\n<\/p>\n
Every investor has wondered how to invest like <\/strong>Warren Buffett<\/strong><\/a>. He\u2019s arguably the best stock trader of all time\u2014preaching the fundamentals of investing in equities, something that most modern-day investors seem to forget. We\u2019re seeing the same thing in the real estate industry. With a runup of <\/strong>home prices<\/strong><\/a> and stock prices<\/strong> over the past two years, almost every investing strategy has worked. But, as prices begin to plummet<\/strong>, overconfident investors are starting to see the errors of their ways and that making money isn\u2019t always easy. So in today\u2019s risky environment, we have to ask: what would Warren (Buffett) do?<\/strong><\/p>\n Someone who\u2019s been asking that question for years is Trey Lockerbie<\/strong>. He\u2019s co-host of We Study Billionaires<\/em>, where he interviews some of the best and brightest investors on planet earth. Trey has lived an interesting life. He was a musician<\/strong>, went on the road for years, started a kombucha brand<\/strong>, and now reads everything he can on how to build billion-dollar businesses and billion-dollar wealth<\/strong>. With the aura of fear many of us are feeling in the investing space, Trey brings in some much-needed clarity on what investors should and shouldn\u2019t be doing right now. And he got some of this advice directly from top stock investor himself, Warren Buffett.<\/p>\n While we do go deep into the coming opportunities for real estate investors<\/strong>, we also hear about how stock investing isn\u2019t so different, and why the massive drop in cryptocurrency<\/a> prices could be an opportunity for investors who are on the fence about blockchain<\/strong>. Regardless of what you invest in, how much you invest, or whether or not you\u2019ve started investing, Trey can enlighten you on how to maximize the decision you\u2019re about to make.<\/p>\n David: Trey: David: Rob: David: Rob: David: Trey: David: Trey: David: Trey: David: Trey: Rob: Trey: Rob: Trey: Rob: Trey: Rob: David: Rob: David: Trey: David: Trey: Rob: Trey: David: Trey: Rob: Trey: David: Trey: David: Trey: David: Trey: Rob: Trey: Rob: Trey: Rob: Trey: Rob: David: Trey: Rob: Trey: Rob: Trey: David: Trey: David: Trey: David: Trey: Rob: Trey: Rob: David: Rob: David: Trey: David: Trey: Rob: Trey: David: Trey: Rob: Trey: David: Trey: David: Rob: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast, show 646.<\/p>\n
If you look at building your own business, you\u2019re building your own equity, that\u2019s probably your fastest, best way to wealth, but it\u2019s highly concentrated. All your time is in this one business. You\u2019re putting all the sweat equity into it, you\u2019re growing it, but the payoff could probably be worth more than anything else. Real estate, I think, is the next step down from that where it\u2019s definitely effort, more so than stock market, and it\u2019s definitely probably the second best way to grow well, but it just takes a little bit less effort than maybe running a day to day business yourself.<\/p>\n
What\u2019s going on everyone, this is David Green, your host of the BiggerPockets Real Estate Podcast here today with my good buddy and co-host Rob Abasolo as we interview one of the hosts of the We Study Billionaires Podcast, Trey Lockerbie. In today\u2019s show, we get into the good nitty gritty and big picture stuff about what the heck is going on in today\u2019s economy. Rising interest rates, seller panic, people that aren\u2019t sure if we\u2019re going into a depression or if this is a great buying opportunity, stocks, crypto, real estate, we get into some really good stuff by someone who makes his living studying very successful investors. Rob, what are some of the highlights that stood out to you from today\u2019s show?<\/p>\n
I mean, Trey is quite the impressive fellow. Well, first of all, we should call him Trey \u201cMr. Butter Voice\u201d Lockerbie, because very soothing, so this is definitely a very, very easy listening one. But very impressive fellow. I mean, he is a songwriter, a relatively established, it seemed like, from what we could pry out of him, and used to tour with Lady A. Then he really got into the whole\u2026 He casually found himself at dinner with Warren Buffett, and he\u2019s really made, I guess, a career you could say out of studying Warren Buffett\u2019s investing principles broke, broke down the four pillars of how he invests, and by he I mean Warren Buffett, and really just a nice change of pace because we always talk about real estate. That\u2019s what this podcast is all about.
But it was really refreshing to hear a new take as it pertains to the stock market, to crypto, and how they\u2019re all interconnected by all these levers around the world and how they all play into each other. So this is a really, really nice little masterclass on economics that are at play at the moment, and I think the takeaway today is how to invest, how to invest consistently and how to diversify in all that goodness.<\/p>\n
Yeah, absolutely. We talked about properties I\u2019m buying, cryptocurrency that I just bought. You talked a little bit about some of the factors that led into your decision to get into crypto and what happened and the mindset behind when we do well or when we don\u2019t do well, how we stick with it. So I thought this was fascinating. I\u2019m already thinking we should have Trey back. But here\u2019s what I want to know. As you listen to this, did you like today\u2019s episode with Trey? Let us know in the comments on YouTube. So if you\u2019re listening to this there, tell us what you liked, what you didn\u2019t like, what you disagree with, or what you wish we had asked, and we will read them. And before we bring Trey, today\u2019s quick tip is brought to you by Rob Abasolo.<\/p>\n
So if you like today\u2019s conversation and you\u2019re interested in investing even outside of real estate and in wanting to diversify your knowledge on how to invest in stocks, I think their podcast is really great for just opening your mind to the world of investing as it pertains to stocks, crypto, everything in between. It\u2019s a very, very, very interesting conversation to talk about how billionaires became billionaires and how they make their money. So be sure and give We Study Billionaires a download, even outside of the episode that we do with them.<\/p>\n
All right, great job on the quick tip there, Rob. Let\u2019s get to Trey. Trey Lockerbie, welcome to the BiggerPockets Podcast, how are you today?<\/p>\n
I\u2019m doing fantastic. Thanks for having me on.<\/p>\n
So for anyone who hasn\u2019t heard of you, which there\u2019s probably quite a bit of our audience that has.<\/p>\n
Most people.<\/p>\n
Well, I don\u2019t know about that. Can you tell us a little bit about what your background is with business and investing and then what you do for a living?<\/p>\n
Quick origin story is I actually got started out in the entertainment business, specifically music. Really always thought I\u2019d wanted to be a touring musician. I just thought people on the road looked free to me. They weren\u2019t wearing suits, they weren\u2019t in an office, they were playing music. It just looked the dream that I wanted for myself. So I set out to achieve that right after I graduated high school. Went to college, but started a booking agency out of my dorm room that got me my first gig with an artist going out on the road. That artist group I should say became Lady A, and I started doing some touring with them and some other songwriters. Ended up dropping out of school because it picked up so quickly and I got so busy. I dropped out, moved to Nashville with them.
Started to become more of a songwriter. I made some of my first big checks actually songwriting. And when I got my big checks, I thought, \u201cWhat do I do with this money?\u201d So I called my dad and I said, \u201cHey, what do I do with this money?\u201d He\u2019s like, \u201cI don\u2019t know.\u201d I called my uncle. My uncle was like, \u201cPut it in the S&P 500. And I was like, \u201cWhat is that?\u201d I was just so clueless on all of this stuff, and it really-<\/p>\n
It\u2019s good advice, though.<\/p>\n
It was. Looking back, it was perfect. I didn\u2019t know how to do it. I didn\u2019t know what it was. This is around the time right after the global financial crisis, so I was like, \u201cThe stock market? Get out of here. That\u2019s insane.\u201d But just my personality, I was like, \u201cThis whole global market that just exists in the background of my life is so prominent for so many other people. It\u2019s something I should probably have some literacy on. I should probably know the basics of this.\u201d So I started going down the rabbit hole and I also thought, \u201cHey, wouldn\u2019t it be fun to be on the tour bus sitting at a venue, there\u2019s so much downtime when you\u2019re touring, I could just be trading or making extra money or generating stuff like that.\u201d And along the way, I had this opportunity to\u2026
Well, I\u2019ll actually pivot there. Basically at a certain point I realized that music itself, that lifestyle, the touring element of it wasn\u2019t sustainable for me. I was missing people\u2019s weddings. I was missing events. I\u2019d get home. And I just felt a whole year had passed and I wasn\u2019t really moving or progressing in my personal life. So I ended up wanting to pivot and find a different career. And it was around that time I met my now wife who was also a touring artist. She was a background singer for Rihanna. She did that for about four years. And she and I\u2019d both come to the same conclusion, which was, \u201cHey, that was fun. We\u2019re in our early 20s. We got to see the world, get paid for it, what an amazing experience, but how do we move forward with something else?\u201d
And my sister was diagnosed with breast cancer and through that I actually got introduced to kombucha tea, and that\u2019s a living tea, it\u2019s a probiotic tea, and it\u2019s popular in the cancer community for multiple reasons, these health benefits that it provides. So she told me that I should go start drinking this stuff because it was making her feel so great. And I went out there to the store and I bought some, and I basically spit it out. I always like, \u201cGet out of here. This is ridiculous. It tasted like vinegar.\u201d And I swore off of it for about a year. But she was so adamant that I drink it, that after a while, I was like, \u201cWell, I grew up in the south a little bit. I love peach tea, maybe I could brew this at home. Maybe I could make it taste good.\u201d
And I brew up some peach tea kombucha. And I remember the first time I tried it, this light bulb went off for me, because it was so delicious that I was like, \u201cOh my God, everyone would drink this if they just knew it\u2019s actually supposed to taste good.\u201d And there\u2019s a lot of reasons why it\u2019s manufactured in different ways and produces a vinegar taste for most brands. But my now wife and I, Ashley, she and I decided, \u201cWell, this could be fun. We\u2019ll set out at farmer\u2019s markets. We\u2019ll sell some tea. What an idyllic lifestyle.\u201d And that\u2019s how it started, and much like anything else, it just snowballed. So we started at farmer\u2019s market, sold out quickly. Then it was like, \u201cOkay, we got to show up next week, I guess. So it just kept going from there. Trader Joe\u2019s came along, different retailers came along and we had to keep being like, \u201cOkay, are we doing this or not?\u201d And scaling.
