Announcer: Welcome to Creating Wealth with Jason Hartman, President of Empowered Investor Network in Costa Mesa, California. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason Hartman: Welcome to another edition of Creating Wealth. This is Jason Hartman, Show No. 95. Thanks for joining us today.
So let’s talk first about a couple of properties. Remember, folks, don’t just listen to the show. The show is about investing. It’s about action. It’s about doing something because if you don’t take action, you don’t get anywhere. We have so many people that come to our live events and they tell us they’ve been going to seminars for years and they’ve been listening to people’s audio programs and reading books and all this stuff. But they’re not investing. Folks, you’re never going to make any money if you don’t actually invest.
Anyway, for those of you out there that are sitting on the fence, it’s time to get busy and dive in and take action. Action eliminates doubt. You learn this stuff largely by doing it. There’s only so much we can tell you on the show.
I want to tell you about a couple of properties. I’m starting off with that today, a little different format. How about this one, Kansas City, Missouri? I own one of these four-plexes. They total, the four units, about 5,300 square feet. The price is $495,000.00. You can get into these for about $115,000.00. It’s only 20 percent down, subject to qualifying. The positive cash flow is $404.00 per month, and the projected return on investment is 34 percent annually. And if you qualify for all of the tax benefits, it’s projected at 36 percent annually. We have 24 months of property management, paid by the seller. So there are some great opportunities, and I own one of these myself and I love it. I’ve owned it for almost two years now, I think, and it’s been a fantastic investment.
How about this one in Indianapolis, one of our surprising two areas in the Rust Belt. Here’s one: 2,700 square feet for $93,000.00. Yeah, you heard that right, only $34.00 per square foot. This is a bank-owned foreclosure, REO property, four-bedroom, two and a half bath. That’s $34.00 per square foot, and folks, this is built in 2006. Remember, we’re not recommending a bunch of old junk that is a money pit that needs a bunch of repairs. Pretty much all of our properties are newer than 2000, so we don’t go back more than 9 years. These are newer homes, and with our repairs, they are all fixed up. Our contractor was out here for the Master’s Weekend and he walks these houses, gives written estimates on them, and does all of the repairs. The repair quote on this one is $8,200.00 to make it like new, so you’ll have a total of $35,867.00 invested approximately, and the projected rent is $1,100.00 per month with a positive cash flow of $227.00 per month, and a projected return on investment of 25 percent annually.
Now, here’s the thing I want you to think about. Assume that this deal, or any of our deals, only works out half as good as we’re projecting. These are projections. We can’t say for sure. Maybe it will be vacant two months a year instead of one month per year as we project. Maybe the appreciation rate will be lower. Maybe the rent will be lower. Maybe the repair cost or the maintenance cost will be higher. So what? What if you only get half of 25 percent? That’s 12.5 percent annually. That’s what Bernie Madoff promised people and he was a fraud, a crook. These are your own houses. No one can cheat you on these deals because you own it and you control it directly.
Here’s another foreclosed property in Indianapolis: 1,700 square feet, $80,000.00, $35,500.00 to get in, $47.00 per square foot; projected rent $995.00 per month; positive cash flow projected at $230.00 per month; return on investment another 25 percent annually.
Folks, even if it doesn’t work out nearly as well as we think, you’re going to do a lot better than you’re going to do anywhere else because here’s my quote for the day. Are you listening? This is from Jason Hartman. Here’s the quote: “At the very least, income property sucks less than anything else.” So that’s the comparison you have to make. Even if it doesn’t work out as well as we think, it’s better than everything else. You show me something better and that’s what I’ll be recommending.
We have a couple of listener questions. Brittney, go.
Brittney: Thanks, Jason. It’s always a pleasure to be here. Our first question is from Damian. He is from Ireland. Damian says, “I have been listening to your excellent podcast series for two years now. I’m writing to compliment you on your excellent job you’re doing for your listeners. I feel your show has something for everybody. You do not over-specialize in real estate, do not oversell your own company’s image, and your guests on your show enlighten your listeners in many ways.
“I’m 23 years old, who has recently entered the working world. Your advice has helped open my eyes and allowed me to understand how I might achieve financial independence in the future. You have also helped me understand the concept of prudent investing and what the real financial world is like compared to what is taught in college. These principles are something which I hope to take with me into the future, and I am so glad I received your advice at such a young age, instead of learning through avoidable mistakes. I am very grateful to you, Empowered Investor, and all of your excellent guests on your show.”
Damian goes on to give us a couple suggestions to Empowered Investor. He suggests dedicating a podcast to investment advice for young people. He also would like to see Empowered Investor more active on YouTube, and he closes off by saying, “Keep up the excellent work, Jason, and I wish you well in the future. I hope to make one of your events someday.”
