CW 391: Warren Buffet & Berkshire Hathaway’s Success with Vitaliy Katsenelson of Investment Management Associates


Vitaliy Katsenelson is the Chief Investment Officer at Investment Management Associates. He gives a glimpse at what has made Warren Buffett and Berkshire Hathaway so successful. Buffett has always voted yes to the investments he’s heavily invested in, even when disagreeing, which is a topic of much consternation to Katsenelson.

He thinks Buffett mishandled Coke’s latest compensation plan.Katsenelson then discusses ways investors can take a long-term view in their investing. Katsenelson then discusses ways investors can take a long-term view in their investing.

Key Takeaways:

(1:51) Discussing a few news items with Sarah before today’s guest interview
(10:30) Debriefing about the last Creating Wealth Seminar
(13:20) Earl Nightingale: We become what we think about
(16:45) Discussing one property in Little Rock
(29:08) Introducing Vitaliy Katsenelson
(29:30) A general overview of the investment markets and the economy
(31:53) On what has made Warren Buffet and Berkshire Hathaway so successful
(37:28) How has Buffet changed over the years?
(38:49) What it means to be a value investor, and why become one
(43:33) Inflation & general economic outlook
(49:28) US, China, Japan, Russia, & the global economy
(57:04) Closing comments


Visit Vitaliy’s Katsenelson’s blog at
For more about Investment Management Associates:


Vitaliy Katsenelson is Chief Investment Officer at Investment Management Associates. While his primary focus is on discovering under-valued companies for his clients, he is also known for his uncommon common sense, which he has regularly expressed in articles in the Financial Times, Barron’s, Bloomberg Businessweek, the Christian Science Monitor, Institutional Investor, and the New York Post, among other outlets. He speaks frequently to investment groups around the world, and was most recently profiled in Barron’s in September 2009. Previously, he was an adjunct faculty member at the University of Colorado Graduate School of Business, and he is also the author of Active Value Investing.

Audio Transcription:

ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! 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 multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years 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 the Creating Wealth Show! This is your host, Jason Hartman, and this is episode #391. 391! Can you believe that? I can hardly believe it, and I can’t wait till we get to episode 1000. But yeah, episode 400 is not too far away, and we’ve got it all planned out already, through episode 402. And today I recorded two great guests that we’ll have way up at number 403 and 405! Or 404, probably. So, lot of good stuff coming up for you. I’ve got Sarah here with me; hi Sarah! How you doing?

SARAH: Hey, great, how are?

JASON HARTMAN: Good, good! It’s good to have you on the show. And you know, folks, I just have to tell you the back-story. I always have to twist Sarah’s arm to get her to come on the show.

SARAH: I’ve been dodging this for like three weeks now, right?

JASON HARTMAN: I think it’s been longer than three weeks I’ve been bugging you to be on the show. But, most people would want their fifteen minutes of fame, but you, Sarah, you shun it.

SARAH: I do.

Discussing a few news items with Sarah before today’s guest interview

JASON HARTMAN: You’re just not into it, huh? You know what’s interesting? A couple of news items here, before we get to our guest today. Because our guest is going to tie right into two of the things I want to talk to you about as we dive into it. Sarah, did you know that in New York, very expensive New York, and this is, of course, New York City they’re talking about, I’m sure. My grandparents are from upstate New York, and that’s where my mom grew up, on a farm, on a dirt road, and near poverty. They’re not talking about that. They’re talking about New York City. But did you know that 1 in 25 people that live in New York City is a millionaire?

SARAH: I do now. Yeah, that’s pretty amazing. I don’t know what value that holds though, these days.

JASON HARTMAN: Well, you know, it’s just like I talk about on the show, and at the Creating Wealth Boot Camps. Which, by the way, we’ve got one of those coming up in Little Rock, Arkansas on September 27th, combined with a property tour! So, you can get both of those at once. I talk about nominal dollars versus real dollars. And when you live in an expensive place like New York, or like where I’m from, Orange County, Irvine, Newport Beach area—very expensive also—it’s really like measuring, what do you really get out of being a millionaire in one of these places? It’s really no big deal. Because the price of housing is so expensive. I interviewed, and I talked about this on a prior episode, I interviewed a high-powered real estate broker in New York City, on one of my other shows. It was for another topic, it’s not really that fitting for the Creating Wealth Show. But maybe I should run it on the Creating Wealth Show too, because I kind of keep referring to it because it amazed me so much. What she said is she said, her average sales price, about 3 million bucks, and what does $3 million buy you in New York? It buys you a 1400 square foot condo that’s maybe built in 2004, and that’s all you get for 3 million bucks! And I said, well, how much will that rent for? Knowing the answer in advance. And she said, it’ll rent for about $11,000 a month. 0.3 RV ratio. I would much rather see anyone listening buy 30 $100,000 properties in diverse markets from us, that rent for $1000 a month each, getting them $30,000 a month for their $3 million. But, then again, this is the thing. So, being a millionaire in New York, is no big deal. In fact, I would venture to guess, and you know, there are indices for this, and websites, and people do stats on this, so, I’m gonna see if I can find one and talk about that on a future episode. But I would venture to guess, having a net worth of a million bucks in New York City, is equivalent to having a net worth of maybe $150,000—or maybe $200,000—in, say, Houston. Or Austin. Even Austin.

SARAH: Yeah, you know, it’s funny you say that, because I have a couple new east coast clients from New Jersey that I’ve recently been working with. And it’s just been great working with them, because they’re so excited about these markets, and they can’t get anything close to what we can offer them where they’re from! So, they really get it. And they’re really, really liking the markets that we offer.