And then around that time I was starting the business, I had this really strange opportunity to have dinner with Warren Buffett. And at the time I was trading, I was actually doing options and all kinds of crazy stuff like that, starting this tea business, and had this three hour dinner through a family friend with Warren Buffett, and he really changed my life. I mean, he made me look at everything differently. And after that dinner, I was just determined to read everything I could about him. I mean, I realized the people I was looking up to who were trading, who were doing X, Y, Z, he made more money in those three hours sitting with me than had in their entire career. I mean, I would just put everything in perspective to say, \u201cHe\u2019s doing something right.\u201d
So that got me thinking and I got into\u2026 I became a Buffettologist, I say, I started studying everything about him. I found the show called We Study Billionaires and they were heavily focused on Buffett style investing and got to know the host of that show over the number of years I was listening through events they put on and Berkshire Hathaway meetings and stuff that. And then they offered me a job to be the host of We Study Billionaires. So it\u2019s a really winding path. So I apologize for the long intro, but music, tea, now an investing podcast.<\/p>\n
That\u2019s great. No, this is perfect because David and I probably have 17 questions to ask and we\u2019re like, \u201cWell, where do we even start?\u201d There\u2019s a lot of good stuff there, but I am curious, I got to know. You casually are like, \u201cYeah, and then I found myself at dinner with Warren Buffett, one of the most famous people in the world of investing.\u201d How did that happen? Because that\u2019s nuts. I mean, a guy like that, I\u2019ve always heard of these really big people, they\u2019re like $40,000 an hour just to hang out with some of them. I got to imagine Warren Buffett, he\u2019s probably a very, very difficult person to get time on his calendar. So how did that happen?<\/p>\n
So it probably also makes me seem I grew up in some wealthy family, which is not correct. It really just came through this really amazing opportunity through a family friend, where they were hosting him for this book launch he was doing, and I invited myself, quite frankly. I mean, as soon as I found out about it, I just called and was like, \u201cI\u2019m coming to this dinner and I\u2019m going to be there.\u201d So I just peer pressured them to let me sit in on it. So it was a six degree opportunity that I just capitalized on. I mean, looking back what an opportunity. I just heard that he auctions off a dinner for charity and this year it went for $12 million. It was at least a 12 million opportunity that I took advantage of there and it didn\u2019t disappoint.<\/p>\n
So you met with him and then was there actually any insider words of wisdom that came out of that conversation where something changed in your life or was that just the spark where you then went to go on and effectively deep dive and study his investment style?<\/p>\n
A little bit of both. So upon having dinner with him or prior to that, I definitely did a little bit of research, and I came to this conclusion that this value investing thing that a lot of people call it, that used to work maybe in the \u201950s and \u201960s when you didn\u2019t have the internet, but now everyone\u2019s got all the same information. There\u2019s really no arbitrage left in the market. Everyone\u2019s got real time data. The market is fairly efficient. I mean, that\u2019s how I was operating, especially trading options. It\u2019s all built around the efficient market theory. So that\u2019s where I was coming from, and I wanted to quiz him on this, and looking back, it wasn\u2019t the worst question I could go off from, but I have heard other people ask him this over the year. So it wasn\u2019t a new question for him by any means.
And he was very gracious and he basically said, I\u2019m paraphrasing, but something to the degree of, if the market was efficient, I wouldn\u2019t be where I am. And he went on to explain, there\u2019s a couple chapters in the Intelligent Investor, one of his favorite books. I brought it with me, actually. I had him sign my copy. And I think it\u2019s chapters 8 and 13 that are really about how the market is just backed by human behavior. So I like this quote by Jim O\u2019Shaughnessy, it says the last arbitrage is human behavior. Because that\u2019s what\u2019s happening. Things either get overbought in the market or oversold, and the way you avoid that trap is doing what Warren Buffett does, which is looking at these numbers on a screen that are green and red and flashing and telling you to do something actually as businesses.
And that\u2019s where people get tripped up a lot. Stocks are so intangible. They\u2019re just numbers on a screen and everyone gets caught up in the performance element of it. But if you realize that that stock is a small fraction of ownership in an actual business, and you actually look at the stock and what it represents for how the whole entire company is currently valued, you look at it quite differently. So for example Tesla, it was at $1,200, now it\u2019s at $700. That\u2019s a good buy. What is the market cap of Tesla at $1,200 versus $700? At $700 is it still worth more than the entire energy sector combined? Probably close. So you have to compare market caps, look at these things like businesses, and realize that human nature is not going to change. People will get either greedy or fearful and the market will swing to your advantage just because of that.<\/p>\n
So this is actually a very common quote by Warren Buffett, and he talks about\u2026 It\u2019s is going to be very awkward if it wasn\u2019t him, but I\u2019m 99.99% sure he says, \u201cWhen people are being greedy, you should be fearful, and when everyone\u2019s fearful, you should be greedy.\u201d And we\u2019re sort of at this paradigm shift right now in the economy, seemingly just based on all the clickbait and alarmist headlines and a lot of people coming in with their hot takes and everything like that. Right now, what is your read on that? Are we at the point where people are being fearful and we should be greedy or vice versa? Because I feel we\u2019re in the middle at the moment. There\u2019s a lot of investors that are saying, \u201cOh yeah, I\u2019m jumping in right now.\u201d There are other investors that are saying, \u201cWell, probably not.\u201d I think David and I are still investing pretty heavily, but I\u2019m curious on your take here.<\/p>\n
It definitely depends on who you ask. I will give you my opinion. I looked at a recent Bank of America research paper and they were showing this graph of\u2026 Imagine a speedometer in a car where on the far left it\u2019s fear, on the far right it\u2019s greed, and the arrow goes either way. It was flat line to fear. So it was hitting zero, basically saying this could not be any more\u2026 People cannot be any more fearful than they are today. And I definitely feel that, which is really interesting, because I can walk you through a bunch of macro reasons why I think the market\u2019s actually going to go lower, but it\u2019s rare that you get this sentiment where everyone is so bearish that they\u2019re actually right about it. Usually when the sentiment is what it is, it\u2019s the opposite that\u2019s really happening.
I will say that the market corrected. It went down to past 10% to about 14, 15%. When I say the market, I mean the S&P 500, which is basically 500 of the biggest stocks in the US, and the 14 to 15%, that\u2019s the 100 year average for a correction. So when it was sitting right there, that was a really hard thing to manage, because you\u2019re like, \u201cOkay, at one point, this could go a lot lower. If you look at it this way, though, it\u2019s hitting the average, so it could maybe bump up from here.\u201d It\u2019s now gone down about 22%. So that\u2019s bear market territory. And I\u2019m of the opinion it\u2019s actually going to get worse before it gets better, even though the sentiment is what it is and it\u2019s as bearish as it is. But that would mean that this time is different and usually it\u2019s not.<\/p>\n
What about you, David? Would you consider yourself bullish or bearish at the moment?<\/p>\n
I would agree. Well, we\u2019re talking about the real estate market right now, or did you guys want to stick to the stock market?<\/p>\n
We were in the stock market, but I mean, I guess just personal investment strategy.<\/p>\n
I would say we just interviewed Ed Mylet, I was trying to find the episode number, but I couldn\u2019t find it. Someone can look that up. We\u2019ll say it in a minute. And he referred to the collective psychology. It\u2019s this idea that, like you were saying, Trey, everyone in general, they kind of function\u2026 I call it flock of birds. It\u2019s the same thing. But they all move in the same direction. Bitcoin\u2019s going up real. Estate\u2019s going up. I should go buy. I\u2019m hearing all these success stories of people that bought. And then they run in there. Real estate\u2019s going down, Bitcoin\u2019s going down, I should flee right now, cut my losses. And I think most people make decisions based off what they see other people doing and the emotions that that gives them.