Jason Hartman: Well, Damian, thank you so much. You just made my day, and that’s the reason we do this. We’re not spreading the blarney – that’s an Irish expression. We really appreciate you listening in. It’s just so awesome to get comments like that. We will be more active on YouTube.
By the way, folks, everybody listening, if you don’t know this, we do have a channel on YouTube and we have several videos up there. So go check it out at YouTube.com and just type in Jason Hartman or Empowered Investor Network and you’ll find our stuff. Subscribe to our channel. Yeah, we’ll be more active there. There’s just only so much time in a day and we’re trying to do a lot of different stuff.
And then also, what was the other suggestion, Brittney?
Brittney: He suggested investment advice –
Jason Hartman: Oh, a show for young people, yeah. That’s a great idea. I started really young. I bought my first rental property at age 20 and it was right here locally in Huntington Beach. I had sort of a not-so-great experience with that one in the beginning, but it turned out to be great in the end. Also, the Jason Hartman Foundation Brittney just reminded here is a foundation I set up to teach financial literacy to young adults just like you. That’s really my passion. I was an instructor for Junior Achievement for three years and just loved doing it. You can visit www.JasonHartmanFoundation.org to find out what we’re doing with that. The foundation has not had much time to be very active yet, but we plan to get a lot more active. Just look for more at the Jason Hartman Foundation, too. But we’ll keep bringing you great shows and thank you for the kind words. That really makes my day.
Brittney, next one.
Brittney: This question is from Jennifer. Jennifer asks, “Jason, what do you mean when you ask the question, ‘Do some people deserve to own a home?’ Traditionally, people who say this are either racist or believe that some people just deserve to be poor. I like a lot of what you say and don’t want to believe that you think this way. So please give me your side of the story. I’ve heard you say you got your first investments with zero down. Would you be where you are today without this opportunity?
“Finally, how do you suggest saving for my investments? I live in California and make about $67,000.00 a year. I have only had a couple years to build up my 401k in the most unfortunate of times. I say no to flashy things and consider myself fortunate. I am already worrying about how I will be able to pay for my next real estate investment. Any pointers would be appreciated.”
Jason Hartman: First of all, Jennifer, I’m just going to level with you. Some people don’t deserve to own a house. They’re just not ready. They’re not financially mature. Do you think that everybody deserves a big house? If everybody deserves to own a house, then everybody deserves to own a big mansion. Why not? The fact is some people just have not been responsible and they have not saved up and they don’t earn enough money. So the bank should not be just giving people money that don’t qualify for loans. That’s just rational, isn’t it? Money doesn’t grow on trees. It grows on printing presses, frankly. But we all know that discussion. That’s a different discussion.
So some people deserve to be homeowners, people that have saved up and been responsible and qualify for financing. People can be irresponsible. It has nothing to do with their skin color. There are responsible and irresponsible people of every type, size,
walk of life, background. It doesn’t matter. You’re a responsible person it sounds like. You have $67,000.00 in your 401k plan it sounds like and you’re saving money and you’re avoiding flashy things, as you say, so you’re doing the right thing.
The suggestion I would have for you is I wouldn’t consider buying a property in Oakland yet because that’s in California, and California is still overvalued. The other problem is if you have limited funds, you want to make sure you diversify those funds. It’s better to buy a couple of inexpensive properties in different cities, I would say, so that your eggs aren’t all in one basket. The other thing is with California we just think it’s too early. There are many groups out there recommending California, but they’re just too early, we think. We think it’s going to be about another year before California makes sense.
And it’s really not about time, Jennifer. It’s about the amount of depreciation that has yet to occur, and we say that’s probably about another 10 – 15 percent, and then we’ll be at the bottom. But remember, everybody listening and Jennifer, don’t confuse the bottom with the recovery. Recovery and bottom are two totally different things. We could be at the bottom of the market, but we could bounce around the bottom for five years. Japan has been bouncing around the bottom for like 16 years. So bottom does not mean recovery. Those are two different things. So I do think we’re about a year away from the bottom in California, maybe even a little less. We will let you know here on the show when we think we’re at the bottom. But of course, that’s a prediction, like anything.
My advice is you’re doing a great job saving money, Jennifer. Keep it up. Keep being financially responsible. You are one of the responsible people and you deserve to be an investor and be an owner. But not everybody is like that. There are very irresponsible people out there and in a country like America, everybody gets a fair shot at things. Life is not fair, but at least our system is the fairest in the world, and there’s no place on Earth where opportunity is greater than the good ole U.S.A. Now, I do think that opportunity is declining a bit, but it’s still better than everywhere else. Remember my comparison: at the very least, income property sucks less than everything else. And so I’ll liken that to countries. At the very least, if you have complaints, the U.S.A. sucks less than everywhere else.
