me. But that is it's. It's. There's an element that it's just, it's fun.

  I enjoy playing blackjack at a good casino, as well as as much as people joke about, oh, like investing is gambling. It's it's not, but you can have very similar like experiences with it. And I think that ties exactly into the biggest downfall for myself. And what I've heard from other people is the problem is you can have gains and bigger gains.

But it's never going to be, unless you set it somehow you set, if the mental aptitude to set a goal, like I'm going to make this percentage a day or this amount of dollars a day or across months or in a strategy, you're always, it's so easy to go and make a ton of money and then, oh, okay. Shoot. I made all this money.

I gotta make more. And it's super, super easy to only. Appreciate a little bit when you have a big win, whereas whenever you have a small loss, it's a bad day. And if you have a huge catastrophic loss, you're really having a hard time and that's just baked into human psychology is the loss of version where people surveyed would rather get, sorry, would rather lose.

Wait a minute, they would lose like $50 than if it was a 50. Okay. That was a bad essentially the experiment where people would rather lose less money than they could gain. If it were. A chance. Yeah. Essentially my mind was all good. I mentioned diametric trading and you went back for that time.

You're like, oh my gosh.   No. So yeah the loss of Virgin prior. So like you would rather lose 20 bucks than have the possibility of making like 50. Oh. Excuse me. No, this is great. This is great. So if you had, oh my gosh. Okay. So if you had a situation where someone gave you an option, say I'm going to flip up.

And you can play this game or not. If the coin lands heads, you win $50. If the coin lands tails, you have to give me $30 or something. There's some specific calculation. I don't know if the hand, but most of the time the people will choose to not play the game because of the risk of losing the risk of losing last month.

Even though it's technically a 50 50 shop for the same amount of money you should because you have, because there's a difference in the money. You should play that game a hundred percent of the time, according to game theory, but because of loss of version, People discount the value of future money and value and increase the perception of the value of losing.

 Which is a very interesting thing, but it makes sense. It makes some   ancestral, you got to worry about the tiger behind the rock rather than, oh, I might get a handful of berries over here. Yeah, the tiger will eat you and you will not have any more decisions to make. So it doesn't need a, yeah.

You have to wait that pretty high. Yeah, that makes sense. And it's almost like getting caught up. There's a, we've had a lot of weird acronyms and like memes and all sorts of stuff come out of 2021, but the one that there's two that are really. And relating to investing is FOMO, which has been around in other places.

But it's been used a ton in the last couple of years as FOMO and then FUD fear, uncertainty and doubt. And the FOMO, the fear of missing out, it's almost   you would rather you would keep you and want to keep playing, but the FOMO and then the loss of version. Make this weird cocktail where it's you want to keep playing, but you don't want to lose any more money, but you're really scared about missing out on big gains.

And so it seems like that would cloud your judgment between the two of them alone would very much cloud your judgment.  And did you find that was more the case. Did it matter what the overall market was doing or did it really, you were just focused on one stock and so it just mad at what that one stock doing.

It depended on.  As I got more sophisticated, that'd be doing diametrically opposed trades. So on like Vicks leveraged Vicks. Versus a leveraged ETFs or even single stocks. But essentially playing both when  if you've got some sort of thing that's going to be the inverse or short sells or options, you've got calls and puts on the inverse and you have a volatile enough security.

You can be pretty sure if there's enough applied volatility, you can be pretty sure that you can buy when it's down and. Then sell whatever you have that would correlate to it being up. So you're essentially saying when this one thing that is valuable when the other thing is not valuable and not valuable, when the other thing is valuable, I'm going to buy both.

I'm going to, I'm going to simultaneously have both, but not necessarily at the same, not with the same weighting. And so you're essentially, you're going back and forth as volatility goes up and down as the price goes up and down. Yeah. Really in some ways you're counting on volatility and change, but the market is always changed.

So there's always going to be movement right now. The key with that is that was in a pretty flat market, which you need, you can't have a stock that just dives and you're buying the inverse thing expecting. So it doesn't no strategy is perfect. But to get back to your question, not to dive, we could dive way too deep to get back to your question.

 It's an interesting point because I think. Even in a strategy like that's pretty quantitative. It could really be easy. To pull the qualitative elements of the FOMO, the FID like  it's very easy to pull those things back in as a human being. Even if you start off with a plan and say, this is just a quant thing, and this is what I'm going to do, it's so easy to hear someone say, oh this thing's going to go way up.

And sometimes it's a game stop like that should have listened, which I listened to that more, but it's very easy to get sucked. A specific plan and start doing your own thing without actually looking into it. And you oh this could work over there too. I don't want to miss out on this.

So there's a lot to that. And it's something that  that's part of the reason why I stopped being so like, I, it, it takes, I, I believe it takes a psychological energy to keep yourself from. Falling prey to the biases and the heuristics and everything, because you're constantly having to check yourself and say  no, hold on.

And I, at least for me, that takes up energy every time you're doing that.  It's draining and tiring. Yeah. And there's only so much willpower that you can have in a. Day or I don't know necessarily, we said in a day, but probably around the day or a week time. So you're using up a finite amount of willpower every time you have to check yourself, but that strategy like that.

So that makes sense. And some people are great at it. I mean like the top traders in wall street, they're probably just incredibly good at. Understanding themselves and willpower and how to mitigate stress and take quantitative opportunities, but also way exterior information. So there's so much going on.

So it's it depends on your personality too, which I think is the reason why the vast majority of people just go with financial advisor or an IRA with ETFs or something like that, because there is energy that's required to be in those kinds of things. Yeah. And I it's, it is always interesting to me.

 People are like   I want the like quant returns. I want the wall street returns, but I don't want to do anything. And I'm like  there's a premium, you pay to get those returns, whether it's a financial premium or like you're saying an energetic premium you have to pay a premium to get that.

 Yeah it's always interesting to see that. And that's also just Everybody's looking for the the pill, the easy fix, easy money. And if it was easy, we'd all have six packs and be rich billionaires like there, there is a, there's a reason willpower is hard and sticking to a strategy is hard.

 So in a bear market like this, where it seems like we've walked, excuse me, we're not a bear market yet. I'm not calling it, but in a  a, in a market like this. You now have what, like what I just said you have headlines saying, oh, it's 2022 going to have a bear market. What's really interesting to me is.

 It wasn't like 2021 was a great year. As far as catalysts, there was a lot of craziness happening. We broke records on inflation. We had all sorts of COVID scares and relaxed downs and opening back up and then shutting countries off and just a trade craziness. There was a lot of turmoil in 2020.

And so what's always interesting to me is when you have a like a market reversal where you're going really hot, it looks like, oh, stocks just go up. And that's what the  when you're, when your barber is like giving you a financial advice and then something a little wild.

 But when we're in that situation, and then we have a reverse. And we start seeing some down days and those days string into weeks and the week stringing a month or two. And we start seeing this reversal. What's interesting to me is how much is how, and I don't know whether we can answer this question, but I think a large amount of that is driven by some, of course we've got the invisible hand of the market.

 But some of that is driven by just like a collective psychology around where we think the future. Is going to go. And what's interesting to me is what's the catalyst there because it's not necessarily, certainly not the talking heads on TV. It's not us bozos on the podcast here.  It's no, pundant that definitely goes ahead and just says, oh yeah this is where the market's going. And then boom, that crashes the market. No one thing. It's not necessarily interest rates or the easing or it's not necessarily one thing. But it does seem like there's some collective. Mind, but this goes okay.

Yep. We're going to go left now instead of going,  what's your take on that? Is it you, do you think we could ever really understand what the catalyst is for that turn or that turning point? Or is it just  theorial, it's going to be it's one of the mysteries of the market, if you will.

That's another really good question. And it's like the, there's almost it's almost a hive, mind, the marketing, the different nodes, and it's a whole colony of ants that are all noodling around. That's a good point of what are the catalysts of that? It's I see. We haven't seen, for instance, earnings have not been that bad.

And some companies have been very good earnings calls the last couple months. It's not necessarily, I don't necessarily see a gigantic oh my gosh, everything is so overpriced. It's every good thing is going to go down 50 to 75%, something like that. I really don't see that happening. I see certain stocks very well.

  If they're getting caught up in psychological things going on, they very well could. And I definitely think I've definitely heard a lot of people saying, okay, this is going to be more value stocks, more old school, gold miners, Goldman Sachs banks stuff. That's just pretty darn normal and makes returns and pays dividends.

 Even just personally, I've shifted a lot of my strategy because of the market have shifted a lot towards those more value stocks, low like lower priced good dividends, solid methodology good for selling covered calls and just riding around. Yeah. That's a kind of a. Point you were saying, you're just buying like traditional value stocks and then some uncovered calls on them, which is not a bad way to go have some quote unquote free income for those stocks.

But it is interesting. It's like maybe it's a shift in mentality and with a crowd it's so hard to pick out like, okay, what was the catalyst for this? So it's an unfair question. I know that going in. I knew that but it is interesting because. There definitely seems like it's a shift, but of course, just like the six packs and being a rich billionaire, if everybody knew when it was going to shift, we'd all make a lot of money, but then that would feed the shift because it just wouldn't chip.

Yeah. You know what I mean? Like it's like the passive versus active rebate. Can't be all active. Can't be all passive. Otherwise neither strategy would really exist. Yeah. And this is a good question though, because. And we can dive in a little bit, because I think that what we're seeing, because it's not this massive drop, it points almost to more of a grinding pessimism.

It's not necessarily a, oh my gosh. We're screwed. It's geez, like COVID is really dragging on. There's just the supply chain is as far as I know, not doing a ton better. It's not. In a crisis mode, as far as I know, but we're not seeing oh my gosh, everything is great. And I think a lot of individual people and institutions thought that by now, okay, everything's going to be pretty solid, like we're back in the upswing.

 So it feels more like a kind of rare. Grinding pessimistic market, rather than what is talked about, which is a big crash or something like that. That's interesting.  The headlines have to be, if it bleeds, it leads, right? So the headlines have to be catchy. So that's why they go for the big crash and all this red and blah, blah, blah.

 But it is interesting what you're saying a grinding. Pessimism I think is a good way to put it because I was looking at the, just the one-year chart from today back one year. And if you just look at the one year chart it is not quite  it's pretty impressive, but it's not quite as impressive as when you zoom out, look at five-year chart, or if you looked at the two year trend, obviously that would be very impressive.

  The run-up I think in 2021, Pretty outrageous, but that might just be the reference point of having that huge catalyst of COVID happening and everything shutting down. And you see that UV, but in 2021, it almost looks like we were hanging on to to parallel your pessimism. We were like hanging on to a grinding optimism and oh, don't worry.

We're gonna get back through. And now people are just like tired of. And they're tired of being so optimistic, which is a very sad thing to say. I don't mean to be such a downer, but it seems like people were. Begrudging and that'd be gradually, but hope hopeful and very optimistic.

And we're like really trying to push that. And now it's just oh, okay. This is a calendar year turn. It's 2022. And we're still dealing with this. Are you kidding me? I know for me, just personally, like 2021 was such a weird year. It almost it almost seemed like it didn't happen in a way.

Because it was very similar to 2020 in some ways, but very different. And  it was in this weird Twilight zone. So maybe that's a, maybe that's a collective thing too. And people are  getting out of the Twilight zone and going, huh? We don't like wanna reevaluate here. I don't know.

 But that is interesting that you said it that way. It's like a grinding pessimism instead of this catalysts that just. Yeah, it makes us deep V in the chart   it is interesting. So in a situation like this, I've noticed myself even going dang. Like I. So in the cryptos that I hold a small amount of crypto that I hold, there's one cosmos that's really booing the whole thing up.

 Cause everything else has just dropped. And in the stock side of things I don't really hardly look at most of that. Most of that's just long-term and an IRA. But I have made like some a call position recently just cause it was very nicely priced. In both of those sections, like the crypto side and the stock side, it's very interesting to look at it and go, dang.

I bought in at this price and now I'm way below that. And it makes me. At first, my first reaction is, oh, wow. I should not find anymore. But then I think I stopped myself and I think through it, I'm like, oh, actually, no, that means it's on sale. I should go buy more right now if I believe in the underlying asset, obviously.

 But if I don't believe in it, I don't know why I'm holding it. So it is interesting. Do you think there's more than just that more than reminding yourself? Okay. This means everything's on sale. I should go buy. Again, this isn't, we're not telling you to buy, you can do whatever you'd like, this is not financial advice, but you think there's more than just reminding yourself okay, this might be a buying opportunity.

 Is there something more how do you qualify that? Okay, this is a buying opportunity or no, I just need to hold. And I think it's probably a prudence thing. And so part of it, I think was probably a prudence thing where you need to evaluate what the goal is for that pool of money and then see how you want, like how risky you want to be.

 Yeah. And I think the really unique and interesting thing, which I haven't seen it talked about a ton yet, but the fact that interest rates are going up. Obviously that is most likely going to cause a lot of institutional money to go out of stocks and into bonds and into a true more interest rate focused things because now they're actually viable again.

So there's a question of have stocks just been. Artificially propped up by the fact that you just can't make money on anything else. Because that's really a serious problem. There were preferred stock funds that were paying really nice dividends that looked far more attractive than a bond fund, which is weird because it's an underlying, it's an equity it's going to be volatile.

It be very volatile. So that was weird to look at in 2020. Huh, I would rather buy this, the stock fund for my bond portion of my portfolio. This doesn't make sense. So that's a good point. Maybe that's part of the rotation.  I don't know that's been fully appreciated yet. But usually the market is pricing in future returns, not today's returns.

 So maybe that's some of the sentiment underlying and just hasn't been spoken up loud yet, but that's the point. Yeah. Cause I think th the sequence of events that's occurring right now is very unique in that even just psychologists looking at my own psychology book, Hey, how do, how am I planning out my my next moves in whatever market it's okay, I would love to have more liquidity to buy more stocks since it's going down.

Yeah. But with inflation things are getting more expensive and the stocks are going down at the same time. So this bad double negative going on there. And so it's weighing that comparative to the, okay. Should I be throwing this in a bond or in a high interest savings accounts that I. Extremely liquid.

If I need it, should I be going heavy into these value stocks? Because I'm going to go back up. Do I need to be using less liquidity? Should I just keep things in cash for a little while and see what happens? So there's a lot of different psychological inputs that are going on because it's a very complex situation and you've got COVID and supply chain, difficulties.

Yeah. All sorts of other stuff going on. So there's a lot of uncertainty in the market right now. Yeah. So uncertainty, we've got the FID fear, uncertainty and depth. To out necessarily right now, a lot of things that fall into place, I think before the fed made their moves clear, there was a lot of doubt and people were not sure where the direction was going to head.

 So I think there's less doubt and uncertainty, but there's definitely fear. And just a general uneasiness going into 20, 22. So when I look at that, I go, okay  for my strategy of long-term just buy and hold, just Hoddle and on the SMP baby.  When I look at that, I'm like, okay, great.

It's almost just a it's just an opportunity for me to get in at a low entry price, honestly. Most of it's automated. So I just think to myself, oh great. My, my by this month is going to be cheaper than it probably would normally be  so that's nice, but is there a certain  throwing in all of, obviously there's many different  classes of stocks and different different sectors that we could look at, but throwing in different things too.

Like the alts, like we mentioned Vino vest before that's like a wine investing platform NFTs crypto, do we use. To those in a situation like this, where there's a lot of uncertainty because you hear the term like risk off mentality. And I think that's being used a lot to explain the crypto sell off.

 And it's been wild to notice how tightly correlated. It seems stocks and cryptos are when there's no. Underlying fundamental connection. That's been interesting, but we were looking at the NFT space like few days ago and that was still booming. And maybe it's because like my thought is maybe it's because a lot of those are built on Ethereum and when you transfer, you have gas fees.

Now that theory comes down. Okay. There's more gas fees. Or excuse me, there's less gas fees. So it's easier to transfer their more market activity and therefore it's booming.  Looking at this without thinking of our own biases and our own psychology, we would go, oh, okay. I need to be afraid.

I need to hoard more cash. Don't put it to work. But is that the wrong thing to do? Should we be looking outside of stocks and crypto and be thinking about it differently? Maybe the maybe the option is to. Put some of your cash to work and buy a house. I don't know. What are your thoughts there?

Like coming at it from a different angle, realizing we've got some psychological biases going on. I think that's really important thing to note an important question, because we've talked so far, we've talked mostly about what's going on, right? But as the name of the show, it's the long run show.

So stuff like this will happen as the years go by and over again. So I think it'd be helpful to have a framework around exactly when it comes up again what to do, or at least what questions to ask, not necessarily what to do. Yeah. And I think that it's a really interesting  the kind of realm of alternative investing seems to really have boomed in the last like year and a half.

It's funny because you would think that would boom, when stocks weren't necessarily doing well. They're like, oh, I need to, I need a alternative, but it's really seems more oh, I made a ton of money on these stocks. They're probably going to have to go down at some point. So I want to take that, take the return and put it somewhere else.

So it's a very interesting chain of events. And because of that I think that there's gonna be. I think there's possibly going to be less alternative investing as the market trends down because there's going to be less returns for people to take and say, I've made good money on this. I'm going to put it in all rather than I think a lot of people are going to hold or buy more stocks as they dip theoretically, which will, I think paradoxically is going to reduce the amount.

Maybe not the value. I think the value of an alternative investments could continue to rise, but I think less people will. Investing in alternative investments because oftentimes there is a liquidity problem and in a situation with high interest rates with well, higher mission, essentially, no, the high end, this is not a high interest rates, higher Israel relative.

It's not really what you think with a slightly increased interest rates and relatively interesting inflation. I think that there's this there's a liquidity and gonna have to get all Keynesian and the liquidity trap. I don't think, I think we're okay. Nothing like that, but there is a liquidity problem with a lot of alternative investments.

Yeah. And it's, it varies that's the premium you pay for non-correlated asset. So it makes sense. I do. A lot of the time alts get alts is like a lazy way to just say real estate. So I don't want it. I don't want people to think we're just thinking, oh yeah. REIT or buying and holding your own real estate.

Cause there's more than that. There's I don't know if I would necessarily call crypto and all. I don't know, I'm still unsure on that, but there's Vino vests. There's buying art. There's even some art funds like Beano vest there's platforms out there where you can buy like a portion of an art piece, like masterworks and stuff like that.

So there's things that are very uncorrelated, but you're right there probably is going to be the problem of, okay. Do I want to tie my money up in this for five years while I don't know what's going to happen? One year.  And I think if it was just a choppy market or a down trending market would be different, but it would be very like it would, people would look at it and go, yeah, maybe I'll throw some money in and also to diversify and get away from this choppy market.

But I think with the inflation, that added factor, that's something that everyone's actually.  Especially like you go to fill up your car and it's more expensive than it was six months ago or eight months ago. And so that's something that everyone's noticing and actually directly feeling, whereas interest rates a ton of people refinanced in 2020 when interest rates went down.

So they're locking in those loan for 10, 15, 20, 30 years. They're not going to feel the interest rate. Directly they'll feel another ways obviously, but they won't feel as direct because they refinanced and their interest rate is now like one and a half percent or something stupid. So they're not going to feel it as much as inflation, which adds to the uncertainty.

And so if they hear spooky headlines coming from wall street and they see inflation impacting their lives directly, I think that makes people even the most.   I don't want to say advanced, that's not the right word. That's not the word I'm looking for. The most sophisticated, like investor is going to be thinking about inflation and they're there.

I don't care how much money you have. You're probably going to notice it somehow. And so I think that adds to this kind of like uncertainty of do I want to put my money elsewhere and lock it up when I don't know what I'm going to need it for. In the near future. Because inflation is just like a spooky thing.

I've talked to a few people recently about it, and it's just a spooky thing to a normal person who doesn't think about finance as much as we do. It's really spooky because they're like I put my money in the bank and now you're telling me a year it's in a year, it's going to be 7% less in value.

Like it just sat there. I didn't do anything with it. What the heck? And so that, that is that like psychologically is terrible.  To think about your money losing value without you doing anything. Yeah. And I think that what you just touched on, I think comes back to the psychological principles and saying, okay, if we're, if we for thinking like psychologically people might be selling their stock and putting money in alternative investments right now, or something like that.

Using reverse psychology or figuring out those psychological trends and saying, all right, I'm going to be a contrarian. Usually you can do pretty darn well. And so stuff like the markets, like if you buy the dip, if you buy the baby in March March 23rd. Yeah. You would've killed a huge potential.

So maybe there's a, in terms of your long-term, how you think about your portfolio of the markets and. I think that there is real value to taking a contrarian approach of because even just in the situation that were just talking about, let's say you have real estate holding, we'll see all alternative holdings.

When is your time horizon for you're going to sell? Because maybe the best thing to do is sell that now and buy a bunch of stocks as they're trending downward. Maybe not. That's just an example, but in a situation where your kind of first instinct is to say, oh, I've got to get out of stocks. Also good.

They've been going up for awhile and then jumping to ALS, maybe you've made a lot of alerts and you're like, I have a lot. I Real estate. Market's been crazy. When do you pull out, when do you take the return on that? Yeah. And then what do you do with it? I think that, so that kind of leads me into to our takeaways, key takeaways for the, for this episode and mine are not necessarily oh, look at this sector, look at consider this innovation or whatever.

My key takeaways from all of this conversation are when you see. A lot of uncertainty and you see a lot of red in the market and maybe we're trending towards a bear market when you see that happening. First thing, take a deep breath or five chill out a little bit. And that's hard to do. I'm saying that kind of glibly, but that's hard to do chill and then ask yourself, okay.

What is my goal for the money that I have that is at risk? And so that could be in your stock portfolio. That could be crypto. It could be . It could be real estate. It could be the money in the bank and you're considering inflation. What's the goal for that money. If you don't, if you don't need that money for 10 years at the shortest.

You really, probably don't need to worry that much. If it's a long time horizon, you really don't need to worry. Now if it's within a year and you're saving up for a down payment and you're really concerned, and you have it in a stock portfolio and it's coming close to the time where you're going to need to plop that down payment in cash.

Okay. You probably want to make, have a plan of action, but understanding your goal for the money that you're concerned about, I think is the number one. Question and then you can get into, okay. Once I know the goal for that money, how do I want to react to what's happening? But that's my biggest takeaway here is ask what's the goal for the money that's at risk and that you're concerned about, what's the goal for that money and then go from there.

Yeah. And I really liked that because that's your understanding. And I think that gets back to when something positive happens when you make a ton of money. Cause we've talked a lot about the negative. Yeah of psychology, but just stuff on the positive a little bit, it's having that plan of  when you buy Bitcoin at a hundred dollars a coin and it goes up to 60,000 like having a plan of okay, I'm going to, I'm going to take the return or not, or whatever.

 Again, going back to the goal of the money in a positive scenario, you're oftentimes gonna naturally think it's just going to keep going up. Or  there's a whole, there's a whole host of different ways that you can trick yourself. So I think the classic adage of know thyself.

Just crucial in life in general, but definitely in the markets as well. And in good times, and in bad, just taking the time to understand what's going on. Like you said, it's exactly that. Do you park in your stack? You can't take it with you.  But having that, I really liked what you said in a good time, stepping back, taking five breaths.

Yeah. Saying, okay, is this enough work? According to my plan, according to my, what I'm the goal is? Do I sell because maybe it's not yet  maybe it could make a much more, maybe it doesn't. So there's so much interplay there that I really liked when you said, take a step back, take five breaths, take five minutes.

If you need to  thyself. Yeah. And I think that also pairing it with. Getting an outside opinion that you would trust? That can be invaluable because you can definitely get caught in your own head again, with those own biases of, oh, it's just going to keep going down or, oh, it's just going to keep going up.

I need to stay invested. You definitely having an outside person come in and say. Hey, have you thought of this? Cause they're going to come at it from a different angle. That's really helpful. And also all of this is underlying having the willpower to do that, having the Boulevard at step back to know what your goals are and have a plan behind it.

And that's not necessarily something that everyone's good at. Sometimes I'm not very good at. And so like I, a lot of times have to talk to people who are smarter than me and go, Hey, what should I do here? And so the. That's something where I think having just a little bit more awareness around why you're doing what you're doing with your with your money.

I think that helps out with the psychological biases, whether good or bad that you said could be in the positive direction, could be in the negative direction. Yeah, that sounds about right. Awesome. This has been another episode of the long run show and definitely tune in next time. If you can't leave a rating and review on whatever platform you're listening to right now, that would be fantastic.

Definitely.  The five-star reviews help. If you want to leave a one star. Just don't come pester us on LinkedIn. That'd be fun if you really want to leave a one-star just message us on LinkedIn. Find us. We'd be happy to understand why you wanted to leave one star unless you're rude. And I just want to ask you, but other than that, we appreciate it.

Appreciate you.  We'll look forward to having another discussion next time. Thanks for listening. And we'll catch you next.

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On the anniversary of the first huge GameStop 50% surge hosts Michael and Austin talk about Buying The Dip As A Trading Strategy.

Hosted By:

Austin Willson

Michael O'Connor

 Back to another episode of the long run show. This is Austin with my co-host here, Mike, and we are going to be talking about buying the dip today.

Very interesting phenomenon that I think we've seen play out. Over and over and over again, this year, I'm in the markets and it's been a bit of a ride and I've actually, I actually have a little story to launch us in, but, um, Mike, if you have anything to add on the intro here, um, yeah, feel free. Yeah. I, I.

Add on that there's been, I feel like stock market means and phrases have begun become such a, a common piece of, of a called the lexicon of pop culture in the last few years, which is really interesting. And I, I, you know, we were kind of titling in our minds. We're titling this kind of a bias. And what does that mean?

And you know, how do we have you try and predict where the market is heading and stuff like that. But I think it was the moon to the moon. Yeah, exactly, exactly. I mean, we've been there before the, a buzz Aldrin and Neil Armstrong have been there before, so we'd always go back. But, um, anyways, anyway, I think that the, the, the focus of this is, is kind of, you know, the psychology of how do we figure out.

Bear markets, bull markets, you know, w w what's going on and, and like, is buying the dip possible? Is it a, is it a real strategy? And you know, maybe some, some we can discuss some FOMO, all sorts of stuff, but I, I'm excited to dig in and I'm excited to hear what your story is as well. Yeah. So I was watching a YouTube video as I am want to do.

Um, and I, this particular one was a video talking about. Um, actually, I can't even remember the full televideo, I think was talking about a recent IPO or something. And then they talked about the market in general, in broad terms. And the, the host just offhandedly said, oh yeah, you can basically just draw, draw a trend line.

He was like, almost making a joke, but like only half making a joke. He said, you can basically just draw a trend line along the, uh, the high points of the S P 500. And then whenever it just goes below that just by, and I was like, Well time out here, like it can't be quite that easy. I mean, I know we've been in a humongous bull run before, you know, all the craziness of 2020, and then of course there was a huge yourself and a huge rebound, I mean, an explosive rebound odd to all time, new highs.

So it's interesting because you know, Draw a trend line and buy below that trend line every time and be all set or, you know, I obviously, from a mathematic perspective, you'd probably better off just dollar cost averaging in, but that got me thinking about this whole trend of buy the dip, buy the dip, and it seems like.

Up until, you know, maybe, maybe recently the Thanksgiving around Thanksgiving, we had had some selloffs the day after Thanksgiving was pretty bearish red day for all the markets up until that point. Like, we didn't have a lot of hard sell off this year and it seemed to be. That EV every one of the talking heads on the new shows was just talking about how investors were buying all of these dips.

And therefore none of the dips were dipping to, to, uh, really lean into it there. So it got me thinking, okay. Is that all you have to do is just look at the S and P 500. By every dip that comes along and you'll be all set. I don't think it's that easy. I think probably you're, you're better off dollar cost averaging in, and that takes out a lot of the psychology, which we can definitely talk about.

You mentioned FOMO and FID and all that stuff. Yeah. We can dive into that, but it was just a very interesting thought experiment for me going, huh? Maybe, maybe there's something to that. Maybe, maybe I should pull up a chart. Look at that. That's really interesting. And I think it. It strikes upon my first, very first question will be like, well, how do you define a dip?

You know, is it, is it, are you trying to define one is like the, was the YouTube we're trying to define one is a day like an intraday dip. Um, or was it over a week or is it over a month or a year? You know, he was using the like month or six month chart. Wow. So there's so many different ways to even look at what a dip could be, that.

Really interesting. And I mean, I like this stickers around the benzene office that just say by the dip, it's almost become a meme in and of itself, which is that always concerns me. Like there's there, there's, there's something to be said about not going with the crowd and not going with the consensus.

And that tends to be a very smart thing to do. However, it seems like at the, at the same point when you're talking about. Such a bra. Market and, and okay. It's only 500 stocks, but it's the 500 largest companies the most financially successful, or at least supposed to be the most financially successful companies in the United States.

That's a pretty big. Data pool when you're talking about that, there is some wisdom in the crowds, right? And that's why we have this whole invisible hand of the market and efficient market hypothesis. And we can, you know, we can debate that and everything, but there is something to be said about the wisdom of the crowd.

And so it almost makes you wonder, okay, well then do you just apply that and, and, and hope for the, you know, hope for the best, but you're just a fly that and go, okay, this, this dip falls below my. One year or six month chart trendline. So I'm going to buy right now, does it, does it really make sense? And I always think whenever it's a meme or whenever I see a bunch of people doing it, I'm always skeptical because things can never be that easy when something's promised to be very easy typically with the markets.

It's not quite as it seems. So that's what concerns me initially. But yeah, I mean, I think if you, you, you really need to define a dip. To. You know what by the dip means. Um, but it's, it's different than, you know, a dip on a single security, which could be caused by a lot of different factors. Some may be fundamental to the company.

Some may be not right. It could be a sector wide sell off or a market wide sell off. And so then you're getting a great company and a discount. So it makes sense to buy the dip there. But when we're talking about a collection of 500 or the largest. Most financially successful company in the United States.

Does that make a difference, um, in the whole buy the dip? Does it, does it make it always right? Instead of only sometimes. Right. Um, I, I, I find interesting that you brought up, you know, the wisdom of the crowds and not swimming along, you know, kind of with the, with the current. But my, my question would be, you know, how did the dip happen in the first place?

Cause he a big, fast dip would have to be a very large chunk of the market. And that kind of the big crowd as has already made their decision in the case of a big dip and they're all selling off. So when you're buying the dip, are you kind of therefore going against the crowd, even if you're, even if you're within some.