What I love about your advice that you were talking about, which comes from Warren Buffett, is try to be objective, try to think, what would that property be worth? What would that asset be worth? What would that company be worth independent of the emotions that you get when you watch the stock price trending up or trending down, if you can separate yourself from that, you get a much clearer understanding of what the thing is worth. And that\u2019s very important. When we were talking with Ed, he was saying those are the people that make good money, because when you can detach yourself from the frenzy of what you hear in the news constantly, and understand the impact that has on you, you just make smarter decisions. So Warren Buffet\u2019s really good at seeing, \u201cHey, this stock is really low. That company is really good. That stock got pulled down for a bunch of other reasons. I want to buy a bunch of it.\u201d And vice versa. That is not worth what people are paying for it objectively speaking.
So when I\u2019m buying real estate, there\u2019s a part of it that says it doesn\u2019t really matter what everyone else is doing. It\u2019s going to cash flow this much, it\u2019s going to make me a return. I\u2019m going to hold it for a long time. So right off the bat, I have a foundation that\u2019s very safe. And then I add onto that where I\u2019m monitoring everyone else\u2019s psychology, not throwing mine in with it. So I put 10 properties under contract in the last two or three weeks. A lot of it was because the sellers, I think, are panicking. They\u2019re watching Jerome Powell saying, \u201cDon\u2019t buy a house.\u201d They\u2019re hearing news interest rates are going up. They\u2019re thinking, \u201cIt\u2019s going to be a blood bath. We have a depression type event on the way. I got to get out right now.\u201d And I\u2019m looking at it like, \u201cThis house is in an amazing location. It\u2019s a very good property. It\u2019s going to make me money, regardless of what the value of the house is.\u201d
I\u2019ll give you an example. I had one property I just bought was listed at 1.5. They were too high. Sat for a long time. They steadily dropped it 50 grand at a time, which is not the way to do it, so now they\u2019re chasing the market down. When I saw it was at 1.2, it had been on the market for 70 days or so, so I know as a real estate agent that the psychology of the seller is getting into a panic mode. They\u2019re thinking, \u201cTerrible. No one\u2019s ever going to buy my house. I\u2019m stuck with it. I\u2019m bleeding on the mortgage because I don\u2019t have tenants in there and I got to get this thing sold.\u201d So I wrote an offer at 1,050,000, with 35,000 in closing cost credit, so just over a million, and they countered me and said, \u201cWe\u2019ll take your price, but not the closing cost.\u201d And I thought, \u201cThere\u2019s no way that he\u2019s going to blow this deal over 30 grand.\u201d So I just held firm. Next day he accepted where I was.
There\u2019s no reason I should have got that house for a million dollars. It\u2019s it\u2019s 1.2 to 1.25 in a normal market. That seller was watching too much news. Just to rebuild that house would cost way, way more. And you can\u2019t build in that area because they\u2019ve shut down a lot of the building. So when we\u2019re talking about what I\u2019m buying, it\u2019s not real estate in general. I\u2019m not just by any house because they\u2019re all the same. It\u2019s more that I\u2019m trying to tap into the human beings that are overly worried because they\u2019re paying attention to what everyone else is thinking. And I don\u2019t know if I made a good call or not, but I just bought my very first crypto ever two days ago.
I watched Bitcoin and of all the cryptos I see so far, and I\u2019m not an expert, I just want to come out right now, I\u2019ve listened to a lot of Michael sailor, I thought that sounds a smart dude, I like what he\u2019s saying. So he swayed me on Bitcoin in general and it was about $65,000 a coin, and it dropped to 20, and I bought my first Bitcoin. So I was like, \u201cOkay, so now I\u2019ll go in.\u201d Is it going to drop more? Yes, it dropped to 19 the day after I bought it, but I just don\u2019t really care. Is it going to stay at that point? Well, if it\u2019s a good asset, no.
So I\u2019ve learned to detach myself from the immediate results of what I\u2019m seeing and just shut down those emotions. I don\u2019t give myself credit for a win when it does good, and I don\u2019t kick myself when it does bad. Now I\u2019m going to turn it to you Trey, because I don\u2019t actually know if the way I\u2019m going about it in your mind, because I think you study this stuff more than me, is wise, so I\u2019d love to hear what your take is on that.<\/p>\n
I have a lot of thoughts on that. So first and foremost, to your point earlier, you\u2019re absolutely right. It deserves more nuance, this conversation. Sweeping generalizations like real estate, yeah, you should get in, it\u2019s prospect specific, to your point. And there\u2019s this thing happening. I was talking with my buddy who\u2019s in commercial real estate yesterday, and he\u2019s having the hardest time with investors and he\u2019s presenting them with this opportunity that I think is easily yielding, let\u2019s say, 25%. Whereas a week ago or two weeks ago it was at, I don\u2019t know, 40%. It was something kind of\u2026 Whatever it was, his estimation was much bigger.
And to me what I\u2019m seeing, there\u2019s this analogy about being a monkey with two bananas. I don\u2019t know if you guys have heard this before, but it\u2019s basically you give him monkey one banana, very happy. Give him monkey two bananas.,He\u2019s stoked. And then you take one of those bananas way, and furious. He still has the one banana. And I think that\u2019s what\u2019s happening in the market a little bit, especially maybe with real estate. People are so used to these amazing opportunities with these low interest rates, but you can still find opportunities that are good and maybe even exceptional in some areas of the market, depending on where it is. And to your point about Bitcoin, I would just say, I look at Bitcoin personally like it is property. I very much look at it like that. I always have.<\/p>\n
That\u2019s literally what bought me into it, yes.<\/p>\n
Yes, that\u2019s exactly right. And the problem with it is so many people have different perspectives on it. Is it your new currency? Is it your new store of value? Is it your new X, Y, Z? The thing that made the most sense to me and what got me in was thinking of it\u2026 I think someone described it as New York, and the property\u2019s on New York, and there\u2019s only X amount and that\u2019s all there\u2019s ever going to be. And that\u2019s what Bitcoin is in the digital space. So I dollar cost averaged into Bitcoin. I bought a big chunk a few years ago and then I just have a set it and forget it weekly thing, it\u2019s almost like a savings account for me, and I don\u2019t even watch the price quite frankly, because in my mind, all I\u2019m thinking about is how many SATs I\u2019m accruing. So at the end of, say, 10 years from now,
I think all that\u2019s going to matter is how many actual Bitcoins do you own, because there\u2019s only X amount, and you can corner the market for lack of a better way to say it. I mean, that\u2019s what\u2019s happening. If you look at some charts, the beautiful thing about Bitcoin is that it\u2019s an open ledger and you can see actually all these wallets that are holding Bitcoin and you can analyze them. You can see how long they\u2019ve held the Bitcoin. And if you study those, what\u2019s called on chain analytics, you can actually see that the people who have never really sold their Bitcoin are accumulating more, and that number is only going up. So that\u2019s really interesting. You see these big institutions who may be bought in saying, \u201cOkay, this thing seems hot. We need to stay relevant. We\u2019re going to buy a little bit of it.\u201d And maybe they panic sell because they don\u2019t really understand it. Or maybe it\u2019s just directly correlated with the NASDAQ because Wall Street doesn\u2019t really understand it. But the people who understand it, understand it very well and they\u2019re not selling.<\/p>\n
It\u2019s, It so much more relaxing when you aren\u2019t watching the Bitcoin counter all the time? I mean, I bought Bitcoin, honestly\u2026 The majority of my Bitcoin was purchased in the all time high, I\u2019ll admit. And then I bought some Bitcoin when it was at the 45 and the 40 mark. So I\u2019m averaging down a little bit in that capacity, and I was just checking every single day, and then I was like, \u201cOh, I\u2019m rich. Oh, I\u2019m richer. Oh, I\u2019m poor, I\u2019m poor, I\u2019m rich, I\u2019m rich, I\u2019m poor.\u201d And I played that game for three, four months. And then I just finally was like, \u201cYou know what? I think I\u2019m just going to stop doing that.\u201d And then I stopped looking for\u2026 I mean, I haven\u2019t really looked in the past three or four months and it\u2019s just nice to know that I have it.