Next question.
Brittney: This is a testimonial and I apologize if I pronounce this wrong, but Nuu Onu from Kailua, she says, “Awesome show, Jason. I’ve heard almost every podcast.”
Jason Hartman: That’s it? Well, thank you very much. And our friends from Hawaii, that’s awesome! Anything else?
Brittney: That’s it for today.
Jason Hartman: I want to tell you about one more property here. This one is in North Carolina and I’m just leaving tomorrow for Charlotte, North Carolina. I’m going to visit Charlotte, Columbia, South Carolina, Augusta, Georgia, Atlanta, Georgia, and then back to Dallas. So I’m looking at properties again in all of these areas. I have a big two-week trip ahead of me.
I own a property in Huntersville. That’s the greater Charlotte metro area in North Carolina, and my property is in Huntersville. This one is fantastic, though. This one was built in 2008, so this is a brand new home. It’s 2,000 square feet for $128,245.00. Total cash investment to get into this – of course, subject to qualifying – is $36,229.00. Projected rent is $1,050.00 per month. Positive cash flow is $58.00 per month, and projected return on investment is 26 percent annually.
So remember, if this is half as good as we say it is – maybe we’re wrong and it’s a lot worse than we say – you’re still going to make 13 percent annually. And if you qualify for all the tax benefits, this one will give you a projected return of 28 percent annually. It’s a beautiful three-bedroom home; two-story with a loft and a two-car garage, and according to the agent, our agent there thinks it has built-in equity. No repairs needed. Builder warranty included. Window blinds are needed and that will cost you about $1,000.00, and this will be a rent-ready house. I’m looking at the picture. It’s on our website at www.JasonHartman.com/properties, and this looks like a gorgeous house.
So, folks, call us and let us help you with your investments. If you’re thinking of an investment through somebody else, hey, run it by us for a free evaluation. We’ll let you know what we think of it and try to steer you in the right direction.
Let’s go to the interview today. I’m interviewing a very famous author here and we’ll go to that in a moment. This is Eric Tyson. Eric Tyson has written a whole bunch of books, a bunch of the “Dummies” books, Dummy’s Guide to Real Estate Investing, etc, etc, a whole bunch more. I think you’ll really enjoy this interview. Eric is a bit of a Wall Street guy. You’ll kind of hear that side of it, but one of the things I love about what he does is something called “Guru Watch,” and on his website, he rates different gurus. So we’re going to be talking about some gurus and you’ll hear about that. So here’s the interview with famous author Eric Tyson. Let’s listen in.
Interview with Eric Tyson
Jason Hartman: It’s my pleasure to welcome author Eric Tyson to the show. He’s the author of Let’s Get Real about Money: Profit from the Habits of the Best Personal Finance Managers. This book has sold over 5 million copies, so I encourage you to listen well to Eric’s wisdom, and Eric, it’s great to have you on the show.
Eric Tyson: Thanks for having me on the program. Actually, just one detail – all of my books, the Dummy books, Investing for Dummies, Personal Finance for Dummies, those are the books that in total have sold over 5 million copies. I wish that new book had sold that many copies, but.
Jason Hartman: Well, with all of the listeners listening now, I’m sure they’re going to run out and buy a copy, so that’ll easily bring you to the 5 million number.
So tell us your outlook on the current economic situation. We are in a real mess, but one of the things, as we were talking before, you’re not much of an alarmist. You think some of these comparisons to the Great Depression are pretty alarmist and kind of overrated.
Eric Tyson: It’s premature at this point. For people to say that this is already the worst economy since the Great Depression at a macro level, the numbers just aren’t there. If you look at the
increase in the unemployment rate and reduction in GDP, this recession is pretty comparable to a typical recession that we’ve had in the post-war period. Now, could things get worse? Sure. They could get worse, and I don’t profess to have a crystal ball about what’s going to happen. I think what’s made this seem so severe is the significant and severe drop, especially in the stock market, that took place late last year and now early this year. So for people who have had money in the stock market, that has not felt good.
Jason Hartman: Yeah, it definitely hasn’t. Well, speaking of the stock market, I would like to ask you, Eric, to just comment on one of the other prognosticators of stock markets and personal finance, and that is someone who is getting very, very famous, and that is Mr. Peter Schiff, who I’ve had on the show previously. The odd thing about him is that so much of what he said appears to have been very correct, yet so many of his clients have lost so much money investing with him.
Eric Tyson: It’s unfortunate. The reality, if you actually go back and look at – whenever people come to me with a new guru, the new guru of the day, and look, this environment is such a perfect environment for these guys to come out of the woodwork and say, “Yep, see, I told you so. If you had been listening to me, I could have spared you all this heartache and problems.”