JASON HARTMAN: Well, that’s a good thing. And one of the things, let’s, I’m sure they’re probably going to be listening to this episode. To those clients, and all clients who live in expensive areas, first of all, I want you to consider this phrase. It’s one of my new buzz phrases, so, it’s worth remembering, okay? And it is: cash in, to cash flow. And what I mean by that, and I saw this happen en masse in 2003, 2004, 2005, 2006 even, in California, where people were taking, and they were either selling their home in California, or they were selling investment properties in California, and doing 1031 tax deferred exchanges, and moving that money into cash flow markets.

And alternatively, they were doing refinances of properties in the expensive markets, and moving that dead home equity that’s not working for them, that’s not doing anything, because there’s really no such thing as return on equity, and they were moving that into cash flow markets. So, when you have—when you live in a real estate bubble market, and you’ve ridden that appreciation wave—hey, good for you. Congratulations. I’ve done it myself a few times in California over the years in those cycles. But I was just lucky. I wasn’t good. I’m not gonna take credit for knowing that happened. I just was in the right place at the right time. Which, hey, I think it was Woody Allen who said, 80% of success is just showing up. Maybe it wasn’t Woody Allen. But it was somebody. And, so, you’re there. You got lucky. Congratulations. So, cash in!

Use that wealth that you’ve created in the high priced market that doesn’t make any sense, to now become a sensible, long term value investor. Which is a perfect segue to tell you about who our guest is today! It is Vitaliy Katsenelson. And he is an expert on Warren Buffet. And Warren Buffet, I kind of have a love hate sort of relationship with. Because I like Warren Buffet’s value investor philosophy. And that is exactly the philosophy that Sarah and I believe in when it comes to real estate investing. But, Warren Buffet has been pretty hypocritical about a lot of things too. So, I don’t like that part. But his value investing strategy is awesome. Just looking at this article about the wealthy New Yorkers for a second, before we move on. This is, researchers at Spear’s Magazine, say that 4.63% of the city’s population have assets of $1 million or more, excluding their primary residences. And that means there are 389,000 millionaires in New York City. I guess if you’re a single guy in New York and you’re trying to pick up a girl and get a date telling her that you’re a millionaire, she’s gonna say, tell me something I don’t know.

That’s no big deal. Okay? If you’re trying to impress her that way, right? When you look around the world it’s pretty interesting too. Because around the world, New York has the fourth highest millionaire population, in terms of residents. But there’s a big drop off after the first, because you can barely move around Monaco without tripping over a millionaire, who are 29% of the population in Monaco. By the way, I love Monaco. Been there three times, and it’s a pretty awesome place, if you can handle the haughty French attitude. But it’s quite beautiful. That principality. And then, Zurich, Switzerland—I was just there last summer—27% of the population are millionaires. And in Geneva, 18%. It’s interesting to look at Tokyo and London. It says, by numbers of millionaires, instead of by proportion—okay, so, here they’re not taking a percentage of the population, they’re just looking at overall numbers—it says that Tokyo came out on top, and London was third. Only two other American cities made the top 20 based on population of millionaires, and those were—interestingly, by the way—Houston. Amazing. Houston, we have an opportunity, not a problem. As the saying goes. And then San Francisco. That doesn’t surprise me. But Houston actually kind of surprises me. That’s pretty interesting, isn’t it?

SARAH: Yeah, well, you know how I feel about Houston. It’s been one of our top markets for many, many years, and we do our best to source good properties there, but it’s been tough to keep our hands on anything there. They’re just going like crazy.

JASON HARTMAN: Yeah. Inventory’s been a huge problem for us for almost a year now, I would say we’ve been really struggling with inventory. And, we are on the verge of trying to solve that problem, because we are hiring a couple of people to just be assigned with the exclusive job of chasing down good inventory for our clients. As you know, it’s scarce. Good inventory is scarce. But, we’re working on it. And so, just remember the moral of that story, though. About the New Yorkers, or about any—if you live in any city where you’ve been fortunate enough to create a lot of that wealth, you’ve ridden the wave, good for you, congratulations. Cash in. In other words, use that wealth to turn it into cash flow. Because cash flow is what creates real long term wealth. Very, very important. Hey, Sarah. We didn’t get a chance to debrief on the event we had a little over three weeks ago, and I wanted to just do that real quickly. Everybody’s always kind of critical of themselves. I think I was a little rusty. I haven’t done enough Creating Wealth Seminars lately. So I’ve gotta do those more often. I certainly love doing them. But we really focus our efforts more on the podcast, and that kind of stuff, and less on events. So, I’m excited that we’ve got our event in Little Rock coming up. Give me a chance to practice some more. And I love doing that seminar. It’s our core event, the Creating Wealth Boot Camp. But, you know, what did you think? What were some reactions or thoughts, other than the room being too hot in the afternoon?

Debriefing about the last Creating Wealth Seminar

SARAH: We had just under 100 attendees. And we got some surprise registrations the night before, but it was a great group, and luckily, we were able to get a bigger room at the last minute. But, definitely get your seats for the Little Rock tour and Boot Camp, because once we lock in a room, it’s really tough to open it up for new attendees. But yeah, the Creating Wealth Boot Camp—I always enjoy it. Maybe you weren’t quite yourself. You’d been doing a lot of traveling. But I think the clients really enjoyed it. I think you’re definitely too critical of yourself. I know my good friend Christine came to help us out, and she just loved the content. So, always good content. I’ve sat through that seminar many, many times, and I’ve always said, I pick up something new each time. So, it’s really important that if you’ve attended in the past, or you’ve attended another Boot Camp, that you come back and get a refresher course every once in a while.