I don\u2019t really care about the price that it\u2019s at, because I never intended on selling it anyway. So whether it\u2019s worth $100,000 or $20,000, I don\u2019t care because it\u2019s not something that I plan to sell right now, because my investment strategy was to buy and hold onto it for a very, very long time. So right now a lot of people are freaking out because they\u2019re like, \u201cOh, my crypto portfolio is wiped.\u201d And mine is a little bit, but it doesn\u2019t really matter because I think what matters is to look at it from the the bigger perspective of the bird\u2019s eye view, and now I sleep a lot better not looking at the Zillow home appreciation prices and my 401k and everything that, because that\u2019s not\u2026 Investing should never be short term that.<\/p>\n
I absolutely agree. And if you look at property, if you look at it like that, you can compare it to some billionaires we\u2019ve studied like Bill Gates. He\u2019s been buying a hundred million plus dollars worth of farmland. I mean that produces a yield and we can say how Bitcoin actually produces a yield because it can, but that\u2019s where people are going and moving to right now as hard assets, real estate. Bitcoin I consider to be a hard asset. I think it\u2019s a really good way to hedge the inflation situation that we\u2019re all getting ourselves into.<\/p>\n
And I\u2019m a little nervous that I just mentioned I bought it, because what I don\u2019t want is either everyone on BiggerPockets to go say, \u201cDavid\u2019s buying Bitcoin, I\u2019m going to go buy it.\u201d Or, \u201cI can\u2019t believe he said Bitcoin. That\u2019s heresy.\u201d So just to clarify, the reason that I\u2026 Just like you said, Trey, it was explained by Michael sailor as not a currency, but more of a property. And what, in my opinion, has led to a lot of us crushing it in real estate for the last 5, 10 years is quantitative easing and over printing of money. So when they print a lot more money and that money has to find a home, it tends to find itself in different assets like the stock market, like cryptocurrencies, especially real estate, and it gives you the impression that you\u2019re making more money than you actually are, because money\u2019s just becoming worth less.
And that\u2019s what I don\u2019t like about keeping cash in the bank. My normal personality is to be super conservative, save, keep my money the Warren Buffett style. He doesn\u2019t pull the trigger very often, but when he does, he takes down the big prize. You can\u2019t play the game that way when they\u2019re just ripping money off left and right. It forces you to be a little more aggressive or at least proactive might be another way to put it than I would prefer to be naturally. Well, with Bitcoin there\u2019s a limited number of what they\u2019re able to make, so when I stop looking at it a currency, and like you said, I started seeing it as a property. That\u2019s where I felt better about buying it.
Now, do I know it\u2019s going to go back up? Could it be replaced by Schmidtcoin? I literally don\u2019t know. I\u2019m not planning on using this to become wealthy. I do however think that it\u2019s very likely that wealthy people will start moving Bitcoin around to buy things, to trade in, and as the dollar becomes worth less, Bitcoin becomes more valuable because it\u2019s set in place. So I just wanted to give my rationale behind why I bought it, and then I want to open it up to you. Is there any holes that you want to poke in that or a misunderstanding that I might have about it?<\/p>\n
Well, I want to touch on what you said at the top there, which was don\u2019t just go buy it because we said. So you have to really understand it. I can provide a backdrop, maybe a framework that could help some of your listeners. So I\u2019m borrowing this from my co-host Preston Pitch, who is so brilliant when it comes to these macro themes that are happening right now, the way he describes our current economy is imagine you have two monopoly boards, two groups playing monopoly, and the only difference is they can buy property on each other\u2019s boards. And every time they go around the board, they collect $200. So maybe that\u2019s your 2% annual inflation that we\u2019re all used to. But let\u2019s say the global financial crisis happens and we don\u2019t want to go bankrupt, so we printed a lot of money, we printed around $800 billion back then, 2008.
So that\u2019s kind of like one of those tables, instead of someone going around the market, instead of someone going around the board collecting $200, say they go around, they collected $700, because that money just was injected into the game. So the people with that money start buying properties on the other board. So all the people on the other board, let\u2019s call it a different country, they start being like, \u201cWell, where\u2019s all this currency coming from. And the other board just keeps doing it. They keep injecting more and more money. That was our quantitative easing that we all went through. More injecting into the money. But the problem with that, there\u2019s this thing called the Cantillion Effect, where the people who are getting the money, they\u2019re usually holding these billion dollar bond tranches. They don\u2019t really need the money.
So the fed was buying bonds from these very wealthy people, and what do the wealthy people do? They go buy assets, to your point. They buy stocks, they buy real estate, they buy X, Y, Z. But there\u2019s not that kind of trickle down element happening so that the values of\u2026 And by the way, because they\u2019re buying all these bonds, the interest rates stays down. So those low interest rates versus all these people buying assets, it creates this huge discrepancy where asset prices are going to the moon, interest rates have been staying low, and it\u2019s priced out the normal person. And I think that\u2019s where people\u2026 Everyone feels this, they know it\u2019s\u2026 They maybe can\u2019t articulate it, but they know it\u2019s happening and they\u2019re getting antsy about it. They\u2019re getting maybe disgruntled about it, and you\u2019re seeing the social unrest that can bubble up here and there because of it, in my opinion.
So that\u2019s where things UBI start becoming a conversation, \u201cHey, let\u2019s forgive student debt. How do we take care of the little guy who\u2019s the patsy at the game here?\u201d So that\u2019s where people really, I feel like, discover Bitcoin, because Bitcoin is an off-ramp to the currency we currently have. You can\u2019t just keep printing more and more and more of it. And the reason I said earlier that I think it\u2019ll get worse before it gets better, usually what\u2019s happening globally on a currency basis is that we\u2019re printing, say, the amount of money we\u2019re doing for quantitative easing. Well, every other country is also on a fiat standard and they have to debase their own currency just to stay competitive.
But what\u2019s happening now is we\u2019re actually tightening, we\u2019re actually taking money off the table. We are raising interest rates. We are selling those bonds that the Fed bought. We are basically taking money off of the table, extinguishing some of that money that was created. Meanwhile, places like Japan and other parts of the world are still loosening. That\u2019s why you\u2019re seeing the yen just dropping precipitously versus the US dollar. That\u2019s why you\u2019re seeing the us dollar climb higher and higher and higher. If you look at the DXY index, which is the USD versus all other currencies, it\u2019s almost as high as it\u2019s ever been. I mean, it\u2019s at a 20 year high. So that\u2019s what\u2019s happening in the background. That\u2019s what\u2019s leading to people to find, I think, a store of value like Bitcoin, that in my opinion is an off ramp to that currency debasement.<\/p>\n
A couple things here. David mentioned earlier about the met Ed Mylet episode, that\u2019s episode 620. That\u2019s very relevant to what we\u2019re talking about. So if you haven\u2019t listened to that, go listen to it. That is one of the more popular ones that has come out in the last month, I\u2019d say, month or two. A lot of views on that one, because I think it just resonated a lot. He talked about the little guy and making sure how the little guy is going to be able to make their foray, their entry into the market because the playing field is evening a bit. So you mentioned UBI. So I wanted to dive into that just a little bit, and can you just define what that is and that concept just so we can unpack that a little bit and how it relates to the whole real estate market and the correlations there.<\/p>\n
Most people will probably understand it the way that Andrew Yang was pitching it at the last presidential election, which everyone gets a thousand dollars a month. The government\u2019s just going to print you money. There\u2019s actually some interesting ideas around this, but if you look at America a business, think of it like a dividend. You operate in and exist in the most successful country of all time. Therefore as a shareholder, if you will, you get a little dividend. It\u2019s an interesting idea. The problem now versus back then is we didn\u2019t have inflation back then. And actually why that was a good idea is we couldn\u2019t really figure out how to get inflation, and the only way to raise interest rates off of zero is to get some inflation going. So at the time it kind of made a little bit of sense.