So I actually did an article on Peter Schiff recently, which people can go to my website, www.EricTyson.com, and read for themselves. I went back and I looked at his longer-term track record of predictions, which has been pretty dismal. He’s been wrong on so many things. As recently as May of last year, he was interviewed by U.S. News and World Report magazine, and in that article, he said that commodity prices were going to continue to boom, and clearly, that was just a horrible call. So his investors that he put into commodities, I mean commodities have just been decimated, actually even worse than the stock market.
He also told people to invest money in overseas or international stocks rather than U.S. stocks. Well, actually, in this bear market, overseas markets have gotten hammered even more than ours have, so he’s been wrong on some pretty big issues. His long-term track record is really nothing to write home about, so it’s not someone who I would give guru status to.
Jason Hartman: Schiff is a real gold bug and I’d sort of like to get your thoughts on the precious metals world, Eric, and lead this discussion toward where you think the opportunities are nowadays.
Eric Tyson: The record on gold over the long term is crystal clear. As a long-term investment, gold is a horrible, horrible investment. It’s far inferior even to sticking your money in Treasury bills or a bank account. What you get investing in gold over the long term is a rate of return that just keeps you ahead of the rate of inflation. When you factor in taxes, it actually doesn’t even do that. When you factor taxes in, precious metals don’t even keep you up with the rate of inflation.
One of the things that people forget about precious metals is that they pay no dividends or interest. Now, there have been time periods, and the 1970s are a good example, when precious metals prices, gold prices did quite well because we had unexpectedly high inflation. Now, if we have another period like that in the years ahead, we could see another period where gold does well.
Adjusted for increases in the cost of living, the price of gold is nowhere near the peak that it hit back in 1980. Back in 1980, it hit almost $900.00 an ounce. On an inflation-adjusted basis, just for gold to get back to the peak that it hit back in 1980, it would have to rise over $2,000.00 an ounce, which is more than double its current level.
Jason Hartman: Yeah, I’ve read that. They say about $2,300.00 an ounce just to be at the former peak in inflation-adjusted terms. The other thing people should consider is that that’s inflation based on the “official” statistics, which I have no idea where you stand on the official statistics either, which I’d like to get your opinion on that, too.
Eric Tyson: I’ve seen and read the criticisms about various government indicators. Nothing is perfect. Clearly, there are individuals out there whose own circumstances expose them to more inflation than you see in the government figures. By contrast, there are some people whose lifestyles have less inflation. I think, by and large, the government numbers are not bad. One of the things that does happen over time – and see, one of the beefs that people have with the government numbers, which reflects more lack of economic training and understanding, is that consumers are not stupid people. If the price of something continues to go up, they substitute away from it and sometimes in a very significant way. I mean look at what happened with the high gasoline prices that we had last year. Guess what? For the first time in decades, Americans drove far fewer miles in their cars and trucks, and pickup trucks when you have RVs.
Now, is it the case that some people are forced because of where they live and their kind of job and their commute to continue to drive? Yes, but even those people found ways to be more resourceful, whether it was car pooling or working from home a day a week, etc.
So over time, people do substitute away from and out of goods and services, which are experiencing high rates of inflation, and the government knows that and that’s reflected in the calculations as well.
Jason Hartman: You talk about some of the sort of tips that you have right now, No. 1, not to panic and sell off stocks too quickly; tune out the negative media; and, of course, diversification, the old mantra. Elaborate on those, if you would.
Eric Tyson: It’s hard to kind of keep your head straight when so many people around us are kind of losing it and it’s especially difficult when you turn on the evening news, you read the newspapers, you go online. There’s a lot of negative news out there. Stocks got pounded again last week and early this week, and they’re at a 12-year low, at least by some U.S. stock market measures. That’s not true in a number of the overseas markets over that 12-year time period.
It’s important to keep in perspective why you have money invested where you do. I’m being asked a lot should I just cut my losses and get out of the stock market. Should I
sell now and prevent further losses? I can understand the desire and inclination to do that, but money that you have in the stock market is money that you’ve earmarked for the longer term. Selling now in the hopes of preventing future losses, that’s not investing; that’s market timing.
And we do know that sooner or later, stocks will bounce back, and selling now at depressed prices, it’s like you should have better exit points if you want to cut back on your stock allocation. For example, if you’re getting closer to retirement, why sell at fire sale prices when there should be more good times ahead. I can’t tell you if it’s going to be next month or next year. Maybe it’s going to take three years until the stock market starts to see a significant rebound. I don’t know. It depends on so many factors that are beyond anyone’s control or ability to predict.