JASON HARTMAN: We used to say to people, when we used to do those all the time, when we were really doing a lot of live events, we used to say to people, and you might remember this, Sarah, come every 6 months. That’s sort of your core thing. And just come back and see that every 6 months, so that you’re always refreshed. And I’ll tell you why I think that you listeners need that. Because it’s sort of funny, and I think this is true of all people. This is—I’m not being critical here. It’s just part of human nature. I can tell by the questions some of you ask us, that you’ve been to the Creating Wealth Seminar a couple of times, and we covered that! You know? And it’s sort of—it sort of surprises me sometimes, why are you asking me that question? You know this!

SARAH: Right. But there’s, you know—

JASON HARTMAN: It really goes to show you, we need to reinforce. We constantly need to be refreshed, and reinforced, and be exercising those muscles.

SARAH: Don’t forget. When you come to an event for the first time, you’re at a certain place within your investment time horizon. And you know, you may be new, or you may have a few properties already. You may be very seasoned. We definitely gear that seminar towards a wide range of investors. But, two years go by, and you’re in a completely different place. You’re taking everything you learned over those two years, and now you’re applying it differently. So, as you grow as an investor, you’ve gotta refresh your memory and your brain, and there’s just new content all the time. Real estate is very, very fragmented, and gotta always be piecing the puzzle together.

Earl Nightingale: We become what we think about

JASON HARTMAN: Here’s another thing, and I have mentioned this, but not for a long time on the show. And I remember learning this from the late, great Earl Nightingale, who was totally awesome, by the way. But he—you know, he’s an old style self development speaker, and he was definitely one of the greats. He was the one that helped us all discover what he called the strangest secret, and that is that we become what we think about. So, I know I’m probably gonna turn into Taylor Swift, but—

SARAH: How so?

JASON HARTMAN: I think about her.

SARAH: Oh, I get it.

JASON HARTMAN: I do think about her. So, anyway. Some day my unrequited love for Taylor Swift will be—I’ll get my date. And then my song written about me. Right?

SARAH: I’ve gotta find you a new country girl, Jason.

JASON HARTMAN: Okay, all right. We’re over that. Earl Nightingale taught us that we become what we think about. And you know, he was the first one to really take the concept of personal development and success, and turn it into audio programs. And he was the founder of the company Nightingale Conant, which, in the days before Audible was really big, they were huge! Audio content from Nightingale Conant, I used to be addicted to it when I was 17, 18 years old, into my 20s. And I would just constantly be buying tapes—yes, tapes. Cassette tapes—from them, and listening to them over and over again. And I just love that stuff! And what he explained to me, and I thought was really quite interesting, and think of another old fashioned metaphor here. Sarah, do you know what a record player is?

SARAH: Yes, I do.

JASON HARTMAN: You do? Are you old enough to know—you know what a record album is? Like, it was black, and made of vinyl.

SARAH: Oh, come on.

JASON HARTMAN: Okay, alright. So, you’re not that young.


JASON HARTMAN: Anyway. When a record is spinning on a turntable, and you’ve got the tone arm, where the needle is, that picks up the grooves in the sound to make the sound. And if you pick up the needle, our mind works the same way. So, if you’re sitting at the Creating Wealth in Today’s Economy Boot Camp, and you’re listening to Jason Hartman talk about something, and then, one of those ideas is particularly interesting to you, you sort of turn off your ears, in a way, and you start processing the idea, and you listen to it. Then everything I say after that, you don’t hear. And then, as soon as you’re kind of done processing the idea, you turn your ears back on, and you listen to it, and then when you hear another interesting nugget, you start processing that, and then you turn your ears off. And that’s why, like you say, and it’s very appropriate, Sarah, that every time you come to that seminar, you learn something new. And I would totally notice that about myself when I would listen to Nightingale Conant audiotapes over and over again. It’s like, did they say this on the tape before? I mean, it’s the same tape, right? I definitely did not hear that. And the reason I didn’t hear it is because I was thinking about something else that they said. It’s lifting the tone arm off of that record, and the record’s still spinning. And then you put the tone arm down, and you’re in a whole different place. You’ve missed part of it. So.

SARAH: Yeah. Good point.

JASON HARTMAN: Interesting stuff. So, I hope you all join us in Little Rock, and I hope—and by the way, I hope you didn’t consider it too tacky, folks, but that Bill Clinton impersonator—I got quite a bit of feedback on it, that that was—you thought that was pretty hilarious. So, I’m glad you enjoyed that one. But Sarah, let’s look at a property in Little Rock real quick, and give them an example, and then before we get to our guest, I’ve got one more sort of topic I want to talk about.

Discussing one property in Little Rock

SARAH: Okay. So, the property I have here in Little Rock was built in 1970, and has been completely renovated. And if you want photos of this property, just email me, [email protected], and I will send you photos. It’s gorgeous. I mean, I would live here.

JASON HARTMAN: Yeah, it looks really nice. I’m looking at it now.

SARAH: Very nice. So, we’ll break down the numbers. So, it’s a 1500 square foot property for $102,900.

JASON HARTMAN: And that’s $67 per square foot. Right around, or maybe a little bit below the cost of construction. Good.