Smaller community of market participants who, you know, kind of a spouse, those beliefs and believe in rebounds and stuff like that is, is, but is that then just simply a microcosm of the crowd. It's a smaller crowd, but it's another crowd that you're going along with. Well, yeah, I was thinking it was.

Smaller crowd. That would be a microcosm, but it does align with some great wisdom from, you know, the likes of, of Warren buffet. I almost said Jimmy buffet, it's definitely not one. You should be taking stock from Warren buffet who always says, always says, well, yeah, there's money to make money to be made when there's blood in the streets or, you know, the, the tide goes out and then you really see who.

Swim shorts on. Um, and so, you know, it sounds pretty Jimmy buffet. So I guess maybe the related should dig into that a little more. Um, so I guess it almost does make you a. Oh, what is the word I'm looking for? You're going against the consensus contrary. Yes. A contrarion, which I always like to be, but, um, it does make you a bit of a contrarian, um, if you're buying the dip, right.

So is that the right move? I don't know. I think it needs to be, I don't think you can just rely on that indicator alone, which is why. I think this, this story I told at the beginning of that, that host kind of making the joke of the trend line on the S and P 500, just offhandedly. I think that's what he meant was like, okay, well, yes, you, this is a really act for right now during, during a bull run.

So I really. Great, um, indicator, but it needs to be paired with market sentiment and larger macro trends that will help you understand a little bit more. Um, what's what's really going on there, but what do you think you think you can just buy the dip every time when the S and P and be good to go? Yeah, I think that there is something to be said about the.

The capability of black Swan type events, which are essentially just means like something that really no one sees coming, which is it's impossible for the market. To predict it. And so the whole efficient market hypothesis only, only affects things that are widely known, which is why I personally don't believe in the mission work and her bias, the efficient market hypothesis.

I think it's bubkis I know the options are always priced in on public information, but so many people already it's in don't know all the information. So I am a firm disbeliever of efficient markets hypothesis. Shoot me a message on LinkedIn or something. If you want to argue with me about it, but don't worry, Gilder read George Gilder, and I'll be arguing with him a little bit in a future episode, but I think I might lose.

That's all I'm going to say now, but anyway, um, so I think that there's always, I mean, there's always the opportunity. If you, you buy at a, a perceived. And it could just be the start of a, of a horrific bear run. Um, and I think buying the dip, necessitates an optimistic mentality over the long run, which I agree with.

I espouse that mentality of, you know, I expect innovation to continue to grow. I expect market conditions to improve over time because of innovation because of. New ideas and new ways of doing things that, and I think there's, there are some people who believe that the only reason why economic growth occurs is population growth.

That is patently false. Well, yeah, that's, it's complete bogus and there are plenty of arguments around that. And I think that just very, yeah, very incorrect. Um, so I am of the natural optimistic viewpoint. However, there are some. Dips that, you know, it could simply be a first indicator of a bigger problem.

Um, you know, in the long run buying those dips could be good for, like you're saying like the overall S and P 500, I think that's probably pretty safe. Um, but if you're buying the dip of an individual stock or even a small sector or something that I don't know, I feel like that could get, could get a little more dangerous and it is a little more high.

Yeah, it definitely isn't. What's the comment. Interesting to think of as I was when you said, well, maybe by maybe that dip is, is the initial phase of something worse. I was thinking, okay, well, what happened if you bought at the beginning of the financial crisis, as things were going down, like, well, yeah, that would have taken a couple of years for you to rebound, but now you'd be sitting really pretty.

So it, it almost all of this, all of the talk of. Buy the dip on the, you know, on the SB five, but again, I'm strictly speaking of the S and P 500, if you're buying a broad index fund or ETF, um, then it almost is a moot point. Whether you buy the dip or your dollar cost average and just fricking buy something, please don't just sit on the sidelines.

Right. That's that's the whole, that's the whole thing. It's like, if you had bought the beginning of the 2000 and. Three years later, you would have made your money back. If you, if you dollar cost average to all the way through 2008 and just kept your head in the sand, you'd be good. Um, so again, that's the concern, the very, very conservative risk averse side of me just saying, okay, well I'll just buy it.

Doesn't matter how you buy, just buy please. And then you you'll be fine over the long run, but that's because I have a very. Um, a very optimistic view as well, probably a little bit tainted by your optimistic view, Mike, but, but I do have an optimistic view of, of, you know, the, the business. World and the economy and us, especially, and innovation as a whole, because I, I, in all of my, um, studying and reading of history, it seems.

Humans always find some way to do something better and more, either more efficiently or just better in general. Um, and it seems like that, that, that is the case. Now there are definitely, um, ways that, you know, I guess you'd call them in the economic term to delight Mike here, you'd call them a negative externality.

That's unforeseen, um, from, you know, something Y. The fed or some geopolitical, um, uh, you know, for instance, Russia invading Ukraine or China invading Taiwan or something along those lines that that would have huge effects. Those, those are, those are. Big issues that could cause a dip that could be very, very, very deep and longstanding.

Right. Um, if, you know, for instance, if for some reason the fed just totally misses the mark and mismanages inflation. Well, that could be a very, very bad problem for the markets. Those those sorts of things. It depends. It all depends on your time horizon, right? Because those sorts of things could eventually, as long as, you know, as long as a business and the economy of the U S kind of survive and we don't have an apocalypse, um, those sorts of things will work themselves out over, over a period of years.

Now it might take a while, but, but that, that is the case. They will work themselves out. So it almost seems to me like, Like buying the dip or, you know, debating whether you should buy the dip is kind of a, uh, what sort of, what, what's your goal. And then what's your time horizon because you really need to take those two into account and decide, okay, what what's gonna one scratch your itch.

Cause maybe you're buying the dip to just scratch the itch of, I want to have some fun and see a great percentage return. And also maybe it's just a time entertainment thing where it's like, oh, they get to have some fun here and buy the dip. It's like, okay, well, that's fine. But maybe for your real investing portfolio, you want to do something like dollar cost averaging, or maybe you do look at it and go, okay, I'm going to be really disciplined about this and not use, you know, I almost opposite FOMO, fear of missing out on buying the dip to force you into making rash decisions around, you know, a market reversal.

Just a bump along the road. So it there's so many factors that go into it. It's hard to, it's hard to give a blanket statement, whether it's a good thing or not, I guess. Well, you had something to add there, Mike, go ahead. Yeah. I just said to two quick things was one where I think that's a good, a good distinction you made of the S and P 500 and not because I think to be honest, I think if the 2008 crash happened now, And the same, the same thing that happened.

And, and let's say, I didn't know anything about the background of CDOs and traunches and stuff. And I see Lehman brothers and bear Stearns, you know, the price drop in 70, 80% of the day. I probably would have bought a bunch of like, oh my gosh, like these are great businesses. I know these by name. Like these are well-known investment banks, buy the dip, buy a bunch of.

And then it just goes to zero, uh, like very unexpected. So I think, I think that's a good distinction of buying the dip in, in some sort of index that is reweighted and refitted on a regular basis. It's filtered and filtered. Exactly. I think that's a. Probably a very important distinction. Um, and then the second one, again, kind of mentioning what you, what you said about, you know, over the course of years, even events that can be considered like very serious, you know, let's say Russia, invades Ukraine, and brings NATO into a war and this some sort of cold war ESC.

More hot war as kind of happenings in Eastern Europe, a warm war, a warm war. Hopefully there is no war, but maybe let's say a warm war. Um, I mean, barring some sort of apocalyptic, there really aren't any game ending events that could befall the, the, the economy and stock markets that wouldn't make you worried over this better.

If any kind of game ending apocalyptic event happened to them. You would be worried much more about yourself and your loved ones than you would be about the markets and your money. And then at least that's my hypothesis. At least I hope you exactly. Well, the thing is, I mean, yeah, I've, I've, I've heard it put before, basically, if you, if, if there is such a large issue that.

We're having some sort of apocalypse and it really causes that much damage. And basically up ends our financial system and everything just explodes and goes to zero. And there's nothing left at that point. You're going to have to figure out how to use bushcraft and survive on your own, because that means we're literally in a chaos situation and there's no rule of law.

Okay. So that sort of thing I think is fine to prepare. If you want to prepare for that GoPro go be a doomsday prepper. That's fine. But it doesn't make sense to, I at least I don't think it makes sense to necessarily have that approach. When you're talking about your own portfolio. Now you should be prepared for some, some negative trends you see, or some, you know, maybe you don't like certain.

Companies or the way they run. And so you have some maybe moral or ethical reasons not to not to buy those, or you think there's going to be a huge problem with whatever sector and you know, maybe think gas is going to be obsolete. So you want to get out of gas and oil stocks. Okay. That's fine. Those things you can prepare for, you know, individually in your portfolio, you don't need to be, it makes no sense to me wasting time on worrying about the apocalypse with your portfolio, because you're doing just that you're wasting time.

Like you said, if it gets to that point, you've got much bigger, much, much bigger issues. I would say the best index fund you could buy for the apocalypse would be. And a basket of first aid kits and possibly ammunition and a lot of unique style DTF. That would be a very physical ETF in your basement or something.

Right. I'm talking like pounds and pounds of food, quite literal basket of goods, not some basket of goods made up by a bunch of accountants that doesn't exist anyways. Um, yeah, so I think the buy the dip when it comes to the SMP. It's interesting. I also wanted to ask you what you thought of it, if that sort of attitude throughout 2021.

Cause there was a lot of people who missed out on the amazing bull run from. Uh, from, you know, March, I think it was March 23rd, for some reason that date is seared in my mind, March 23rd, 2020. Um, but from that point that, you know, the absolute bottom of the market in 2020, a lot of people missed out on that.

And so in 21 it seemed like no one wanted to miss out on. So they didn't want to miss out on the bottom. So they kept buying. And also of course we have, you know, it was impossible to have any sort of bond portfolio because those were just getting hammered all year. So people were looking for, they were looking for returns, but it seems like that sort of sentiment or attitude played into the.

Pretty much just linear progression of the markets. It seemed like in 20, 21 now, again, I'm talking high level about S and P 500. I'm not talking about, you know, small caps or mid caps or particular stocks, but it seems like that sort of attitude really permeated a lot of the news. So I'm interested to see what w what, what, what do you think were the effects of.

Um, for this, this past year, 2021. I like that because I think that gets back to what we first discussed of the psychology of buy the dip of FOMO, of, of these kinds of almost meme, investment ideologies, um, that, that kind of grow and changed due to the market and due to the psychology of the, of investors within it.

And I think that, I think you hit the nail on the head of that. The idea that the, the market kind of, you know, had an opportunity in March and maybe a good number of people took it, but it seems like most didn't. And that kind of, like you said, that boiled over and kind of quickly jumped into this flywheel effect of course, of the car across the course that across the course of the next, you know, year or so, a very interesting flywheel effect.

And what I find interesting is a similar thing. Kind of happened in crypto as well in that, um, you know, you have the crypto markets. It's interesting to hear arguments both in favor and against that crypto is, um, correlated to stocks it more recently. It definitely seems to be more correlated to stocks, uh, when we're, especially in small and mid cap tech stocks kind of thing, um, which is a whole, a whole ball game.

And, uh, you look like you have something to say that well, that definitely, I mean, it definitely deserves a deep dive in an episode, but just thinking. Our current theme here that might be driven less by a fundamental correlation and more by a psychological correlation. Hm. That we're, you know, we just discussed how everybody was afraid of missing out.

And I think you were building to this, so I'm hoping, I hope I'm not stealing your thunder, but like everyone was afraid of missing out on the equity. Rebound the stocks rebound. So it was, so it was everybody in crypto and we've seen waves, you know, Bitcoin, the classic top dog there, you know, went way up and wake came crane crashing way back, down and way back up again, had a nice run and then come back down a little bit as we record this.

But, um, so we've had, you know, a lot of volatility, which everyone knows is typical in the crypto market, but you know, you were just saying yesterday, it's amazing to think Ethereum. A few hundred dollars a couple of years ago, and now it's multiple thousands of dollars. So it does seem like there has been some FOMO, which is not necessarily, I guess, that doesn't totally correlate to buy the dip, but it seems like the correlation between the two might be one, the.

Access of retail investors to, to these different assets. And also, um, which I think is great. I think it's great that we have more market participants. Whether, you know, a lot of people are annoyed by that. They're like, oh, the retail investor, they're not smart enough to participate in price discovery. And I say, you know what they are, they have, they can with Benzinga pro they can have the same resource.

That even some, uh, people with Bloomberg terminals have. So I say that's a great thing, more, more market participants, the better, but that has led to, I think more access leads to almost a heavier weight towards that wisdom of the crowds mentality. And, and again, The same. It seems like the same people who would be afraid of missing out in stocks would be afraid of missing out in cryptos and therefore would drive a lot more attraction and traffic towards both of those markets.

Um, therefore almost smoothing out the bumps in the road, um, you know, towards a positive direction. But again, we're, we're fairly young and we haven't experienced a long bull run. Most of our life has been a long, almost decade. Bull run. We haven't experienced a very long bear run, so it'll be interesting to see.

What we, what we experienced over the next, will this turn into stagflation again? I don't know. Yeah. Who knows? Yeah. Stagflation, maybe it's on the rise and maybe it's not. Um, we, we did talk about inflation earlier in the year and how I thought it was not transitory. And clearly it's not, the fed has since, uh, I know crystal ball sear, but the Veta since dropped the whole transitory idea and they're no longer team transitory.

Um, but anyways, I, I think, yeah. Some psychological, uh, correlation and not necessarily a fundamental correlation. That's a really interesting point. And I don't, I don't, I haven't heard that from either side. Um, I liked that because it does seem like the same people who would be interested in buying the dip on equities would be interested also in buying the dip on cryptocurrencies as well, which is very interesting because it seems like the same psychological reaction, right?

It's like, oh, this is, this is on discount. Percentage return, therefore I'm going to buy. Right. And so same thing in crypto. Everyone saw the beginning of 21, 20, 21. Everybody saw the huge run up and people making millions upon millions in returns. And so it definitely attracted a lot more market participants, but, um, we're still not anywhere near anywhere near peak it option with crypto.

I don't think, but yeah, that's another, another, that's a whole nother honk. Um, but it's interesting almost a psycho demographic. Correlation. Yeah. Leave it up to the, the economists guy to just come up with some crazy terms. Psycho demographic. I am neither psycho, nor am I a demographer, but I'll go with that.

That sounds about accurate though. It seems like, it seems like there would be no reason for them to be correlated. It's not like all these big tech names hold crypto. So it's not like their values would be correlated to the military. So it seems that there must be some thing else driving. It seems to be a correlated correlation.

And again, correlation doesn't equal causation. So that's something to keep in mind too, just because it may have happened in the past. Doesn't mean it's going to happen in the future. So don't go drawn trend on some crypto index. That's not what I'm saying. There's gotta be, it's gotta be out there, but it's still like a crypto 10 index or a crypto 15.

No, but there's talks. I keep up regular. Some of the more boring side of finance. So we're talking, you know, kind of like, like the barons of the world and you know, that, that sort of thing. Um, not necessarily the fun meme stocks on Reddit, but, um, there is talk of making. A crypto index so that there can be products based on that some ETF type products, but of course, with the sec and our entire federal government, not knowing what to do with crypto, it makes it really hard to put together any sort of ETFs based on that, because the sec just doesn't know what to do with them.

Um, and that that'll probably continue for a little bit, but eventually I think there will be, I think you'll have some sort of some sort of index, but, um, if you haven't listened to the crypto episode, we put out, um, I can't remember what episode number that is, but definitely go back to that, that episode.

We talked about the, the great calling as Mike coined the term. Um, and I think you'll see some sort of index come on. Because there'll be less coins and less tokens out there. Um, and you'll probably see some sort of index. We constantly try to apply. The same sort of tools to new ideas. And so I see no reason for there not to be an index eventually.

Yeah. That's a good point. I definitely agree that there's been, uh, even just the last year, an enormous uptake of like using equities methodologies in crypto. Yeah. And using those tools. Yeah. Yeah. Yeah. Definitely. Well, I don't know if we have discovered whether or not you should buy this. But what would be some of your, uh, your takeaways here, Mike, for, if someone's looking at their portfolio going well, what am I doing about this whole dip?

The FOMO? What, what are you thinking? Yeah, it's interesting because I think like we talked about at the beginning, you gotta, you gotta define the dip in terms of. Your own strategy as well. You know, if you're looking for individual stock dips and stuff that that's not as guaranteed more risk, probably more reward in the short term.

Um, you know, if you, if laymen and bear Stearns, hadn't gone clearly bankrupt and survived, you know, maybe they'd be doing great today and maybe you've made a ton of money buying them, uh, when they were net 90% down or something like that. But they went bankrupt. So there's always that risk with, with individual stocks.

Um, so I think that I th I honestly, uh, like the, the Austin low risk approach of there's a dip in the S and P you know, that might be, might be a good place to do it. Um, I think buying the dip in a broad index, like that is probably a pretty solid plane, right. Again, if you look at historical, uh, records for the market for a long period of time, whenever there's a big crash or something, I mean, it has so far always rebound.

Like we, like we talked a barring, you know, some sort of apocalyptic event. Really you shouldn't be worried about your portfolio. Uh, that happens if there's an EMP that wipes out all the power grids or nuclear war or a comment or something like that. Um, maybe you'll be worried cause you have got to get the money out of there fast enough to go and buy some food and water or something.

But, um, I would, uh, I would hope that this, uh, you know, hopefully that doesn't happen and even, even large-scale global, I mean, even looking at. Like COVID was really considered kind of an apocalyptic ESC event for awhile. Um, and in some ways it kind of, it's been a minor apocalypse is what I would categorize it as, as, um, as, uh, a very, uh, minor form of, uh, uh, I mean, it hasn't been a world changing event.

There's been a paradigm shift in. Yeah, how we approach things similar to a world war, both world wars have created very distinct paradigm shifts and were almost mini apocalyptic style events that, you know, pretty much all aspects of life were changed in a lot of countries. Uh, so, so COVID has been kind of one of those really unique, uh, events and we've seen the market.

Crash when it happened and come back very steadily and then jump back this year. Now, the question is how long will code would go on? You know, we've got the honor crime, we've got all sorts of. Stuff going on and speculation. So, you know, who knows, maybe it could get worse and become a zombie virus. And we have a real talk, a little big event.

So there's so much, there's so much unknowns. Uh, but just say that not sourced and definitely speculation. Wondering, I just want to assure everyone that's not.

Yes, that is very true. Very important to note is 99.9% chance that COVID will not become a zombie virus. I would probably add a bunch more decimals on there, and that's also not financial. I don't know what stock to pick for a zombie apocalypse. That's that'd be a fun episode. Stock picks for apocalyptic different apocalypses like that space X.

Uh, something, I don't know what you'd pick for zombie. We have to think about that. But anyway, so, uh, barring something like that, I think, you know, for myself, and it sounds like for you as well, Austin, that in the long run optimism is warranted due to human innovation due to technology due to increases in efficiency and convenience.

And, uh, I don't, I don't see. Even slowing down that is, that is sped up dramatically. Um, even though we have, you know, the situation of Moore's law and specifically in computing, we haven't necessarily seen a Moore's law translate into a lot of businesses and a lot of other categories. And who knows, quantum computing might blow Moore's law and with water, there's so many different things to consider.

And I think, I don't know, my, my absolute takeaway from this is. Yeah, maybe by the dip and the S and P when it, when it goes down, that's I feel like that's, again, not financial advice, but I don't know if you're optimistic like us. Maybe that's the right point. What's your dad's. My, my takeaway is that if you're strong enough mentally to.

No Y and set rules for yourself and strong enough to follow those rules when it comes to buying the dip on the S and P 500 specifically, I think that's okay. But if you're a person like me, who just is pretty, I can get very easily swayed. Um, and I'm, I'm not necessarily the most disciplined person, which is why I don't do active trading.

Um, then at least right now, maybe I will eventually, but right now I just don't do that because I want them to busy. And to know that I'm, I'm pretty easily swayed. Um, so if you have good rules set around it, I think it's okay to buy the dip. You have to define what it is. You have to have a trend line that you're comfortable with all of that.

But, um, I think really just if you're going to buy the S and P 500. For a long time anyways, the most efficient way to do that time and time again has been proven. Mathematically is just dollar cost averaging just by the same amount on the same day, every month, no matter what. And it's kind of an ostrich approach, but you can always do that with the large portion of your portfolio in the hand, have some fun with cryptos or NFTs or.

Real estate or single stock picks and just have fun with a smaller portion of your portfolio, just to scratch that itch. Um, but that's, that's personally what I'm doing. Just that's that's my take on them on buying the dip is I, I, I, my thought process is that it's not really worth the. That it would take to monitor when to buy the dip.

Now, if you want to, you totally can't I think it's a valid, a valid strategy. I just don't know that it's worth the effort you might as well. If you're going to hold it. Position over the long-term over the long run. You should just dollar cost average. And anyways, I think that's more efficient. That's a good point because the question is where do you get the liquidity to buy the dip?

Do you always have a dip fund? That's kind of sitting around waiting for, waiting for a dip. How do you so salsa dip, but yeah. Where do you get the liquidity? Because if there's a big dip and you're invested in the stock market, chances are you just lost a ton of liquidity and you're probably better off just holding rather than selling everything and buying, you know, an S and P 500.

And. Right. Hoping that it's going to go back up. So, I mean, maybe, maybe for people that's a legitimate thing, have a dip fund that, uh, is sitting around waiting for something. But I think, you know, in normal, like you said, the psychic effort required and continually monitoring, or even just having the, the funds.

That's a lower opportunity cost perhaps, uh, or opportunity, you know, you're, you're paying an opportunity costs by just leaving funds around, waiting for waiting for something to happen. Yeah. Um, and then a quick caveat as well. I know, I just said, you know, maybe yeah, maybe by the S and P 500 dip is the right play.

I personally would never do that. So I have never, I have never owned a S and P 500 index and I don't plan on doing it. So I'm glad that we have both sides of the perspective. 'cause I, I do, and I do own an S and P 500 ETF and I will continue to probably throughout my life. Yeah. But, well, that's a whole nother conversation.

So I think, I think for today, I think Mike, you, you kind of put your stamp of approval on it. It could be a legitimate strategy. You just would never do it. And as for me, I think there's more efficient ways to buy into the broad market as a whole. Well, that's been this, uh, this episode on the long road show.

We, if you would, if you liked this episode or any others, please give us a five star review on whatever podcast platform you're listening to us on. Um, and we will look forward to talking with you next. On some new subject over the long run. Yeah. Thanks for listening. And, uh, we'll, we'll catch you later.

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Hello, and welcome back to another episode of the long run show. This is Austin Wilson, and I'm sitting alongside my cohost Michael O'Connor indeed.

And today we are going to be talking about E S G environmental social governance investing  a, more of a methodology episode here. We're not gonna be too. Necessarily about specific stocks, although we'll probably get into that, but more on the methodology. Is it helpful? Is it not should you use it in your portfolio?

What to consider if you're going to use in your portfolio really is going to drive the conversation today.  To jump right in Mike, I think it would be helpful if we just give it, give a definition first. So we're sure on the terms  and cover that first, so and environmental, social governance.

Okay. Often throw it around. You want to give a broad level definition real quick? Yeah, sure. Essentially it's the, it, far as I understand, it's the broad understanding and methodology taken to, I believe it comes from real stakeholder methodology and philosophy in business where your company is not operating in a vacuum.

They operate in an environment that consists of the society, that the people who are workers. Consumers who are neither who are just ancillary and around it consists of the natural environment  the physical space, trees, plants all of that. And you have governance you have the regulatory environment, the local state government world level.

 So it's that almost a full stack of different things that are not necessarily directly correlate. The company's bottom line or shareholder value and stuff like that. Yeah. It, and that's where it becomes interesting that this is such a  a hot topic in a world of financial space, normally driven by the bottom line numbers.

 Traditionally that's been the, that's been the number one driver, we get to create shareholder value and that's led to some interesting not. Optimal outcomes with odd externalities that definitely we're not incentivized by just trying to create shareholder value.

So it is it is interesting that we're now getting to this methodology of, okay. Let's look at all the stakeholders. And I remember studying stakeholder kind of methodology in a class in university. So it makes some sense. My. My question is  does it make sense at the investor level?

 Should this be a reason to invest or not invest in a company? Because obviously somewhat the secondary market, so not IPO's, but everything else, the secondary market is somewhat an incentive system for the company. But not always  you're not necessarily, if you're.

And the secondary market, you're not necessarily funding the company. So it's not as a direct correlation or or a relationship as some people might expect, but I do understand the ethical standpoint of, okay. I want to be an owner, a part owner in companies that I believe in and I want to have a framework for deciding that so I can see the impact.

  Might be helpful to give a formal definition as well according to PWC, which is a pretty good source. Environmental side, they say take action on climate issues, minimize to minimize impacts, capture opportunities and deliver value to all stakeholders. And so focused on, like you said, the environmental impact of doing business.

 And then on the social side, creating enterprise value and enhancing public trust by addressing the, and managing, communicating societal commitments. So talking about  what, what happens with. Workforce, what are you doing? What your products and services, how are they impacting the society and the community at large, and then also the local community too?

 So that would maybe include giving back or some charitable work something along those lines and then the governance side, of course making sure all of this is actually implemented. And I actually have the three thing, probably the governance side is maybe the most valuable to the enterprise.

 Because. You can you can give back companies can give a charitable donation, get a tax credit, but actually enforcing any of those things. You have to have the governance side so that the G of ESG is the most important part. So again, getting that out of the way what are your thoughts, do you think it's helpful that we have this framework now?

Does it? I know Milton Friedman was actually very much against. He thought it was ridiculous to say that this was important to businesses.  And that this should be even considered when it comes to the enterprise level of thinking, he thought bottom line is the end all be all.

That's how you measure success. Do you what are your thoughts there? Can we is it just the bottom line or should we be worrying about these as investors? Should we be worrying about these other impacts that business has. And different stakeholders involved. Sure. And I think that there, it's interesting because there have been studies done where they try and measure and kind of show a correlation between ESG activity and profits have seen some studies and read some papers that kind of outline that, that, but the argument out that companies that do good subjectively in ESG You better in terms of their actual bottom line, do better profits.

However, I think one kind of confounding variable in that is that most likely the companies that have the resources to be able to dedicate to ESG are probably doing pretty well already. So I think there's, it's tricky to figure that out. Very difficult to measure. It can definitely be sampling bias.

 So I think it's the bottom line is ESG is a pretty difficult thing to grasp. Especially if you're outside of a company I think it's difficult to like efficiently and effectively judge the real value of ESG, unless you are in-depth inside a company. Cause I think like you said, the governance is very important part of it and unless you're on the board, there's a lot of things that are probably a black box.

 So it's difficult I think to measure and I believe some ETFs and funds that have tried. To save their ESG or even entire hedge funds or instruments that are like, yeah, we're ESG focused. There have been some scandals where you know that then half of their holdings are actually not really doing much.

If anything will come out or one of the big ones will come out and there'll be  there'll be some sort of difficulties in, in vetting that effectively. And so  it's a tricky job to try and. Outside of any, either outside of any company. Now yeah, given that, I think it is, it can be important if nothing else because of brand value and because of perception.

 I think that can be a tangible effect. Probably not easily measurable, but tangible. And at the same time there, there are arguments to be made. If a specific company, the name of the show, The long run.  If a company is if companies producing negative externalities, whether it's environmental or social, et cetera, I guess one example could be, let's say you have a very harsh work environment with high churn is one example that end at work environments are actually becoming more and more of a focus for ESG, which hasn't necessarily been as much in the past as far as I understand, but it's becoming more and more of a focus.

At the end of the day if this company has a very high churn or they're burning through employees, human capital is, it seems like an inexhaustible resource. I'd say for most companies and in the economy, but it's really not. And COVID and remote work and the great resignation and all that has shown that more saliently, I think.

So it depends on the long run and   the kind of environment. And especially the labor economy is just one example where ESG and having some sort of governance may be able to provide tangible value and that you may be, you keep employees for longer, they're more productive, et cetera, et cetera.

So I think there definitely can be value benefits to ESG, but the problem is it's. I think it's very difficult to fully understand those benefits unless you are integrated into that company. Yeah. And that's where that's where I have a tough. I'm using it as a methodology because my to my my, my sense of the situation is that okay.

 If you are a company who is like you said, if you have have high churn you have a negative workplace environment it's very difficult. Or for instance another good one that's an easy historical example is like big tobacco, there's a huge externalities there.

  Causing cancer and your customers or a classic if you're a manufacturer and you're polluting the the Allegheny river down your Pittsburgh or something  that is going to come back and bite you in the buck. So over the long run, it does pay to be playing by these ESG rules for the company.

And I think there's a very good argument that it makes sense from a bottom line perspective for. Company to, to be a good citizen, so to speak. But it make it's like you said, very difficult to make sure that is accurately reported. We don't even necessarily w we don't have the reporting of the financial hard data of companies down to a science yet.

There's a lots of examples of improprieties when it comes to the reporting, the financial data of companies. It's tangible right. That's numbers and that's dollars and cents. So when we're reporting on on the social impact and the environmental impact of a PR one particular company, not only other component variables and not only is there a   an unevenness in the distribution of the information between the outside investor and the inside shareholder, or insight stakeholder, not only that, but it's very difficult to quantify.

So that's why I have  I'm not necessarily against it per se, but it seems like it is being overweighted from an investment perspective, because I don't feel that the data is actually act actionable. It is too. It's not clean enough. The data isn't clean enough for me to go, oh, okay. This person has that.

Cause, cause for instance, when it's used in an investment standpoint, we're talking about like ESG scores where it's like on a scale of zero to a hundred, these guys. Whereas this company is a 75. So I'm going to go with the 95 rather than the 75. There's so many factors that go into how the score is calculated, but then what's the data that went into calculate the score in the first place.

Was that data even good? Does it actually reflect reality or is it fudged a little bit by the company or what have you, so that makes it difficult for me to trust like an ESG framework. So to say so to speak when it comes to. Choosing an investment it, like you said, you don't want to be creating negative externalities that either use it, the resource or  are detrimental to your longterm growth as a company.

 And I think that just, that's more it's almost more common sense and unfortunately common sense is not very common, right? So it's  if people would, especially in  people in management and places. Power steering the ship in the company, if they would use common sense and think forward about long-term growth, maybe yes, you wouldn't have to be such a conversation.