But history has shown time and time again that selling after a major decline like we’ve had is really a foolish thing to do. And that was even true back in the Great Depression. The stock market dropped 89 percent over a multi-year period, bottomed in the early 1930s, and then it increased 500 percent. The people who got hammered during that period were the people who bailed out and sold after the market was down 70 or 80 or 90 percent and then weren’t there to enjoy the 500 percent rebound that happened after the early 1930s.
Jason Hartman: Whatever you don’t sell today, you’re just buying back basically, and if you’d be a buyer after we’ve had a drop of this many points, there you go, right?
Eric Tyson: Well, and the thing of it is, let’s suppose you sell now because you don’t want to suffer another 20 or 30 percent decline. If you’re scared now, if the market drops another 20 or 30 percent, are you going to have the courage to go back into the market then? I don’t think so.
So the ideal situation, especially in younger people, who are best suited to take advantage of this, if you have many years of work ahead of you and you’re still earning money and you’re still saving money, take that monthly savings amount and put it into the stock market. The money that you’re investing now at these relatively low prices, years ahead, 5, 10, 15, 20 years from now, you should look back happily at those purchases, and say wow! I’ve really made a huge return on those stock purchases that I made back in 2009 and 2010. I bought them at relatively low prices. And that’s what you should be looking at as a long-term stock market investor.
Jason Hartman: Yeah, 10 – 20 years, sure. I agree. What do you say, though, Eric, to these people out there who are saying that if you adjust the PE ratios and you consider the whole business climate, the DOW should be trading at about 3900? That scares me to death when I read that, and I just read another article like that. There are people that are saying we’re going to see the DOW at 1500, 4000. I predicted 6000 last October publicly, and unfortunately, I might just be right if we have another bad day here. What are your thoughts on those? Those are pretty bearish predictions. They’re worse than bearish. They’re ominous predictions.
Eric Tyson: Well, these people that are now making these predictions, where were they two years ago? What were they saying then? I’m very skeptical of market prognosticators, yourself excluded. That’s not what you were doing. You’re just making an educated guess. But these people that fashion themselves as market prognosticators, it’s like okay, you’re telling me the DOW is going to go down to 3900. Well, let’s look at what you predicted 5, 10, 15 years ago and how accurate that was.
So the fact that people are fascinated now by these extreme negative predictions tells me that we’re getting pretty close to the bottom. When there’s so much negativity and there’s this really negative focus, I have no clue where the market’s going to bottom. I couldn’t tell you, and frankly, it has no impact on my investment plan because I’m investing in stocks for the long term. I wish stocks had bottomed last year, but they didn’t. You don’t get a crystal ball with investments when you make them, which is why you need to be clear with yourself why you’re doing it, what your time horizon is, and do your homework and make sure – are you in good quality stocks and good quality mutual funds, or could you improve upon what you have?
Jason Hartman: Let’s talk a little bit more regulatory and political for a moment if we can, Eric. What do you think about – they’re just too numerous to mention – all of the scams on Wall Street and the Bernie Madoffs out there, the corporate level, and even if they’re doing legal things, like paying themselves giant bonuses and salaries and comp plans and jets and perks and all of this stuff that makes people quite upset lately? Where was that outrage a few years ago? You didn’t see much of it, except if you listened to Lou Dobbs. He was really the one bringing it up. Do you think this government oversight is going to get any better? Do you think we need more regulation, less regulation?
I have the author of Meltdown coming on my show and he says that part of the reason we have this whole problem is we’ve had too much government regulation in the markets. And some say there’s not enough. I think it’s a very complex issue.
Eric Tyson: It is a complex issue and it’s not as easy as a lot of these talking heads make it out to be. The problem wasn’t that we had too much or too little regulation. We didn’t have the right kind of regulation. That was the problem. And frankly, a lot of the regulators and the people in prime government positions do not have the necessary expertise and background to be properly regulating the industries that they oversee. Just to take as an example and I don’t mean to be political partisan, which I’m not, or to pick on one individual, but you take Barney Frank from Connecticut. For him to be head of the House Financial Services Committee just blows me away.
Jason Hartman: It blows me away, too.
Eric Tyson: He has no economic training. It’s actually interesting because you can see this through the congressional mandated disclosures. His own personal portfolio, which is quite modest, he invested in municipal bonds. He doesn’t understand the stock market. He doesn’t understand investing in real estate and he has no experience doing that. And for a man of his age – he’s been an adult for decades – to have no experience in those types of investments, yet here he is in a key government position overseeing the financial services industry is pretty disconcerting to me.
Jason Hartman: The question is when you say invest in stocks for the long term, what the heck makes you think that’s going to change any time soon? It just seems to me like the scandals will continue. The marketplace will always figure out how to either shortcut the laws and rules, to invent new products like CDOs, for example, and credit default swaps, and every other type of product. Hedge funds were around many years ago and they lost popularity, and then suddenly came back. It seems like the regulatory climate is out there, but it’s always in the slow lane, while the market is just zipping by in a Ferrari. When there’s a new law passed, new regulation, or even public sentiment, they just change course and do something else, and then it’s not discovered until years later.