SARAH: The nice thing about this property is that it’s already leased. So, it’s leased for $1075 a month. That’s really ideally gonna take away any vacancy you’re gonna have. Hopefully, as long as they pay, you’re gonna have zero vacancy in that first year. Maybe two years, if they stay. So, we have them on a one year lease, $1075 a month. And with these assumptions, we have it showing 25% down as your down payment. Some of you may even qualify for 20% down. And so, your monthly cash flow, about $260 a month, after all your expenses. Taxes, insurance. We’ve even got a vacancy loss in here, even though you might not feel it right at first, right?

JASON HARTMAN: Right, right. So there’s a vacancy loss of 8% annually, which is one month per year. But Sarah, $260 a month positive cash flow, according to the pro forma here. So that’s $3125 per year, and again, everything is in here. The management fees, maintenance cost, vacancy rate put in here—and by the way, the maintenance percentage on this, what we do is, our local market specialists, we require them based on the age of the property to increase the maintenance percentage cost. So, here, the pro forma is 8%. 8% of the income is going in your slush fund, essentially, for maintenance expense. So that’s $86 per month for maintenance. Really, a high projection. $1000 a year. It’s very unlikely you’re gonna have that much maintenance on a fully rehabbed property like this.

SARAH: You get through your first year without that maintenance expense, and that vacancy loss, you’ve got an extra $150 a month in cash flow. Great looking property, great market, it’s kind of an—I would say it’s not an oversaturated market. You know, not a lot of hype about Little Rock. Just one of those linear markets.

JASON HARTMAN: Yeah. Not a lot of investors. You know, I really doubt there’s been much, if any, imprint in Little Rock by the institutional investors, by the hedge funds and the private equity people. They probably haven’t been there much in this market. This is just a nice, stable little deal. And so, here, the projected cash on cash return is 11% annually, and like Sarah mentioned, if you don’t have any vacancy, and you don’t have those repairs in the first year, you know, your return’s probably—I bet that would bump it up to probably 13%. I don’t have a calculator to do it in front of me, but that’d be an extra $2000 or so that you would have in net income, bringing our net income that year up to about $5100. And your overall return on investment—now, this is the multidimensional return, with everything in it except one thing that the pro forma does not consider. My listeners know what that is. It’s the inflation-induced debt destruction. Not included. So that makes everything even better, as long as you’re not buying with cash. If you’re buying with cash, you don’t get the inflation-induced debt destruction. That comes with cash. And if you don’t know what I mean by that, if you’re a new listener, we’ve talked about it on the last 390 episodes. So, just go back and listen to them. And 35% annually. I mean, wow! It’s pretty awesome, huh?

SARAH: And so, just to clarify, you know, we’ll be in Little Rock. Day one is classroom style Boot Camp with Jason, and day two is property tour with the market specialist and Jason. And great opportunity to see these properties in person, learn a little bit more about the market, and identify some good income properties.

JASON HARTMAN: Yeah. Absolutely. And you know, we’re gonna share a bunch of meals together, you’ll get some good networking benefit out of it with other investors. Basically the schedule looks something like this. We will see you formally for the first time on Saturday morning at 8:30 AM for coffee and continental breakfast. And then we’ll start the seminar at about 9:00, then we’ll have lunch together right around noon, of course, and then we will conclude the seminar at about 6 PM on Saturday. That’s the 27th of September. Then we will all meet for dinner at about 7:30 Saturday evening, and we’ll go to a nice restaurant and have a great dinner, and all of that is on us, so don’t pull out your wallet or anything. We’ve got that covered. And then Sunday morning we’ll meet, and we’ll talk a little bit, and talk a little bit about the day. Have breakfast, and then we’ll get on the bus, and we’ll tour the properties, we’ll stop for lunch, we’ll do a nice themed area restaurant for lunch, and then we’ll probably conclude the tour, so you can plan flights out, on Sunday anywhere after about 4, 4:30 PM, usually. It’ll just be a great time.

So, we look forward to seeing you in Little Rock, and it’s the first time we’ve done a property tour there. I think you’ll be very impressed. It’s a very nice, clean city, and again, kind of below the headlines, below the radar, not a lot of hype about it, which we consider to be a benefit. The gamblers and the speculators would not consider it to be a benefit. But we’re the contrarians in that respect. We like the safe conservative stuff, the simple stuff. So that’s the tour. Join us. Go to, click on the events section, and there’s super early bird pricing right now, so it’s really inexpensive, and that price will escalate as more people register and we get closer in time to the event. Now, Sarah, before we get to our guest today, because we’re talking about value investing, and I think this is kind of interesting.

You know, I’ve always talked about how income property is a multidimensional asset class. And, when you look at the value of property, and if there’s appreciation happening, versus the rent on the property, so, two of the dimensions are price—you know, price versus rent. Those are two dimensions that are very important to consider. One of the things that a lot of people don’t realize when they’re talking to someone just casually about real estate, and when things aren’t going well, people refer to it as a down market. When prices are going up, they’ll refer to that as an up market, or a good market. But that’s really very misleading. Because it only looks at one dimension, and that is price. But what they don’t realize, is that in most cases, appreciation is a non-correlating indicator to rental income. Well, I mean, it correlates, in a way, but in the opposite way most people would think it does. When properties are appreciating, usually rents are softening. Because renters are tempted to buy. When they see prices going up, it usually is a result of low interest rates, high housing affordability, and ease of qualifying for financing. So, in this market right now, we’ve only got two of those three things happening. It’s kind of an oddity that we’ve got right now. Because right now what we have, is we’ve got low interest rates, and we have high housing affordability, very good affordability, but we don’t have ease of qualifying, do we? It’s pretty hard to get a loan. So, for someone to move from the renter pool to the owner pool, that’s fairly difficult, isn’t it, Sarah?