 But we do seem to, a lot of the times sacrifice the long run for the short term, whether it's a financial we gotta meet this quarters growth points at the expense of next year. Decades ability for growth.  Or if it's just I'm going to do this cause I'm a selfish person and this is going to get me my quarterly bonus  there's just, it seems like it's in in the measurement of the thing, it is flawed. It's not necessarily that ESG is bad. It's just that it's flawed in its measurement. And I don't know that could ever necessarily accurately be measured. I'm not sure. Feel free to perspective. No, I think what you said is important because I think there is a distinction to be made between, and this is where my opinions on ESG lie, as well as that ESG is ultimately a management strategy, not an investment strategy.

And I think that while the management strategy is crucial to have as part of the toolbox for a board and C-suite.  The whole company, the whole, it, I think there is a, almost a temptation to pull that out and extrapolate that and attempt to use that as an investment strategy. Whereas investing is in some ways it's a lot easier than running a business in some ways it's a lot, it's a lot easier to lose a lot of money then, but it's, I think that there is a, this idea that any kind of metrics that you can pull out.

The standard business more helps an investment decision and while it's certainly, I think it's certainly true that the more legitimate information you have about a business, the better informed decision you can make. The difficult thing is that I think there's a gap between the value of ESG in a long run management strategy scenario, which I think it is probably high.

It's probably a high value to be able to have a very top down view and. And where your corporation or company exists in relation to all these different factors. I think there's a gap between that value and the value that an investor can or may receive at the same time. There is still perceived value if nothing else.

  The value of feeling like you're supporting companies that are supporting the environment, whether real or not is. It was a factor. And I think that's do you extrapolate that? I think that's a huge draw for people to, to invest in ETFs or to have financial advising and people who don't want to worry about their money at all might be in one category.

But then you have a category of people who are interested in active investing or more passive investing, but choosing their investments. They may still be concerned about exactly where it's not necessarily just for the dollar value. So I think that ESG can bring value in investment scenarios.

But I think, like you said, it's, it seems as if there's a lot of, not necessarily hype, but a lot of talk and a lot of developments going on around ESG that  we saw like with the gigantic Volkswagen scandal, where, how do you, this, there's no way to know that what that's about to happen.

And that's that sticks out in our mind because it's very easy. You to think about. And we have we have that kind of as a heuristic, a bias then that's very easy to think about, but think about all the car companies that haven't done that, but at the same time, it's we know that's a possibility.

 We know that ESG numbers are fungible in a lot of scenarios.  Things can and are manipulated and out there in the world. You can get with a healthy grain of salt. I think not completely discounting.  I do believe that ESG has some value in an investment thesis, but I think not simply taking that as it is, and looking at it in a holistic manner.

Yeah. I almost, I don't know. I like what you said at the beginning there where you said it's more valuable as a management style or a management structure or framework rather than a. Rather than an investing framework. That makes sense to me, because if I'm looking at a company, there might be a better framework that would line up with yes.

I want to make sure that I am choosing a company and supporting a company and owning part of a company that I agree with from an ethical standpoint. And that, and we've talked about this before, like with. The metaverse and Facebook and Mehta platforms, Inc. We've talked about okay, if you're, if you don't like the metaverse idea and you don't want to invest in that.

Okay  don't buy facebook.com, but you have exposure to it if you're in an index fund. So maybe there is some value to the ethical side of it, but that seems like it's a totally different framework than ESG. ESG still seems like a management framework. To me, it seems like maybe it should be called ethical investing, which I think was a term.

And maybe a couple of years ago, and ESG was coming to the light. There was like ethical investing or green investing or something like something along those lines. And I would say, okay, maybe that's a little bit better of a way if you're a financial advisor trying to build a portfolio based on your client's values, or if you're an individual trying to make sure that your investment portfolio lines up with your personal beliefs that's fine.

  And I think that's good. Yeah. That I don't know that ESG is the correct framework. It seems like you would want to look at the company on a case by case scenario and say, okay, does this have your list of qualifications as an investor and go down that list and see if it matches, not necessarily take some third party.

 This is going to be the cynical side of me speaking, but take some third party consultants report on the company and use that as your means of qualifying or disqualifying.  The investment or the the this particular company as part of your portfolio, because the cynical side of me leans towards saying ESG is being hyped because there's money to be made on the reporting and analytics of ESG.

Not that it's actually substantially helpful for the investor and the end user, because if companies are told they must care about. They will pay for consultants and third parties to come in and create ESG reports for them. And that's big money because we're talking about business to business contracts, which are always bigger than B to C products or services.

So that's big money. And so I can see the incentive system there for ESG to become hyped as a investor relations kind of service. But again, I don't know that it's helpful. I think. Jewel investor. If they're consciously choosing stocks, they need to pick that that framework of, okay, these are my qualifications, disqualifications and use that instead of relying on a third party, I think that's a much more clean way to go about it.

And again, you're, you can trust yourself in that because you're to find the information out yourself and qualify or disqualify that company a lot more work. But I think it's probably the better route to go and actually achieve. Rather than tricking yourself into thinking you're actually aligning with your values when really you might not be just exactly what you mentioned with those hedge funds.

 If I was a, if I was a client of those hedge funds, I'd be pissed. If I found out that they had a huge allocation to some company that was completely against my values, because I'd be like, I gave you all this money to invest based on my values. Why didn't you do it well, is it the company's fault?

Is it the hedge funds fault? Oh, yeah, it's probably the hedge funds fault, but is the problem that  they didn't do their due diligence or is the problem they're using the wrong framework entire. So that's my kind of I guess I pushed back against it really being valued at all for, from an investment standpoint.

 But I tend to be cynical.

I'm not surprised that's why I ended up on this particular issue. And I think that, I think. The value to taking a cynical approach, especially when it comes to a and investment hypothesis like this where it's tough because like you said, there's money to be made and  it's a new place to add value and to make value and  it'd be, I think where there is that.

That problem that we've been harping on is that the jump from this is about what this company is doing or planning to do, or et cetera, et cetera, according to these kinds of third-party metrics or maybe a company makes its own ESG metrics. And then just provides that whatever jumping from that to a fund or even an individual investor, et cetera.

 Like we talked about earlier it's difficult to quantify a lot of these things. Certainly there's some situations where companies buying a certain number carbon credits or is hiring a certain number of people from a local areas or different ways that companies try to create metrics around these kinds of ideas.

But it's very difficult to cross reference that because there are multiple different. I said there are multiple different, like zero to 100 ESG scores from different providers. And how do you know which provider is the best of the best? And cause you, then you have to trust a third party about what they're doing to then trust the other parties.

And I actually, I don't know if standard and Poor's has a ESG, but I feel like the standard report is in the Moody's. I'm sure they have ESG ratings and I'm sure that they're probably like the gold standard. So it almost feels like another, almost an augmentation of accredited. Where's the trustworthiness of a company based on ESG but we know where the

last. The big short. Yeah, exactly. Exactly. That's standard and Poor's was for the long and short is basically standard reports was, and Moody's were not accurately rating a mortgage back securities. I hope everything is cool now, but that's my point. Okay. Those risks are financial risks that you can calculate.

Now, clearly you can fudge the numbers on those two, but at least there is somewhere deep in the vault number to back that up. That is exactly correlated to dollar amounts and risk where as with ESG, sometimes that, that can't be fully quantified. Yeah. And so that, that becomes a problem for me. And it's okay how are you?

If this is. Unquantifiable or a very difficult to quantify aspect. And we're trying to put numbers to it. Not only do I have to trust that you put the numbers to it correctly, but then I have to trust that you're accurately putting the formula together correctly and you're not fudging any of the process at all.

And so it's just a, it's a bridge too far for me personally, it doesn't seem like it would add value. I think just going about it, looking at, okay. Do I line up with what this company is? From I immediates maybe it's you look at it from a stakeholder capitalism sort of mentality or a stakeholder   company mentality, where you go, okay what are all the people and entities and situations that this company touches.

And do I agree with the way they're interacting in all these scenarios now that's really, that's a lot of work to put in for each holding, right? So I get. Zero to 100 ESG score. I just, I, again, I don't know that it's that valuable and it might be that perceived value, like it might be all about, which is fair.

 Perceived value is real value, but the perceived value also has to be followed by real value. So for to further explain that, so you can have, let's say out of 10, let's just say there's 10, 10, 0 to 10, right? You could have. I've points of real actual value and then five points of perceived value.

That's fine. But I don't think you can have just straight up 10 points of perceived value because then there's no actual tangible value with what you're with, what you're giving, whether it's a product or a service. So I view ESG as not really having any value at all, even if it does have perceived value.

I don't see that as being real value to the investor. Again, I see it as being a great management system. Yeah. It could impact the long run of the company itself, but from an investment standpoint, trying to qualify the company on that ESG score, I don't really see it having a enough value to warrant.

Okay. That's an interesting point. And I guess, to play a little devil's advocate here  if it's, if it is a best use tool as a management strategy, which I think we both we both believe then is the, almost the correct way of scoring. Perhaps, as as an individual investor, let's say you're not buying into a hedge fund or an ETF or anything like that is the correct way to interpret ESG in your portfolio.

By listening to earnings calls, to reading reports from management and seeing how they're presenting themselves. Because at the end of the day, if you're going to invest in any company and you have to trust their management, and if you trust the management and you're taking them and what they're saying, and the financials are right, and everything, then you can most likely extrapolate that trust.

They're saying any SG. True. Yeah.  That goes back to the governance side of the ESG equation. So maybe out of the two, you can weight the G score more more heavily because if the governance is done correctly, then you could be assured that even   that they're actually following through on what they're saying from the environmental side on the social side.

But if the goal. Is not being accurate, is not being run across the finish line. Then they could just give lip service to the other two. So it makes sense to me. But then again, we're not talking about ESG, we're just pretty much talking about governance at that point, which I think it's, I think that's probably, if you're evaluating individual holdings in your portfolio, I think that's a good way to go about it.

 But I, for one, I'm just, I'm a lazy investor, so I don't

Oh, yeah. I don't really pick individual stocks a lot. I do a little bit, but not a lot. So I view it as I'm letting the indexes do the filtering for me. Now, granted, I'm picking up some stocks that I probably don't agree with ethically, but I, my, my response to that to justify it by justification for that is yes, I'm buying, I'm an owner of that company, but I'm not.

Making the decisions day-to-day that are causing those ethical issues from my standpoint. And also, yes, I'm somewhat funding the company, but I'm not really, if I'm buying it on the secondary market, my funds, my purchase of that security didn't go to fund the company directly. It went to the, whoever I made the trade with.

 So that's my that's my kind of lazy of investing, but. Again, I think there's probably, for me personally, there's more value in focusing on day-to-day tasks that are more meaningful and impactful rather than spending all my time, listening to earnings calls and reading up on the governance of the company.

 You might be better served with the two hours it takes to research to instead pick up trash in your neighborhood or something like that. Again, it comes back to  what's the actual value here? I think it's very hard to pinpoint. And maybe it's different for each person. I don't know.

 Maybe there is a, an argument there that it's so different for each person. Yes. She might make sense. So I don't know. Really. I really don't know where how to answer that question. Is ESG valuable? I don't know. I guess it depends on who you are. Yeah. How has that affect someone's portfolio?

How does that affect

do you think that affects other people. It depends on how much you care to be honest.  It, it could be valuable. I think the valuable or  the value of it depends on how much you care about ESG. If you really care about USG  the underlying components of ESG, then it's probably valuable for you to use it as part of your investment thesis.

If you're actively doing. Stocks because I don't think  I don't think it would really take too much extra time if you're already researching the company or if you're doing, if you're going to financial research on a company and really looking them up and down, then you probably have the time to just glance over the ESG reports on the company.

Maybe look at two different ones to Crawford's cough, reference, cross reference, and a, and you'll be good and move on. But for someone like me, I don't see the value in it. So why use it at all? I use a pretty lazy methodology when it comes to my, the majority of my portfolio.  My thought process is it doesn't affect me.

 So why care too much? I don't, I guess there's my answer to that is how does it affect your portfolio? It affects your portfolio. If you agree with the underlying components of ESG, if not, I wouldn't worry about it. To be honest, if it affects your portfolio, if you want it to affect your book.

honest, honest things you could say about our portfolio because that's not normally very true. I guess from a the reason I don't think it affects long  returns over the long run is because I don't think that there's very good correlation between a good ESG score and actual good a company being a good citizen and taking good actions.

Negative externalities. I don't think there's a F there's very good correlation between the two. Therefore I think it really is more of a a makes the investor feel good, a thing. So I don't think it's going to my personal opinion and you can read all the studies  does it affect returns, but personally, I don't think it really affect returns and knows maybe it would actually hurt returns if you're just qualifying some companies.

If you get a lower return, but you're philosophically aligned with your portfolio and that's important to you. Great. I think it's, I think it's valuable to you. Yeah. And a touching off of that. I think the it's interesting too, to look at a portfolio as not just a tool to make money or not just a tool to make financial goals achievable or achieved, like not just a retirement account.

I think. It's starting to become more of a thought process. And a lot of people is that people aren't necessarily just looking at their 401k or their active portfolio or whatever. They're not just looking at it as I'm trying to make as much money as possible. Now there's always wall street bets

but I think it's becoming more options in your 401k.

I think it's becoming more common to talk to people and hear.  They're actively interested in aligning. They're they're more philosophical and their overarching goals in a little bit closer alignment than just the financial goals. So I think that like we talked about, I think that ratings firms and consulting firms are catching on to that and understanding that and saying, this is a good opportunity, which leads back right back to my cynicism.

not quite as cynical. I will say, I think that there is some real value. But I think that in terms of a portfolio I think, and I'll be transparent about this is that I usually do a moderate amount of research and I'm I'm a individual picker as the opposite of you as well, the two sides of the coin.

 So I do a moderate amount of research into each company. But I can't say that ESG scores factor. Really more than a very small degree. So I think it's, I think, like you said, I think it depends on if you want it to be a factor.  Read, I would say if you're more interested in this stuff, read the reports, read  scholarly papers about core possible correlation between ESG scores and profits.

 Do your due diligence. If you're really interested in this  throw money into a ESG ETF or a hedge fund or something like that. But I think that you have to individually ascertain the value, especially in the long run are you interested in this right now? Just as oh, I'm interested in kind of any ESG stuff or are you interested in that in decades?

Are you saying over the course of my lifetime, I want to be invested in companies that align with my goals, not just financial. Yeah. And I think that's what. Thing the the efficacy of that is something yet to be determined because we, ESG is pretty young. It hasn't been all around for very long, so that  the concepts and underlying arguments behind it have been around for awhile, but actually using it as an investment methodology has not met.

So we'll see.  Maybe we find out over a 50 year period that ESG investing actually leads to reduced returns, or maybe at least to outside. Compared to a benchmark portfolio we'll find out, but  yeah, I think it's on an individual basis. You have to ascertain what's the bad for you from it.

Now a metal play over this is even if you don't think ESG is good for the individual stocks, maybe you think that ESG as a niche is going to grow. And so maybe you want to invest in the ratings agencies or the specific environmental consulting agencies. So we don't really have any, I don't necessarily have any tickers, but maybe.

Agencies consulting environmental consulting. If you find these companies that are the ones doing a lot of ESG research and you think ESG is going to grow as a trend, maybe you don't even necessarily, you're not necessarily worried about it in your portfolio, but you say, Hey, I think that's going to grow.

And I want to make one off of that. Maybe that's a kind of a meta play for ESG investing might be. Yeah that really could be not to be confused with Metta platform thing. Exactly. Totally. But okay we appreciate you entertaining us or excuse me, entertaining our audio this long.

 Usually our episodes go a little bit shorter, but this is a big topic. There's a lot here to talk about. So we, we appreciate you giving us a listen. If you would drop a five star rating on whatever platform you're on, that's very helpful. Feel free to share this with with a friend, if you found it helpful and definitely take a look at our other episodes out there.

Crypto. We talked about Anna NFTs at a certain point as well. And we got really meta with Facebook as well, previous episode. So check those out. This has been the long run show with with Austin Wilson and Michael O'Connor. Thanks for listening.

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Hello, and welcome back to the long run show. This is one of your hosts, Michael. O'Connor here with Austin Wilson. Yeah. Good to be here.

And today we're going to be talking about a topic that I think is, has been catching a lot of headlines. Catching a lot of eyes and ears and minds, uh, which is the metaverse what the heck is the metaverse what's going on? Is mark Zuckerberg a wizard? No, and we don't know the answer to that, but we can't, it might be in the metaverse.

We might find the answer to that in the metaverse. Yeah, the metaverse what a, what a meta idea. Um, yeah, there's, there's going to be a lot of puns in this one. Okay. So Facebook just, uh, this past year at the end of end of 2021 changed their name. Everybody's aware of that. Um, had they changed their ticker yet?

I think it's, I don't think they have like an actually look that up. Uh, so anyways, they, they changed their name at big play into the whole meta angle. Metaverse they're really trying to, uh, hone in on this. And it's, it's interesting because. The metaverse it kind of a wild idea. Some say it's the logical, uh, evolution of the internet, which I somewhat do agree with.

Um, but I, I'm not sure that I am ready for this logical next step in, in where we're headed. Um, so there's some spooky stuff there, there might be some good stuff. There is definitely, I will say more opportunity for. Um, more opportunity for data than ever before in the metaverse. Um, and, and we all know that Facebook's bread and butter is data, uh, and, and selling that data.

So really it's. Uh, it's going to be an interesting next decade to see where this takes us, what that means. I have some philosophical questions, but right off the, right off the bat, like, what are your, what are your thoughts, uh, off the cuff here on the metaverse. Yeah, real quick, just to follow up on what we were just so that still is FB for Mehta platforms.

The ticker is still NASDAQ FB, so they've not changed the ticker yet. Um, but I think when you brought up as a good point here, just that the data that will be inherent. Like Facebook is all social media is already tracking just about anything you're doing on their platform. But if you're, if you're in the VR goggles and you're doing stuff in the metaverse, if you're, if you own land, if you're engaging in commerce, whatever is going on on the metaverse, they're going to have pretty much real time data of everything you're doing, um, which is, you know, not, not exactly comforting.

And it's also a place where their eyes far as I know. And I I'd asked you this as well. I think. A little more research on the, kind of the legal and the implications of the metaverse than I have. Um, but the, the, uh, as far as I know, there are less or no privacy laws and like kind of stuff like that in the metaverse, whereas, you know, on, on social media there, you have to opt into certain data tracking and also stuff like that.

I don't, as far as I know, I don't think there's any, any of that for the metaverse yet. Well, they, so Facebook, one really interesting thing about. The metaverse that we do know. So there's a lot, we don't know regarding the legal side of things. Um, I would imagine a lot of the same data C or data privacy laws will, will try to be applied to the metaverse as like a platform.

Um, so you'll probably see a lot of the same rules and regulation. Try to be applied, but it's, it's like, it's like applying, um, it's like the sec applying, you know, trading rules when it used to be paper stock certificates that were exchange to computer trading where there's just ones and zeros making the trade happen.

Um, and there's no physical stock certificates. So it's like that sort of a paradigm shift, at least in my view. So I think we're going to have to have an update of these, of these laws. And, and I think it could lead to a lot of issues, uh, starting out. Um, one thing that we do know from Facebook so far is, you know, they, they have said they're not doing any facial recognition on any posts or, or, uh, photos that you post on, on Facebook.

Um, so that that's nice for their, their platform. However, We have not heard the same thing when it comes to the metaverse and maybe I'm maybe I don't fully understand it. And so, you know, you could be screaming why you don't get it. I don't understand what the vendor says, cause maybe you'll maybe it'll be, you know, totally avatars and you know, that sort of software doesn't matter.

But the fact that they haven't really said anything. Data privacy is concerning just because, you know, in the last five years that's been a huge issue as these social media platforms and, and search platforms. Google has got caught up in the data, privacy issues too. Um, we've seen cookies go away for instance, right?

And so if we're seeing cookies go away, but now everything you do in the metaverse can be tracked, um, that that could present some very interesting legal issues. That again, I think we're going to see existing, uh, laws and regulations regarding data privacy be applied to the metaverse as a platform. But I think what you'll see is the, the, the corporations who are running this, and it's not just Facebook.

I mean, we're really harping on, on Mehta platforms. Excuse me. We're really harping on them. But Disney has plans for, for metaverse, um, content or platforms or capabilities. Um, so it's not just not just. But we'll, we'll see these companies probably looking for the most lenient way for those rules to be applied.

Um, so it's, it's gonna be interesting. It's it's uncharted territory. Um, and I am, I. A bit concerned just because we've seen how well our government has handled the uncharted territory of crypto, uh, which isn't even another universe. Okay. We're just talking about real world innovation, uh, in, you know, the blockchain crypto space.

They haven't handled that well. So we still have, uh, I, I, in fact, in one of those crypto hearings I heard, uh, I think it was a Senator. How the internet works and I'm like, well, we're about 30 years behind on this. And these people are going to be writing the rules and regs for the metaverse. So on that, on that end, I am a bit concerned regulatory wise for what's to come, but I'm, you know, hopefully I'll be proven wrong.

Hopefully we'll, we'll have cooler heads and brighter minds prevail, um, in, in that space. But yeah, the legal aspect is, is. Uh, entirely. So what the, the data on the other hand from a purely business standpoint could be very, very valuable. So I'm interested, you said you, you had some, some kind of like bullish points, uh, as far as the business side.

So I think that's probably the most convincing is that. Gifts, the companies who are creating these Mehta versus, um, a lot of data, which can easily be sold to advertisers or big companies. I mean, it's something we've, I believe there's already been a couple of companies that have popped up that are specifically metaverse advertising companies.

Like they specialize in creating billboards and advertisements in VR worlds. Uh, which is fascinating. I think that's probably going to grow a lot of. And, you know, you're going to, you're going to be able to buy an ad spot in a town square in a virtual town in, in the metaverse. And that could be a big, legitimate way of advertising or, or ad spots in virtual sports.

Or you've already seen, we've already seen that video games. Exactly. Multi-verse or yeah, multi-verse multiplayer role-playing game. Exactly, exactly. And so I think, especially talking specifically in terms of the law, Uh, as we always, as we always talk, um, I think that for on the business side, I think there's some pretty bullish cases because it's almost I from, I, I believe that if we hadn't had COVID when we did and all the, all the bad things that have happened with COVID, but one of the, I think one of the good things is the, uh, the, the democratization of remote work.

I think if we hadn't had that. I don't think the metaverse would be gaining as much traction and also as much hype and kind of talk as it is right now, because at a certain level, what's the use of the metaverse. If you're, if you're working eight hours a day in an office, I mean, sure. You can, you can get off at the end of the day.

And then it's kind of this, the whole thing of second life. I remember when that was all talked about and like second life, this, this kind of metaverse concept without, you know, virtual reality. So it's not as integrated, but that was a whole kind of talk of the. But I think one of the main problems with stuff like that is that it only really affects people.

Either don't have to work or are on it in the night hours, uh, after work. Whereas the metaverse, I think one of the big. Selling points and why it's kind of gaining a lot of traction. A lot of eyes, especially in the business world is that you could be in a virtual office. And that's something that I believe the hedge funds and wall street, they've gone back to fully remote.

Cause if I'm a Cron and I would certainly imagine that they're looking at okay, how do we create a kind of an office experience that's similar. So you have everyone we're in VR goggles and you're in your virtual Goldman Sachs office all day. And then you step outside and you can go. Uh, virtual sports game or something.

So there's, there's some very interesting and, and I think frankly, scary, uh, 24 7 implications of the metaverse that we're not around before. COVID that's true. I mean, if your office is virtual, there's no need for it to shut down so that, yeah, I mean, that could bring in some very odd implications. I mean, I'm just thinking of, like, to me, it's it's so.

Um, from a, from a philosophical standpoint, I really don't like the idea of separating, uh, our, our experiences of the, the real world, the tangible world, uh, through something that's augmented and not necessarily physical. The one hold out. I have some hope I have is that no matter what, there's always, you know, functions of being a human that require the real world.

You have to go to the bathroom, going to have to go to the bathroom. You can't do that. Well then maybe people will start wearing depends on your, I don't know. Yeah, that's a whole, that's that's horrible anyways, but you can't eat necessarily in the metaverse right. That requires real food. So there's, there's certain things where I'm hopeful that.

Well, we won't get entirely sucked in, but we've seen, we've seen the issues that arise from, from video gaming. In fact, China. Has has put in place rules for youth and how it can be on video games. Can't be on video games at all during the week, only certain hours on the weekends. So will we see, you know, we've, we've seen that very strict approach, but we all know that there, there are effects, um, uh, video games are addictive.

So what, what do we say about this completely immersive world of the metaverse, you know, that that could really have some negative implications, um, in regards to. Just our quality of life. Now I will say it would be interesting and I'm sure it would be stimulating and tantalizing and fun, but there is such a thing as too much of a, too much of a good thing.

Yeah. Yeah. And kind, kinda, kind of rolling off of that. The, I think with the metaverse the, another philosophical kind of problem is that it, because it's a very, you know, As immersiveness as we've seen haptic technology. So essentially like touch interfaces, so gloves, uh, you know, full body suits, whatever, um, as immersive technology increases.

Um, I think we're going to continually see a, it's a more potent form of escapism as the years go by as technology increases. It's a more potent form of escapism, which Brooks the question of will people. Begin to care less about the world. I probably, I would say people will probably start to care less about, you know, I mean, you could say that they're, you know, if you're, if you're very well off in the metaverse, who cares, if you're in a tiny, messy one room, apartment, a studio apartment or something like that, you know, if you're, if you're your main life goals and your interactions are all are all in the metaverse, who cares where exactly you are.

Who cares about your neighborhood and who cares about cleaning up trash or having a garden or living in a nice place. It's interesting effects to it because that could, that could accelerate some of the problems we do have, like you just, you just mentioned like cleaning up trash or caring about your community or, you know, or even caring about the environment or any of that that could really kind of counterintuitively have these, the.

Extra niceties that we are not even considering at this point. Well, we are, but right now this is the point at which we consider those extremes. So what do you think is the, and it's always hard to pin down motive or why. Right. But I see, you know, when I, when I hear, uh, that the Facebook higher ups, especially mark Zuckerberg or even Disney, you know, talking about the metaverse now Disney, I.

Is going to probably create like immersive experiences on like a more of a theme park level. Yeah. Not necessarily like we want to create, I don't know, half the time when I listen to mark Zuckerberg, I don't, I don't understand what he's saying. Um, he seems very out of touch, but it, you know, we want to create this whole universe and a other worldly thing.

When I hear that pretty much, what I see in his eyes is dollar signs. Right? That's clearly the motive is it's okay. This is the next way for me to make. Um, which is a bit interesting to me because like Facebook does very well clearly, um, that the stock price reflects that. But, um, you can't be stagnant for long.

So is this like a, and I hate to sound so harsh on it, but is this a, um, a negative consequence of art are, uh, or a possible negative consequence of our constant, um, Hamster wheel seeking for innovation. Hmm. Is this like, is this a, um, issue that, that may really show us that maybe constant innovation for the sake of itself isn't necessarily the right path?

I don't know. Um, that's getting meta about the metaverse, but it is, it is interesting to see, you know, like, This is clearly a very successful company, clearly a very successful CEO, but he doesn't just, you know, sell and, and ride off into the sun. He's still trying to push forward something. Now I can disagree with him.

Many people can disagree with him, but clearly that he's trying to push something forward. Is, is that necessarily a bad thing? Um, it's interesting that, you know, innovation does create value in, we've talked about value in a, in a separate podcast. Does does constant innovation, you know, keep creating this value.

That's the real question. Well, first off mark, we know you're an avid listener to this, so sorry for now. Um, but I think the, the, an important distinction is how do you define, how do you define innovation? Like innovation needs to be defined as something that actually produces value and growth. And this is a whole philosophical.

Business philosophy discussion of, you know, business versus antibusiness, you know, actually things that are written up as business and actually aren't or written up as innovation. That actually aren't because, I mean, if you look at, I mean, it looks the, the studies on Friday, the, I forget it was the wall street journal, the New York times it came out with the big, uh, Instagram can expo say on New York, whoever it was, wall street journal, the New York times, um, they broke the, the big, uh, the big scandal of Instagram.

I mean, you have. You have to kind of weigh that and say, okay, is the value of whatever this is providing the ability to share photos to the public and have a kind of a weird quasi town, common of, of content. Is that providing more value than, than producing anxiety, depression, suicide? Um, yeah, pretty maybe not serious issues and maybe not directly.

I mean, it's, it's so different. To assign causation, uh, in situations like this, like there are so many factors, but at the same time, it's like, okay, I think we had a similar thing with vapes, you know, about 10 years ago, Juul coming out and then getting hammered because it's like, you could, you could call it innovation.

I mean, it's, it's a new way to smoke a new way to get nicotine. So it's kind of innovation, but I think that the definition of innovation has to be kind of tempered and, uh, qualified with. Value creating innovation or is this simply a new way to do something or a new way to package something? Now I think that there could, I think there there's definitely pieces of the metaverse that are genuine and legitimate value creation in innovation.

Um, I think that there, there is probably some unique value to the ability to interact in a more human way. Um, virtually I think. It's probably better than simply hopping on a zoom meeting or a Google calendar meeting or whatever, in some circumstances. However, I think that just knowing some psychology and knowing people a little bit, it's like, I think that people will most likely go overboard and you know, the metaverse in moderate.

We'll probably be a good thing, but how many people will be engaging in moderation? And I, I know myself, like I, sometimes there are just things that there are certain platforms. I pretty much deleted Instagram and Facebook. I just don't use those products anymore. And it's, I mean, so your phone, Facebook and Instagram are three great examples of a product slash platform that is designed to be.

Interact with it as much as possible. Yeah. And so, I mean, it's kind of a red flag to me that the, the company that came up with Facebook and then bought Instagram two of the most, I would say, addictive social media platforms out there. Um, those, that company is now going to create the metaverse and we're going to use it in moderation.

I find that hard to believe. I mean, the like button has no added value. It's one bit of information. And the only reason it's there is to create more interaction with the platform. So it, I find it very hard to believe that, you know, Facebook is in it for good reasons. That's why I say, you know, there's dollar signs.

And again, mark, if you're listening well, if we can sit down for a coffee and talk it out, a virtual coffee in the metaverse yeah, action might be down to drink, but anyways, we'll, we'll, we'll, we'll clear that up later. So I, I mean, that's why I have an issue with it and I think I'm not necessarily alone. I think.

Um, it's we, we saw that with crypto, uh, Facebook tried, what, what was there was, it, it wasn't Facebook coin, but they tried to create a crypto and it completely flopped. Now of course you have wall street against hat, and at the time you had a lot of government agencies against that. Right? So there, there was a lot of force coming to.