Now it\u2019s unfeasible to, in my opinion, because we have inflation now, and the inflation came mostly from the COVID policies that went into effect where they printed $3 trillion, they did PPP loans, they did EIDL loans for businesses. They actually literally sent checks to citizens to say, \u201cHere\u2019s what we\u2019re going to do.\u201d And once that faucet is turned on, it\u2019s really hard to turn it off. So I think what you\u2019re going to start seeing now is UBI, but it\u2019s not how you think of it. For example, I highlighted earlier, let\u2019s say debt forgiveness for colleges. I mean, that\u2019s a form of UBI. That\u2019s putting more cash in your pocket, but they\u2019re not actually sending you cash. But I think, and you\u2019re seeing this in Europe, in other places as well, they will be getting more and more creative, I think, in finding ways that will help keep people playing the game, keep them in the game, because otherwise we\u2019re all going to fall too far behind.<\/p>\n
The point you\u2019re making about how, if you forgive debt, that is the same as giving someone money, is very\u2026 It\u2019s noteworthy because that\u2019s the same way\u2026 I say things like we printed a bunch of money. That\u2019s not accurate. We didn\u2019t actually print money. We bought bad debt from people. They use fancy accounting principles to take debt out of the economy and push money into it that they can then lend. And the result is the same as if they had printed more money. And that\u2019s often how this stuff plays itself out. You combine that principle with, if you want to get voted in as a politician and people are scared, the collective psychology is worry, fear, what\u2019s going to happen, and you\u2019re the person that comes and says, \u201cWell, I\u2019ll give\u2026\u201d That\u2019s why we did that during COVID. We\u2019re shutting down the economy and everyone says, \u201cWhat am I going to do for money?\u201d \u201cDon\u2019t worry. We\u2019ll give it to you.\u201d
That principle, at least this is just my personal opinion, is probably not likely to change. I don\u2019t think we\u2019re going to see the entire country of America turn around and say, \u201cNo, no more of that. We want everybody to just eat beans out of a can and go through hard times when this happens.\u201d But what\u2019s very interesting to me is how those policies or the impact of them affects real estate investing, building wealth in general. The way that I tend to look at this is that we\u2019re probably headed down that road. I\u2019ve said before. I think at some point we\u2019ll see an expansion of the section eight program and the government that people will be complaining about the price of housing, because as inflation goes up, landlords charge more for rent, but many people are not in a career or have a job where their wages are keeping up with that. Especially if it\u2019s something that isn\u2019t cutting edge improving.
So if you\u2019re the person renting a house, you may very well find yourself, gas is more expensive, food is more expensive, rent is more expensive, but my wages are the same. When those cries rise themselves up, you\u2019ll see, \u201cOkay, this person\u2019s eligible for section eight. We need to put more money towards the section eight program. Oh, we need to create more money to be able to fund that.\u201d And I see a world where less people are able to own homes. And that\u2019s one of the reasons why I\u2019ve been at a bit of a sense of urgency with don\u2019t go out and buy stupid properties, but be more intentional about finding good deals because they may not be there forever.
The same would be true of Bitcoin. If it takes off, there\u2019s a limited amount of it. There\u2019s only so much to buy at a certain point. It\u2019s incredibly expensive to get it because it\u2019s a finite resource. Really that understanding of what we\u2019re investing in are finite resources, and the US dollar is clearly not that, because they can manipulate it, is why we\u2019re wanting to exchange the dollars into the finite resources. Is that similar to how you\u2019re seeing stuff outside of just the real estate market?<\/p>\n
Absolutely. And what I was highlighting there earlier about the dollar going higher, my simple framework, and I think why it plays into what you\u2019re saying, is it has an impact on the rest of the world. It\u2019s hard to wrap your head around the global\u2026 I mean, I it\u2019s over my head for sure, but my simple framework is as the dollar goes higher, everyone\u2019s debt around the world gets more expensive. If you\u2019re operating in a different currency and that currency is losing value to the dollar, because we have a world reserve currency, most of this debt out there is in US dollars because, say they have to buy oil or something, a lot of oil is priced in US dollars. So all this debt is getting more and more expensive.
So the way you do that is you either debase your currency to come up with more of your own currency to buy more dollars or you liquidate your assets. So a lot of people may have\u2026 Say they live in China or elsewhere, they probably have some us assets. So that\u2019s why I think you\u2019re seeing a lot of liquidation right now. The dollar is going higher, the stock market is selling off, a lot of real estate is selling off. People are liquidating. They need to come up with capital to extinguish some of this US dollar denominated debt around the world. And once you turn on the spigot, as I was saying with this printing money, it\u2019s really hard to turn it off. So that\u2019s where the Bitcoin, to your point, comes in.
Because if your thesis is that at some point we just won\u2019t need to print more US dollars, then that\u2019s a different scenario. But if you\u2019re, if your thesis is that this trend is going to continue and we can only operate in this world where everyone\u2019s going to keep debasing their monetary currency, then Bitcoin stays the same and it becomes a store of value. It\u2019s going to be very volatile, for probably many more years. And I want that to be clear as well. But say over 10 years, it\u2019s a piece of property that you\u2019re going to own and it\u2019s part of only 21 million.<\/p>\n
I was just having a conversation with someone yesterday and they were asking me, \u201cWhy are you buying if we\u2019re heading into a depression, we\u2019re going to go over the cliff, the whole thing\u2019s going to fall apart?\u201d And it was the first time that I had to articulate how my gut feels or what thoughts are going on in the back of my head and turn it into an actual conscious conversation, which is why I think it\u2019s good that we talk about these things, because sometimes through the process of talking about it, you get more clarity than what you had before. And the way I\u2019m seeing it is that the market, whether it\u2019s a stock market, the real estate market, the crypto market, whatever it is, is sort of like a big basin in a field, and as money gets pumped into it, the ground can absorb so much of that water at a time.
And if you pump in more water than what the market can actually absorb from supply and demand, then the tide will start to go up, the amount of water goes up, which creates people thinking, \u201cI\u2019m making a ton of money. Bitcoin is skyrocketing. Real estate is going up a ton.\u201d There wasn\u2019t enough supply for the demand that was created when we just created all this money. Well what we\u2019ve seen when interest rates went up, talks of the war with Ukraine and Russia, overall bad news, quantitative tightening, like we said, the big players have pulled their money out of that pool. They are like, \u201cOkay, we\u2019re selling off the Bitcoin. We\u2019re letting the prices go down.\u201d I see a lot of people putting real estate on the market and selling it. Quite frankly, people that bought real estate in the last two years that they didn\u2019t do it very wisely, they\u2019re probably going to lose their properties or have to sell at a loss.
But in my mind, I see there\u2019s still water out there. It\u2019s just been pulled out of that basin. It didn\u2019t disappear. We haven\u2019t lost that actual money or that wealth. And it has to come back in at a certain point. And I\u2019m not saying to just\u2026 It\u2019s not like you\u2019re buying an index fund, just buy it all, sell it all. Like you mentioned, it is individual pieces, but that\u2019s how my mind is working. I\u2019m looking at\u2026 There\u2019s so much money that has to find a home in some place. They\u2019re not going to hold it in cash, especially with this inflation forever. And it feels like more of a temporary correction that we\u2019re having that frankly we\u2019re long due for. What\u2019s your thoughts on that perspective?<\/p>\n
My perspective is that they can only raise interest rates so much before something breaks, and the thing that breaks, as I mentioned earlier, is how all this dollar liquidity needs to get out into the market and where other third parties are going to struggle to come up with the capital they need, and it\u2019s just going to get worse before it gets better. This has been a 40 plus year trend. So if you go back to the \u201980s, interest rates have just gone down more and more. And every time they inch them up, they can\u2019t get as high as they did before.
So the last time we did a\u2026 I think it was 2018, we raised interest rates, we got to about 2.5%. So I\u2019m of the I\u2019m of the belief as of this moment that 2 to 2.5% is going to be the high end of what we see before things start to get really ugly, and then the Fed is going to seemingly reverse course and lower interest rates again. And there\u2019s going to be this period, hopefully where things have sold off, things have gotten really cheap, and then they lower interest rates again. And that is going to be-<\/p>\n
And then what are we going to see when that happens?<\/p>\n
Well I think that\u2019s the time to buy, and not that you can time that stuff. So to your point, if you find opportunities along the way, you got to take them, but that I think is going to be a very big buying point for pretty much any asset.<\/p>\n
So I guess we\u2019ve covered a little bit here on crypto, we\u2019ve covered a little bit on the stock market, we\u2019ve covered a little bit on real estate. I want to bring the conversation back to our good friend WB, Mr. Buffet. Just kidding, Mr. Warren Buffett. Sorry, Warren, if you\u2019re listening. And I know that you\u2019re an expert in all things Warren Buffett. So I\u2019m curious, based on what you\u2019re seeing right now, how is he investing? Because I think that\u2019s the big question right now. Is he diverging a lot from his philosophies and his POVs or is he right on brand for how he\u2019s enacting his investment strategies?<\/p>\n
No, so Buffett at 92 years old keeps surprising everybody. For many, many years, for example, he was saying that he didn\u2019t understand technology. His best friend is Bill Gates, he owns Microsoft, but yet Warren Buffett never bought Microsoft. I mean, how do you explain that? But he claimed that he didn\u2019t understand technology. And then a few years ago he buys Apple. He surprises everybody, buys Apple, he puts 30 billion or so into it. It\u2019s now the best performing investment, I think of all time. I think maybe before the correction had gotten up to something around 130, 150 billion. So just an incredible return dollar for dollar. So lately he\u2019s also, over the years, gone back and forth on things oil and he\u2019s actually taken a very big position in Occidental, and that\u2019s really interesting to me as well.