SARAH: Yeah, it surely is.

JASON HARTMAN: Yeah. Oh, that’s a big comment.

SARAH: Hey, I think I’m a little rusty on my podcasting.

JASON HARTMAN: No, you know what I think you’re doing? I think you’re multitasking while I’m talking.

SARAH: No, no.

JASON HARTMAN: I’ll just ramble on and on, Sarah will make a casual comment here and there. Okay. This is the problem with not being in the same place. I can’t see what you’re doing. Okay. So, what’s interesting here is, I found a little infographic from 2010, and here’s what it said. This is from the multi-family executive magazine. And what that is, is that is a magazine for apartment owners and investors. Usually the institutional type, not our type. But larger institutional investors that would buy, you know, typical apartment properties above $4 or $5 million and way up from there. Could be tens of millions of dollars for larger projects. So, what this shows, is one part of the infographic is a family moving into a house. So they’ve got boxes, and the kids, and they’re obviously moving into a new home. And here’s what it says. It says, 2.6% is the percentage the cost of owning the average priced home has decreased this year. That is a combination of price, or value, and financing. So, in 2010, the Housing Affordability Index became better. And it became cheaper to own a home. And that’s what it’s saying. But then, in the other image on this infographic, you’ve got a picture of a woman who does not look very happy, leaning against a wall. And it says, 5.9%: that is the percentage rents have increased this year. So, you see, that tells my story about the multidimensional nature of income property. Most people think in one dimension. They think, oh, the prices are up, the prices are down. It’s a good market, it’s a bad market. That’s all they think of. Well, what they don’t realize, is usually when prices soften, rents increase, and they strengthen. And usually when prices are going up like crazy, rents will start to soften, because people are moving out of the renter pool into the owner pool. And vice versa. And so, that’s what I love about income property. You get to be in the position where you can always adjust your strategy based on whatever is going on out there. And that is a great thing. And Sarah, if you’re not multitasking, what do you think?

SARAH: I mean, it’s—and I’m not multitasking!


SARAH: No, it’s definitely true. Sometimes your rents are going up, and your cash flow increases, and that’s a great thing if that’s your strategy is to get the cash flow. But other times, maybe you know, you’re seeing a little bit more vacancy, maybe you’re a little discouraged because your property took 60 days to lease and not 30 days. But meanwhile, you’re taking a gain on the appreciation side. So, you’ve gotta always step back and look at your entire portfolio and see what it’s doing, and be involved in the markets that you’re investing in and really watch what’s going on.

JASON HARTMAN: Absolutely right. Many, many investors have made huge mistakes because they don’t know how to do the math, and they don’t know how to properly keep score. Many of them feel like they’re losing, when they’re winning. Okay? And many of them, the speculators and the gamblers in New York City and California, feel like they’re winning, when they’re actually losing! So, it’s very important to understand how this works. And hey. We’re gonna talk about that on upcoming episodes of the podcast, and we’re of course gonna talk about that for eight hours in Little Rock.

SARAH: Talk about making a full circle, right? I mean, this is why you’ve gotta plug into the events. Is, you know, sometimes you forget to look at the big picture. And if there’s anybody that does the best job of pointing out the big picture, it’s you. I mean, you really get the clients engaged, make sure they’re keeping track of their investments, and seeing all the different dimensions.

JASON HARTMAN: Well, just knowing how to do the math, and knowing how to properly keep score, so you’ll know if you’re really winning or losing, is the great thing to do. So, thank you for that, Sarah, and thank you for joining me, and let’s go to our guest, and let’s talk about value investing. Because all of this stuff that we’re gonna hear from our guest here—it really applies to real estate, which is the most historically proven asset class in America, if not the entire world. And just take these lessons and use them as a metaphor for your real estate investing. They’re very good. So Sarah, thanks for joining us; we’ll be back with our guest in just a moment.

SARAH: Thanks, Jason.

Introducing Vitaliy Katsenelson

JASON HARTMAN: It’s my pleasure to welcome Vitaliy Katsenelson to the show! He is Chief Investment Officer at Investment Management Associates. And we are going to talk today about investing, the broader economy as a whole, and talk about some of the recent articles on his website, Vitaliy, welcome, how are you?

VITALIY KATSENELSON: It’s my pleasure, thank you. I’m glad to be on the show.

JASON HARTMAN: And it’s good to have you. You’re coming to us from Denver, Colorado today, right?


A general overview of the investment markets and the economy

JASON HARTMAN: Fantastic. Just give us, if you would, kind of your broad view of things right now. The investment markets, and the economy, if you would, and maybe we’ll drill down from there. And I want to talk about Warren Buffet a bit.

VITALIY KATSENELSON: As a value investor looking for stocks, it has been increasingly difficult to find values. You would think it would be difficult when the markets in a five or six year run. From that perspective, you know, I think the market is probably fully valued, at least. And most likely overvalued. But that doesn’t mean anything, because markets could become more overvalued.


VITALIY KATSENELSON: So, that’s not a worry, I’m not trying to condemn the markets. Because you know, in all honesty, it’s very difficult to put market timing in the process. But what you try to do is value individual stocks. So we just look for stocks to buy, and we have a hard time finding them, so therefore we have a lot more cash in the accounts. And that’s okay!

JASON HARTMAN: It’s good that you say that’s okay, because a lot of investment advisors, especially at the big firms, I find, they’re just always pushing their clients into the market, when sometimes it’s just better to be in cash, sitting on the sidelines, right?