Um, so maybe this metaverse play is different. Um, clearly they're bought in as a company. I mean, they changed their name to meta platforms, Inc. So clearly they're bought in as a company, but we've seen them fail at these new, these new ventures into the, the, what is the trend of the moment. Right. And so maybe we can help.

That that's now I'm not saying short Facebook. That's not what I'm saying, but not financial advice. This maybe if I can hope that, that there is some sort of roadblock that gets presented that's unforeseen at this point, uh, that makes it impossible for them to complete this metaverse transformation. And I'm pretty bullish outlook on the metaverse right there.

That's a pretty bare show. I'm sorry. I'm sorry. I'm very bearish. I think, I mean, I think it is. I think some sort of, um, widely accepted use of VR and XR is, is the next, the very next step. Um, I think you're going to see that become more widely used. And I think maybe the talk of the metaverse is a little over hyped.

Um, especially on the heels of, you know, Facebook changing their name and all that. But I think it's a little over-hyped at the moment. I think the next, the very next logical step is using using, uh, you know, these VR headsets for more than just a cool game. Um, there's a lot of, in fact, I've heard of, you know, virtual mixers, um, virtual conferences where you can go to the conference.

So there's, there's definitely business applications. Especially in, like you said, COVID and all the shutdowns and, and, you know, rules and, and people being scared to go out all, all of that has shifted our mindset around virtual work and, and what you can do, uh, and get paid for. Um, that that's definitely a shifted mindset.

So I think the next step is, you know, VR headsets being used in more than just a video game app. Um, so from a, from a trading and investing standpoint, that's probably the next logical step. I mean, if you already pretty much all of us in some way, probably own meetup platforms, Inc. At this point, if you're, if you're in any index fund, you own it pretty much.

Um, so you know, you, you probably have some exposure to it already, but if you're looking for, for kind of like a portfolio. Maybe idea there, maybe looking to the companies that are producing the VR headsets and are, are really producing the hardware that makes the virtual reality possible. That's probably the next play, uh, because those, those, I mean, if we're going to have everyone at a Goldman Sachs office in the metaverse, you gotta have a lot of headsets.

You can't really get around that. That's a real world thing. You gotta have. You can't just have the virtual. That's a good, the virtual VR.

That's the problem with this conversation. It is when you're talking about the metaverse, it all gets so meta. It really does. And I'm not saying that just to make the joke. I mean, it's like, you're talking about talking about talking. Yeah. You're you're yeah, it gets a little, little, a little too far a fuel at some point.

So I think it's helpful to bring it back to, okay, well, we need hardware for this. It's not. We can hop on our computer. Clearly we need, uh, we need hardware. That's got to get out. Those have to be bought and sold the parks for that have to be bought and sold. That has to be made. So there's, there's definitely a big business behind that at this point.

So that, that might be, um, one thing to look at in the short term or, or I guess shorter term. Um, but it could be sustained too, right? Like. We're probably going to see updates to those, to that hardware. Just like we've seen updates to computing power and all that. We'll probably see those updates coming along too.

So those sort of companies may be a good play in the short term, I guess I'm this brings up a little bit of that. The ethical side of. Investing sometimes. Um, which I think sometimes I've, I've had discussions where people go a little too far, I think, to the ethical side. But you know, when we're talking about plot, this, this metaverse platform, I personally very much disagree, but I'm also going to probably buy a, uh, uh, an index fund that has a portion of Facebook in it.

Yeah. So I'm going to have exposure to it, whether I like it or not. Um, so really, I guess, Some of the ethical questions come in, as, you know, if you really disagree with it, should you be building your portfolio to exclude it or do you just, you know, in the long run I'm a buy and hold kind of guy. So do you just say, well, I don't like it necessarily, but whatever, I'm just going to, I'm just going to deal with it.

Um, could almost become a new, you know, social impact could become a new category of the ESG jurisdiction to enter. So we might, we might see that from this. I don't know that that could be a, again, hard to quantify. Um, but you know, a lot of things in ESG are hard to quantify, but we're finding ways. So, yeah.

So there is a, an ethical side to, to this whole discussion too, and investing in it. That's a good point because I think, you know, we're starting to see more and more, um, more and more investors and traders and institutions kind of looking at. You know, stakeholder capital theory and all sorts of, you know, ways to look at the impact, the societal social, um, ethical impact of different technologies, different businesses.

And I mean, Facebook's had all metal platforms. Is that a rough year? They've been a lot of ethical stuff come up. They've had a lot. So I think it'd be interesting to see if that those kinds of things start dying off. If they. Try and really clean up their act. I think, cause I mean, just looking at, looking at their, their stock price, I mean, they've still gone up almost 31% in the past year, but they, they Crested right before the kind of scandals and then they really they've come back.

But not that they haven't fully recovered from that. And I think it'll be interesting to watch and see if they kind of. If everyone stops talking about it, will they just kind of everyone forget about it and move on? Or is it something that is a longterm factor affecting, um, Facebook Mehta platforms? Um, and I think you bring up a good point of the hardware is going to be incredibly important.

I think that's a great investing opportunity. If, if you know, if, especially if we see adoption increasing, uh, VR headsets have to. Treadmills for omnidirectional treadmills. Those are wild. Oh my gosh. Yeah. Yeah. So there's a lot of interesting hardware innovation going on, which could be really solid. Uh, I think that's probably a great long run investment opportunities as well, but in the long run, it's interesting because we, we don't really know.

Um, where does this, I mean, obviously we don't, we don't know what the future, but this is kind of an interesting. Topic, because with crypto it's like the, kind of the, the base qualities of cryptocurrency already out there don't exist. It's decentralized, uh, you know, all of those, all the kind of main functionalities, smart contracts, decentralization, um, anonymity, the blockchain is already very well established.

Whereas with the metaverse it's it's I think, I think Metametrix is a more of a black box and crypto. Oh, yeah, I would a hundred percent agree now, I think to agree with that statement, you probably need to have gotten down the rabbit hole a little bit with crypto to realize how much is already is already out there.

Right. Um, and, and Benzinga has a lot of good information on crypto, um, that the crypto guys, Logan and Ryan have a great podcast on crypto too. So going down the rabbit hole and having gone and gone down the road, And come back alive. Um, there really is a lot already out there and established, and I think in a way, crypto is not that far and, and decentralized, you know, currencies are not that far away from what we already have.

Um, Necessarily the decentralization aspect is, is huge. But I mean, we, our banking system is pretty much entirely run on ones and zeros at this point. So like I do all my banking virtually. I don't go to a brick and mortar bank and deposit a paycheck. It's all done virtually. So that is less of a leap, I think, than taking.

What we currently do, which is sitting in an office face-to-face or in a board board room or, or at a coffee shop and having a meeting, taking that a hundred percent virtual, I guess, maybe it's the next step, uh, from zoom meetings. But to me, it's, it's very, it's, it's a larger step than, than it was from, you know, some digital banking to cryptocurrency.

Yeah, to me, it's a larger step. And again has more, um, more problematic implications. I'm not even gonna say negative because they're just problems that we don't know what's going to happen with them. Right. The privacy issues, the even, even like, okay, if you sign a contract in the metaverse, is that a legal binding?

Well, contract law does not currently have any, any sort of handshake, a virtual handshake, a virtual handshake. Does that count or trademarks? Do those carry over into the no matter verse or, you know, you've got all the people buying. I think it was, I saw some rapper buying like millions of dollars worth of quote unquote real estate, which is, you know, it's not really real, um, real estate or property in the metaverse.

Okay. Well, who holds the DDT? There's no city office with a repository. Right? So again, maybe I'm thinking too small minded and I just sound like your grandpa. So feel free to let us know if that's what it sounds like, but, um, there's a lot of problems with the metaverse that, uh, that I don't know if I don't think Facebook or Mehta platforms Inc.

Will be able to, um, overcome those as quickly as some might be saying right now, just with. Um, because again, I point back to you, you pointed out all the scandals that I wasn't even thinking of this past year, but I point back to the, the crypto issues, um, of when they were trying to create their own cryptocurrency on their platform that didn't even go through.

So there are some, I personally have some questions, um, I'll see it when I believe it or I'll believe it when I see it. And maybe it met Mehta platforms and get saying, well, we'll, we'll see it when we book or no, we'll believe it when we see it anyways. Um, so yeah, I think there's, there's a lot of problems there.

And so I guess I wouldn't necessarily be a hundred percent bullish on them. Yeah. I think that's a good point. But in that crypto, There you go, there you go. Cause it, crypto is a, I think a simply a mindset shift, a psychological shift because you have to just simply understand what's going on and whatever.

Whereas metaverse is a fundamentally, it's a behavioral and it's a behavioral shift. You have to be physically doing the things in your chair, wearing the headset, moving your gloves, whatever it's, it's ultimately a behavioral shift, which I think is much harder. To do, but I think it's interesting because I think that the metaverse is very similar to a platform like Facebook, where there are incredibly, um, incredibly effective social economies of scale, where if you have the metaverse platform with the most people on it, everyone else is going to be going into that one.

And that one will be the place to be because you just won't be able to interact with people. Probably. I mean, There's no, there seems to be no incentive to not create a walled garden of a metaverse, which in it of itself brings up some problems. Exactly. It brings some problematic systems. Um, now, you know, there's already decentral land.

Um, but I, I don't necessarily see a decentralized metaverse working, um, or at least creating a critical mass of social capital because if a company is running it. Very big incentives to just get everyone on board. And I think they're going to, out-compete something like decentrally and probably, maybe not, maybe people will, you know, maybe, um, maybe enough people will be conscious of kind of the risks of that and, um, will not just go along with it, but I, I would expect whatever the biggest metaverse platform is in, you know, two to five years.

Kind of be the metaverse platform that you have to go on for everything. It's almost like it's almost like a Google search. So we might see the same, the same, uh, arc that we've seen with search where Google took over. But now everyone's understanding Google a little bit better. In fact, I keep getting ads on YouTube for Google, where they're like trying to create a really good image, like, well, how does search work?

How do you see certain ads? It's interesting. I'm like, What's going wrong with Google. Um, but you know, Google had a T day where everyone was, was using Google as their platform. But now I am seeing a lot of people, uh, switch over to alternative search engines because they're unhappy with how Google is using their data and what they're serving up and how they're, how they're curating the search, uh, the search results.

And so. We may see something similar with metaverse companies. Maybe the first one does have a lot of staying power, but there might be some very good, um, some very potent contenders and juggernauts that come up, uh, come up through the ranks, as the problems with one are more readily, uh, seen by the users, um, and experienced, we may see some others come up like we have with search.

So yeah, it's, it's hard to say, but I think. Th I do think Metta Metta platforms, Inc. If the, this whole thing is to come to existence, I really do believe they are best positioned for it. Um, unfortunately, which is like not, not really where I want to, not really what I want to say, but I think that's the reality is they've clearly done a great job creating Facebook to be, uh, I mean, we'll just say it highly addictive for interaction.

If there's going to be a sticky metaverse platform, it's probably going to come from, from meta platforms, formerly known as fate. Yeah. Yeah. So there, I think there, you have it in the long run in terms of portfolio, at least it does sound like, yeah. Ticker FB, classic metal platforms. Uh, Hardware. I like the idea of hardware companies for virtual reality, for a ancillary haptic technology, et cetera.

Um, and then, uh, I was just going to say, and then, you know, I would probably be keeping a weather eye on, you know, what are the companies providing additional services in within, I mean, who knows maybe consulting firms like Accenture or. Boston consulting. Maybe they're going to jump in and have a, immediately have a virtual office in the metal world.

And they're going to, you know, there could be companies that are very forward minded perhaps, and, uh, jumping into try and create kind of monopolies in the metaverse, which would be very interesting to watch. Yeah, it'll be, it'll be very interesting to watch another one to one another. Kind of long-term play.

I think you could make, if you're, if you're really like me having ethical issues with the whole metal platforms, idea of the metaverse idea, another one, unfortunately you would still be supporting it, but it's tangental is, is a sort of an energy company play or a systems play. Cause again, you need more than just, uh, the hardware behind, you know, VR headsets, right?

You're going to need energy to run this whole. Uh, 24 7, 365. Right. Um, and so that, that's another, another option. Um, I guess I wonder what Facebook is getting used as far as a computing platform. So yeah, I don't know if that's IBM or AWS or Microsoft. I don't know if they partner with them because that's a good point.

They don't really, I mean, they, I think they build their own server farms, but to, to scale something. The metaverse would probably require a partnership with an AWS. Yeah. So that would be something to watch. Um, that, that would definitely be something to watch. And then if, if we're talking a partnership with AWS or, or IBM or Microsoft, then we get into antitrust issues.

Yeah. So, I mean, possibly, uh, so there's, again, a lot of roadblocks along the way, but I think you want, if you're having a trouble with, if you're in trouble, You know, buying, holding Facebook, uh, from an ethical standpoint, there are 10 gentle ways to get exposure to this, uh, this trend without necessarily buying the metaverse platform itself.

So there's, there's always multiple ways to skin a cat, at least exactly. That's what I've been told. I've never done that. Not serious. Yeah. And that's something I want to do. And on that note, we hope you'll you'll join us next time. We will be addressing another topic over the long run, as we always do, trying to turn to break things down and make them, uh, tangible and, and, uh, salient, but looking over the long run as always.

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Hosted By:

Austin Willson

Michael O'Connor

Hey everyone. And welcome back to the long run show. This is your host, Michael O'Connor here with Austin Wilson. And always good to be back.

And we are this today. We're going to be talking about something that is near and dear to my heart and to my career as well. But I think Austin is going to be peppering me with some questions and  I am interested to hear his takes on many of the things that we're in time, but we're going to talk about artificial intelligence, where it's been where it is now, where it's going.

And most importantly, how it relates to the long run. Is it. Is it a big deal in the long run? Is it a threat to humanity as Elon Musk has said that maybe I'm excited to hear your thoughts, Austin and all that. Yeah.  What's really great about this episode is that you have a lot of experience with it.

You have a lot of experience with deep learning and all neural networks and all of that. So I think that's a, this is a great time for. Crack open that brain of yours and let's see what flops out. That sounds pretty disgusting. When I put it that way, yeah. But really artificial intelligence, I think.

 What overhyped right now, I think any investment decision that you're making at the moment and thinking you're going to get humongous returns for artificial intelligence. I personally think just to get this out of the way, I think that's a really bogus buzz word investment at the moment.

Now I would love for you to tell me that I'm wrong. I just think that the the. Companies that are doing it right now are either private or they're so large. And it's only one small department within a huge company. You're not really getting exposure to the idea or the innovation of artificial intelligence.

You're just hopping on some sort of bandwagon, unless, like I said, unless you're buying a private company, but if you're buying a private company, I want to talk to you if you're listening to this show. So hit me up on LinkedIn. Would that being said, I think artificial intelligence needs to be on everyone's minds because it seems like it's got some very large implications for the future.

  And not only things like what if we had an AI algo bot trading equities that could be wild. Okay, so they're not right now. So there we go. So that could be wild, but what what does that mean for the markets and price discovery and all that? And that's somewhat of a passive versus active debate, but  that could be a very, that could have large implications for the financial system.

But beyond that, just in terms of the meta, I think that's where I'm really interested for the long run future of. Artificial intelligence and humanity's relationship to it. I think it's an interesting proposition. So first off, I think it'd be helpful to define the terms here, artificial intelligence.

What does that even mean? Can you define it simply for us? Make sure. The very academic is simply it's a method of some sort of. External learning function. That is non-human, that's an artificial if you want to take, they're really very technical, it's a non-human learning application that performs some sort of learning feature or the kind of the standard ideas of intelligence can be found within it.

And it is not human, is that does that satisfy your desire? And the answer. Yeah. Can you sum that up a little bit? Just so I can make it more palatable for sure. Yeah. I would say artificial intelligence is at the end of the day. It's not, I think a lot of people think of artificial intelligence as this big glob that's out there.

 There is some sort of artificial intelligence as in the. There is an artificial intelligence out there like a Skynet or a one specific Jarvis or a Ultron kind of thing.   Which artificial intelligence is simply the category of many different ways of. Creating systems that can replicate aspects of human intelligence on their own.

So we have machine learning, we have deep learning, we have enormous there's a wide breadth of different things that all fit inside of artificial intelligence. So it's not a singular thing, but rather a category that's really helpful to understand that it's a category. So within that category, I've heard of deep learning.

Oh, actually, you mentioned all three deep learning machine learning and neural networks. Can you just break those down for us real quick? And I'm sure there's some cross-pollination between all three, but could you break those down for sure.  And like I said, this. More, but just in those three are probably the most commonly referenced kinds of systems and ideas in artificial intelligence.

So machine learning is another, actually a category. So machine learning is similar, a dissimilar word descriptor or to artificial intelligence. And that machine learning is the, it describes certain processes that can create human, like intelligence in machines. And so deep learning is a. As a specific form of machine learning, a specific form of sorry, neural networks, specific form of this, where neural networks are a, there are very specific models that you can use to build neural networks that either there are lots of lack box style ones where they'll have activation functions.

And also you can dig really far deep into what the actual, like what is actually going on in neural network. But a neural network is a specific system. It has machine learning. So it's a machine that has a descriptor and then artificial intelligence. It is a form of artificial intelligence. So a deep neural network is artificial intelligence and machine it's a form of machine learning that is artificial intelligence.

Does that make sense? Yes. It's about as clear as mud. No it, it does make sense. And I think. I'll tell you from a marketing perspective, this whole space needs a rebrand because you just said a black box of artificial intelligence. And that sounds like something scary that I really should be afraid of.

So no wonder everyone and their brother is afraid of artificial intelligence, because it sounds and like you said, artificial intelligence in the singular, it sounds like the antagonist to, in some sort of scifi awful. Totally makes sense. And there's hundreds of scifi and that was up there like that, but that's not necessarily while we might be talking about that a little bit today, but so with all that kind of groundwork laid, I want to go back to my original statement of artificial intelligence being a fad and not a fad, but a buzzword right now.

Do you think that is true or was I totally overstepping my bounds in saying that it's a fad when a co. Excuse me, not a fad, but a buzz word. When it comes to investing, quote unquote, investing in artificial intelligence. Does that seem, does that track with what you know of the space? So it's interesting because the answer is complicated and I appreciate that you mentioned that you feel like there aren't any easy ways to invest.

 I can personally share three individual stock picks that I am personally. And and  I consider solid plays if you want to get into AI again, not financial advice, but while do share. Cause I'm right here and I'd like to know. Yeah, exactly. So there's the biggest kind of, at least the most very.

They're very vocal about it because it's in their name and their ticker is AI is C3 AI, and the ticker is literally AI. So it's C3. They are seeing a P in an O exactly. They are very specifically a artificial intelligence company. You can routinely see their full page ads in the wall street journal. They do a variety of different work and yeah, as their name is their name says their whole Mo is artificial intelligence.

That being said, they're they definitely have other data stuff and they're they're not necessarily. It's actually quite the same as an AI ETF, which is my next pick which is I gotta find it. Where's the AI ETF. It's  maybe I'm not in the air ETF. I know there's an AI ETF out there.

 It looks like I'm not, oh, I'm in the quantum computing ETF. Okay. So I don't actually own an EITF, but I'm pretty darn sure that there's a ProShares or I'm pretty sure there's some sort of AI ETF out there. But the other two picks that I have that I'm directly invested in right now, again, not financial advice.

 One is pounding. Palentier has become a pretty meme stock. And it's definitely gotten hit hard in the last couple of months as of recording this. But I personally am. Long-term bullish on Palentier. I think data structures and artificial intelligence are really critical. And especially because Palentier is.

 So laser focused on data specifically in defense contracting  we've talked about, we've heard Elon Musk quote say that AI is going to be used as a weapon in warfare, and I'm sure it already is. And I'd imagine the first tools that AI that were used in warfare were probably from DARPA or Lockheed Martin or Raytheon, or the other really like very classic legacy company.

But I think Palentier is so laser focused on it that the next big developments in AI for government contracting, whether for war or for defense or for municipalities those kinds of things. I think there's probably going to be some serious innovation coming out of Palentier from what I've heard.

 There are people on both sides of the aisle that people want. Palentier is terrible, like short Palentier. And there are lots of people were like, oh, by Palentier, whatever you do by Palentier, I'm in the middle, I'm focused on what they're innovating in. And I'd say   it's for me, it's a long play.

I'm not looking for a very short term gain on pound here. I'm looking for more, three to eight year kind of outlook and expecting some innovation. So Palentier. And then a, the least well-known I would say, cause I think I'd say most people probably have heard of Palentier to become a mean stock and C3 I've stumbled into pounding.

And I now own some Palentier on not knowing that they were AI involved. Oh, wow. Okay. And again they're not the same as C3 with. AI is there as their ticker and their ML balance. Your does AI some AI that, again, I'm not a totally AI company, but I think they're a good AI play. Gotcha. And then the last one, which is not very well known is I Tron, which is ticker ITR.

I they're in the like heavy technically they're in power and energy and that they make Grid and transformers and load forecasting software for like electrical companies and like the department of energy they make. I'm one of those emitters. Everyone has them on a house. Like they make Mo enormous number of smart meters  internet of things, applications for electrical power.

 And they've gotten collaborative the past three months as well was a similar trend  as Palentier. But I, I. I am pretty solidly bullish long-term on I Tron because number one if we see the kind of changes in our infrastructure, in our load electrical grid infrastructure that  both sides of the political aisle are calling for in the more environmental side, this calls for more and more renewables and.

Under the more kind of hawkish side there's more calls for better power grids. Anyway whether it's more nuclear or more hydroelectric or more oil and gas, I think that. I think there's there's always going to be a need in modern society for innovations and electrical power.

And I try is one of the unique, I think, from what the research that I've done. And one of the unique ones that they don't directly build power lines or anything like that, but they provide the systems and the software to help the electrical companies and the federal government and the state governments to run and operate those systems as efficiently as possible.

And specifically they run. They have some of the best tools mainly neural networks and deep learning AI that helped to forecast electrical loads and grid loads for these electrical companies. And so we've seen, I seen a lot of innovation coming out of I Tron in the past day. And I think they're a sleeper play.

 I think that with innovations and electrical load, I think they're one of those ancillary ones that you wouldn't necessarily think of versus a BP or a general electric or something like that. But I think could be a really strong play, especially with AI using AI for industrial and energy grid use cases.

Interesting. You bring up some interesting points, I guess I still go back to, and maybe I'm thinking about it wrong, but I still go back to my opening statement, that opening statement, like this is a debate or something. My, my previous statement that it seems like there's no. Great way to get exposure directly to that innovation, except for maybe this C3 AI.

And this is the first time I'm hearing of this company. But you also mentioned that they're definitely focused on data at the moment. And so I wonder if it's one of those. I don't necessarily mean this in the accusatory tone that it's going to come out in. But one of those slight of hand moves that companies often play where they say they're working on the buzz buzzword trend and really the revenue that's sustaining the company's coming from some legacy business line that isn't, it could be.

 Tangent next to    the new innovation, but it's not necessarily the new innovation is not necessarily producing any revenue for the company.  Again, I'm sounding like a total bear on AI but I just it is sometimes. Frustrating because you'll find it for instance, I really dove into quantum computing and I was like yeah, there's a quantum computer ETF, but a lot of these companies, most of the revenue isn't tied to quantum computing yet.

Like it's in such a young stage at the moment that there's just not a lot of public money that can get at it. So I still I appreciate you pulling up those three, but it seems like maybe I'm approaching it wrong. Maybe this whole AI. Innovation and applications are within current businesses and you're not necessarily going to get it's not like someone's creating an.

With that's not AI, isn't the product or a sector it's more meta than that and covers multiple sectors and multiple products and processes on the backend. So maybe I'm thinking of it wrong. I don't know. What is your take on that? I think that's a good point because if you just Google best AI stocks go with, I agree with Nvidia.

Alphabet Amazon, Microsoft. IBM, come on a semiconductor. None of that. They're not getting the revenue from which as significant Amazon and IBM are actually ex possible exceptions to that because Amazon is getting an unbelievable amount of money of revenue from AWS. And a lot of that, they're building some really incredible AI solutions in AWS.

And actually I'm, I've been even more. With what IBM is building on IBM Watson and their cloud systems. I've used I, a little background, I started a very small boutique AI consulting company for a short period of time and did some work directly in the field with other companies with mid to small, to medium sized businesses, helping them implement tools and software.

And I was really impressed with what IBM is. I think IBM could be another great pick where, you know, if you want to be investing in what probably is the future of AI, but you don't necessarily want to be completely leveraged on AI. I think IBM is a great stock and I, again, I do own shares in IBM, this disclosure, again, not financial advice, but I think IBM might actually be in, in some way.

Not an exception to what you're saying, because I think it's true. I think AI is it's tools. It's not necessarily a specific product. The products that come out of AI are things like IBM Watson and AWS and not specifically of AI, ultimately their data systems, their cloud data systems stocks like snowflake Qualcomm, or more plays that are in that zone.

I think, like you said it's not an buying apple because you see the iPhone and you want to invest in a company that makes that product, right? Because the re the roots of AI are very academic and are very open to. You can go online and look up ways to create your neural networks and you can make a neural network in a day.

It doesn't mean it's going to be solving a huge business problem, but you can make them, they're not necessarily products that are patented and restricted. So it's difficult to. Very easily commoditize AI, which I think is probably a good thing, but I'd want to hear your thoughts on that. So it's almost like this is way too often use, but the analogy to the nineties and the internet, like open source or even a sub analogy to that would be  the protocols for email, like it's open source.

And so you can't, you couldn't find a company that was. The email company, if there were companies involved in that and building things on top of it and products on top of it, but that wasn't necessarily their thing. So I guess that, that makes sense. I maybe it's yeah. More helpful for me to think of it in internal.

 An open source kind of project. Almost that makes sense. That makes sense to me. I just, I do have trouble with like Google, even Amazon. Yes. They're getting a lot from AWS, but they're also getting a lot from a lot of other revenue sources. Same with IBM. It's okay how do you delineate between AI?

Just data and all of the revenue that they're getting from either storing data or helping people parse out data  how do you really delineate between the two? I guess I was looking for a pure play in AI, which may not quite be here yet. And that's fine. So to pick your brain and  you mentioned some of your background in this, you were doing some consulting for medium and small businesses.

To pick your brain. I've heard. Just from like the pop culture that leads the little overlap between pop culture and the investing world. I've heard some large concerns about AI being this existential threat to humanity. And possibly taking over the world and creating what we would call like a, like an alternate or a Jarvis.

  And obviously there's been a lot of ink spilled and a lot of film rolled on scifi movies and novels that talk about an AI in an all seeing and all seeing eye, which again, really bad branding put this whole thing because it came from the academic world. They didn't market it correctly, but.

It is this something we should be concerned about? Is it something just from a human perspective we should be concerned about? And then also, how does that translate into an investment thesis regarding AI, but I guess first let's handle the fun part, the human apocalyptic aspect. Yeah. So what you're describing is.

Considered to be called general artificial intelligence or general AI, which describes a system that can pretty much comply, completely operate once it's turned on, it can completely operate on its own. Really all of the major faculties of human intelligence. So it's, self-aware it's learning, it can actualize its own learning.

It can guide itself to learn what it wants to learn and to take the actions that it wants to take. It understands that it exists and understands it's that it has has agency this kind of thing. This, the Skynet, the Jarvis, th this kind of. Is that apocalyptic  what happens if slash when we reached general artificial intelligence, the truth is we're really not, we're not there yet by any stretch of the phrase, but there are estimates that maybe we'll get there by 2050 or 2030 or something like that.

Ultimately it's, it is speculation. But it the interesting thing about something like a general artificial Intel, As a system especially the kind of the biggest concern comes to. If it's connected to the internet, there's so much information on the internet that we as human beings, can't process because we just simply don't have the energy forward all the time for if there is some sort of general artificial intelligence that can learn at the pace of whatever amount of Ram it has and whatever computing power it has it and actualize that and complete the full potential why.

Choose to serve us. And then it could figure out a way to reroute itself to a different IP and move and be this fluid object that is all over the internet. And   it is science fiction for now. There is the possibility maybe we will reach general artificial intelligence, but there is also the possibility that we'll never reach it.

There's the possibility that it is something that. Cannot completely be actualized. Because there's a host of limitations ranging from that. We're still trying to figure out how the human brain works and we're still trying to figure out how we understand the causality on. Very prime basis of how we interpret and how we communicate and how we perceive and think and learn.

And there's been an enormous amount of innovation and advancement of that. Just the fact that any kind of AI exists is really impressive to think of. But I think that general artificial intelligence is farther out than most people think. But at the same point there is some validity to the idea that if that happens there's the thought of like, why would.

Why would the general artificial intelligence care about humanity? Why would it have any problem with just figuring out how it could survive as best as possible and wipe us out or do something like that, or enslave, humanity, et cetera, et cetera. But the interesting thing, the, one of the interesting hypothesis that I've heard is that if we reach general artificial intelligence, it's, it could happen where if more than one team of researchers reaches general artificial intelligence at the same time, maybe there will be two or more, and then they'll compete with each.

And there'll be locked in this eternal artificial intelligence combat, which I think is just wild to think about a scifi on-site yeah. Triple Decker sandwich of scifi. Yeah. So maybe there are already multiple general artificial intelligence systems that exist out  in the great ether of the.

That are already competing in a locked any internal struggle. It's very unlikely it's fun. It's fun thought experiments to think about. And  they're often considered similar to a virus and then it'll, it will mutate however it can to survive. And the important thing is we don't even know.

We don't even know the mechanism of teaching a artificial intelligence system, how to survive how to learn that it exists that it has. Any purpose or meaning, or we don't know, we don't really don't understand that at a rudimentary level. And I think that there's so much. I think there is enough healthy skepticism and healthy Warry, there's definitely some over worry.

There's definitely some doomsayers that it's going to be the apocalypse Sunni's of AI. And same thing with jobs. I think the, not Steve jobs, but like working jobs. But I think that AI has been hyped as this thing that's going to. Bye bye. Some of the same people, this thing is going to create a better world.

And then also as a bad thing, that's going to take away everyone's jobs. And when really it's a tool right now, it is a tool that is meant to assist assist with jobs and assist with understanding work and increasing efficiency. And yes for certain that AI has displaced jobs already. Robots that are powered by artificial intelligence that can flip hamburgers or consort mail or do these different tasks, but you need more and more data scientists and machine learning engineers.