It\u2019s always the same old Buffett flavor, but sometimes he pivots on exactly what he says he\u2019s a specialist in or not. What\u2019s in what he would call his circle of competence. So him buying oil companies, he\u2019s actually to be quite honest, never had much success with in the past, I think he\u2019s broken even at best, but he\u2019s taking a big position there. My theory on that is because when we did all the EIDLs and the PPP loans and all those things, the 3 trillion or so dollars that we printed during COVID, a lot of businesses took those, rightfully so. But unfortunately you saw a lot of businesses just turn around and buy their shares back off the market. They didn\u2019t take the money. They probably still let some people go. They bought their shares back and they didn\u2019t invest in infrastructure. The thing that\u2019s needed to continue to create supply.
And that\u2019s, I think, what you\u2019re seeing in oil and the thesis behind it why oil will probably continue to go higher because as of right now, the supply is not meeting the demand and it\u2019s been volatile, don\u2019t get me wrong. It\u2019s down today. It could go either way. But my thesis is that over the long term, say the next couple years, it\u2019ll probably continue to go higher. Which, by the way, is one of the biggest factors in the CPI inflation number, which means that if oil continues to go higher, inflation will theoretically be higher, quote unquote, whatever you define inflation, which could also create lots of its own different issues we can get into. So I digress. Buffett is I think doing what you would expect him to do. He\u2019s been more active this year, surprisingly, than he was even when the COVID drop happened, where we went down 20% in 2020.
I thought back then, \u201cOkay, this is his magnum opus. This is his opportunity to sail off into the sunset. He\u2019s going to eat up all this cheap equity and that\u2019s going to be his huge return for years to come.\u201d And he really didn\u2019t do that, which was very surprising. So more interestingly, he\u2019s been more active this year. He\u2019s been buying more companies. He bought Allegheny, he\u2019s buying Occidental. So in some ways Buffet\u2019s the same old Buffett, in some ways he\u2019s not.<\/p>\n
If he\u2019s the greatest investor of all time, it would make sense that evolves a little bit, but you said, he is on brand. Couple things I wanted to call out here. You said CPI earlier, can you just define what that is? I know what it is, but just for David\u2019s sake, just in case he doesn\u2019t know.<\/p>\n
CPI is the consumer price index. It\u2019s the shorthand\u2026 I mean, it\u2019s what a lot of people look at or define how they define inflation because it\u2019s made up of all these different parts. It\u2019s the way our government has\u2026 It\u2019s their best ability to capture all these price increases across multiple products and industries, and it all rolls up into this CPI number. And you can just Google it. You can actually see how it breaks down. You can see how much of oil and energy in general is contributing to the overall number. But when you see something inflation is at 8.6%, that\u2019s the CPI number.
And it\u2019s really important, I think on that note to understand that the biggest asset in the entire world is the bond market, and that\u2019s a hundred plus trillion dollar market. And the way bonds are supposed to be priced is at a premium to inflation historically. So right now that\u2019s not happening, hasn\u2019t been happening for a long time, but as interest rates climb higher, the value of the bonds goes down and that can create its own issues. So lots of macro things here to potentially have things get worse before they get better, as I said.<\/p>\n
A lot of levers being pulled in a lot of directions, I\u2019m sure. So I guess, understanding Warren Buffett\u2019s investment strategy a little bit, talking about how he is in changing it up and he\u2019s investing in more oil and gas, Occidental and all that stuff. Can we talk about maybe a few actionable tips for people that are wanting to invest in stocks and how, if we were wanting to diversify a bit, and if now is really a good time to buy because of the dip\u2026 I know obviously it\u2019ll be even less at some point, but can we talk about some actionable ways that you can evaluate a company and if a stock is worth putting your money into at this time?<\/p>\n
Let\u2019s just take the Warren Buffett way. It\u2019s important to understand how Buffett got started. He basically was under the tutelage of Ben Graham, and the whole idea with Ben Graham\u2019s method was that back then you could find businesses that were trading below the value of if you bought the entire company and liquidated all the assets. So let\u2019s say you had a factory worth a million dollars, and the stock was representing the price of the whole company at $500,000. That would be what they would be looking for. That\u2019s very rare these days. So to your point about Buffett evolving, he definitely did. So he\u2019s gotten away a little bit from that. Now he says instead of buying a fair company at a wonderful price, he wants to buy a wonderful company at a fair price. So Apple might be a really good example of that. Something that\u2019s going to continue to compound, and may be overpriced, but you know it\u2019s going to compound into the future.
So those opportunities are happening right now in my opinion. If you look at a lot of the tech companies, for example, tech has just gotten absolutely crushed, and I think these are companies that have been compounding at 20 plus percent a year and continue to do so over decades. They\u2019re total unicorns. I think that\u2019s a really interesting area right now. Like I said, could go lower, but as it stands right now, fundamentally speaking, they\u2019re priced very cheaply by almost any metric you can come across. A lot of people look at things price to earnings. That\u2019s one of the most common ways to look at a business and see how it\u2019s cheap, how cheap it is. So basically you\u2019re looking at the stock price over the amount of earnings that the company is making, and right now they\u2019re at near historic lows. So that\u2019s creating incredible opportunities.
If you\u2019re Warren in Buffett, though, you have to make sure it\u2019s in your circle of competence, meaning you understand what the business does, how it actually makes money. You\u2019d be so surprised if you ask people about a certain business, maybe they own or not how it makes money, and they don\u2019t know. So it\u2019s important to understand the business, find something you can get behind. So for me, example, I own actually a lot of food and beverage companies, food distribution companies, grocery stores. That\u2019s an industry that I really understand because I operate in it on a daily basis. So it\u2019s a really good place to start somewhere like that, that you can actually understand. You can look at things like the PE ratio and there\u2019s other metrics you can check out to see if it\u2019s at a fair price historically or not.
And there are other metrics to see if there\u2019s good quality of management, so you could Google something the interest coverage ratio. That will basically tell you how much debt the company has, how they\u2019ve been managing that level of debt, if they can afford the debt. That\u2019s a big indicator for me about how the management of the business performs. So those are basically\u2026 If I want to break it down and simplify it, the four pillars of Warren Buffett are basically great management, something that compounds over time, something that is stable and understandable, and at a cheap price. Those are the four pillars. And price probably should come last, in my opinion. I think you want to start with what you understand, make sure it\u2019s a good team, make sure it\u2019s something that\u2019s compounding and growing, and then check the price.
And a good way to do this, how you can be proactive right now is you can just start there with that universe of stuff you understand, start doing your own valuation of it, and create a watch list. And there\u2019s so many stocks out there that I\u2019ve been looking at and you say, \u201cThis is an amazing company, but it\u2019s just too expensive.\u201d But the stock market does it does a favor for you and shows up and offers it on sale, then you can step in and buy it, and you\u2019re prepared\u2026 You\u2019re not irrational. You\u2019re not reacting emotionally to what the market\u2019s doing. You\u2019ve done this very stable research ahead of time when you\u2019re more calm. So I think that\u2019s something people could be doing right now.<\/p>\n
That\u2019s great. David, do you invest in any stocks, by the way, or are you mostly\u2026 Are you just a crypto bro now?<\/p>\n
No, it\u2019s very, very little. I look at the Bitcoin purchase and the stock purchase was everybody is panicking, they\u2019re all selling, the stock market is plummeting. That\u2019s the only time I go in and buy. And it\u2019s not a noteworthy position. It\u2019s throw away money that I\u2019ll buy. My theory with stocks and crypto, basically investments that you push a button on a computer to buy, part of their benefit is that they don\u2019t take as much time or knowledge. You need knowledge to know what to buy. I\u2019m not saying that. But you don\u2019t have to have knowledge of how to run a company if you\u2019re buying stock in the company, like Trey was saying. You\u2019re looking at the management of the company. You\u2019re buying real estate, there\u2019s more elbow grease that goes into it. You have to have a plan in place and knowledge of how to manage a property or how to market a property. There\u2019s specific information that makes real estate investing\u2026 I think you can make more money at it than other things, but that\u2019s because you did more work upfront.