VITALIY KATSENELSON: Well, it’s kind of interesting, especially mutual funds; mutual funds have a directive that they shouldn’t have to be fully invested al the time. To some degree it makes sense. I understand why it happens. Because a person takes some of his money and says, I want to be invested in a large cap growth fund. Therefore, 10% of the person’s net worth should be allocated large cap growth. So the mutual fund manager basically has to go out and buy large cap growth stocks. But if he can’t find good stocks to buy, he has to buy the least bad large cap growth stocks.

JASON HARTMAN: Sounds like the typical American election.


JASON HARTMAN: The least bad candidate, is about the best choice we ever get.

VITALIY KATSENELSON: So what you find is that basically, you know, if it’s mutual funds, they offer a product, not a service. And what we try to do is actually, clients come to us and say, here is all our money; invest it for us. So, we can’t have this kind of view. I can’t own the least bad stock in my clients’ accounts. And partly because also, for selfish reasons, my kids own the same stocks. So, I wouldn’t want my kids to own these less bad stocks. If you look at Wall Street, a lot of time what it does is sells products, not a service, and therefore you see rarely mutual funds hold cash, even if they don’t see good opportunities to put the money to work.

JASON HARTMAN: And I just want to drill down. You do define yourself, then, as a value investor.


On what has made Warren Buffet and Berkshire Hathaway so successful

JASON HARTMAN: So let’s talk about the most successful value investor of all time, and that is Mr. Warren Buffet himself. Give us a glimpse into your thoughts on what has made Buffet and Berkshire Hathaway so successful.

VITALIY KATSENELSON: I think Buffet’s success came from two sources. I think he’s—you know, he’s an incredibly smart guy, and he has been a very good investor. But also, in all fairness, his success has been amplified by leverage. And that leverage came from the insurance company, because Berkshire Hathaway’s an insurance company. So when you buy stocks in an insurance company, they’re financed by float, which basically has almost zero cost.

JASON HARTMAN: Before you move on, let’s explain that to the listeners, and drill down on that a little bit more. The insurance business is really the only business in the world that has a negative cost of capital, because they collect the premiums before doing anything. Like, they provide the service later, in paying claims. It’s really a reverse of every other business, isn’t it?

VITALIY KATSENELSON: That’s right. Insurance, if you can underwrite, the sum of premiums would be more than you’re gonna pay out over time, you have basically, you’re right, you would have a negative cost of borrowing. Because people are basically paying you to invest their money for them. To invest the premiums. Therefore, Warren Buffet runs Berkshire Hathaway, which has an enormous float. And therefore, whenever Warren Buffet buys a company or a stock, or American Express, or whatever, Coca Cola, he does it with his borrowed money, or the cost of care of capitalism could be negative. If American Express, who’s up 10% a year, and Berkshire Hathaway has leverage of 30-50%, therefore, the return would be 13, 15%.

JASON HARTMAN: It’s interesting that Buffet would appear to, I think, and you know, maybe I don’t speak for everybody here, of course. But my impression, at least, is that he is a conservative investor. But really, he likes leverage, doesn’t he?

VITALIY KATSENELSON: Well, the right kind of leverage, yes.


VITALIY KATSENELSON: The way—this is, this has to be emphasized. The leverage that an insurance company has, is a permanent capital. So, in other words, when the market declines, it can’t be pulled away from you. It’s a capital that stays with you for a long, long time. And therefore, you’re right. If you mix a very conservative strategy with the leverage of an insurance company, which is a very different leverage than you borrowing money gets your home equity loan, gets your house. Then it amplifies your returns. And it’s okay for insurance company to have this kind of leverage, but I don’t think for most people, I just want to stress this, I don’t think most people should be borrowing money against their home to buy stocks. I mean, I’m not advocating the wrong lesson here.

JASON HARTMAN: So, the leverage is one thing. Now, where did he get the leverage? I mean, take us back—I don’t remember my Buffet history. I hope I’m not putting you on the spot. I’m not asking you to be a Buffet historian here. But in his early days, what did he acquire first? What were some of his earliest acquisitions? Were they CORT furniture, he has Coca Cola, he has Geico, he has a bunch of stuff. What were some of his big early deals?

VITALIY KATSENELSON: By the way, I don’t want to take anything away from Buffet, because he was a very successful investor before he started to benefit from leverage, so let’s be clear about that.

JASON HARTMAN: Okay, fair enough.

VITALIY KATSENELSON: So, if I’m right, he ran a partnership. At some point the partnership grew to Berkshire Hathaway, which was a textile company. Which ironically, actually was probably Buffet’s worst investment, has been Berkshire Hathaway, believe it or not.

JASON HARTMAN: And it’s funny that that still carries the company name.

VITALIY KATSENELSON: That’s right. And then, at some point, I think they bought a national indemnity. That was I think the first insurance company, though I could be wrong. And then at some point it was Geico, and there probably was some other insurance companies along the way. And then if I remember right, 1998 or 1999 they bought [unintelligible], which was a huge acquisition for Berkshire Hathaway. A lot of the later success of Berkshire Hathaway came from the—you actually made a very good point; by buying very conservative stocks within an insurance company. So if you think about [unintelligible], later Procter & Gamble, American Express, very conservative stocks. So, if you look in the spectrum of the stock market, he was not taking a lot of risk. As long as those companies were around 10 or 15 years from now when he had to pay for the premiums he received, the Berkshire Hathaway would do fine. And it did great because of that. Because, you know, investing in conservative stocks that stuck around for a long time or produced decent returns, and he was able to amplify these returns because of the [unintelligible] from the insurance company.