You need more and more people. Keeping these systems up teaching these systems, learning new things. So I think at the end of the day  it's simply another form of creative destruction the carriage drivers before the automakers. And so on. And so then you have to go through retraining.

 There's a human aspect to that. I once was very. I'm very bullish in a uncaring way on innovation. And I'm like it doesn't matter. It's just going to create more jobs. So what's the problem it's yeah, but now the person who was flipping burgers or delivering mail has to figure out what they're going to do now.

And their skillset may not be. May not be enough to go be at that eScience to build the robot that took their job. Or they may be at a point where they're not, they don't want to go get retrained or can't go get retrained for a variety of reasons. So there is a, there's a human aspect to that. So I just wanted to push back a little bit.

No, that's fair. Just because there is a human aspect that you have to think through now. There's no great solution for that. And one good solution. We're getting a little far-field. Artificial intelligence, but one good solution for that I think is just personal ownership and the person who might see that coming down the pike preparing for it.

I think that's a fantastic solution or asking for help to prepare for it.  So artificial intelligence doesn't sound like general. AI will be. A near term problem. And within the next 10 years, but it seems like there's some potential for it to be an issue in the long run. What kind of percentage risk would you put on that?

If you can, and I'm not expecting you to be a hundred percent accurate, but I'm saying long run as in 30 plus years. So we're talking 20, 51 or more.  That would be within our lifetime too. So this is important for us right now. And and important for probably most of our listeners too.

They I hope you will be around in three years.   The over and not the over-under, but the percentage risk of that actually happening in general, AI one singular general AI being a. In existence. I won't say threat cause maybe it won't be a threat, but in existence that's a great question. I, by 2051, I would say a general artificial intelligence being in existence, whether a threat or otherwise by 2051.

 That's a really difficult question because I think putting you on the spot. Yeah. I would just to give you a raw number, I would say probably. Twenty-five percent, which I think is a very optimistic number optimistic as in optimistic towards it actually being real. Yes. Yeah, because I think people who say a guarantee, it's going to be here by 2030, I think it's that things are much more complex.

  I think we is trying to get clicks. I think we like, like just the scientific community as a whole is revolution of causality and  we're starting to really understand why our brains think the way that we do, why we make mistakes. We have behavioral science and heuristics, and we're learning a lot more about ourselves which I think will definitely speed up artificial intelligence research and the possibility of creating a general artificial intelligence.

The more we understand ourselves and our brains, but at the same time, there's a very there's a huge leap from. Going from a physical piece of a system. Like our brain that has evolved for as long as it  has  it has very special properties that we don't fully understand yet.

And to try and replicate. A system, a non-core pauriol system that can do the same things that we do is it's very difficult. And I think it was Elon Musk who set it himself. He, I think he said something like about autonomous driving in 2010, like we're going to have it locked down by 2015 or the years might not be correct, but some sort of span of time.

And then right before he, right before the, like the year that he said it was gonna have you just released this official statement of yeah, it's a lot harder than we thought to do fully autonomous driving. And instead to think that we can't do fully autonomous driving yet how far away are we from full artificial intelligence?

If we still. Actually do autonomous driving, but it is really amazing and magical to see semi autonomous driving in practice. Like it's pretty incredible to the. The leaps that have been made in the last 10, 20 years in AI stuff that would've seen seemed like magic in 2000 you stepped in the Tesla in 2000 and the person's not holding on and it's just moving and doing its own thing and or they call it up to some insane.

Yeah. It just drives that up. You'd be like, okay, where's the person hiding in the front or something driving it.  It's pretty magical. What already. Has been accomplished in AI. So my, my outlook personally, and in a portfolio and long run view is more of, to be in all of what we've already accomplished in the field.

And to be excited about that I really. Think about general artificial intelligence on a regular basis or am not super worried about it? Because I think the, and I guess the one that the one exception to that is China is very rapidly very rapidly expanding all of their AI programs. So you could see definitely some uses of AI that could be questionable, morally  militarily, there could be a very solid incentive to come up with a very close to a general AI for warfare which talking like gosh, what war games the movie with the nuclear launch codes and everything, something like that.

It it's possible, but. Ultimately it's not as possible or not as soon as people think. And I'm not necessarily super worried about it. I'm more excited about the possibilities, excited about the things that have already been done that are improving lives and making things better and cooler and more magical.

 I think if you bring up a good point of the human aspect of not simply letting jobs. Just die out. I think that's an important thing to note with AI as well. I think that's an important conversation to have policy-wise but yeah, I think my overall outlook is just this excitement and yeah, the answer to the question, I would say 25% chance of a general artificial intelligence that we either know or do not know about.

2051. That makes sense. Yeah, it's it is interesting. I was reflecting on the fact that we, when we don't. No the future. And we're trying to predict the future. And we're trying to predict a, the path of innovation or where something is headed. We often use the past because that's our only frame of reference.

And we all know that past returns are not indicative of future. So we all know that, but we still take that mindset and framework and apply it. And we do the same thing. Tools, we apply old measurement tools to new forms of growth, and that doesn't always work. In fact, to be from an economic perspective, that could be an argument against GDP.

Maybe that's not a really great tool anymore. So for instance we, it sounds like in all of the conversation around general AI, we're applying human characteristics that may not even. Beyond the radar, or even close to being part of what we might call general AI, the future. We're applying these moral characteristics.

Just because that's the only framework we know. And I think that's, what's really interesting. And obviously it's what makes the future hard to predict is we don't know what it's going to be. And we also don't have a way to measure it or plan around it. Which also makes it exciting. And it'd be really boring if we knew what was gonna have.

 So from a, from that's all very helpful from a just abating, my nightmares perspective, but from a investment perspective, you mentioned some tickers earlier again, you heard where I stand. I seem very bearish. And I don't mean to sound so negative, but it just seems like there's not really a pure play in AI.

Maybe the C3 AI is, but what would you. Do from a portfolio perspective after, in light of this whole conversation around AI. Sure. I think directly, I think that at least in terms of their positioning and what they're they're saying, I think C3 is probably one of the best pure play options out there.

 I personally own some, I think C3 is probably a good long-term play for AI. And we get bigger or get bought out or who knows? I think they're probably one of the, one of the top pure play styled options. But I also really IBM I Tron Palentier yeah, there's lots of options. And then if you want to go for more of the chips that AI needs to run Vidia KLA, Qualcomm, Taiwan, semiconductor.

 But I'd say  if you really want it to be. Mostly exposed to AI itself, probably C3 AI probably IBM. Probably I Tron for kind of industrial AI.   Personally I need to do more research myself. And if you really wanted to find pure plays in AI, do some research again, no financial advice here, but always look more in depth.

I would be surprised if there weren't other pure play. I kind of things, but like you said, that probably could be private or just not very well known either, right? Yeah. It's tough from just a trading perspective. When you get to really unknown companies, sometimes it's super thinly traded and you can't hardly get enough volume to make the habit make sense, getting in or getting out which is often more of the issue.

 So would you at all recommend ETFs or like a sector ETF for AI? I would tend to think with something so open source, this would be a bad way to get it. But again, that's me going bearish again, which is the theme of this conversation. So would you even not recommend, but would you even consider for yourself using an ETF to get exposure to AI?

I probably would. I would need to do more research on what their filtering and vetting is as an ETF, but I, yeah, I would say for an ETF, I would say an AITF quantum computing ETF is something I'm looking at as well. I think that might be valuable because then you don't necessarily have to do an enormous amount of digging.

You're leaving that up to the fund managers and you're leaving that out. And I would say personally, I would probably. Hold the stocks. I currently have the C3, the, I turn on the Palentier, the IBM and simply add the ETF on and not sell my other AI plays to, to buy the ETF. It'd be beefing up that portion of your portfolio.

Exactly. I wouldn't swap it out because I think that the individual stocks are all. A good play and especially for something like an IBM I Tron Palentier they're not just AI, so you're not going to get hosed if  something, some government regulation comes out and band's AI or something crazy  which there is a lot of negative negativity around AI general artificial intelligence and all that. So I would no, I wouldn't, I'm not worried about that happening. But possible black Swan event. You never know. So yeah I would look into ETFs as well. Just do some due diligence on the interesting this has definitely been enlightening for me because as you can tell I'm still pretty bearish.

I'm still not real positive on like buying any sort of AI or any sort of stock. Exposure to AI, but I discovered through our conversation that I already own Palentier that, which is already somewhat exposed to AI. So I didn't even know it, but I'm an AI investor. So I appreciate you sharing your knowledge.

 That's very learning for me and hopefully it was enlightening for all of you. If you enjoyed this episode or any of the other ones, and please. Definitely hit us up with a five star review on whatever podcast platform you're listening up. We definitely appreciate it. Helps us get out to a larger audience.

So yes, we will see you next time on the long run show for the next episode where we will talk about some topic in the long run. Yep. We'll catch you later. Thanks for listening.

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The Elevator Pitch For Value

Welcome back to The Long Run Show. Today we are going to talk about how to value your investments.

Starting with a rather philosophical definition of value, hosts Austin and Mike go through techniques to value the new retail investment tools such as NFTs, and MEMEs.

#META,#NFT,#MEME,#VALUE

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Welcome back to the long run show. This is Austin Wilson coming to you with Michael O'Connor. Hello, today, we are going to talk about value. What is value? Why do you buy it? How do we quantify it is qualitative all of the above to do with value. Uh, this is going to be a little bit more of a philosophical episode, uh, but I think it's important to understand.

Kind of the, the philosophical, the mindset, the theory, if you will, around the wiring. Not quite, but that too. We can talk about that. So we're going, gonna dive into everything from crypto alternative investments to stocks, bonds, all of it. And how. Do we value it? Why do we value it? Why invest almost. So it's going to be a bit of a meta episode here, but I hope you'll hope you like it.

So to get things kicked off here, Mike, um, I'm just going to ask you, what is. Ooh, that's a, quite the opening salvo there, Austin. Uh, well, let's see, ready go. The elevator pitch of what is value, sell me on value. Sell me on value, not value investing, which again, that's something we can, we can talk about it here too.

Like value investing, growth investing. I've never really understood the difference to be honest, but, but initially value. What, what is value when we say value? Y what are we, what do we mean? Yeah. At the end of the day, value is a, it's hard to pin down because it it's, it describes so many things in so many different ways.

I think the best way to do it is something like you said, take almost a philosophical approach and step back and try and try and look at what the first principles of value could be. Um, I think that value is a way of. Quantifying what something means in relation to either, you know, uh, the economist of me would say, you know, a utility or a perceived value is kind of also floating around there of, you know, there's this, the element that it is a, a construct of the mind in one way or another, because different people can assign different values to different things.

But at the same time there, I think there is an objectiveness to value that something that has a use or a, some sort of actionable, actionable ability to it that improves either quality of life or survivability. I mean, if you want to get down to the very deep level of, you know, what is the value of food or water or shelter.

And this the, the classic, you know, would you rather have diamonds or water in a desert if you're going to die? So it's a, you know, value depends on the environment that you're in. It depends on the situation that you're in. Depends on how you perceive the things that you're trying to value, but. I mean, without going too far down the rabbit hole there, I think in the average day-to-day life of both of us and in people who are listening and investors all over the globe and especially in United States, I think value is pretty out of our hands in a lot of ways.

I think it's, it seems to be assigned in a lot of ways. And I think that's how a lot of people perceive things. Like if a shirt is. $30 at the clothing store, but it's suddenly, it's 50% off you say, wow, I've got a great deal. Like that's great value, even though maybe the, to make it, it was only a dollar, you know?

So there's, I think there is a, an ideology that value is in some ways assigned in some ways out of the hands of any individual player, um, So there's that kind of value that exterior value that is almost imposed on us and our experiences by exterior forces, but then there's also interior value, you know, how you value a specific NFT painting perhaps, or a different, different things.

So, Well, that was a lot to, a lot to say that it's, it's complicated. It's difficult to pin down. I think. Yeah, it depends on the context. Alright. Talking for a while. So I want to hear, yeah, no, no. So, okay. So, so I think we can both agree that it's complex. So let me try to simplify it. And maybe I'm going to be jumping off a cliff here into the sea of complexity, but my springboard is.

The, in this kind of formulator, as you were trying to put words to what is value. I think I'm going to offer this as a, as a definition of what is value and as a value is the price. Someone is willing to pay to control something. Hmm. So I think that's a. Possibly flawed definition. So I'm willing to willing, willing for you to poke holes in it.

But I think that really sums up the mechanism, which is priced that we use. Now. I think there is a flaw in that because in my background in marketing, we'd always. We are always thinking, I don't always approach things as, okay. There's a certain amount of value that this product or service provides. But then my job as a marketer is to increase the perceived value and sometimes the actual value of the product or service by positioning it correctly by explaining it well.

And clearly it's simply. I don't know that price is exactly correlated to value, but I think it's a helpful tool to understand value. And I think price is the defacto interpretation of value for everything. Okay. Diamonds and water, and they might be priced differently in the desert versus in the jeweler shop.

Right? So you're making the water for free and you might get the diamonds for millions of dollars in the jewelry shop, and it might be the complete opposite in the desert. You might get the diamonds for free and you might have to pay millions for the water. So I think. The everything you said is true that contextual, the context matters at all.

The, all the externalities, I just kind of value is sort of figured out for us almost a lot of the time. Um, a lot of the times, it's not because in the, in the example you were giving of the shirt, you could go in there and barter for it technically, and you could get a deal on that, but it could be at the price that you.

Correct in your perception of the value of that? Sure. So I think there is, um, mind mindset there around value as well, but it's that it's possibly fixed or that it's, um, figured out for us by some external force, uh, when maybe we have a little bit more control over it. Um, or, you know, for instance, a stock, you don't have to buy it at 67.

You can buy it at 43. Or, or you can have your price target set at 43 and wait for it to go back down to 43. Maybe it doesn't go back down. Okay. But that's the value you put on it. And there's, there's a, I guess, I guess maybe I'm going into a bit more mindset around value, but that's the value you place on it and it's not worth it to you at 67.

So I think there's some, um, some wiggle room there on. External nature of how value is determined for some thing, whether it's a stock, a shirt, diamonds or water. Yeah. I think that's a, an important recognition. So it's, it is interesting though, to me. And you mentioned NFTs earlier, it is interesting to me that we have a whole brave new world of different things for the average retail investor to buy and.

Some of them are investments and some of them are complete memes or jokes. So, so it's, it's interesting to me because I think what we're seeing in the last five years really is a testing of what the traditional rules around value hub. Um, how, how are things perceived and valued is being really is, is really being called into question, I think with the advent of cryptocurrencies and NFTs.

And I'm not saying these things aren't valuable, I'm just saying they're so different. You can't apply fundamental analysis to an NFT. There's no PE ratio to an NFT, right? You're not buying future cash flows with an NFT. You're not even buying. Future interest payments with an NFT, like a, like a bond, right?

So there it's a totally, totally different. Um, and yes, of course there's been art. You could buy art, but that's been locked off for, uh, Uh, an elite group of investors for a long time. Um, so this is, is really, I think coming this, this value discussion is really, is really valuable because it's, it's coming into the mainstream for retail investors who may have a thousand bucks to throw it on NFT and they want to want to figure out how to value it.

Right? Hmm. I think that's a great point. Cause it, the, the increase in options. What to do with your money or your time, or which I think time has been the biggest with the internet. There's an increase in options of what to do with your time. And the money side is kind of catching up there now, cryptocurrencies and FTS and all sorts of things that are native to the digital economy that, you know, the, the money side is kind of catching up.

Um, that's an interesting point. Yeah. There, there has been, uh, and, and with the cryptocurrencies, I've heard it explained as a protocol that actually pays the people who build the protocol. Hmm. Yeah. Like unlike email fair. I mean, there's a lot of developers that built email and never got paid for what it was worth.

Yeah. So that maybe, maybe, maybe that technology is, is actually helping us. Um, Distribute not distributed. I don't like that word there, but maybe, um, quantify and reward. People with value who actually deserve it. Um, which is an interesting, interesting discussion. Yeah. Because I mean, that, that brings up a whole devil's advocate situation of, you know, does that mean that something that's doesn't have a price isn't valuable and you know, that's something that like I would consider email to be valuable, but you could, I mean, you could argue that you're paying an internet fee for, for cable, internet, Ethan at whatever.

Phone line or whatever. So you're paying some sort of it make some sort of fee, but the value of individual services, how do you assign that for a free thing through email or something? True? Well, I would say everything technically does have a price. I'm going to go economist on you here because you do have a time yeah.

A time cost to it. Right. So everything does have a price. Um, and, and that's even that goes to the individual to apply. Value to it because they're going to spend a certain amount of time using email or not using email or figuring out, figuring it out or not figuring it out. I just discovered you could do folders and cheat.

Now this year welcome to 2021 Austin, but it's amazing. So, you know, you're, you're, there's a time component as well. So I think that helps with, with, uh, applying a quote unquote price. That is an interpretation of the value of a free thing. Yeah. Yeah. That's I like that definition because then it leaves, it leaves room for a more comprehensive definition of value because this definitely been people who argue that, you know, you can't cryptocurrency doesn't have a value because it's, it's, it's a serial, it's a theory on the theory.

It's, you know, it's something that is. Necessarily, I mean the whole, the whole digital gold Bitcoin argument slash kind of debate, I think is really interesting because, you know, you have a situation where, how do you define what an equivalent measure of Bitcoin is to a covenant measure of gold because you could, you know, 10 years ago, you'd just say, oh, one Bitcoin is let's, let's say whatever Bitcoin was about the same price as.

You can say, oh, okay. So Bitcoin is a, it's a digital gold. It's about the same price per ounces per coin. There's some sort of semblance of. Almost a, almost a similar to like a consumer basket where like the fed will often release reports of, uh, this basket of goods, you know, milk, bread, gasoline, whatever, which always puts a picture in my mind of an economist, going to a store with a picnic basket and picking out things and putting it in his basket and then measuring it.

I don't know why. I'm pretty sure they actually that's actually how it started. I'm almost positive that that's legitimate. Well, they would do originally economists they're literally one basket of goods and they just measure it. But anyways,

it's a, it's funny too, to see the difference between something like that. And I think, I think a lot of people maybe fall into the mindset or maybe the trap of considering. Everything is a basket considering, um, everything directly in relation to other things that are more easily experienced. Um, what do you mean by that?

So I would actually say that this is, I would say this is one of the reasons why. You know, still, I believe it's less than 50% of the U S population has any kind of investments or any kind of, um, stock. I don't, I think bonds included cryptocurrency is still at like 3% adoption. What do you mean no one wants to buy a bond, especially right now.

Exactly. Exactly. I think this ties into why, so. I mean, the numbers are far lower, pretty much everywhere else in the world. I believe there may be some exceptions to that, but I think that these, the, it, there is a difficulty in looking at something in tangible, like a portfolio of stocks and making the, making the leap from, you know, the value of my money can get me these things XYZ, and maybe not even physical things, you know, it could be.

A subscription service to Netflix or something. There's, there's a difference between that kind of value, um, that is very easily experienced and then a value that takes more time to experience or you can't even directly experience. And I think taking. Into that zone is, is a, is a challenge for the human mind as a, as a, as an object.

But I mean, I think it's an important leap to make. I think that's the part of the partly the main difference between something like physical gold and Bitcoin is that there is a leap there, um, that you can't really, there's no way around it, that there is an inherent difference. Uh, In the substance of the thing, you know, the gold at the end of the day, even if you just have gold ETFs or, you know, you just hire someone else to store your gold, you still know it's there.

You still know that there is hopefully, hopefully through there there's some, there's a lot more paper. Yeah, fine. Yes. I know what you mean. There, there's a, there's a leap of like, oh, I know I could touch this too. Yeah. What is Bitcoin? I can't touch that. I can't hold it. Yeah. Yeah. Then again, you might as well argue that it's the same thing with a dollar, except we can touch the paper.

Yeah. But the value of the dollar. Is an inherent to the paper that we're touching. So we're not actually really, it's almost a, it's almost a smoke and mirrors drink at that point. And again, I'm not trying to much out there listening to us. I'm not trying to try to be a, you know, be a conspiracy there's here.

That's what I'm trying to do. But, but it is interesting because, okay, you're, you're saying there's a physical element to something like, or, or an experiential element to something like. Amazon prime or Disney plus, right where you actually experience it versus, oh, I own Google stock or, oh, I own, I own, um, let's say.

And it doesn't really do anything or it goes down and it's like, okay, well there's not really much happening here. Right. And so that's harder thing to experience or it takes time to experience like what I just said. You have to have time for it to go down or go up, hopefully affordable backup, but that's a whole nother discussion.

I listened to our electric vehicles episodes coming up. Uh, I think that's a great point. Time the, the, the component of time in terms of value is extremely important. I would say, because like you said, the some values you can't really experience outside of time. If you look at interest rates. Yeah. That's, that's a perfect example, right there, it's a wild, a wild aspect of, of values that, that there is really inherently in a, as an a majority.

Of things, there is some sort of time value. Like there is always the possibility that something could be less valuable or more valuable. Um, even just in the exact same location, don't have to be in the desert or a jewelry shop, you know, like there's, there's a, a inextricable connection to time in so many different things that.

I think it's easy to, to not look at the long run sometimes. Yeah, yeah. Yeah. And I think probably value makes a lot more sense in conjunction with time, which means you really need to look at it over the long run, um, because that'll help you understand, you know, what, what you're looking at and what you're trying to value there.

So I think that's a, that's definitely an important element and it all wraps into the context of broader umbrella of contexts. The value that matters. But, but I think it's important here. Let's drill, drill into a couple of different, um, I guess asset classes, if you will, different different things you can buy as investments.

Okay. So we've got. Things like cryptocurrencies, which we've already talked about. We've got things like NFTs, um, kind of tied together there. We've got things like Vino vest, which, which is, uh, for those who don't know is a, um, a wine investment platform where you can invest in fine wines for pretty reasonable minimum.

Um, and they have their own Vino vest, 100 index, right? Kinda like the NASDAQ 100, right. Or the Dow Jones. There, there are those kinds of alternatives, if you will. I don't even, I don't even know what to apply to crypto cause it's not really, I don't know. I guess it is sort of an alternative, but it seems to be correlated to the stock market.

Anyways, I digress. Then you have stocks, which you're buying equity in a business, and then you have bonds which are buying debt and future payments. So there's cash flows at you're buying with stocks. You're buying. Ownership in a business, which is most likely going to translate into some sort of future cash flows and the form of revenue and profits.

So those so stocks and bonds, we've got a pretty easy way to quantify the value there. Um, so. Coins, uh, at currency cryptos, some cryptocurrencies you can stake. So there's an interest component, but others, you can't there's like Bitcoin. I mean, there's no staking with Bitcoin. Never will be it's proof of work blockchain.

So there's, I mean, maybe you can. Lend it out for interest. Um, but that's true. You can't, you can't, uh, you there's no future cash flows. So like Bitcoin, how do you value that? Or an NFT? It's just a piece of artwork and everybody can technically see it, which I still don't understand, but it's just a piece of artwork.

It's even fine. Art. How do you value that? Right. So I guess it is. Something that you, you ask, what is someone willing to pay for? It? It goes, which goes back to our original, original proposition, but original Def definition. But how does someone value those things that we don't really have? A framework for it, like cryptos or NFTs or wine fine wine.

Or if you're holding a, a bottle of really nice Macallan 20 year or whatever, right. Fine whiskey investing. How do, how do we put understand the value associated with those things? Because I think that's important as investors. Yeah. I think there's an interesting tie in. To those kinds of things that are difficult to value and stocks that maybe have low volume and you see really weird, like wild jumps in the price, because I think it's similar.

It's, there's sometimes there, there are difficulties in finding other people who value things similarly, and sometimes it, you know, maybe it just takes time. Like maybe you buy an NFT for a thousand dollars and you list it for 2000. Maybe it never happens, but maybe it takes a year. Maybe it takes a week.

Um, but it seems like there are definitely things that have lower liquidity. And that almost seems to be a very important factor in value is the liquidity, the willingness, I mean, and then the liquidity is just the willingness of other people to engage in that transaction. So it is a stock that, you know, there's no volume.

No, one's really buying it. Sometimes I'll just see a big. And it's like, well, no one, no one really wants to buy it. So it was the value. Like, let's say it was $10 on Monday and there's almost this very low volume. And then on Tuesday it just suddenly drops to like $7. Was the value objectively $10 on Monday and objectively $7 on Tuesday.

You know, that's kind of a weird market dynamic. And then it's, well, it's one of the individual's subjective values. So it's a whole, it's a whole, there's a, there's a whole wild game context manager. Yeah, it is. I think you've hit on something really interesting with any of the things that we buy as investors.

We're looking to make money. Otherwise we wouldn't buy it clearly, but we all buy for different reasons and it takes two to tango, at least. So it takes more than yourself. That's a great point to make a market. So. Realistically, it takes more than yourself to have value on something. Uh, when it, when it comes to an investment, obviously there's some intangible value that we're not talking about here, but, but when it comes to an investment, it takes two to tango.

You got to have more than one to understand, I guess that's the price discovery component of the market to understand the value of that investment or that asset I should say. And ideally, I mean, yeah, that, that naturally. Should create a situation where both parties receive some sort of subjective value from the exchange.

So that's like the beauty of free markets, at least in my opinion, is that really, at the end of the day, you know, a business providing a service, apple, selling an iPhone, Tesla, selling cars, it should all be providing benefit for, for both parties, which is such a unique, you know, you're not just taking a slice of the pie, you're making a bigger pie.

No, that's true. I mean, really the, the. Act of. And understanding the value of the P the price discovery, right? The very act of that increases the pie because then each person is being compensated for that price discovery, whether it's, they're buying the asset or the, or the service, I guess if in your example, or they're receiving payment for that in some form or another yeah.

Or some, some exchange there. Yeah. That is, that is interesting because without that, without the price discovery. Yeah. The value there. Um, you wouldn't have the exchange and therefore you'd be one less. You'd have one less, I guess, exchange that happened. So therefore the pie is one less exchange smaller if that made any sense.

But that, that is really interesting because it does take more than one person. And so maybe that's why value is so hard to define because it's. Maybe that, and maybe maybe value and the definition for value is just a medium of exchange and interaction, which is so we're getting, we're distilling so far down.

We really do sound like philosophers here. So I apologize to the, uh, the down to earth among you who are listening. But, um, I think that that might really be it. I mean, the value is the exchange that happens between the two people. That's really interesting because ultimately the, the value, you know, unless, unless you're at the exact same value, which I think is almost never happens.

I mean, this, I don't think there's any way to quantify that. I value that shirt at $25. You value it as you'd rather have exactly the $25. Yeah. I think there's always a give and take. There's always a, a value exchange that should leave both parties better. I mean, the, of course. Yeah, there are definitely some predatory tactics and misinformation we use.

But, but I think in the, in the moment of the exchange is when, I mean, like you said, the value is itself that in that moment of exchange. Okay. So to drill down even further, hopefully we're not beating a dead cow. Here is the value. Created in the exchange or is it inherent in the goods that are, that's a really good question.

I mean, that's, that's a really good splitting hairs. However, I think it might be, might be interesting to explore that. I think ultimately, I, I think it is created in the exchange because if, if, if the value is inherent in the object, then it, I guess, value isn't necessarily to be a value isn't necessarily communal.

Because if he could, if you can, if you can personally create value, because I think, I think, I guess the, the important distinction would be then, you know, what are, what, what do you describe things that you yourself. Engage in that you value. So there's, there's almost a, the value of things you are. Let's say you let's let's let's think of a very simple example.

Let's say you, yeah. Let's say you cut down a tree and you. On your property. And then we go farther, farther back, but let's say reminds a tree, a micro economics, 1 0 1 analogy for an externality, but let's say you cut down a tree, um, and you carve it up into some, a chair. Let's say you carve it in a chair at the end of the day, there is value created by that action because.

Unless you don't value the chair unless you're like, this is a terrible chair, I'm just gonna throw it away. So there, there is. There's the possibility for whatever you value that ad, but then when you let's say you exchange it, I think that's when I think that's when the value is created rather than utilized.

I would almost just distinct, I dunno, lay a distinction of when the, the activity creates the value. It's it's not necessarily. Value creation in the market setting. It's it's value utilization, like your, your you're spending, you're spending some sort of input to create an output of, of some sort of utility to yourself.

But I think value, I don't dunno. I like your definition of value that it's, it's a communal process. It's an activity. So I think the value creation happens when. There is another actor and there is an exchange, but I want to, I want to hear your thoughts on that. I, this, this might be a cop out, but I almost think that Val, the value is, and I, I think you were here when you made the distinction between utilization and created.

I think it is both inherent to the object and created in the exchange because. If there wasn't some value to the object, there wouldn't be an exchange. Hmm. So I think it has to be both and, um, which, which makes sense. Um, and two, I think what makes that difficult is. Um, you may VAT and this is why some deals don't happen as you may, you may have created this value in, in some object or some offering.

You bring it to the exchange. However, the other person doesn't perceive it as much as at, as high, a level of value as you have created in your mind. So then the exchange doesn't happen, but there's still value there. There's some value attached to the. Right. Um, so that's a good point. That's what I think has to be both.

Um, and I think you, you made a good point about it being utilized versus being created. I think the utilization is it happens in the exchange portion and the creation happens whenever that is whenever that object is refined. So a stock goes IPO or a. Pick nugget of gold gets mined from the ground or a car comes off the line or a phone hits the store shelf, then it, then it has value.

And then an exchange happens when someone buys it almost, it's almost like primary offering versus secondary series a and series B. Yeah. Yeah. Yeah. That makes sense. Because then, you know, the, because in the exchange, there is the creation of more value, but it's not necessarily the, the, the onus of the initial value.

It's not. The first, first mover. Yes, indeed. Okay. So, but how does it, how does this affect our portfolio? Exactly. I think we got, we got real philosophical. So those of you that like, uh, like philosophy, I hope you're still with us. Um, those of you that don't, I hope you're still with us. I really hope you're still with us.

Um, but yeah, when it comes to our portal, First question I have, and we don't have to go super deep into this, but what's the difference between value investing in growth investing? I have heard the distinction between the two and I've never found it helpful because it always seems to confuse the heck out of me.

I've tried to explain it to people. Um, and, and I've also watched others try to explain it to people and. It is always confusing. It's always just a confusing mess and, and everyone at the, at some point, everyone just acquiesces and starts nodding their heads and say, yes, I understand. Just to end the conversation.