It\u2019s not really a comparable investment to a stock or when I bought Bitcoin that took me 14 minutes to set up an account and now I can buy it in three seconds. So I tend to put much more focus on real estate. But the principles that Trey is saying here are exactly the same. People worry way too much about price. Location matters way more. They worry way more about ego, and like, \u201cHey, the seller told me they wouldn\u2019t fix this thing,\u201d and they get really upset about it versus looking at, \u201cIs this area going to grow and do I have a management team in place that\u2019s going to run this profitably?\u201d
I think so many people get tied to the spreadsheet, what\u2019s the ROI going to be, and they have no plan how to operate that asset, especially in the multifamily space or the short term rental space. The way that Rob runs a short term rental versus the way that Joe Blow runs it could be incredibly different and literally make that a great investment or a terrible one just by the management. Everything you said, Trey, it applies to real estate, absolutely. But the reason I don\u2019t buy more of that other stuff is because I feel like that\u2019s for people who don\u2019t know how real estate works. That\u2019s the way that I tend to look at it. If I knew nothing about real estate, I wouldn\u2019t be looking to jump into it either. It\u2019s very scary. You can get hurt really bad treating it like a stock.<\/p>\n
There\u2019s a saying that I love where you stay concentrated to grow wealth and then diversify to maintain wealth. And I think that\u2019s relevant here because as I look at it and I can speak a little bit from my experience, when I think about building wealth, which is probably what a lot of people are interested in listening to this show, I look at it, unfortunately-<\/p>\n
Theoretically, yeah.<\/p>\n
I really believe that it\u2019s high effort, high return. So if you look at building your own business, you\u2019re building your own equity. That\u2019s probably your fastest, best way to wealth, but it\u2019s highly concentrated. All your time is in this one business, you\u2019re putting all the sweat equity into it, you\u2019re growing it, but the payoff could probably be worth more than anything else. Real estate, I think is the next step down from that where it\u2019s it\u2019s definitely effort more so than stock market. And it\u2019s definitely probably the second best way to grow wealth, but it just takes a little bit less effort than maybe running a day to day business yourself. And then you have the stock market. And unfortunately I think that of the three is the worst way to grow wealth, but I do think it\u2019s the best way to diversify and maintain wealth once you have it.
So I was always operating with this philosophy of like\u2026 Even when I was poor, I was like, \u201cYeah, I don\u2019t have money yet. But one day I\u2019m going to have money and I\u2019m going to want to know how to diversify and manage that money.\u201d That\u2019s why I started learning about the stock market, because I think it is. It\u2019s great for that kind of thing.<\/p>\n
Well, we need to get you into real estate, man.<\/p>\n
Well, we\u2019d love to. My wife and I just bought our first home. It was a great opportunity. It was a two bed, two bath. We made it a three bed, three bath pretty quickly. It\u2019s gone up 50%. I mean I live in LA. This is a little bit ridiculous. We have three homes in our neighborhood that have recently gone a million dollars over asking. I mean, it\u2019s really ridiculous here. Fortunately we got in 2019 and we rode this wave and who knows where it\u2019ll go from here, but that\u2019s my one real estate experience so far and we\u2019d love to do more rental kind of stuff. But again, it\u2019s that opportunity cost of I\u2019m growing equity in a tea business right now and taking time away from that to put something in on a cash flowing business, it\u2019s a different calculation.<\/p>\n
And that is a great point when it comes to why some people are better off investing in stocks or in cryptocurrency or in whatever asset that doesn\u2019t take as much time and elbow grease and attention. You click a button and other people are doing the work, because if you\u2019re really good at making money and other things, you can actually lose money in business by making money in real estate. And I think for those of us that are just hardcore in love with real estate, it\u2019s easy to miss out on that. You\u2019re just thinking about, \u201cOh, this duplex could get me another 500 bucks a month, and if I get 700 of them, I\u2019ll finally be wealthy.\u201d
But most people that are doing really well in real estate are making money in other areas, and that\u2019s why they take the Buffett approach. They\u2019re wanting to be in the best area, the best location, the best management. They\u2019re not overly excited about getting the best price or the best deal when you\u2019re new. And this is a great transition before we get out of here to ask you about your business. Can you share some advice at a general level to why you think that this business took off and you did well or what you\u2019ve learned through it that you wish you knew in the beginning?<\/p>\n
It\u2019s funny because what you just said there, that framework, I really do think it applies to everything, even your own business. So for example, you could argue that my tea business is in real estate, because the way my business operates is we\u2019re fighting for shelf space, say it\u2019s in a grocery store, what have you. A grocery buyer is looking at every single slot on their shelves as an investment. What am I going to put in that slot that\u2019s going to give me the best return? And they look at it basically at dollars per linear square foot. So what I\u2019m fighting for in my home business, even though it\u2019s tea, is real estate, I\u2019m buying for this real estate on that shelf. And I have to come up with a story too, and a way to acquire that real estate. So that\u2019s something I wish I learned early on, to your point.
We were very naive when we started. And the best advice I like to give to people just starting out, if you\u2019re going to start your own business, begin with the end in mind, which is such a cliche saying perhaps, but it\u2019s so incredibly important. Because when we started, we just started to say, \u201cHey, we just want extra income.\u201d But if you\u2019re good at what you do that can snowball and get you into these situations where you\u2019re like, \u201cWell wait, hang on, now what? How deep are we going down this rabbit hole here?\u201d So when you\u2019re starting a business, it\u2019s important to say, \u201cIs this going to be a family owned business? Is this going to be something that we we want to be profitable, that we want to be stable and grow slowly and maybe hand off to our kids or whatever might have you? Or is this something we want to grow and sell?\u201d
So one way to frame that is the speedboat versus the sailboat approach. If you\u2019re taking the speedboat approach, you probably want to think through it and say, \u201cOkay, who might acquire this business? What revenue do I need to get to in order for them to even consider buying the business, and how am I going to get to that revenue?\u201d And oftentimes it requires a good amount of capital, whether you\u2019re a startup software company or a tea business, or what have you, oftentimes it creates a lot of money to go fast. So that means you have to take on outside investment, you have to bring on partners, you have to raise money.
And we\u2019ve done all of that. But over the years I\u2019d say we were starting down the sailboat approach, and then when we saw the potential in our product for real and it became achievable in our minds of how far we could really take it, we shifted and said, \u201cOkay, now we\u2019re going to take outside capital and now we\u2019re going to go the speedboat approach.\u201d But you have to know that that was a big decision, it was a big transition to go from one to the other. And it\u2019s simpler if you understand it, I think, from day one, and that will help frame your decisions a lot easier.<\/p>\n
So smart. In fact, I don\u2019t know that I ever, when I started a business, had that conversation, and I\u2019ve definitely had those thoughts. Once you get into it there\u2019s this wolf by the ears phenomenon where the business is doing good and it\u2019s making money, but that\u2019s because you\u2019re involved, and if you want to step out of it, it can then lose money, so you don\u2019t want to step out of it, but then at the same time, this isn\u2019t why you did it. You didn\u2019t do it so you just have a job all the time, and it\u2019s often a problem that you don\u2019t realize is a problem until you\u2019ve already got the wolf by the ears and you\u2019re kind of stuck.<\/p>\n
I\u2019m going to have to borrow that, wolf by the ears. I\u2019ve never heard that. It\u2019s great.<\/p>\n
The idea is if you let go of the wolf, it\u2019s going to bite you, so as long as you\u2019re holding it, you\u2019re safe, but you also can\u2019t get away. You\u2019re stuck in this standoff. And many times I find myself with that same feeling when you\u2019re in business, and that\u2019s very sound advice. So as far as your personal skills, Trey, can you share how you\u2019ve changed as you got into the entrepreneurial space and the business has done better?<\/p>\n
This is where Warren Buffett, I think, ties into my tea business. So what I learned from Warren Buffett over the years is that he is the greatest capital allocator to ever live. And what I mean by that is he\u2019s at the helm, he\u2019s got this pool of money, he\u2019s deciding where to put it and expecting the highest return, what\u2019s going to give me the highest return. And I don\u2019t think a lot of people, when they think about entrepreneurship and they think about, say, just even being the CEO of a company, I don\u2019t know if it\u2019s the first thing they think of at least, where that person\u2019s role is being a capital allocator and it could be, \u201cHey, are we going to hire so and so?\u201d Because they\u2019re going to give us a return. You\u2019re doing it for a reason. Is the marketing team proposing a $300,000 budget for this year to you? Well, you have to understand, I\u2019m going to spend $300,000. What am I going to get out of that? What\u2019s the return on that?