Eric Tyson: Right. Nobody is going to care as much about your situation as you, yourself, and one of the things that I pride myself on is that I stay away from predictions. I make it clear to people that nobody can predict the future. But what I do do is protect people by telling them about investment vehicles and opportunities. For example, if you’re going to invest in mutual funds, I know Vanguard is a great institution to do business with, and I have no financial vested interest in recommending them. They’re not going to abscond with your money like Bernie Madoff.
And so I keep people from making really horrendous mistakes and avoiding scams. And that’s what people need. You need to save. You need to protect yourself with proper insurance. I know you work in the real estate business. If you’re out there looking at properties, you can buy a property and you know it’s yours, and you get title insurance. You dot your I’s and cross your T’s. It’s your property. Again, you can’t have a Bernie Madoff type of situation with that.
There have always been scoundrels. There always will be. There’s always going to be scams. Even during good times, there are scams and scoundrels, and you just have to do your best to sidestep them.
Jason Hartman: Yeah, that’s for sure and that’s one of the things that I love about being what I call a direct investor. You own it, you control it. Yes, you’re subject to market forces. You’re subject to regulations and so forth, but you’re not subject to what I call intermediary party risk, where the CEO or the fund manager – they’re just taking all the money. And it is legal. Those are not scams. I’m just talking about the legal ability to charge big management fees and that’s one of the things you leave yourself susceptible to. But hey, we all have to trust someone, right?
One of the bullet points you have in one of your news releases is about looking on the bright side and we really have these historically low interest rates. I thought they would be higher by now, a couple years ago, but never underestimate the power of the Fed and the other forces that be to just keep pumping that money out and opening up discount windows and keeping money cheap. That’s a pretty good silver lining, though, isn’t it to have these low rates?
Eric Tyson: It is and people shouldn’t lose sight of that. That’s why these comparisons to the Great Depression are overdone. I remember the recessions back in the early ‘80s and the mid ‘70s, and that was a pretty horrible period. We had no economic growth, recession after
recession, and double-digit inflation, double-digit unemployment, and double-digit interest rates.
Jason Hartman: That’s the misery index, for sure.
Eric Tyson: Yeah, see, you do have to – I mean even though this has been a tough period and a nasty period, especially if you’re investing in real estate or investing in the stock market, there’s been worse periods and you have to look on the bright side. Spring and summer follow winter. We’re in the winter right now economically speaking and spring and summer will come. Just be patient and try to be optimistic and see the glass as half full rather than half empty.
Jason Hartman: I agree with you about that. It’s during winter that so many people want to reign in their horns. They want to get under a blanket and hide. This is the time to be – I said at one of my recent seminars, I told the audience, I said, “Look; I just want you to know you’re not going to hear a bunch of hype about how great an opportunity this is right now. I am not an optimist, but I am an opportunist. I think that’s what you have to be right now, a little bit of a vulture, right?
Eric Tyson: Well, yeah, you do have to see opportunity in the current environment, and if you don’t have the cash and courage, then you’re not going to be able to take advantage of it. But if you’re putting money in your 401k plan, the worst thing I think you can do in your 401k plan is sell the stocks you already hold and then not take advantage of the low prices by buying stocks with the new money you’re putting in. The emotional thing for people to do is say I want to go into bonds. Bonds have been doing well and I’ll feel safer there. Well, you may feel safer there, but five or ten years from now, think about if it’s your 401k plan and I’m investing it for retirement, then how many years and decades are you away from retirement. That’s what you’re investing for.
It’s easier for me to say that than it is for people to do that.
Jason Hartman: Of course, when they’re looking at the screen or they’re looking at the ticker and they’re calculating how much they’ve lost, they just kind of, at some point, want to get out. And this is why I think, Eric, the little guy gets hurt the most because the little guy is always following the trends. They’re at the end of the pipe and they usually make a lot of bad decisions at that end, I think.
Eric Tyson: They do, and I used to be a former financial planner, financial counselor, and one of the things that I saw foolish people do is they’d sell after the carnage has happened, which is perverse because if you think about it, if retail stores are having a sale, 50 percent off, that’s the time that we like as consumers to go out and buy things. But in the financial markets, we tend to do the reverse. We pile into investments that are all over the front pages as appreciating a lot and we run away from the ones that are going down.
Jason Hartman: Yeah, fair enough. That’s a good concept. One of the things that I love about your website at www.EricTyson.com is your Guru Watch, and I thought I’d ask you to
comment. We talked about Peter Schiff. Talk to us a little bit about Suze Orman and Jim Cramer and the others. I don’t want to prejudice you with what I think.