JASON HARTMAN: How much amplification did he get? How much leverage from the insurance company? Or is that really impossible to calculate?

VITALIY KATSENELSON: Well, you know, I’ll be very honest, I look at some other companies in that space, and for them, leverage was about 30-50%. I’m not sure what’s Berkshire Hathaway’s leverage. So I’m guessing maybe that, somewhere between 30 and 50%.

JASON HARTMAN: Okay, so say it’s 50%, that means you double—you get double. The way you’re saying 50%, I just want to be clear. The way a real estate investor would see it is as a loan to value ratio. So, you’d get an 80% loan to value ratio, for example. Or a 50%.

VITALIY KATSENELSON: What I’m saying is that for so many cents they put in of equity, you get 30 cents of [unintelligible], and that’s how you get to a dollar. That’s what I’m saying. If that to you would be 30%, that’s what I’m saying.

JASON HARTMAN: He’s changed quite a bit over his career. He’s really kind of like three different people. Especially lately, when the financial crisis happened. He was—I don’t know. I wasn’t as pleased with some of his more recent ideas and things in the last several years. Recommending that people buy certain stocks and so forth, when he’s on the inside of the trade, and things like that. I don’t know. That just kind of bugged me a little bit. But, how, in your eyes, has Buffet changed over the years?

How has Buffet changed over the years?

VITALIY KATSENELSON: I’m not—to be honest, I’m not sure I know what you’re referring to that, when you say that. But, my biggest disappointment with Buffet was when [unintelligible] management put forward their compensation plan. Which would be very dilutive to shareholders. Buffet looked at the plan, he went public and said—he was public on CNBC saying it was excessive. But instead of voting no for the plan, he abstained.

JASON HARTMAN: Didn’t want to lose any friendships on the board, right?

VITALIY KATSENELSON: Well, I think that’s the reason for that. And the reason I’m disappointed is because over time, Buffet became this kind of moral compass for corporate America, where people would look at him as the person who would do the right thing. But when the time came to do the right thing, he didn’t. At least in my mind. Because I think abstaining was a very weak message. No would have sent the message that yes, when the management of other companies want to vote to dilute shareholders excessively, as Buffet put it, you should say no! That was an important opportunity that Buffet missed.

JASON HARTMAN: Let’s talk just maybe more generally for a moment about the different philosophies when it comes to investing. You’re a value investor. Some people are chartist, and technical analysis people, fundamental analysis—there’s all these different schools of thought. Why did you become a value investor? And what does that mean, maybe, in comparison to some of the other schools?

What it means to be a value investor, and why become one

VITALIY KATSENELSON: Sure. And I’ll be honest. Whenever I say I’m a value investor, I’m a little bit perplexed about this. Because it’s a kind of redundant term. You’re either an investor or you’re not.

JASON HARTMAN: Right. Hopefully every investor seeks value, right?

VITALIY KATSENELSON: Well, yes. Basically, a value investor—and the good thing about being a value investor, I guess, you come from a very deep heritage. Benjamin Graham, and Warren Buffet, where everything I’m about to tell you has been said by somebody else. But basically, a value investor looks to buy a dollar for a lot less. And when an investor does that, he basically seeks for a margin of safety. So in other words, if you’re looking to buy a dollar for 50 cents, you have a 50% margin of safety. And also, a value investor would conduct himself as not as the trader, but as a business like—in analyzing stocks, he would be analyzing the company as a business type person. As if you were buying not 0.25% of the company, but buying the whole company. So, that puts you in a very different—it’s almost different mentality of analysis. But in reality, value investing is really just common sense investing to me. When you talk about technical analysis and chartists, etc., to me, I use it very little, because it really focuses on the stock, and doesn’t—pays very little attention to the company. And technical analysis is almost like religion. You believe in it or you don’t. And if you believe in it, then you know, what other analysis tells you makes sense, and if you don’t, you view it just like voodoo signs.

JASON HARTMAN: I agree with you that it’s common sense investing. I can’t remember which books about Buffet I’ve read, but a couple of them—and you know, it just seems like a good common sense, conservative, long term approach to investing, versus this kind of get rich quick mentality that you see in every asset class, pretty much. And it just doesn’t work! It’s like, one or two stories of someone who got lucky, and then a whole school of thought comes in behind them. And everybody else loses their shirt, it seems like.

VITALIY KATSENELSON: Well, I think you get [unintelligible], the result [unintelligible] kind of stories more often than not. Value investing requires a lot of discipline and a lot of patience. And you mentioned the word long term. That’s how you look at it. Because when we analyze a company, we try to forecast their cash flows going forward, and try to figure out, what is this cash flow worth today. So, we’re looking 10, 15 years out a lot of times to arrive at value. The same way you would look at cash flows from a real estate transaction, right? When you look forward so far out, you’re kind of liken yourself to some degree to become a long term investor, right? Because that value, it may take a long time to realize that value. But at the same time, and this is some of the concepts I talk about in my book, a long term investment doesn’t mean you bought a stock and you hold it forever. If you bought a stock, and the value has been realized in 6 months or a year, then you should become a seller. So, it doesn’t mean that you buy and hold. You buy and you sell, when the stock becomes fully valued. You don’t hold forever. And this is I guess probably the biggest difference would be between me and Buffet in our philosophy. The philosophical difference.