So almost every single decision, it could be small decisions, too, really, really small decisions. Every decision when you\u2019re running your own business becomes capital allocation in my mind. That\u2019s how I think of it. So the natural thing to do would be to study the best capital allocator whoever lived, in my opinion. And Buffet\u2019s actually not only a great investor, he\u2019s an amazing operator. Most people don\u2019t give him enough credit for that as well. But that\u2019s what I\u2019ve learned over the years and how I\u2019ve evolved from just winging it to gripping the wheel, getting, getting at the helm of the ship and being like, \u201cOkay, this is\u2026 I\u2019m controlling the controllables. What I can control are my decisions, how I\u2019m going to lay out capital to get a bigger return.\u201d
And that could be, again, do we expand into this region or that region? It\u2019s really everything. So that\u2019s the framework I operate from. And I really encourage people\u2026 I mean, it\u2019s a very dry read, but Warren Buffett has left all these sprinkles of, what do they call it, crumbs to success. He\u2019s written a letter every year for, I think, 50 years, and he basically talks about that last year, what he learned, how they\u2019re changing, how they\u2019re making different decisions, and you get to go back and read, it\u2019s totally free. And the that\u2019s probably better than a college degree in my opinion. So if you\u2019re starting out, I highly recommend that.<\/p>\n
Well, before we close out, Trey, I mean, this has been a really\u2026 I mean, a very nice change of pace for us, because we\u2019re always talking about houses and stuff. But I wanted to ask you one final question here, and it\u2019s\u2026 If you could give some tangible advice to someone investing right now, do you think\u2026 If people are looking to get invested even outside of real estate, do we go all in now that we\u2019re at this all time low for the past year or so? Do we just consistently invest? What\u2019s your final thoughts here as far as\u2026 I like that I\u2019m asking you a giant lofty question to close this out, but what do you think? Consistently invest here until we see this whole thing play out or should we just hop in and make some equitable stakes in the companies that we want to invest in?<\/p>\n
I mean, I think it goes back to that other quote about, \u201cIt\u2019s not timing the market it\u2019s time in the market,\u201d and if there\u2019s one regret I have it\u2019s that it didn\u2019t start sooner. I mean I\u2019m in my mid 30s, but the difference of starting in your early 20s to your early to mid 30s is millions of dollars potentially in returns over that compounding. The magic of compounding is just something that isn\u2019t taught enough, isn\u2019t appreciated by most, and those years, that extra time you have in the market smooths out everything else, smooths out all the volatility. So depending on your time horizon, I definitely think, to your point earlier, is it\u2019s not timing the market.
I mean, I think getting in a little bit of the time, whether it\u2019s contributing to your 401k, whether it\u2019s dollar cost averaging into something like Bitcoin, which in my mind is real estate. Is it finding an amazing real estate opportunity, even though the market could go either way? I mean, no one has this crystal ball and no one knows\u2026 Really no one knows nothing, and if there\u2019s anything I\u2019ve learned from hosting this show and I\u2019ve experts from all over the world, talking about investing, they all are so confident and all have really different opinions. And they\u2019re all highly intelligent. So it\u2019s just that alphabet sou of sorts. You come to this conclusion while like, \u201cMan, really no one knows.\u201d I mean, they\u2019re very smart. And I would just say I\u2019m definitely not as smart as they are, so I certainly don\u2019t know. So the best thing I can do is take the bird in the hand. If I see a good opportunity, I\u2019m going to take it.<\/p>\n
I mean, arguably I would say if there is one thing we know it\u2019s that time in the market beats timing the market, except for a very small minuscule set of people that got very, very lucky or are extremely smart, smarter than us. But I think that\u2019s the big thing that I\u2019ve been hearing over the past two, three years from just a lot of people on TikTok, on YouTube comments, my students. One thing that I always hear is, \u201cOh, are we at the top of the market? Should I just wait for the crash?\u201d And at that time interest rates were 2, 3, 4%, really in the threes, and now, yeah, okay. Maybe there\u2019s going to be a little bit of a dip in the price, but now our interest rates are going to be 5, 6, 7%.
So I honestly would\u2019ve rather have just overpaid a little bit a couple months ago and lock into 3.5% versus some of the 7.5% loans that I\u2019m closing right now, because over time, over the course of 30 years, the amount of time that I plan on holding these properties, I would\u2019ve saved hundreds of thousands of dollars in interest. So it just really goes to show that if you just consistently invest, if that\u2019s always your idea to just invest every single year, whether it\u2019s stocks or real estate, doesn\u2019t really matter, that\u2019s ultimately what\u2019s going to make you a wealthy person, not putting it all on the proverbial, I don\u2019t know, roulette table. Black on roulette, and then hitting it big on one of these stocks or real estate investment. So with that, man, thank you so much. David, you got anything?<\/p>\n
I\u2019m trying to drop my mic, but it is frozen in space. That was really a good line. Probably Rob\u2019s best line as the co-host of the podcast here. Way to go with that.<\/p>\n
Probably.<\/p>\n
Probably the best line ever. Trey, I thought your advice was awesome too. When you were saying that, what it made me think about-<\/p>\n
I appreciate that.<\/p>\n
We\u2019re often asking the wrong question. We\u2019re asking what\u2019s the market going to do because we think it\u2019s so simple, that it\u2019s going down, I\u2019m going to buy, it\u2019s going up, I\u2019m going to wait or whatever. But it never works that simple. Like Rob just said, yeah, prices may have come down some but interest rates went up, so it might overall be more expensive, and we don\u2019t think about that. So I thought, Trey, you did a really good job of highlighting what questions we should be asking as opposed to is it going up or is it going down? What are all the factors that play together, and then how do you use that information to make a decision that\u2019s wise for you?<\/p>\n
I was going to say, can I end with one more question to that point, which is you should be asking yourself what is enough? Because to your point, Rob, about people asking me, \u201cHey, should I do X, Y, or Z?\u201d They have to determine for themselves what enough is and enough might just be putting your money in the S&P 500 at 7% annually or whatever it is for over 30 years. Depending on your income and whatever else, that might be enough. So a lot of people don\u2019t do that first step and I would just highly recommend starting there.<\/p>\n
I\u2019m doing it backwards. I\u2019ve never really done the whole stock thing. I did my 401k match when I worked at my nine to five about a year ago, and then I just went all in real estate, and now, honestly, I\u2019m putting a lot in the S&P 500 and really nothing else. I just set up a retirement account, maxed it out with my S Corp, it\u2019s all S&P 500, because I\u2019m just like, \u201cOh, they figured it out. They\u2019re smarter than me. I\u2019ll just go with that.\u201d<\/p>\n
Circle of competence, man. I get it.<\/p>\n
Trey, if anybody wants to follow you or get ahold of you, where do you recommend people do so?<\/p>\n
Yeah, if you want to find me, I\u2019m on Twitter @TreyLockerbie. I\u2019m the host or one of the hosts of We Study Billionaires, which is another podcast where we interview billionaires mostly, people who have made their money in investing. And you can check that out at theinvestorspodcast.com, or simply search any podcast resource or platform. And if you are curious about kombucha and\/or just a refreshing tea, you can always check out betterbooch.com and there\u2019s there\u2019s every social handle behind that as well.<\/p>\n
And where can people listen to your music? One of your smash hits?<\/p>\n
I\u2019ll never say.<\/p>\n
Is that a song writer thing, you let the artist take the credit?<\/p>\n
Exactly. Exactly.<\/p>\n
All right. Well, you\u2019re a classy man, as well as an intelligent one. That\u2019s awesome, trey. Yep, you can find me @DavidGreen24 online or David Green Real Estate on YouTube, and then Rob you\u2019re Robuilt pretty much everywhere except for TikTok where it\u2019s Robuilto.<\/p>\n
Yep. That\u2019s right. You can find me at Robuilt.<\/p>\n
Well, thanks Trey. It was good to know you. I really appreciate you sharing your expertise. It\u2019s not every day you get to talk to someone who studies billionaires and then puts that information out there for everyone else to hear. I\u2019ll get us out of here. This is David Green for Rob \u201cDropping That Mic\u201d Abasolo, signing off.<\/p>\n