Eric Tyson: I have some good articles posted on all of those folks, as I’m sure you’ve seen there. Yeah, Cramer on CNBC, he comes across as an intelligent guy and he’s very animated, but again, if you look at the track record of his predictions, it’s pretty dismal.
Jason Hartman: I agree.
Eric Tyson: Even in the investment banking industry, which he came out of – I mean he used to work at Goldman Sachs, and here he was in 2007 and early 2008 telling people to buy Goldman Sachs, invest in Lehman, and invest in Bear Stearns, and these companies went down the tubes, or at least some of them did. So I don’t find him to have any particular insight and his stock picks have been pretty bad. Suze Orman’s advice over the years has gotten better. She has kind of a checkered past. She used to be a waitress in a restaurant and then a secretary in a brokerage firm. She has a really unremarkable background and I find it amazing that so many Americans see her as a source of high quality financial advice.
Jason Hartman: Suze Orman just seems to be very elementary, like her advice is like the first level of financial understanding. And there’s just not much there beyond it. But I guess you have to fit everything into a short sound bite when you’re on TV.
Eric Tyson: I think that’s part of it. But people should do the investigation and background on where you’re getting your financial information from. What’s the background of the person? If they’re making predictions, what’s their track record with their predictions? Do that homework up front rather than getting sucked into following somebody.
Jason Hartman: How about Robert Kiyosaki?
Eric Tyson: Yeah, the Rich Dad, Poor Dad author, as you probably know, he’s been a big real estate fan. He’s kind of pro real estate, anti-stock market, and even several years ago, he was saying that. Stocks went up and then real estate went down. People who have read my books, like Investing for Dummies, they know that I present all the ways that you can build wealth. Real estate is a time-tested way to build wealth. So is investing in the stock market. But you have to do your homework. One isn’t necessarily superior to the other. Some are better fits for certain investors. As you know, if you’re not willing to do the legwork and homework and be a landlord, then investing in rental properties is probably not for you. Likewise, if you can’t stomach the severe volatility that we sometimes experience in the stock market, then being a stock market investor isn’t for everybody either.
Jason Hartman: The thing about stocks is that if you have dividend-paying stocks, there are two dimensions at least to that asset. With income property – not your own home we’re talking about or vacant land – but property that produces rental income, there you really
have quite a few dimensions of that investment, too. So sometimes even when it goes down a little bit, you can still do okay based on cash flow, tax benefits, some of the other things.
Eric Tyson: Correct, absolutely.
Jason Hartman: Yeah, more dimensions to it. I love talking about these gurus. Thomas Stanley, I remember when his book was so popular.
Eric Tyson: He’s not somebody that I’ve really followed closely. There are so many gurus out there. Lately, I’ve just been focused on the ones that are in the news a lot and people are sending me questions and emails about, saying what do you think of this guy’s advice? It seems like he’s been right, which is kind of interesting because so often, a lot of these perceptions come from these people marketing puff pieces that are out there. We talking earlier about Peter Schiff and there’s some YouTube videos claiming he’s this investing genius. Well, it’s very selected recall and highlighting of clips, and there are lots of clips out there that are not so favorable.
Jason Hartman: Well, I’m not sure if you’re familiar with this, but I remember hearing about it years ago, and I thought it was a really phenomenal scam, and that is that these psychics, what they will do is they will make a bunch of predictions, write them on a sheet of paper, place them in ten different safe deposit boxes around town, and then they will have a list, a catalogue, a record of which prediction is in which box. And they’ll say, “Hey, I predicted that,” when it comes true a year later or two years later. “I predicted this would happen.” And then they’ll call the reporter from the local television station down to the bank with them and they’ll show them the record that they’ve never opened that safe deposit box since they made the prediction. They’ll open it up, and gosh, there it is in writing!
Eric Tyson: That’s a great analogy, Jason. I love that, and yeah, that’s exactly what these gurus are doing, who are coming out of the woodwork now. “I predicted this was going to happen!”
Jason Hartman: Right, so you’re hearing one of their many predictions. Well, you may hear one that’s true, but another nine are incorrect.
Eric Tyson: I love that. That’s great.
Jason Hartman: The most amazing one on your website here, Eric, I think has got to be Dr. Phil. What the heck does he have to do with finance, right? Suddenly, everybody’s an expert.
Eric Tyson: Well, last fall, some of his shows – and I know a lot of people like him, and look; I’ve watched some of his shoes and found the information to be helpful at times, but he did a show last fall in the middle of the stock market meltdown, called “Financial 911,” and he had all these people on, doom and gloom, “world’s coming to an end.” And I just felt like you’re outside of your area of expertise here, and he had Cramer on and a couple other people, and I just think he should stick to psychology. He was almost encouraging people to panic and sell their investments by painting such a gloomy picture.