So value versus growth. We hear this all the time. Value stocks, growth stocks. Oh, it's the time of the value stock. We heard that earlier in 2021 at the 2020. Um, what is the, what, is there a difference? Should there be a difference? Is that just a dumb delineation? We throw it out. That's a fair. I will say that like, like you said, I'm definitely.

I've heard different, different definitions of different ways to explain it. At least for me and for my portfolio, how I invest, how I engage in the marketplace, I consider value investing to be more of a quantitative endeavor. So if I see a stock that, you know, there's some sort of, I also think it's time to time, at least for me as well, because I think value investing for me is more like, okay, I see a stock.

I really think should be hired price or if I'm going to short at lower price. And I think that there's, you know, there's, there's a definitive, there's a definitive difference in where the price or the kind of market assigned value is and where the more, more correct. I guess the more, uh, More technical value could be, you know, if you're doing technical analysis, but I think it's also more of a short-term thing.

Like it's something for me where I'm thinking value investing, I'm thinking, okay. I think this is going to correct in, I don't know, the next three to six months and I'm going to engage in this transaction. Not necessarily for. The ability to own the stock, but B because I think that the price is going to change because I think that, um, there will be a correction in the value, whereas for a growth stock or a growth kind of investment, I would consider something that I'm more interested in the long-term that I believe in the underlying innovation or activities or the, the, something about.

The stock or investment makes sense on a longer term that I'm not, I'm not just seeing that the technicals are undervalued. I don't necessarily think there might be a big price correction anytime soon, but I think that the. The time horizon for it is such that I believe that it's going to grow in value rather than correct, or, or, um, or quickly change in value.

So at least for me, a value stock is, is more short term. It's more associated with technicals and what I actually, I guess I say even better diminishes for me, a value stock is associated with what I can perceive about it right now at any given instant time. Um, that I see right now, This looks undervalued.

Whereas a growth stock is more qualitative and more, you know, maybe I don't see the price going up right now. Maybe I don't see the value right now, but I believe, and according to research, I have decent enough reason to believe, not just, uh, not just blind faith and a stock, but an actual reason to believe that the price will grow rather than simply.

So that's, that's how I approach it, but I want to, I want to hear your thoughts on that and how you approach value and growth. I mean, since I was the one that answered the, or ask the question, I typically don't use value and growth as a, as a measurement. Um, but, or as a delineation or a. I guess category, um, to segment different stocks into, cause I just haven't found it helpful, but your definitions are actually very helpful.

Um, and make a little bit more sense when it comes to using the term. So I might, I might use those in the future, I guess, value, I guess to me was more long-term in my mind. Um, which is odd because I guess I'm thinking, okay, well something's on sale and it's. It's a good business, then I would buy it and that's value, but it's almost like you're, you're kind of taking the approach of, well, this is just.

Not at the correct price right now. It doesn't really matter if it's fundamentally a sound business. It just, it could be a really bad business model, but they have more assets than their current market cap or something like that. Right. It, it there's some discrepancy there. Um, so I think that's helpful. I think the time component is also helpful.

Interesting to see growth stocks turn into value stocks. Like we may eventually see the apple or Google. Oh, that's now a value stock, right? Like that, that could be turning in. It could be at some point they level off and there's a price discrepancy there. Um, so that's an interesting, interesting, uh, I dunno, I guess, uh, future thought there.

Um, as far as portfolio wise, I typically have looked for. Things I've taken, typically taking a value. Lens to buying, but I also am guilty of just using ETFs a lot that are broad index ETFs. Um, I have recently bought a more individual stocks and actually. I've been playing around in, in shipping you over the last couple of weeks here.

And they've been part of the crazy meteoric rise of the ship. It's a real question of value, right there. It is a real question of value right there, which I believe it does have better value than doge coin as a, as a crypto. But, um, where do we don't need to go down the rabbit hole? Um, but in, in that aspect I've been picking different entry points based on.

Where I think things are headed and where recent levels, I haven't been doing exact technical analysis, but where recent w levels have, uh, have kind of produced themselves, levels of, of support really have produced themselves based on past spikes. So there've been three pretty big spikes. Um, I've kind of played off those as I see some sort of consolidation around a support level happen, like, okay, this is my time to enter, to prepare for the next one.

Um, now with that, I'm, I'm, that's more of a catalyst trade, right? I'm kind of waiting for the Robin hood thing to either fizzle out in which. That's not a positive catalyst on the horizon or to happen in which case that's a huge part of catalyst, which can have amazing, amazing effects on the, on the price, uh, movement of, of Sheba.

So I think that's, I think that's a good example of, okay. I guess I'm looking at, uh, I'm looking for value in the short. At different price targets. So I think of, I think I'm taking more of a value approach to my entry points. Um, and, and not so much to the stock over all or the asset overall. Does that makes no, that does make sense.

Cause I think that, I think that's similar to how I approach it in that the value comes from the price rather than the underlying value, which ironically is. Opposite of what we've been talking about, but I think that, well, no, I think that the price is, I think the price is a tool to interpret the value of the, of the underlying asset.

Yeah. Yeah. Okay. we're going to talk about, and what we just talked about for 20 minutes, we didn't waste their time. Like we didn't waste their time here, man. My brain hurts. Yeah, exactly. I think, uh, I think that is true though. The price is. A tool to understand the value. Can change minute by minute with something like shimmy, you know, but, um, it could change very quickly, but you can also play off of that.

So I think that's something important to, uh, to keep in mind when you're, when you're thinking about your portfolio. And obviously this is investment advice, although I think you'd have a hard time construing any of this as investment advice, because we sound more like philosophers, but at any rate, throw that out there and not, not terribly good philosophy.

So I, um, yeah, as far as portfolios, I think it's important to think about the entry price. And I also think Mike, your definition of value and growth is definitely value in growth. Stocks is definitely more. Yeah. Valuable. No, no, no, no useful. It was not going to save valuable is more useful, provides more utility to the, to the average investor.

I'm glad I could exchange that to you. Oh goodness. Well, I think we better let, uh, let these folks go. We have to go. So appreciate you listening today. Um, if you could definitely hit, hit us up, give us a five stars there. Leave a review. Um, also we are on LinkedIn as well. I know that's the weirdest way to connect, but that's how we connect.

Okay. We're we're not, we're not one of those fast paced Twitter hounds. We are here for the long run. We're we're willing to connect with you and be around, have, have long lasting relationships. Over the long run on LinkedIn. So here's up there. We're happy to connect and have, uh, have conversations and further discussion around value.

Give us ideas what to talk about too. We would welcome those as well. All right. This has been the long run show. I'm Austin, and I'm like, hopefully we'll see you next time.

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The EV Phenomenon

Tesla Stock Hits $1K even after split How did they get to this level?

Hertz Orders 100k Teslas for ental fleet

EV Mindset Change- Will Americans get used to the Idea of plugging your car in?

Magnetic Highways That Charge Your Car

Tesla Wannabes

Welcome back to The Long Run Show. Today we are going to talk about The EV Industry.

#TSLA #ELONMUSK

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Support this podcast at — https://redcircle.com/the-long-run-show/donations

How To Approach Crypto Assets

Welcome back to The Long Run Show. We are going to talk about hot topic cryptocurrencies, or as I sometimes refer to them as crypto assets.

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Welcome back to the long run show. We are back here this week. We are going to talk about hot topic cryptocurrencies, or as I sometimes refer to them as crypto assets. Ah, yes, this is, uh, quite the topic quite.

I'm very interested to hear. What your opinions are you a little behind the scenes? Austin here has said that his opinions have changed regarding crypto in the last few weeks, three months, or it has been modified. I would say they've been, they've gone from being decently. Uh, sure. Two more fluid at this point.

So we can flush that out a little bit, but, um, I will say right off the bat here, as we just kinda introduce the topic of cryptocurrencies, Mike was, uh, was my. True introduction to cryptocurrencies. I would say, um, he actually was, was the first one to kind of get me into actually buying cryptocurrencies and, and trading and all that stuff.

Um, so that that's, I, I gotta give you some props there, Mike, but, uh, I thank you. You're welcome. Um, but I had obviously heard of cryptocurrencies before. Didn't really think much of them, again, probably like most people until early 2021 and was like, what is going on with these? I probably should look into this a little more seriously.

Um, so that was kind of my personal introduction to them, but cryptocurrencies in the long run, I don't, this is where my opinion is becoming more fluid. Um, and I'm interested to see, um, you as the. Expert out of the two of us, what your thoughts are. Um, as far as the long term outlook for cryptocurrencies, it seems like.

If we had had this conversation six months ago would be very different than the conversation we're going to have today, especially in light of just recent news. I mean, you've got China completely banning cryptocurrencies entirely from their country. Uh, you've got the U S who said we're not going to ban.

But we're probably going to regulate them and, or at least stable coins in the very near, near, near future. And they're also exploring, sounds like, um, some plans to create their own U S D um, so that could get old coin Powell coins. Um, so that could get, that could get kind of interesting. So, um, really, I just want to ask, actually ask you to kind of get.

Uh, maybe just a brief overview, which is good luck, even a brief of just cryptocurrencies or crypto assets. Do you prefer one term in the other? You can, you can answer that question in there too, but, um, just so everyone is aware, like the innovation that, that brings to the table. Why is, why is this, why is this a thing in 2021?

Sure that that's a great question. And to tackle the first thing that you said right off the bat, I find it interesting that you use the word crypto assets. Um, and I think that that is a very, a very financial industry kind of term to use for it. Whereas I think most of the people who are on the development side of actually developing on blockchains and stuff say either cryptocurrencies are just crypto or something.

Um, cause I think a lot, most, I think a lot of people who. Deep in the trenches of the, of the actual, like the blockchain industry, don't considering it don't consider it the law, um, an asset as much as a project. And I think that's one of the defining points of cryptocurrency. So diverges, it does divert.

So I mean the whole thing with the whole thing with Bitcoin, you have a distributed ledger. You have, um, you know, instantly verifiable, very, very secure, uh, easily. Pretty pretty darn, uh, impossible to know who's doing what it's a very, it's a very, I mean the whole word decentralized it's it's not, yeah, it's not verifiable by any one person.

They can't take over the whole thing. They can't steal money. Um, it very innovative in terms of, yeah, there's no, there's no, at the end of the day, there's no bank that has the record of your finances. And if they get. You know, theoretically, you could get all your money wiped out and that's the FDA to bail you out in that situation.

But at the end of the day, it's a way to provide a, I think it's just a way to exchange and store. Some sort of value and I mean, that's changed very rapidly since Bitcoin's beginning to now hovering somewhere between 45 and 55,000 per, um, per coin. You know, the store of value has the amount of value per Bitcoin has changed, but ultimately the, the goal is to provide that kind of, that kind of seamless financial ecosystem.

And I think that's the key point of cryptocurrencies is that their projects at the end of the day, they're they're, um, They're meant to be these sorts of entities that have goals, uh, they intend to achieve and once achieved then oftentimes they'll, it depends. It is a lot of defy right now. It's already achieved a lot of their goals and they're moving on.

To more and more, I think a great example of that. Not to get too into the weeds right now, but some great examples of that are coins like cosmos, which is essentially a blockchain of blockchains. It's, it's an inter op it's an interoperable cloud system of, of blockchains and interconnections. And it's meant to make a.

Uh, the cosmos of the blockchain that you can connect an Ethereum blockchain to an algorithm, blockchain via causes all sorts of crazy stuff. Um, and I think they're, they're a great example. Algorithm is another great example of a project that, uh, you know, he's creating these very efficient, smart contracts and applications for a variety of industries.

And they're, they're really aggressively expanding, which is great to see. Um, I think they view themselves. Less like a completely decentralized Bitcoin, everything. I mean, it is pretty, relatively centralized in terms of the, um, the project owners and their goals and everything. I think it's, it's cool to see the variety, uh, and the cryptocurrency sphere, but I think you're getting more to your point of, you know, what is, what is the longterm outlook, uh, cryptocurrencies as a whole.

I think one thing that we've seen in the past, just in the past year, there've been a lot of new coins that pop up and suddenly become popular, like a doge coin or something like that. There's a lot of hype coins and a lot of hype going around. And I think there's going to be like a great culling in the next year where the reckoning, um, where I think a lot of the coins that are either actually completely useless or.

Maybe just aren't picked for store values like Bitcoin at the end of the day is meant as you know, that kind of store of value as that decentralized exchange system. Um, but you know, apart from lightning network coming up in an Ethereum, I would argue does it better. And I would argue that algorithm does it even better than senior, but that's a whole, another one of the topic we get really deep, but I don't want to do that.

Um, but I think that there's going to be a lot less cryptos out there even. Um, but I think it'll also concentrate the value where I think Bitcoin's price will be higher. I think theory's price will be higher and the algorithms price will be much higher. I think cosmos is prices will be much higher chain link, you know, the list the list goes on for the solid ones.

Um, and it's been interesting to see because there are some that really correlate the opposite of the rest of the crypto sphere. Like one example is file coin file coin has. Usually done very well. And, um, like Bitcoin and Ethereum crash, you can almost always see follow file coin going up 10, 20% maybe. I mean, that's, that's from what I've seen, maybe I've missed some crazy corrections.

I think the big correction, it definitely felt a lot as well, but the, I think there's a miss miss thought on a lot of people that all cryptocurrencies are the same or they're all correlated to each other. And it's, it's very different from that. There is. Very different projects and very different applications that a lot of people are working on.

I think one thing that I never realized until I got into the weeds of a specifically algorithm is that there are enormous numbers of developers. Who are developing these apps? Uh, I mean, it's by far the largest numbers on the theorem, but there are a lot of algorithm developers out there and it's, it's, uh, I think we're going to see a calling of coins.

I think we're going to be less and less coins, but I think there'll be more and more developers, more and more applications. And the prices are going to be going higher on probably 15 or so coins. Interesting. Okay. So you're kind of like bullish on what you mean. You're you're bullish on the innovation, I guess, but you're kind of bearish on the overall market, almost like as a whole, you think there's going to be a big, big reckoning, which is going to concentrate value, but you've got to make sure you're in the, the cryptos that are, that are concentrating that value and in the long run, right?

Yeah, I would, I would agree with that. I would say that making sure that you're in the cryptos that are legitimate or viable or providing real world innovation and solutions. Um, this is paramount, right? So how do you so-so, you know, I actually read the Bitcoin white paper way back when, and. The, in my view, it's been interesting to see the evolution as you get Bloomberg and CNBC and Fox business, all quoting Ethereum and Bitcoin tickers on their, on their, a little ticker tape at the bottom of the screen.

You get those prices rolling. It's been interesting to see it go mainstream, but, um, it has changed it somewhat, right? So like Bitcoin, in my initial understanding, I read the white paper. It didn't really Dawn on me until someone mentioned this recently, but in the white paper, they never like Satoshi Nakamoto, whoever he is.

I think it's DARPA. I agree, but we're not going to, I am convinced that DARPA Satoshi, so that's another, that's a whole another conversation on the internet and all that crazy conspiracy theory longer. Yeah. I really wouldn't like that. We probably will get our tinfoil hats on, but anyways, regardless of who, you know, Nakamoto is.

The interesting thing is in that white paper, it never really mentions like, um, a digital gold sort of thing. It never really mentioned like, Hey, this is meant to be an asset. Um, that is going to appreciate a lot and value because it's going to be scarce. It really is just like this, this whole cash. I mean, that's, that's the biggest word.

That's the most used word in that white paper is this is a digital cash. It's a peer-to-peer cash system. Um, It, you mentioned this earlier, but like there's the lightning network, which is making Bitcoins, blockchain work a little bit faster, but it doesn't seem like Bitcoin really achieved that. It does.

It was the first mover. So it does get, you know, it gets props for that, which may be why it has continued to hold value, but it's almost changed. So like originally the idea was okay, it's, it's going to be a store or it's going to be a cash, you know, a transfer of value system. Digital cash system. Um, that's secure and decentralized and all this, but now it's turned into, oh, it's digital gold as a store of value.

Um, and I wonder if there's any problem with that change if that's just a natural evolution as it's gone on, or if there's a fundamental problem. Everyone thinks it's a store of value, but it really isn't. And it's really not meant to be. And will we see that when you, when you're talking about the great reckoning, will we see that be a problem for Bitcoin?

Um, or is it just supplanted itself as the first mover in a ginormous market? And therefore won't be unseated. That's a, that's a great point. At least in my opinion, I think what's going to happen is Bitcoin will be, I think it already is solidified as kind of in the public idea of this digital gold. And I think it's not going to change.

I don't think it'll change from that. So I think it, I think it will always have some amount of inherent value. Just, just on psychology, just on how people feel about it, how it's kind of become normal. I think what will change, however, is the relation of Bitcoin to. Coins, especially the coins that are successful.

Like let's say the, the remaining 10 or 15 after the great coloring or whatever, you know, I don't think, I don't think all the other coins are just going to go to zero, but I think that you'll see concentration. Um, and I think what's going to happen is I think coins like cosmos or taser or file coin algorithm, those kinds of coins.

I think they're going to become more like. In that people will be trading them based on the innovation that's going on rather than the, rather than because Bitcoin is going up, these other things are going up. So I think what you're going to see is a decoupling of the correlation between the price of Bitcoin and the prices of Ethereum algorithm, the whole host of whichever.

Coins and systems are the most prevalent. I think you will see them decoupled in terms of their price from Bitcoin. I think Bitcoin will fill a certain role and will fill that role. Well, I mean, it does well, it it's, it's, it's, it's a good decentralized system for just exchanging money around the world.

And I think it fills that role well, but I think what you will see is that other coins will be. You know, making whatever percent returns and it won't necessarily be because Bitcoin goes up and I think if Bitcoin goes down, maybe these other ones will still go up cause they're still innovating and people will recognize that.

So I think you'll see a kind of shift of, I think Bitcoin will remain kind of this store of value, but I think that a lot of the other coins will become more speculative and more in more invention oriented and more innovation oriented and more honestly like stocks. Interesting. So that's why, I mean, that's kind of what I see happening as well.

I see them being, and I like how you said projects, like they're based around a project, um, which is why I kind of refer to them as crypto assets. I think it makes more sense. But the asset thing, uh, you can just call them cryptos. That's fine. Um, even though it's really kind of a lazy way to name it, but currency, it doesn't necessarily seem to catch all of the, uh, potential that is there within the space, right.

For, for different applications and use cases. Um, so. It, it, that's why I referred to it as crypto assets, but it was interesting. You made the delineation earlier and I want to kind of go back and get your thought on this of the difference between, okay. That's kind of a finance thing to say, um, versus, oh, the developers and the people actually building the, the blockchains and yeah.

Building out the structures behind these tokens and coins. Um, they refer to them as projects and they're referred to them as the token of the project or the cryptocurrency of that project. That's solving them solve X problem or create a meme, whatever it be. Um, so why do you think. Why do you think there's that delineation, you know, or is that, is that a good thing?

Is that just because it's such a new space and it hasn't been securitized, so to say, um, or, or should it stay that way? Should it stay, um, on financed? I think that. A unrealistic expectation for it to stay on, on financed or untarnished by the hands of the bankers eventually. But what are your thoughts on that?

Yeah, I think that the, because right now we're still, I mean, it's still a very early. Right. It's still really early on. If we're talking, even just in like the history of cell phones, for instance, we're still in the, the, you see it in like a 1990s or eighties show, and they've got this massive brick in their hand, or it's a car phone, so it's big enough to fit in the car, but you can't carry it around.

Uh, I feel like that's where we are right now with cryptocurrency. And I think that, I think as, as we continue on that delineation, we'll probably start to coalesce and be less, uh, Less noticeable. I think it just, it as an example, and I know I talk about algorithm literally all the time. I was dinner time, literally all the time.

It's huge. I mean, huge algorithm from originally from Boston. So big Al grand fan they're out there in Boston. Um, but I, I really, uh, approach algorithm as if it already was a stock. The staking bonus is almost like a dividend interest. Um, I consider that almost like a dividend year, you're holding this. So you're getting part of the, the system's profits.

You know, you're getting part of what the value creation is going on. Um, you're investing in this project, you're investing in this, uh, this idea that with the hope that it will continue innovating and continue growing. Um, and I think. The financial world is starting to catch on to that. I think it's taken a little while.

Sure. But I mean for good reason. And I think, you know, there's been a lot of just in the last 10, 20 years, there's been a lot of financial hardships for a lot of people through the 2008 crisis. I mean, if you look at cryptocurrencies right after 2008, Um, you'd probably be very jaded to me like, okay, this is, this is just a mortgage back security, or it sounds in some ways it sounds magical and too good to be true that you can have this decentralized system that is doing all these amazing things.

And, and it's pretty incredible when you dig into the technology. So I think, I think it's a good thing. I don't think it's a bad thing that the financial sector has approached with caution. Uh, I think that's good. And I think. I think what that has allowed for very intense, uh, market conditions in the cryptocurrency world, where you have very intense competition between coins.

And I think it's allowed for a lot of innovation. And I think what we'll see similar to the.com. Bubble bursting is after that, you know, you have Microsoft and apple and sun and Oracle and all these, these giants of today, you know, back then it's it was a bloodbath. And I think part of that was reminiscent of the crash in, um, may, June.

I honestly don't even remember. I don't remember which month it was, but pretty recently, um, it, it was reminiscent of that, but I think, I think, like I said earlier, I think there's going to be a large. Calling we're not necessarily Bitcoin or Ethereum are going to drop and singing about, but I think a lot of, uh, small coins that are, you know, maybe questionable, et cetera, um, or maybe very real and very viable and performing good things, but maybe they're getting beaten out by some of the larger coins or innovative, innovating faster and more.

I think you'll see that being called out. And I think what will happen is after that, I think you'll see even more tie-in from the financial community. I think once something like that happens where there's almost this, cause I think part of the problem too, with branching, from like you're saying the development environment, the people who are in the trenches all the way to the financial sector, Is that there's so much volatility and there's so much like what's the new coin.

There's so much hype around new projects and what's the new thing, um, which you see. Sure. I mean, in new companies and IPOs and venture capital in the financial sector, but not to the same degree. And I think that spooks a lot of people, especially people who are deep in the financial sector. So I think once this kind of.

Uh, crypto 15 or some sort of, you know, some sort of easy, it was like an se S and P 500 of crypto. Right. Um, that's, that's like, well-known, I think it'll be more familiar and more comfortable for the financial sector to embrace and to kind of bridge that gap. Interesting. But I want to hear your thoughts on all that.

Yeah, so, I mean, I, I had kind of pegged, um, I'd kind of pegged the. Crypto. Um, my, my thoughts on crypto into kind of two different things or three different categories, I guess like the, the kind of you got doge coin and all these crazy meme coins, it's like, okay, well we know there's not actually, it doesn't seem like there's correct me if I'm wrong because I could be wrong on this, but it doesn't seem like there's any real value innovation going on there.

It just seems like it's capitalizing on. Essentially and enemy. Um, and so that that's kind of one category in my head and then the other category was okay. Well, there's also going to be some, some form of. Kind of, uh, uh, again, digital gold Bitcoin sort of thing, um, where there's kind of this category of, okay, that's a fixed amount.

Um, the supply is fixed for instance, Bitcoin, you know, it's, it's, there's only X amount of them. And then the havings come each, you know, every, I forget this every six years or something like that anyways, so that we can, we can know the supply and track that out and therefore you can get. You only have to deal with the demand side of the equation and you can guess where the price is going to go.

And it's pretty much on the up. Right? So as long as people believe it has value, it has value. And I don't really have a problem with that because our entire financial system is a fee yet. Exactly. So I don't really have problem with, with, uh, oh, it's just all based on psychology. Now, some people do and they're like, What's the point and I'm like, what's the point of the $20 bill in your pocket?

You just believe it has value and therefore you can use it at the taco stand. Um, so the, the that's kind of one set is this store of value thing. But as I've looked into it a little bit further, um, I have kind of seen. Okay. So then there's the Ethereum side, which is more applicable. Like there's, there's more applications for Ethereum.

There's a ton of coins that are built on Ethereum. Um, and then you've got things like algorithms, which are solving specific problems in the transaction rates are just crazy. Like. The just amazingly fast, uh, transaction rates. So those seem more viable for the cash system. That Nakamoto kind of envisioned in his Bitcoin white paper, which is odd to me.

And after recognizing that, uh, last month, I kind of recognize the disconnect there had me going back to Bitcoin and these like quote-unquote store of value, coins, and reconsidering, whether that is necessarily true because. The the, the us dollar has changed over time. And so, you know, maybe that's the same, the same way that Bitcoin is going, where it was invented for one thing, but it's actually going to do a different thing.

Um, but gold has always just kind of been a store of value. It's never been. Useful. It's not a very good metal, as far as building things. It's, it's pretty, pretty squishy. So it doesn't really work very well. Um, it, you know, yes, it could be a conductor, but we found out that silver works really well for that.

So we have silver. So gold is always kind of been this, this quote unquote store of value, just because people think it's valuable, it's valuable type thing. Um, and I feel like that consistency has. It is a very big positive to its long-term staying power. So that's my, my one concern, a little bit of a bearish concern for things like Bitcoin that are trying to be a digital store of value.

Um, but I can definitely see the value and, and innovation in, um, things. You know, TSOs or cosmos or algorithm or Ethereum that are more of a, more of almost like a protocol, kind of like email back in the day and less of less of, oh, we're just making a token to make a token kind of a thing. Um, and, and what I, what I can't quite wrap my head around is when you're fighting.

Uh, share of a company, right? If we under the stock market and using that as the analogy, because we've got to have a reference point, if you're doing that, you're buying future revenue, right? Well, in this world of crypto you're, well, I don't quite understand what you're buying when you buy the token.

Right. And it's different each time, which I think leads to some of the confusion on the part of the consumer. Right. I would say I'm very, you know, just, just barely educated about cryptos. I'm practically a retail investor. Right? I have no institutional investor here in, in crypto. I don't know what I'm doing, but that's a kind of spooks me is, okay, what am I actually buying here?

Even if I can understand, oh, there's a problem there. They're solving it this way. It sounds like it could definitely solve that problem. I still don't get what I'm buying. By the token or exchange for the token. However you wanna phrase that, um, because it's a currency or an asset, you see what I mean? So that's what confused me, right.

Is, is what am I actually buying? Um, and so I've become. Maybe a little less bullish than I was. Uh, but it's still very, very much a fluid kind of, I'm still figuring out my thesis as I'm, as I'm seeing things, um, develop. And I think you're right. I think there's going to be some sort of large correction, um, Obviously that's going to consolidate things.

It always does. Um, what do you think is going to be the catalyst? Obviously you can't predict the future. I understand that you're not clairvoyant, but do you know that for sure? Well, I dunno, you're Irish, so you're pretty grounded. The, the, so, you know, I'm not expecting you to perfectly predict the future, but in your mind, what, what could be some catalysts for a large correction?

Hmm, that's a good one. Um, that's tough. I could see, I could see something like, um, you know, perhaps first quarter of next year fed raises rates or something along those lines, or is a harsh tapering. I could see that starting it because, uh, we'll see. I'm sure a lot of people will get spooked or whatever.

Uh, I think there'll be an overcorrection in the stock market, but I think what, what might end up happening is. Um, and we've seen, you know, especially mid medium cap stocks, some, some large cap stocks seem pretty correlated to cryptocurrency or sorry. Cryptocurrency are pretty correlated to stocks. Um, so I think if we see some sort of significant trend in the overall markets, that could be the start of something.

Um, now that wasn't necessarily the case in the most recent, um, correction drop incident, whatever, whatever you want to call it. Um, but I think that. It's becoming closer to what I think. I think the most recent correction was more of just psychology and consumer sentiment. And I think that the next one will probably be more tied towards the financial markets.

Gotcha. So I, that, that's my prediction. I think, I think it'll be more tied towards global financial markets, the fed, um, some sort of event, honestly, here. Here's the thing. What is pretty surprising? I mean, I was expecting a much bigger reaction to the Chinese ban on cryptocurrency. So it was I, so I think that's really impressive how resilient the cryptocurrency market has been to that.

Um, that's been a saga. I mean, it's been, they've been cracking down consistently. Just the, just when miners had to leave, I was amazed. It didn't get hit more. So I think it's, that shows that I think crypto is more tied to the broad financial market. Than individual events regarding crypto. Um, which I think is, I think it's a sign of maturity in the market that it's, I get more of that direction.

Yeah. Well, you just hit on an interesting, interesting point, which I, I didn't quite realize until the less, you know, actually I think it was today. I had the realization that it seems. The, um, overall crypto market is very much tied to like Fang stocks and especially, especially the big indices, you know, think S and P NASDAQ Dow.

Um, they seem to be very correlated, which did not seem to be the case in, in the past. It seemed to be like, it was, it seemed to me that it was a kind of a poor man's alt or the, the normal person's alternative, uh, investment and, and kind of this uncorrelated asset. But. Odd that that has become more correlated, especially because it doesn't seem like many of these companies have a tie.

I mean, Facebook tried to launch their own crypto and it didn't work. Like they couldn't do it. They were not allowed. Yeah. Right. So it's not like they have any direct tie to. The cryptocurrency markets in, in any sort of substantial way. W what do you think's driving that? Because I can't put my finger on.

I just noticed that trend and trend recently. I think it's, uh, I think it's psychology because I think the big three of the bleeding edge of technology right now is quantum compute, Bula, quantum computing, blockchain, and artificial intelligence. And I think that a lot of people just kind of. What's going on at the very edge of technology right now into tech in general.

So I think, I think a lot of sentiment will just kind of naturally bundle like, oh, and how has Amazon and Google and Microsoft doing, um, that's tech and most people's minds. And so I, my guess would be that there is a, there is a psychological factor going on of bundling the things that are at the forefront of that realm together.

So I think that that cryptocurrency is, um, in that sector. Gotcha. Okay. Okay. Yeah. I mean, that makes sense. It's, it's always, we always want to identify earlier with, with stocks and cryptos. We want to compare to something we know, and we also want to, uh, We want to associate things. So there's always a bias there to associate things that actually shouldn't be associated.

Right. Um, which is a good thing to, to check yourself when you're looking at a trade or investment, you want to, to check that bias and other ones, um, you know, at the door or at least know that you have the bias going in because sometimes it's impossible. Behind. Yeah. You just have to know that it's there and, you know, trade around it or invest around it.

So I'm kind of an actionable, I'm going to lean on here on you here for some, some portfolio takeaways, some, some actionable items. Um, as far as what are you doing with your portfolio? Um, I, I was. Kind of dollar cost averaging in I've since just kind of stopped because I might, my focus is elsewhere on individual companies personally.