And I think that’s one of the things that have fed the stock market decline, the continued era of negativity, and it can be become a self-fulfilling prophecy.
Jason Hartman: Sure, no question about it. I’d also like you to comment on one other thing, and this is someone you respect. It is the classic book, The Random Walk down Wall Street. What I get from that is that nobody really knows; just buy an index fund. To me, it just goes to show you that all of these theories, they’re all just hype. Is my perception wrong about that?
Eric Tyson: Well, Random Walk down Wall Street is a terrific book, and stock market investors, wannabe stock market investors should check it out. Yeah, I mean there are a number of key points made in that book and one of them is that just because investment managers beat the market over a certain period of time doesn’t mean that he’s going to continue to do it going forward. Sometimes, somebody can outperform the market just by chance.
One of Burton Malkiel’s points is that simply being in the market over an extended period of time and continuing the dollar cost average new money end is where you’re going to get your investment returns from; definitely the case. And so buying a broad index fund, which just invest to match a broad stock market index, can be a perfectly acceptable way for a person to invest in the stock market, and you don’t have to beat yourself up and analyze hundreds of mutual funds to find the best one out there.
Jason Hartman: What do you think about the latest “stimulus” package? What are your thoughts on what the government’s doing right now? I mean it’s epic, it’s historic; it’s never happened before like this.
Eric Tyson: I’m not a huge fan of continuing an extreme government intervention, but there have been dislocations in our credit markets, and I’d like to see the government do some additional things, like this so-called mark-to-market accounting, which is force banks to continue to write down these illiquid subprime mortgages. I’d like to see the government suspend the mark-to-market accounting.
Jason Hartman: Now, before you go on, I just want to ask you to define that a little bit for our listeners because some people have trouble understanding, and just to give you my view of that, it seems like mark-to-market was ultimately a good idea, but it was too sudden and too shocking. It should have been phased in slowly. Did Chris Cox really screw up on that?
Eric Tyson: Yeah, I don’t know if it was totally his responsibility, but yeah, that was one of many things that I think Christopher Cox didn’t get right. And the problem with mark-to-market is for an asset like subprime mortgages, which are highly illiquid and very hard to value in the current environment, it doesn’t work well. And to force these banks into
basically bankruptcy by continuing to write down these illiquid assets doesn’t make sense to me.
Jason Hartman: Should there be no mark-to-market or ultimately be –?
Eric Tyson: I think it needs to be more flexible. Here’s the current situation. It just doesn’t make sense to me why they don’t suspend it as it relates to valuing the subprime mortgages on these banks’ books.
Jason Hartman: Okay. And so continuing on your discussion on the latest stimulus package.
Eric Tyson: The stimulus package, there certainly are some reasonable elements to it. The infrastructure spending, some of the modest tax cuts I think are reasonable. Yeah, there’s some pork in it and some other nonsense and I know it does seem like a lot of money to people. And it is a lot of money, but when you look at the amount of money in relationship to the size of our economy, it’s not really that significant. So I think the final package that was passed was infinitely better than what it was originally proposed, and watching how the sausages made them a sausage factory in Washington is never a pleasant experience. But I think enough of it was kind of good enough. I think this is what I would say.
Jason Hartman: And just to wrap up here, Eric, of course, people can go to www.EricTyson.com and get a copy of your latest book, Let’s Get Real about Money, and you’ve written many, many of the various Dummies books that are just such a great format. Those books, I really like them. But people will do that. And what are your thoughts on the future? What can we expect over say the next five years or so?
Eric Tyson: Well, hopefully, five years from now, we’ll be able to look back on this period and see that the world didn’t come to an end and life went on, and our diverse and resilient economy once again rose to the challenge. It’s interesting. The fourth quarter GDP numbers – it was all over the news media. The GDP plunges almost 4 percent. Well, what a lot of people don’t even realize about that number is that they annualize the fourth quarter performance. Fourth-quarter GDP compared to the third-quarter GDP was only down nine-tenths of a percent. Now, if we have four quarters in a row of that, then that annualizes to just under 4 percent.
But the economy didn’t drop that much in the fourth quarter. So again, I don’t have any insight as to what’s going to happen in all the quarters of this year and next, but it’s important when people listen to these news items that are out there to get the facts, keep a level head, and keep in perspective what they’re trying to accomplish over the long term.
Jason Hartman: Excellent. Well, Eric Tyson, very good advice. The website is www.EricTyson.com and thank you so much for joining us on the show today.
Eric Tyson: Yeah, my pleasure, Jason. Thanks for having me.
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Duration: 53 minutes