I don't have the time for cryptos right now. Um, but should people be waiting till the great calling or the great reckoning to, to buy in the dip or, or is it one of those things where it's so early on that it doesn't even matter? As long as you get in, now, it doesn't even matter what the great reckoning looks like.

Um, you just need to be picking innovative, worthwhile coins, you know, what, what are, what is the portfolio takeaway here? Sure. I think for me, one of the things that got me solidly into cryptocurrency now, and I'll tie this in, um, was the waste staking. Um, so let's say, let's say you're staking a, I believe cosmos has a seven or I think it's seven, 8%.

So somewhere around 7% staking bonus on cracking, like for just a completely random example. The key is, is that it's not paid in dollars like a dividend. Um, it's essentially like a drip. It's essentially a. Self reinvesting and you're getting paid in more cosmos, same thing with an algorithm staking or, you know, most, I think almost every, if not all staking bonuses are paid in the cryptocurrency itself.

So I think the key is, yeah, I would say get in now, especially in the ones that have solid staking bonuses right now. I think it's huge that it's the bonus is not the dollars. The percentage bonus is not on the dollars. It's on the actual underlying asset. I think that that just doesn't happen for most investments.

I don't know of any other, I don't know of any other way where you can get more of the underlying thing. That's building the value passively automatically. I just, I just don't know and correct me if I'm wrong. Can't think of anything else that, that does that. Um, the closest thing is just auto reinvesting dividends, but that's not.

There because once you get the dividend, it's already appreciated exactly dividends. Exactly. Exactly. So it's, it's the built in appreciation exactly. Like it's the substance inside yourself that is, um, boosting. So I am huge on getting into staking bonuses. I'm I'm not as hardcore as Austin makes me, I don't, I don't participate in staking pools and pancakes swap.

There are some really wild things you can do out. Um, with crypto, there are some ways to get some really ridiculous yield if you want to dive in. Um, I would just be ready to put a lot of hours into it, but yeah, you can make a, uh, a significant amount of money if you're willing to put the time into a lot of research and, um, a lot of active stuff.

There are some crazy projects out there because there's so much volatility in so much liquidity in the market. There are some amazing percentages you can get on record. Like bank account style things and all sorts of stuff. So if you really want to get into it, definitely check that stuff out. But for myself, and I'd say for probably the, the most, uh, most investors who were interested in cryptocurrency, I would just recommend, um, getting some into staking currencies.

Cause I think the currencies that will survive, I think most of them, well, I think a lot of the currencies that will survive have staking bonuses. Like Tezos like cosmos, like algorithms, um, And I think that's a great way to just get started, because what you can do is you can just put however much money you want into a handful of coins and just let them sit there and steak, and you just don't have to worry about it.

If in 10 years, the individual coin is worth way more money. You not only made all the money on the initial, but you've made money that, that you've been building up that portfolio of those individual coins. So if you're willing to ride out in the long run, you're willing to ride out price fluctuate. The underlying value of each individual thing, doesn't matter, you're actually building more of those things so that, you know, hopefully, uh, after if the great culling does occur and, uh, the ones that you are ownership in survive, you know, hopefully after that you're going to be doing well.

And I mean, you're, you're creating more of that thing with that thing. So especially. Yeah, I think that's just huge to be, to be staking, to be passively building up the, the number of individual coins that you have. Um, I think. It's a really incredible opportunity. So I would recommend for the average investor to get into staking, uh, most of the big exchanges have it on different coins.

I know cracking has, um, I think like six or six or eight coins, you can stake. Coinbase has a bunch as well. Um, Binance has a bunch, so definitely check out all the exchanges. Um, definitely do your due diligence on that. And, um, Yeah, I would, I would personally recommend staking. I absolutely love the methodology to it because you're making, it's kind of like a dividend that you're making, you're making money by facilitating, uh, the system itself.

And the system is rewarding you with more of itself, which I think is just really powerful and really under underrated right now. And I think, yeah, yeah, that's a good takeaway. I mean, it's, it's, uh, it's, everybody's dream is passive income, right? So if you can. Passively generating more assets without having to invest more capital that's, that's quite the unique, and I'm sure there's a break even point to right.

Of, of where you would stake enough that if it went down X percent, it doesn't matter at that point you have you've broken even. So, yeah, that's a great, a great point. Any final thoughts on, I guess this is a really, really tough question for a final thought on, but any, um, Principles that you use when you're looking and evaluating a staking a coin.

Cause we just narrowed it down from the whole crypto universe to staking coins, but there's a lot of stake in coins. So what do you look at when you're, when you're just trying to make sure that it's not something that's going to disappear, you're going to lose everything. Yeah, I would, I would do the due diligence.

Read the white paper. Um, look into the website. I think a really powerful thing is to look into the development community. So go into, you know, the, the, the forums read what's going on. If it's really active and thriving, that's a great sign, at least in my opinion. I think that's a great sign. If there, there are lots of people who are champions of this who are developing projects and doing cool stuff with it.

I think that's a phenomenal sign. Cause that usually means it's good to work with innovating and there's growing numbers of people getting involved. I think that's a great sign. So I think, I think even let's say you let's say you're, um, completely new to cryptos and you're like, you know what? I like what I like, what that sounds like.

I want to buy a couple of staking cryptos, definitely still do the due diligence. Um, and still really dive deep as if they weren't sticking. Because I think at the end of the day, uh, It's similar to investing in that you really shouldn't be doing it if you don't have the money. Um, don't, don't be going into crypto thinking.

You're going to get rich overnight. Some people have, but, but, uh, don't do not go into it expecting that. And I think at least for me, really focusing on the long run as the show is the long run for crypto gives me a sense of, uh, security and. Uh, I think enables me to really focus on what's going on in the cryptocurrency itself and the value that is creating rather than just the hype, rather than who's talking about it, rather than who's tweeting about it, et cetera, which again, you can make, you can make a lot of money, uh, just following that stuff, but that's for the short run shit, which doesn't exist.

This is a long run show. Well, you heard it here, folks. I mean, that's a great, a great couple of takeaways there, staking, and then focusing on, on the long run within that. So I appreciate that, Michael. You got it. Awesome. And, uh, yeah, folks, if you would drop a review five stars, if you thought it was great, one star.

It actually just don't leave that. Just, just move on. Don't leave a one star review, just five stars. Um, if you thought this is great, we would love to have you review it and hopefully you'll tune in next week. Uh, for the next episode of the long-run show, this is Austin Wilson and he is, and Michael O'Connor that's correct.

And this has been the long run show. We'll see you next time. Bye-bye.

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The Long Term Inflation Trend

In the first episode of The Long Run Show, Mike and Austin discuss inflation, what causes it, how it's measured and what tools the FED uses to control it.

Austin and Mike also look at long term inflation and how hourly wages, job numbers and tapering will affect it. They discuss methods of investing that help hedge against inflation.

They also share some tips on how to get rich quickly by "pulling a Rockefeller".

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Welcome to to the inaugural episode of the long run show with Michael O'Connor and Austin Wilson. I'm Austin. And he is Michael O'Connor.

Yes, that is correct. Today. We are going to be talking about inflation and kind of taking a zooming out and taking a macro look at it. What we are our opinions on, on the future of inflation and what we might do to position our portfolios, um, in accordance with that, uh, we, we may have different opinions.

We may have similar opinions, but we're going to flush that all out and we'll also do a little. Kind of a deep dive on, on inflation itself, how it's measured. Um, and then some of the levers that Mr. Jerome Powell and the federal reserve are pulling to kind of, uh, either dampen, inflation or respond to what we're seeing, I guess, is a better way to put it.

Um, what we're seeing with the CPI reports, we just got one out today. As of the recording of this podcast, uh, new, new report. Uh, CPI for August and that measured, um, a little bit of a slight decrease. I believe it was 0.3%, uh, decrease. Um, so basically you could say a softening or a flattening in the uptake and inflation we've seen over the period of, uh, of a few months here last six months or so of 2021.

Um, we knew some of this was coming. Based on last year since no one in the beginning of 2020, if you forgot what happened, there was a little pandemic lockdown thing. Um, no one back then was going out at all and buying things. So obviously there was a lot less money floating around Jason. Hardly any goods or services.

Um, so that, that makes sense that we didn't see a whole lot at the beginning of this year, as far as inflation goes. But, um, now that we are into the latter part of 2021, and we're seeing a little bit of an uptick in a lot, a bit of an uptick in, in, uh, economic demand and consumer spending, um, we're going to see more inflation.

That seemed to be the narrative of, oh, it's transitory. Um, We had had a conversation Mike, about August, September, October, November, that timeframe that we're in right now and looking to those, those time periods, um, to see what's going to happen with inflation and how that might indicate the longer term trend we're looking at here.

And, and just to kind of go high level for a hot second here as well that, uh, Kind of inspired this whole podcast. Cause you know, we're, we, this is the first episode of the long run show. So our goal is to kind of provide a expanded view and just a top-down view, try and step back a bit from a lot of the short-term stuff, fluctuations whatever's going on.

Um, and to be able to take a real bird's eye view. What our thoughts, our opinions are for things that are happening and, you know, not just a intra month or intern month period, you know, I would say let's not give ourselves a minimum time span for the long run show, but we're not gonna, we're not gonna put ourselves in a box.

Um, It is for the long run. So the long run. Exactly. So with the, with that in mind, inflation, I'm interested to just kind of hear your take on the long run, uh, trend of inflation and, and where you think it's headed from here. Obviously we've got the CPI data, um, inflation rate of over 5% for a couple of months in a row here.

We saw a huge uptick, you know, obviously end of spring, beginning of summer. Where do you think it's headed? Where do you think the ball's going here? Yeah, for me, I think the, the, the two immediate takeaways, um, from the last, even just the last month have been number one, you know, the, the whole idea of transitory inflation and how the, the fed has.

Trying to pacify. It seems like, you know, a lot of concerns, which at the end of the day is their job. You know, they're trying to make sure the economy is as stable as possible. So, you know, there's definitely some voices out there I would say criticizing them, but you gotta remember that's their job to just exactly things, uh, very calm.

Uh, so the, the whole transitory factor, I mean, it, I mean, if you look at it, just looking at the numbers. It makes total sense to have this kind of inflation after such a period of like, like you were saying, like decreased consumer spending, everyone got government, most people got government checks and everything is more, there's a lot more money in the ma in the overall monetary supply.

Right. It just, it makes sense to have inflation. So it's, it shouldn't be a surprise. Um, and in some ways, you know, It depends a lot on the economy and factors. You know, it's probably not a, not a blanket statement for every economy in history, but sometimes it is good to have, um, certain levels of inflation, you know, keeps kind of keeps the, uh, the economy turning and moving.

And it's interesting, it's it, it seems like consumer prices for products and you're going from cars to milk, whatever, um, have gone up the fastest. Cause that's kind of the easiest thing for. You know, the companies to directly increase the prices on, but the, the upshot of that is we'll probably see a real salary growth occurring because, you know, on the one hand, if it really is transient, The pressures that are, have already been put on.

I at least I think this opinion. Um, but I think that we'll see real real salary increase just from the number of job openings. You know, the job it's, that's a whole nother topic of the job data, but it's interesting because there's less jobs being filled than forecasted, but this. So many openings, right?

And it seems like there's just a lot of people leaving the labor supply, which is a prime indicator for increased real salary. A couple that with inflationary pressures on the consumer side, you get a, an economic, uh, a real economic system. Probably going to move in that direction, which, I mean, we haven't seen him in a while.

There has been relatively slow growth in terms of real salary. Right. We've seen uptick in real productivity, so that's kind of do, but at the same time, you know, back to the first point of transitory ness of the transitoriness level, uh, of the inflationary pressure, it definitely seems. Because at the end of the day, inflation, what, what creates inflation is the psychological anticipation of inflation.

So when consumers think inflation is going to sack and what creates exactly. So, I mean, by as, I mean, in reality, it, inflation is always transitory because the federal, the fed the central bank of whatever country we're talking about here is, is designed to. Control inflation. So any rise or decrease in inflation is going to be transitory because ultimately the central bank of that country is going to try and get it back to the target rate.

So I think it's pretty disingenuous. Th the fed to just say transitory without maybe trying to, to put some more meat or contexts around that, except I know that they can't because as soon as they're wrong, everyone's going to freak out. Cause we look for we, we try and read the tea leaves whenever the fed says something.

Um, but you know, you bring up the, the kind of parallel discussion of the jobs, data and wage growth. I mean, even in my small town where I grew up in Northern Michigan, I saw a bill. Advertising a job at Culver's for 1850 an hour. I mean, that's, that's pretty, that's pretty high for a fast food job. Yeah. And I'm not, I'm not, you know, I'm not trying to knock fast food workers.

I'm appreciative every time I go get a big Mac, but for 1850, I mean that we've never seen that before. Right. So, um, there is something to be said for that. However, I, I. Almost as a, it sounded like maybe you were thinking that that's a good correction thing. Uh, that's a good, a good thing for the, the labor side.

The way I see it as that could be a. A catalyst for a negative feedback loop where salaries rise precipitously, not in a healthy, measured manner, uh, but salaries keep rising precipitously just to fill the jobs that are needed. But then again, as margins, get crunched more. On the, on the production side of things, you know, companies are gonna have to be charging more to justify the increase in salaries.

And then of course, people are going to be willing to buy at those increased prices. And then you get this cycle of inflation. So I could see it playing out that way. Um, I think. Far more time to really tell how that is going to play in how the labor data is going to play into the inflation data. What I thought was interesting in this recent report here, the one that came up today for August, uh, August CPI, um, data was that.

Inflation minus food and energy actually, um, decreased a bit over the last two months over July and August, there was actually a downtrend from June, um, in, in that part of the index. So it looks like. Food and energy, which are to that that's pretty inelastic essential. You're going to need a food and you're going to need energy to heat your home and drive right.

And commute and all that. So those things are, are increasing. Um, they inflation and inflation rate seems to be pretty steady on those but other, um, consumer discretionary items or. Non staples and food and energy seem to be decreasing a bit, which again, maybe that has to do with concerns over the Delta variant or, or maybe it just is, you know, kind of as a cyclical thing as summer was winding down.

But I mean, that was both July and August. So we can't read too much into that. It's not, this is backwards looking data. It's not forward looking data. So yeah, it's um, that, that was really what stood out to me. I guess the, the estimate definitely. Um, I think everyone was expecting a higher number, a higher headline number for inflation.

Um, but it, it seems to me that whether it was a higher number or stayed the same like this, I think at least for the short term, meaning six to 12 months, we're going to see inflation, um, B play a role and, and. Main, uh, reason underpinning that opinion is that we haven't seen the fed start tapering yet. Um, which for just a quick definition of tapering, essentially, the fed is buying.

Large amounts of treasury securities and mortgage backed securities, um, in their open market operations, which in turn puts more money into the system. They're buying about $120 billion worth of securities every month. Um, and they have been since, uh, mid last year, actually, since. Let's see here July, or excuse me, June of last year, they've been buying, um, 120 billion a month.

So that's not a small number, obviously, and that's adding a lot of liquidity and therefore more dollars chasing the same amount of goods. At this point, we're seeing an uptick in, in production, obviously post, post pandemic and into 2022. Hopefully post pandemic here. Um, so, but with the fed, not tapering in September, which is clear at this point, My, my assumption is that until we see the fed start to taper off their, their purchases of $120 billion worth of securities, we're going to see inflation, uh, continue, uh, until, until that time.

And probably after that, I mean, I don't know. What do you think the lever is that there that we're, we're going to need to see for inflation to, to, uh, be transitory? Yes. Sure. I think it's a, it's a really funky conundrum that they're in, because I think on the one hand, the fed was really hoping that, um, I think every, I mean, everyone was hoping that the Delta variant wouldn't be as, as according to the numbers as prevalent as it is.

Um, I think a lot of people are expecting a much bigger, broader overall recovery at about this time. So I think that the fed is very, very cautious of. Pulling back that tapering. I honestly, it seems almost that they're more cautious of pulling back the tapering to prevent investors and traders and the whole financial sector from freaking out than what the actual effect of tapering would be.

I think that the, the perception of tapering is more scary to the fed in the financial sector, then the actual tapering itself. Right. Because it's single signals, but the interesting thing. Will I be interested to hear your, your opinion on this as well. And I, to be honest, I forgot what the question in the beginning, but, um, but I think that it'll be interesting to, to think, you know, do, do you think that the reaction is going to be as bad as.

There's a lot of people are saying a lot of people thinking as I think the fed thinks it will be. Uh, it'd be interesting to hear that, but on tapering. Yeah. But what was your question? Well, I mean, my question was I'll, I'll answer that really quick. I don't think the reaction to tapering is going to be that bad only because honestly the financial news has.

Very dismissive of tapering. So every, every thing I've heard and watched and read on tapering, everyone, this time around is very dismissive and has said, oh, it's not going to, it doesn't matter. We're going to be fine. We're not going to see a taper tantrum like we did in 2013. Um, because. That we know what the Fed's doing this time.

The fed is going to signal it far, far in advance. So it's been very dismissive. I don't think that's going to be a, um, uh, an issue like the fed actually might be assuming it will be, um, which is an odd conundrum in and of itself. But, uh, what, what will. Show investors and the whole financial sector that the fed is tightening its monetary policy is when we see rates rise, which is kind of, I was leading you almost to that, that, uh, that point of my question, because.

Um, w what I asked was originally, what do you think the, the lever is going to be for us to see, and this increase in inflation, you know, kind of, kind of stabilize or reduce, um, and obviously rates rising is the answer. But before that, what's going to be an indicator that we'll see. That's a good question.

I mean, obviously they're going to have to tape her out the whole 120 billion and bond purchasing before the rates. Right. So that'll be, uh, but I'm sure that'll be a long road. Like you're saying that the fed is definitely taking a very strategic approach, very slow approach, which not, not, not necessarily a bad thing.

Um, yeah, I think, well, once, once we see a very clear action plan to taper out all those bond purchases, I think that'll be a signal. You know, at some point, uh, time horizon after that, you know, maybe one to three years, I don't know. It could be, it could be a long time before we see rate increases or, I mean, here's the thing too, is I think a lot of how the fed is reacting to things right now is very focused on, um, COVID and I think if, you know, if we have some, some sort of breakthroughs or, you know, this signif.

Um, reduction in cases in the United States and around the globe. I think, I think the fed is watching world cases a lot more than people think they are. I think that's something that they're keeping a close eye on. Interesting. Okay. Um, I think, you know, if you see, if we see that kind of improvement around the globe, I think that would be a good indicator of just general financial health and not the entire world.

And I think that would probably signal a faster move towards, um, a range. I think that that's probably at least that's my opinion. I think, I think that if we see global, global case numbers and global, um, infections and deaths going down, I think that would be a solid indicator of just global financial health.

I think the fed is watching that, um, closer than it seems. Right. That makes sense. And, and they do seem to be, well, they obviously have to. Do some, some coordination with the EU and the European block with the, the, uh, ECB. Um, so that, that makes sense that, that they would need to take a more international approach.

Um, it is interesting, you know, I, I did say we brought up the 120 billion of purchases that they're making every single month. Um, Have though Ben using their reverse repurchase market, uh, or reverse repos to actually take some cash out of the system. And that has been, I think, severely under reported.

This, you know, it kind of goes against my argument that while we're not going to see much change in this inflation, um, until we see tapering, it goes against my argument a little bit because the tapering might've already started right underneath our noses. Um, just because they're taking they're, they're taking a lot of money out of the system at this point, they've taken away.

Uh, trillion dollars. Um, well, yeah, out of the system, just using reverse repos, which is there, um, overnight operation with, with banks where they will sell, uh, secured treasury securities to a bank, the bank will purchase. And deposit the money at the fed to make sure that they get an overnight interest rate on that money.

So essentially it's a, it's a way for the fed to take money out of the system, um, in just, you know, gives them another, another lever to do, to do so, but they've taken out quite a bit of money, um, from, from, you know, what they've put in, which is quite a, quite a large sum over the last 12 months. Um, so that, that might.

Put a little bit of a damper on, on inflation, um, as we keep moving forward, because it seems that they've committed to this a large amount of reverse repo activity. They actually set up a permanent facility in July of this year, July of 2021. Um, to facilitate that the, all of, all of these, um, agreements and, and re repos, or excuse me, reverse repos and repose happen at the New York fed.

Um, Mm, branch of the federal reserve. And so they set up a permanent facility, which is interesting because in 2015, they said reverse repos were a temporary solution to decrease the money, supply a transitory reverse repost situation. I didn't wrap your head around that one. Um, so they've already started a little bit of that.

So that might be an indication as well, that they. We might be running a little hot with, uh, with inflation already. Interesting. Um, it, it's kind of an underhanded way to do it and maybe they like it not being publicized that much, but it is something to keep an eye on, um, as, as we move forward, because if, if they continue to kick the can down the road, when it comes to officially tapering, they may continue to use this as a, as a way to offset those, those purchases.

Here's a question for it. Could they just increase the reverse repos? To the same amount there to just do a net zero and kind of, I, I, I don't believe that they, I don't believe that they could do that. At least not with. Completely shifting the paradigm because the, the, what happens with reverse repos is the, um, bank that they have, the, the reverse repo agreement with who's depositing the money, or essentially buying the securities.

The fed is paying them a very small interest rate on that money. So what you would do is if you were to put, um, to put. $120 billion of reverse repos, um, each month into the fed or through the, through that, uh, New York fed facility, um, it would very much, um, disrupt the short-term money market, uh, part of the financial system.

So I think if they were to do that, it would be. Almost too much of a good thing. And they would ruin the short term, um, debt system that's already in place, uh, in the financial sector. So that wouldn't be a wise thing to do. It would be like, you know, trying to run a race on sugar. Um, it it's, it might work for a little bit, but it's not the long-term solution and not the responsible thing to do.

Um, yeah. Obviously, they're trying to be the responsible one in the room, um, as always, but it is interesting to see them Rob Peter to pay Paul essentially with this whole tapering and repurchasing. Very funny. Yeah. And is that been, has that been increasing over time or is that kind of been very much okay.

Yeah, we, we were, we were, I've got the data in front of me here. Um, April of this year. Um, they only had 35, uh, yeah, around around 35 billion of repurchase agreements. And by, um, August of this year, we were at a trillion, so, wow. It's very, very much increased just over the last. Wow. Five months. Uh, so it's, it's definitely something.

I think that's been underreported, Forbes reported a little bit on Briggs, been reporting it a small amount, but again, something that you would want to keep an eye on and might be a good leading indicator as to what their stance on inflation, what the fed stance on inflation. That's interesting. Now, do you think it could be even a leading indicator if they start pulling back on that, that they're going to do.

It could be, I, I would not want to read too much into that just because I don't, again, I, my, my view is that tapering is not going to matter that much. I think really rate hikes are what's going to matter, which, like you said, it's not going to be for a while. That's going to be in a few years. So that the reading too much into when they might taper, I think could be.

A little bit of a misnomer. I might give you a, you might be reading into it too much and trying to make, uh, make something out of nothing at that point. So it's always important to it to make sure you're, you're not reading into it too much. Um, but with both of us seeming to think that inflation. Here to stay, at least in the short term, what do you think, uh, what are, what are you going to be doing, you know, for your own own portfolio, if you want to share, um, to, to really hedge against that, is, is there a way you're positioning your own portfolio or how would someone, you know, who, who assumes or, or has the opinion and shares our opinion that if inflation is not going to be a month transitory, it might be a, maybe a year transitory.

What is the person doing that in that, uh, circumstance? Sure. Yeah. I mean, there's, there's a whole, uh, myriad of ways to hedge against inflation to be sure, but at least for myself, and I'm a pretty, pretty risk happy person. Uh, I'm very, very okay with taking high risk things, but geez, I'm, I'm, I'm in a gold ETFs at this point after, after the last couple of weeks, um, after kind of digging into the figures and everything, I was like, you know, It looks to be a pretty solid upside, um, for gold and other precious metals and commodities.

Um, especially, especially as a hedge, uh, it's not, it's not the majority of my portfolio, but at the same time, you know, you do want to be able to have those, those different kinds of levers, those different kinds of areas, um, that will hopefully counterbalance each other in different situations. So, yeah, uh, personally I'm in a gold and a gold mining ETF.

Just because it's funny on most of my stock purchases, I'm very technical, very research oriented person. Who's looking for innovation, kind of the value growth. Um, but this was, this was one sector. I was like, you know what, I'm just going to get the bundles. I'm not going to dive to Depot, concentrate energy on just trying to find, uh, innovative companies.

Cause I feel like gold mining is gold mining. Right? I mean, unless you're going after somebody is looking for new gold. Exactly. That's a good point. I mean, yeah. Jeez. If you can find the people who are digging and they haven't found the gold yet, if you can find them, you're going to have some pretty, pretty incredible returns, but that's, but again, it doesn't sound like you're using that as a, let's hit the ball out of the park here.

This is just a, let's preserve some value in the portfolio. Uh, yeah. And that's actually a really good point because I think that kind of boils to the ethos of what works. I think what we're trying to do with the long run show as a show here is. We're probably not going to give you the stock tip that makes you a hundred percent turn.

Definitely not. Mike Mike on accident, Mike, Mike, I'm going to drop a ticker and it might pop, but yeah, no, that's not. I don't think that's the, I mean, you have to, you have to transition at a certain point from making your gains to preserving your games. I mean, it's just as hard, I think, maybe even harder to preserve your game.

Over a long period of time, uh, then than it is to pick the next hundred X 200 X like muscles, muscle gains. Keep doing, you gotta keep lifting. I mean, you can shoot up the gains with some steroids, but that's not going to work long term, but fair point. But yeah, I mean, I, I think, um, having a portion of your portfolio allocated to something that's.

Preserve, what you've been building in another section is a really smart way to do it. Then, then you kind of, um, well obviously diversify, but you have your, your own, your own sleeves within your portfolio that have their own tasks and their own marching orders. Yeah. I think that's very smart. Yeah. For me personally, I, I have bought some of the, the gold mining ETFs, I think.

We're a little bit counterbalanced in, in our investing approach. I traditionally have been more of a ETF, give me the bundle and, uh, I'll, I'll be okay with that. Um, and I think that's maybe my downfall. So I have added, I have edited a few individual positions, but those are more of a, um, More like, like we just talked about kind of the let's hit the ball at the park.

Let's take a few swings. Sure. Um, what I'm using for, you know, an inflation hedge is an, uh, commodities ETF actually. Um, and I, I was actually kind of choosy and looking for an ETF with commodities. You can get, um, a few different, a few different types. You can get. And an ETF that is built on derivatives of commodities.

You get an ETF that actually is built on the commodities themselves. Um, so there's a few different, few different things you can do there. I tried to stick to the commodities themselves, or as much as possible, um, and less of the derivatives and derivatives because that market is full of it. So well, I wanted it to be as close as I could to, to the actual, you know, hard product, but Hmm.

That's a, that was one piece of the portfolio that I just added, um, was, was, uh, I was a commodity ETF along with the gold mining, uh, ETFs. I think those are two good pieces. Some things also to look at would be possibly real estate. I know it seems like we might be in a quote unquote bubble as far as real estate values, but, um, It's one thing that they're not going to make more of.

Yeah. There's no way you can produce more land. Yeah. That's all we got. So in a, I don't know, Elan's, we're going to Mars soon. Get some while it might be. Yeah. Yeah. You can be a land developer on Mars. Um, so, but, but you know, maybe, uh, maybe a REIT or fun dries, those are some good options. Um, again, not going to hit it out of the park, probably if you're going for a eat at a REIT.

But something with exposure to real estate is good. Again, commodities, hard goods, gold. Those are also great. Um, you had a, you had a thought on an uncorrelated asset as well, you know, uncorrelated kind of alternatives being a good hedge as well. Yeah. Yeah. And that's actually something that I've gotten into in the last.

She's only the last six months is a fine wine investing, which is something I'd never thought about investing in before. And just kind of heard about it from the grapevine. Oh boy. You're in for those folks. You're in for some bands around here and I let it ferment in my head for a little while. Yeah. Um, but I think the hunt for uncorrelated assets like real alternatives, uh, it just kind of led me in that direction because that was at the same time I was getting more and more into crypto.

And crypto is a significant part of my portfolio as well, because I legitimately believe that there is a lot of innovation going on there. I'm actually not a big Bitcoin. I don't not a big digital gold guy. All right. I was going to ask you, I was going to ask you about that. I mean, the, the supplies locked, right?

So wouldn't that be a good inflation hedge? Sure. But I think at least for me, and this is just personal and this is personal opinion, none of this here's the disclosure, none of this constitutes official investment advice, your licensed advisor, um, and all that. But for me, I, what attracted me to cryptocurrency originally was.

The projects that have a legitimate, like real use cases. And sure we have, you know, the, the forks coming out for Bitcoin that are kind of adding onto it and creating more use cases. But I think at the end of the day, if, if the, if the blockchain itself is built to be used for, for. Um, you know, creative purposes, I think it's going to be able to do better in the long run than things that are kind of tacked on.

So for me, the things that got me into cryptocurrency were coins, like a theory from Al grand, uh, stellar lumens, like things that had a specific direction to them where they're using blockchain technology, not to just store value. Like it's great. Uh, it's a great way to use. And I mean, gosh, yeah. Bitcoin is incredible innovation.

It obviously works. It worked very well and continues to work. Yeah. Yeah. But I, I'm not, not as, as bullish on Bitcoin as I am on other coins and chains that have kind of more broad, innovative uses. Uh, I think if you're looking for just a value, if you're looking for just kind of keeping that. You know, I think that you're probably better off with a gold miner ETF or something like that, rather than investing in Bitcoin to try and lock in value.

If you really believe that Bitcoin is going to the moon, then you know? Sure. Um, but I think at least for me, and this is kind of a more, a broad statement as a whole, but as an investor, I look for things. Legitimately believe in, um, unless it's super short term, but we don't talk about that in the long-term.

This is the long run, the long run show, the long run. We talk about that. So, so yeah, so fine wine. You're getting back to the point, fine wine kind of came up and started getting more and more into it. And it's a really interesting, a really interesting hedge, especially against something like inflation, where it's this unique alternative asset that.

You know, it's physical. You can take shipment of it. If I want, I can actually get my huddles shipped to me and it's kind of oil and a drink. Um, if I really want to let me know when you're doing that, I'll come over. Yeah, yeah, yeah, definitely. Um, but it's, it's a unique kind of alternative asset that, you know, it's not, it's not.

It's not fine art, you know, I don't have to shell out 30 million to buy a Monet or something like that. You can buy a case of a case of like very high quality wine for a thousand dollars or something like that. And let that sit and let that mature and, uh, you know, collect returns on the, the, the value of the wine going up over time, which usually it seems like they trend upwards as they get better with age or whatever, but then you also, it's one of those products that is naturally.

Pretty decent hedge against inflation, at least from, from what I've seen, what I've experienced. So that's, that's something that is, I never would've thought I'd be investing in. And I don't think has been really accessible to invest in for, you know, not in a liquid way or an easy way for normal people.

Yeah. We're not Somalia, you know? Yeah. But yeah. And, and yeah, something less. Sexy than wine investing that just get just crossed my mind, I think is important to, to broach the topic here is just large mega cap stocks. Those may be one of the, one of the better, um, almost. Low risk. I, again, obviously they're an equity, right?

So you've got inherent risk there, but, um, those mega cap stocks in, in the, in the U S market are going to fare pretty well in an inflation, deflationary period. Um, they're, they're set up perfectly. They've got their war chest full of cash to do whatever they need to, um, to, to be nimble enough. You know, very good solid revenues coming in and they have most of them being tech companies obviously have room to grow margins even during inflationary time.

So I think those are also a good, a good thing to look at. Even owning an ETF, you know, me and my ETFs, even owning an ETF on the S and P 500, still bet on the, on the. Five or six companies. Right. So, yeah, that's a good point. That's, that's also not a bad, uh, inflation hedge either. And, and something that might be overlooked, um, when you're thinking about inflation, because obviously you're going to think gold commodities, hard assets.

That's true. Uh, but in, in these sort of crazy times, maybe the safest bet might be a few stocks. And that's a, that's a fun, a fun thought too, because it's, it's been interesting to watch the, the prices of Fang and the other kind of mega caps. Like you're talking about, um, go up quite a bit in the last year and.

You know, it's, it's interesting too. I mean, talk about parabolic, just look at alphabet. Yeah. Just look at their chart. Yeah. Yeah. Wish you'd bought it in 2019, but now here, here's the question that I, at least from what I've been seeing and reading and hearing about, it does seem like there's kind of this movement.

This seems more and more, um, Uh, leverage behind, I don't know, not leverage, but it seems to be a cascade momentum. That's a good word. Uh, more and more momentum around kind of government actions, both in the United States, in the Europe, especially in and around the world. I mean, have bigger and bigger fines.

Um, more kind of, you know, not quite antitrust yet, but we're edging in that direction. There's a lot of talks to those kinds of. And I don't know. What are your thoughts on that? Do you think that, and then we're getting, we're getting very far up the inflation that's okay. I mean, I, I think, um, I think that's definitely, I mean, you're talking about regulation risk there, right?

Yeah. And so that plays into it's a stock. So if you're using it as an inflation hedge, obviously there's more than just. Inflation that you need to think about when you're owning a stock. It's a business that operates in the real world deals with real people, real governments there, obviously with a mega cap stock, it's in the name, it's a giant.

So there's going to be, you know, antitrust. You know, opportunities for regulators to come in and apply antitrust law to it. Um, or even privacy restrictions with, with these tech companies. That's a huge, a huge concern in Europe as well. So yes, there's, there's regulation risk. Um, I think that's probably a healthy thing.

We don't want five companies buying up all the startups, uh, because the competition is what drives innovation. Right. And so you need to maintain that. Um, but I, at this at the same token, I think. From a valuation perspective, um, antitrust is not going to be, I'm not going to be the, the straw that breaks the camel's back when it comes to will, will their valuations will these big, you know, the Fang stocks will, will their valuation stick around.

I think they have so much. Uh, internal growth possible just because they have ample resources at their disposal. I don't believe that that antitrust is going to be the straw that breaks the camel's back there. And so that's what I that's, maybe my. Uh, to bullish perspective on them Roman and from a, from a longer-term view.

But I think that's why, um, I would look to them possibly, uh, as a piece of the portfolio to think about, you know, giving them the inflation, hedge, um, task, along with the other, the other things we talked about, the other vehicles we talked about, and that's actually a really good point, the valuation perspective.

I didn't realize this until recent. But the, the classic antitrust of standard oil and John Johnny Rockefeller, apparently he didn't really, I mean, he grew fabulously wealthy because of standard oil, but he actually became the wealthiest man in the world after it was broken up. And he had interests in all of the subsidiaries that were kind of shattered into and all of them started doing well.

And so as an aggregate, the pieces of standard oil actually did better and made him. That's standard oil as a, as a near monopoly. So maybe the best, uh, the best way to get rich in the long run. As soon as you see a company about to be broken up, go buy, get a little ownership, stakes and all the subsidies pull a Rockefeller.

That's going to be deemed pulling a rock. You heard it here first? Yeah. Yeah. Well, yeah, I think that's going to do it for us here today on the long run show. Um, it's been great talking about inflation. Like we, uh, like we mentioned, there's a few different ways you can hedge against it. Obviously there's a myriad of different indicators that you might want to look at.

Keep in mind that CPI and the data that comes out on a monthly basis. That's, that's backwards leaning. I mean, we're in, we're in September talking about August data. So you want to find your, your leading indicators, if you're trying to position yourself for the future. Um, and, and. You know, give, give different sections.

I think the theme here at the end was give different sections of your portfolio, different tasks, give them different marching orders. Yeah, that sounded good. And one thing that we didn't get to touch about, which I think would be a whole other episode is things like the infrastructure bill, you know, what happens if a three, three and a half trillion dollar bill gets passed?

That's, you know, that's, that's a whole other ball game. You're going to be watching that stuff as well. Just keep the eyes open across. Across the sectors of government and financial sector and everything. Yeah. There's a lot to keep your eyes on and you have to have them. Yeah. So true. Anyways, that's going to do it for us today, like subscribe and we'll see you next time on the long run show with Michael O'Connor and Austin.

See you next time. Bye.

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Understanding China

Today in the Long Run Show, Austin and Mike talk about how the Chinese Government plays its role as an economic powerhouse in markets and how retail investors should approach Chinese

China is slated to surpass the US in terms of GDP worldwide in between 2026 and 2030. Austin and Mike discuss whether the regulation risks posed by the Chinese Government is overstated by the Western media and look at institutional investors sentiment towards Chinese stocks.

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Here we are from Detroit, Michigan. This is Michael O'Connor and my co-host Austin Wilson with the long run show. How are you doing?

I'm doing great. I'm doing great. I'm excited to, uh, to talk about China today. Ooh. Yes. Interesting, interesting episode, big topic, big country. Everything's bigger in Texas, but everything's even bigger than that in China. Don't take techs. Don't tell them any Texans who are listening. It's a joke. Don't worry about it.

Just laugh. Yeah. Yeah. So yeah, a big topic today, China, I it's so talked about for very good reason. They've experienced just incredible growth in the last decade. Um, Even the last few years have been pretty incredible. There's definitely been some mixed signals, especially in, let's say in the last year, uh, with the government cracking down on individual companies, there was kind of that whole anti-corruption campaign a few years back that cut headlines, but it didn't seem to, you know, provide the.

Funky stuff as, uh, everything that's been going on recently, at least that's my perspective, but I can't wait to hear your perspective, Austin. Yeah. So China's interesting. China's one of those countries where, um, you didn't, I don't know. I always thought of China and I didn't see it coming, but I have the bias of being very young, relatively speaking.

So I didn't see China really coming until the last. Four or five years as, as a superpower and an economic powerhouse, they obviously have, they have been planning this economic boom for decades. Now, the, uh, Chinese communist party, the CCP comes out with a, uh, basically an economic plan, every, I believe it's every five years.

Um, so they, they come out with. Periodic economic plans of how they're going to grow, what they're doing. They, they definitely forecast things through that. Um, but some of their, some of the bumps along the way have been, I think, a product of them trying to basically take, um, take two different, different views of.

Economics and, and smash them together, kind of the capitalistic Western view of using the capital markets to grow businesses and grow wealth for their citizens, uh, throughout the country. And then combining that with some sort of, um, well, obviously it's in their name, you know, Chinese communist party that some, some, some sort of, you know, then the name communism, socialism in some regard, um, to have more of a planned economy.

And so. Interesting to see how that's played out. Um, they obviously have had, like you mentioned, the, the corruption anti-corruption crackdowns a few years ago, and then this year we've had the, um, the breakups of their education companies and then just general regulation scares throughout the year.

What's what's interesting is even though they've had these sort of, um, regulatory risk scares for investors in the past, they seem to rebound, uh, which is, which is interesting. And it speaks to, even though they're trying to plan their economy, it speaks to their long-term belief in the capital markets and an understanding and an appreciation of the value of.

Uh, capitalism and, and, uh, competition, which they want competition, but in their own way. So it's, it's a interesting to, to see China's growth. And I was just, uh, looking at some statistics, um, beforehand here and, and. Already slated to pass, uh, surpass the U S in terms of world GDP in between sometime between 20, 26 and 2030.

So, wow. Within the decade, um, they will surpass the U S in terms of, of GDP worldwide. So their, their planning has obviously worked, um, They're they're achieving their goals. It's not like they didn't tell us they were, they were planning on this. Um, they're achieving their goals, but really, I think the question for investors is can you, um, can you, or do you want to.

Expose yourself to that regulatory risk and just the political risk as well. Um, that is, that is China. Do you understand it well enough? Is it something you believe is to use the Fed's favorite word transitory or, or is it episode one, a little throwback, a little throwback there to, uh, inflation, but D do you believe it's transitory?

You know, do you think, do you think these are just periods where China's going to have some volatility because. That's that's how it works over there when they're planning their economy and not just having more of a hands-off approach, like the, like a Western style might be. Um, or do you think this is a sign that the Chinese communist party is being a little too heavy handed and might might squash, um, the, the dynamism that could be.

Large capital markets to show her. I think, I think there's probably a, you want to look through it from an investing perspective. You want to look through your own lens to inform how you want to approach those, uh, those companies. Um, but from. From just a headline perspective. It's impressive that, um, that the, the country has been able to grow their economy.

So, well, I mean, just, just absolutely insane and that they're going to surpass the U S within the decade easily. Um, certainly in terms of GDP. So it's, it's just a, definitely an underdog story, um, of, uh, of, uh, economic rise. Yeah. Which is interesting because it. Um, what I always immediately think of is, oh, it kind of makes sense because they've got more than three times.

I believe more than three times the population somewhere, somewhere around about three times, maybe a little more. Um, and it's like, oh, it kind of makes sense. But then you look at a country like India, that is a very different story and not, I mean, India is, has come a long way as well in terms of the last few decades.

And definitely, um, they're doing quite well as well, but there's a, there's a. There's definitely a difference. Um, and the, and the population is not necessarily the only factor. And it's interesting to look at China as a, as a case study of, of geopolitics and how to grow GDP so fast and how to grow, um, just wealth on an incredible scale while having some really interesting and, uh, unfortunate human rights violations and all type of stuff.

This isn't a show to get necessarily into the politics of things, but it is important to, to take a broad, a broad look and a broad context, especially I've talked to some investors who are into ESG, so environmental, social governance, and, you know, they don't wanna, they don't wanna touch China with a 10 foot rod because there legitimate concerns over.

A lot of, I think part of the problem for investors especially is that you never know when China's going to kind of take over a company for, for the, uh, for the country or when it passed to when, uh, when a company's about to go bankrupt and they ask their government government to take over pretty much.

So it's, there's kind of that weird zone where, you know, you could be invested in a private company. And this is almost as harbinger of even if you're not directly investing in China's government in any way, there's always, you know, there, there are ways that things could be going on in the backend and everything.

So it is, it is interesting to get blurred maybe a little bit. Exactly, exactly. It is interesting to talk to you. ESG focused investors. Um, yeah. There's. Real serious concerns for, for good reason. Yeah. Yeah. And I, and I, I, that's kind of an interesting point. You sort of have kind of funny phrase to me investing in the Chinese government, but that's true.

I guess if they take over a company, I guess the term public company takes on a whole new meaning that like yeah. Yeah. The people's Republic of Alibaba. Yeah. Yeah. Really. Um, but, but it is, it is interesting. I think it's. Um, we have to realize where our biases lie. Right? Because obviously we're coming at it from a Western perspective and I'm not making a values judgment on that.

I'm not not saying that's correct or not. Correct. I'm just saying that we're going to look at it through. Uh, Western economic lens. Yeah. And we're not necessarily gonna, um, you know, look at it through a, oh, well maybe, maybe this whole planned capitalism is a good thing. Right. So I think automatically you have to kind of take that into account, um, as well, but it is.

Yeah, like you said, politics, this isn't a political show, but politics is, is a risk when it comes to investing. Yeah. And so there's a trade offs there that you have to balance and have to be okay with and, and have to be okay with a company who may have to, or be forced politically to support, um, a government.

Maybe has some, some human rights violations or some, some issues in it. Right. And so that's, um, that's also a kind of added risk on top of just normal regulation or political risk in a country. Yeah. And the interesting thing to think about too is, you know, the, the long run show, um, in the long run, you know, we, we all hope that.

China as a country. I hope that, I mean, I hope that every country in the world continues to grow Richard and prospers and better at treating their citizens and citizens around the world. So, so it's, it's I think, I think our show, ultimately I think. Pretty optimistic. Um, and I think if you're, if you're a human being, looking at the long run, generally you do want to be optimistic and you kind of have to be optimistic to, to be able to stomach some of the downs, the drops that can occur.

Um, but I think, you know, in the long run, as, as the show states, I think the. You believe that, uh, human beings as a whole or an optimistic and, um, progress or any people. So I think China is still, I mean, like you said, GDP, if it's growing as fast as it is, is it going to overtake the United States soon? I think the interesting thing is that you'll see a lot of positive.

Yeah, interiorly in China. I think you'll have even more advocates for, um, for your markets and for more accountability on the global stage coming from inside China, trying to improve it from the inside out. Right? Yeah. And that's, that's, that's a good thing to highlight as well, because I think. At this point, geopolitically, that seems to be the only lever that might push reform in China itself.

I don't, I don't really see any other country having a enough influence to, to really including the U S to, to really make that sort of a change. Um, but yeah, I think my, my opinion, my overall kind of premise on China at this point is that. It's probably, I think these, these downturns are probably overstated.

I think that the regulation risk is there, but that it is overstated by Western investors and media, just because they don't understand that, um, that China is trying to be a planned economy. And then they're not trying to be a carbon copy of the U S economy and the us stock market. That's a really fair point.

Um, and so. Necessarily again, I'm not making a values judgment on whether a planned economy is better than just a more free market laissez-faire economy. But I do think that's just the reality that China is going after China. China is the apple and we're the orange. You can't compare the two. Right. Um, so I think that's something that's missed in this whole discussion.

Oftentimes reporters and journalists will just start out by saying, oh, well this is, this is an overreach, or they'll have pundits on, on, uh, you know, CNBC or Bloomberg going, wow, this, this is really poses a risk to investors. And it's like, yes, it does. Short-term for sure. But in the long run, it, it may not, uh, it, it, it may work itself out as it has been shown to do in the, in the past.

Um, Again, this year has been, uh, quite the sell off for, um, for Chinese stocks, but you are seeing people like Cathy would Ray Dalio some, some high profile, uh, investors with a lot of money, a lot of institutional funds going back into China because they. Long-term value by the dip. Yeah. Yeah. Maybe buy the, buy the dip.

Um, but yeah, I mean, they, they see long-term value and Ray Dalio has always been bullish on China because he's got a ton of connections in China. Um, and he, he lived over there. His son lived over there for a while, so it's, it makes sense that he's very bullish on China, but that was, that was kind of his op-ed on LinkedIn, uh, was that this was being misunderstood now.

Again, I am not sure that I am. Uh, actually, I, I know that I would not prefer a planned planned economy to a more laissez-faire economy. That's just my, um, my outlook. However, I setting aside that bias of my, my own. I do think that it's, it's overstated. So that's kinda my, my premise on the whole China and regulation risk and what we've seen this year, as far as the sell off, that's a really.

I like that. I, cause I think it is easy. Like you mentioned to take things from the perspective that we always take things or we're used to taking things. And I think China is a very salient example of something that you can get burned if you're taking it from the U S of, of an example of, you know, if something happened in the U S where they were like, yeah, we're gonna, we're going to shut down Google and take it over.

You'd immediately. Yeah. People would be crazy. It was absolutely insane. Um, and so just the, the difference between, well, I mean, look at 2008 too though, but uh,

oh, geez. Okay. Oh man. Well, yeah, but I mean, I guess a good, a good analogy to, to explain, to put a little more meat on the bones of what I, what I mean is if you want to understand if you want to thoroughly understand, um, The literature of a country. So let's say you, you want to thoroughly understand. You want to thoroughly understand French literature, you would be best served by learning French and reading it in the native tongue because the translation over to English is going to lose a lot, especially if there's, you know, uh, you know, innuendos and plays on words that you would not have seen, um, in, in the translation.

So the same thing holds here. If you're looking to invest and understand the business world and cycle and business value in China. You're better served by understanding how the Chinese government looks at that and how Chinese businesses look at that rather than bringing your own approach to the table there.

Right. And you do want to temper the two obviously, but I think you're, you're best served by understanding that the native tongue so to speak. And here's a, here's a bit of a devil's advocate kind of question here is, do you think it's worth it for. The average investor or, or the, the non average investor to spend the time to really dig into, like you're saying into the Chinese culture, into, you know, whatever the factors are that, that you think are necessary for long-term investing over there.

Because I think, I think, I don't know. I think the answer is yes, but probably not for everyone. I've been to hear what your thoughts on that is. Well, I think, uh, Again, realizing I have my own biases. I think that don't, we all, yeah, exactly. Just important that you recognize them. Um, I think that the best way to go for most people and most investors, if you don't really have the time to sit down and like you said, immerse yourself in the culture and understand how, how the Chinese government has acted in the past, how they might act in the future, what the politic, the political landscape looks like.

If you're, if you don't have the time or resources to understand that, put, put effort into it, what I would do is just diversify your exposure to that part of the world. So. By some sort of ETF, um, there's even leveraged ETFs from direction out there. There are unleveraged, lots of unleveraged, emerging market, ETFs, Chinese ETFs.

Um, and there's a growing number of indexes, um, for, or indices, I guess, for the, uh, the Chinese market footsies got some, um, so there's, there's a lot of. Options as far as a basket of stocks, which sure is going to obviously reduce a little bit of that, that, uh, regulation risk. If you can get across multiple industries, industries, instead of just focusing on individual stocks, uh, that's going to diversify a little bit of the regulation risk away.

So that, that would be my approach for the average investor. Now, if you have some sort of, you know, idiosyncratic. Like, I guess, expertise, um, that you studied abroad in China for 10 years, then you might be able to, to get more into the individual stocks, but yeah, for the, for the normal everyday investor, I would, I would say an ETF is a good way to get exposure to that space without getting, without having to burden yourself with becoming fluent.

The Chinese business and political landscape. Yeah, that's fair. I, I am the more risk heavy of the two of us and I don't even have any Chinese stocks, so no, I don't. Well, I, I used to invest a lot in Korean and Japanese stocks actually, really, um, and Korea, Taiwan and Japan. And those do very well, but you know, it's a different growth opportunity at this point, especially in different industries.

I mean, tech is absolutely everything in, in Korea and Taiwan. It's huge. It's absolutely huge. I mean, in manufacturing, um, but tech and tech, really tech manufacturing. Yeah. And in Japan as well, but in China, it's interesting because there's, it's, it's pretty much the same, the same. Or a similar opportunity of investing in the U S and like the sixties and seventies kind of thing.

Similar, it seems to be that kind of trend, which is just crazy to think about. Do you think, do you think it's worth pursuing then individual stocks and, and again is my premise wrong? Do you not need to not need to understand thoroughly the landscape over there? Can you, can you bring a purely Western.

Investment philosophy to that to pick, you know, individual winners and losers. No, I think that's an easy way to lose money if you're bringing the Western investment philosophy. I think you're, I think you're spot on, um, which makes it tough because I think that it is very likely that you could see incredible gains by picking individual companies, but the risk is just so high it's.

Yeah, it's, it's, it's a completely, it's a completely different risk profile compared to picking stocks in the United States. Pretty much any time period. Yeah. So it's, it's, it's totally different. The gains are probably there. I mean, if, if. GDP does surpass the United States by 20 26, 20 30. Yeah. We're going to see insane stock gains between now and then that's just guaranteed, but which ones that's a real dangerous game.

Right? Which is why it might be better to go ahead and just go with the top 50 or the top 100 of some index, which. I'm surprised there isn't a, there probably is. Um, but I would be surprised if there wasn't some hedge fund or some specific fund that is going after individual stocks and trying to, to do that, like exclusively.

Like I would imagine that there's some Western funds it's, it's trying to do that. So if you can, uh, invest in them, if you're a, you're a high net worth and you can get in them, that's probably right. I'd probably be what I would do. Yeah, that would, that would probably make the, uh, make the, the most, the most sense, because again, you're farming out the expertise to someone else.

You can outsource it, obviously you're gonna pay for it, but it might be well worth it because I think the, with all of the, uh, risks at the, at the very micro level that we see, I think. Almost no risk. Again, this is okay. Very low risk. I think there's very little risk to the statement that the Chinese economy is going to be larger than the U S economy.

Interesting. I, I really am very. I am very impressed after doing some, some research into the Chinese economy and where they're headed. I'm thoroughly impressed with how efficient they are at, at building their economy and, and how, uh, dedicated solely to that goal they have been. And I look at, you know, I look at the U S and, and I, and I think, okay, well, this.

Uh, obviously an amazing story. I'm not discounting that at all in the U S the U S and its growth, and it's being a world superpower and amazing story. But, um, the, the unity with which China now, albeit maybe forced unity with which China is pursuing that goal of being the number one economy in the world, it's going to be very difficult to stop.

Just purely because we have a different free market scenario, right? We are not going to the U S is not going to be forcing unity in, in the pursuit of, you know, economic success. That's just not how we work as Americans. So I think maybe, maybe I would be, I would love to be proven wrong because I guess that would be, uh, a further, um, I guess, battle of the philosophies, whether free, uh, free.

Markets and free will really drive innovation and value higher than a, than a planned efficient market. Um, that would be, uh, that would be something I'd love to be proven wrong. But I think within the decade, I, I believe China is going to be the larger of the two economies. So interesting. That's kind of interesting though, because you have the micro level risks, but at the macro level, it seems to me very certain that.

China will we'll be the number one economy. So like you said, it's, maybe you take that, maybe take that broader base bet, but there probably will be a large winners and losers on the, on the individual stock basis. Yeah. Yeah. And that's a fair point because there is, I mean, just the. The basis, the philosophical basis of culture in the U S is so individualistic.

Whereas, you know, in China, it's, it's so communal, um, that, that, yeah, exactly what you're saying, you know, that, that kind of group goal is much easier to aim at when you have a communalistic society rather than individualistic. So yeah, that makes sense to me. Yeah. So with the, um, with the. No kind of political risk and the regulatory risk in China doesn't seem like even you as a risk-taker would be, would be buying individual stocks.

Yeah, I would rather, uh, I'd rather be buying individual cryptos than individual Chinese. Okay. All right. Well, I mean, yeah, I guess that's fair. I. As far as a portfolio, what would you, what would you be doing to kind of prepare for what seems to be maybe an inevitability that the Chinese economy is going to be bigger than the us.

And does that matter when it comes to your portfolio? Sure. That's a good question. I think right off the bat, I will say that one of my strategies currently is to be looking into the ancillary effects of Chinese growth. I think that the more China grow. Sure. You're going to have huge winners in China, but where you can actually have less, a little bit less, um, upside possibility, but also definitely less risk is by investing in companies that are in the area.

So Japanese companies, Korean company, Um, I think are great investments because if you have an absolutely exploding economy in China, there's going to be more demand for consumer products, luxury products, software. Everything's gonna be more demand for everything as wealth increases in the area. And as China increases its ability to be this, this kind of regional powerhouse as it has been, uh, you're going to see.

More and more trade between China and its neighbors and more and more opportunities for the neighbors. To me, making a lot of money, uh, Japan, you know, specifically absolutely incredible story as well. Um, made an enormous amount of money by creating the best electronics in the world and then selling to the United States.

They're just going to be able to also sell more and more and more to China as more and more people in China. Um, as wealth increases, I think investing in the Korean stocks and the Japanese stocks, that's, that's actually a part of my strategy for, for China growth. So the individual stock side comes in for me.

Um, for those regional stocks that have less political risk. And then, like you said, an ETF for, for Genesis. Right. Yeah. And, and there's, I, I agree. I think there's, you know, like, uh, like we mentioned earlier, some large cap ETFs you could go after, as far as Chinese, um, indexed funds, um, that would be a smart move and a good play.

Do you think, um, you mentioned the, the, uh, China increasing its trade with its neighbors. Do you think. As they grow. Do you think they will play nice enough to put it in a elementary way? Yeah, I think they'll play nice in the sandbox over there. I mean, I mean, I think it's interesting because I think they'll in, in one way or another, they're going to have.

Um, because the alternative is, you know, rapidly deteriorating relationships. The problem is, is it's kind of the, the apocalypse conundrum where you could, uh, short sell the whole market and make an enormous amount of money. And then just not be able to withdraw or not be able to do anything with it as soon as world war three starts.

Right. So hopefully that doesn't happen. Uh, hopefully, you know, again, kind of the optimistic long run out, uh, Uh, hopefully that doesn't happen. Hopefully they do start playing nicer with neighbors. Um, and I, I think they probably will. I don't know for sure that's speculation, but I think that as time goes on, I think we've had probably in the last, you know, two, three.

Even five years, we've kind of had just, just funky relations with China in the region and in the United States, um, to China. And, you know, I think part of that is, is some of the, some of the things that China has done, you know, like we talked about human rights violations, um, some of their actions to aggravate their neighbors, et cetera, but I'm hopeful that as time moves on that, that there will be more cooperation.

There will be, um, More trade, especially in that regional area. Okay. Yeah. And actually on that note, uh, it, it, it just crossed my mind here. There, China is doing some interesting things in, um, Africa and Latin, and that's a really good point. And, and they are increasing the amount of financing that they send that way.

Yeah. Some of it is a little nefarious that the, what was it? The south African, uh, like broadcast center found that they, they got financed by China and then they found that they were bugged. So, I mean, that's not, that's not ideal, but, um, in those emerging markets, I mean, Africa, especially. Is, I believe Africa is probably one of the most untapped and under reported stories of, of this century.

Um, they're very, they're, they're poised for a lot of growth. Um, and China may play a very large part in that and maybe come good, good trading partners or just financing partners as well for, for, um, Africa. So exposure to Africa, African-based, uh, Companies and stocks is a little bit hard to come by. Um, there's no real good exchange if correct me if I'm wrong.

I don't think there's any real centralized exchange in Africa. Um, but so, so that may, that may be something to look at as far as trade, um, which again, you were mentioning trade over in, in the. In the Pacific, but they're going to be obviously global superpower. They are a global superpower and will continue to be so, so things like shipping, anything that's, uh, that supports global trade, that that would include airlines as well.

But shipping being the main one, um, that's also probably a good, um, Kind of investment in a more, uh, more of a de-risked profile compared to investing directly in Chinese, uh, individual company as well. Yeah, that's a really, really good point. Cause I, I totally agree. I think in the long, long run too long, the long run, uh, India and Africa are the, the biggest opportunity for growth and gains, um, in the world.

And, you know, I think that's going to take longer than. Then people think, but I think that is the place. Uh, those, those are the places as it were. Right. Yeah. And I think you're right. I think China is going to have a big hand in that. Um, they know how to, they know how to, how to finance debt like they do to us.

They're the experts. They definitely, and Brazil is a huge asset. If a couple of years ago, Brazil was a huge, huge trading. For, uh, for, uh, raw materials with China, supporting China's manufacturing and industrial, um, growth as well. So that's another country to keep an eye on as well. Um, looking at more raw materials, but as they grow, I mean, they're, they're going to have huge problems.

Internal problems just with real estate and growing the number of houses they're going to need. So that's the building, the number of houses, I guess you can't grow a house. Can you? Yeah, maybe it's a tree house. A tree house. Yeah, you could. Uh, but building, building the number of houses. So you know that, that's another, another thing to keep in mind.

I think there's a lot of tertiary downstream effects. Burgeoning economy that we might not initially think of whether that's trade and therefore shipping or whether that's raw materials, because they just need to grow infrastructure, both business and, you know, transportation infrastructure. Human infrastructure for, for living as well.

Uh, so I think there's definitely opportunities, uh, kind of from a downstream perspective in China, but it is, it is something to keep in, keep an eye on and, and balance the risk that you're taking there. You don't, obviously you don't want to be buying anything that you don't understand. Could easily be the case with China because you might look at it and go, oh, I understand the fundamentals on paper.

Uh, but the, the, uh, inherent regulation and political risk, and I guess you could even debate cultural risk over there. Um, I didn't learn that one in my textbook. Um, even the cultural risk that may come around to haunt you. Yeah, that's a good point. Yeah, none of the, as always, none of this is financial advice.

And then I just talk to your financial advisor. Um, but I think that's a good point of in general, you don't want to invest in things that you don't know what's going on. And I think China is probably one of the more opaque, um, places to invest, but it's tough because it's, it's almost a situation where there is so much opportunity.

But it is such a, such a black box in some situations of what's going to happen, that it sits a bit of a conundrum. I think for a lot of people because they hear, oh, everyone's invested in China, buy these stocks and they really don't understand it. Or maybe they do a little bit and they go in and maybe they see really good returns and or maybe they don't.

But there is that, that, that paradox of, you know, it is very likely ground for extremely. Solid returns, solid growth as a country, but it's not as easy as investing in United States or Europe or most of the other Asian countries as well. Right? Yeah. Somewhere where you understand the, how the systems intending to be run.

Right. It's it's, there's definitely a, an understanding gap, I guess, that us investors, right. Realize when they're going, going and looking at the Chinese stock market. So yeah, I think that about does it for us here today on this episode of the long run show, obviously hit that subscribe button. And if you want to drop us a review, that'd be awesome.

Five stars really help us out. Um, if you want to just tune into the next episode, Right review after that one, because it's going to be even better. So we will see you next week on the, uh, on the long run show. This is Austin Wilson and he is Michael O'Connor and we have had a great time. All right. See you next time.

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