JASON HARTMAN: Yeah, sure. One of the things you started off saying, is you felt that the stock market was fully valued, if not overvalued. How do you get that impression? Is it the PE ratio? Where are you deriving that from?

VITALIY KATSENELSON: I come to this from two different sides. One is from the trenches. It’s just being literally out looking for stocks to buy, and we can’t find them with stocks, right? And that’s based on just kind of careful analysis based on valuing stocks on many different metrics. Different companies will be valued differently, depending on what kind of business it is. Just from practical perspective, it’s difficult for us to find enough stocks to buy. So that’s one perspective. Another perspective is just basically looking at the valuation of the market. If you look at the stock market’s valuation, and this is a very important and, and just use the stock market’s earnings for very high profit margins—or in other words, if you look at the stock market’s valuation based on a 10-year trail in earnings, you would find that the stock market, today’s valuation is extremely high, actually. In fact, in the past, the sideways market started [unintelligible]. From the trenches, when you look at individual stocks, you find that stocks are overvalued, and when you look just from the micro perspective, valuation average company, you find the stock market is fully valued, it’s overvalued as well.

JASON HARTMAN: I would agree with you, but with the caveat, like you said, that it can always become more overvalued, before there’s a crash.

VITALIY KATSENELSON: Markets can stay irrational much longer than you can remain solvent.

JASON HARTMAN: I love that saying. That’s an excellent, excellent quote. The market can remain irrational a lot longer than you can stay solvent. So, very good points. What’s your general outlook on, you know, just before you go, I want to ask you—inflation or deflation? I think you’re on the inflation side, like me, right?

Inflation & general economic outlook

VITALIY KATSENELSON: My answer would be yes. In other words, it’s either—we can have both. I have a slight bias towards inflation. But I can see, it’s maybe 60/40. But there is no clear sign that we’re gonna have one or another. It’s almost a total cross, there’s a slight tilt towards inflation.

JASON HARTMAN: That’s interesting. Why do you say that? Because, you know, most people would just say, look at the massive amount of debt, look at all the unfunded mandates and entitlements coming our way, that the government somehow has to pay for. Look at the deficit every year. How can we not have inflation? I mean, if you’re a pure, you know, monetarist, from the monetary side of the equation.

VITALIY KATSENELSON: Look what happened in Japan, right? Let me try to change my answer a little bit.

JASON HARTMAN: And I want to ask you something about Japan too. Don’t let me forget. I want to ask you if you think they’ll default.

VITALIY KATSENELSON: So, it’s the question, it’s almost to me a question of this. It’s most likely that in the long run we’re going to have a significant inflation. Will it happen first, or will it have deflation first? If you look what happened in Japan, they had a tremendous real estate bubble, and after that, they had deflation for almost 20 years.


VITALIY KATSENELSON: And I would argue that it’s gonna—at some point, it’s gonna lead to substantial inflation. But if—but first they had deflation. And again—

JASON HARTMAN: But see, the thing about Japan, though, that you have to realize, at least for the real estate, is that that market was in complete absurdity in 1989! It was so massively overvalued that no one could have really considered that valuation real! I remember hearing this thing on television way back then about how if you put a stack of hundred dollar bills a foot high on the ground in Tokyo, the land below them would still be worth more than that stack of just hundred dollar bills! Just a footprint of the dollar bill, which is, what is it, maybe 2½ inches high? And I don’t know, 5 inches long? I don’t know, I haven’t measured a dollar lately, but something like that. And stack them up a foot high. I mean, how many hundred dollar bills can you get in a foot? That’s a lot.

VITALIY KATSENELSON: But if you think about just what happened in Japan, and you’re right, it was a tremendous bubble—

JASON HARTMAN: And mind you, those are 1989 dollars.

VITALIY KATSENELSON: But if you think about what happened in Japan, basically you had a corporate debt that declined over the years, but at the same time, the government debt has ballooned, right? Japan is one of the most indebted developed nations. My point is that they had, you know—so, they had a real estate bubble that deflated, corporate debt has declined, bank debt has declined since, and government has increased. If you look about what happened in our case, it’s kind of the same thing, right? The corporate debt has declined, consumer debt has declined, but government debt has ballooned. So there are a lot of similarities. And I’m just—and let me make a better—more important point about this. In [unintelligible] last year, at Berkshire Hathaway’s annual meeting said, if you’re not confused about what’s going on in the economy, you don’t understand it. And that is the key point. I feel like we’re living through this enormous experiment, which we don’t know exactly how it’s gonna play out. So, as a portfolio manager, as a person responsible for somebody else’s money, what we try to do in our stock picking, is to own companies that do fine in either environment. And this is an important point. They have to have a pricing power not just in an inflationary environment, but also in cases where if it was a deflationary environment as well. So, we just really don’t know exactly how it’s all going to play out.

JASON HARTMAN: Right, right. So, pricing power is critical to any company’s success. Not to be in a commoditized industry, because that’s the end of every business, eventually, is commoditization. What companies would have pricing power in either environment? Give us an example of that.

VITALIY KATSENELSON: Thing about it from a pharmaceutical companies. They should be able to make prices if you have deflation, and they should be able to raise prices if you have a high inflation. That would be good example. And we have a lot of health care stocks in our portfolio.

JASON HARTMAN: But at some point, isn’t it fair to say that even with something as critical as healthcare, people run out of money! And they just can’t pay for it. Or governments run out of money. You know, in England, you basically die waiting in line, and that’s why the socialized medicine thing doesn’t work.

VITALIY KATSENELSON: Let me tell you, I saw this cartoon where a broker calls his clients—he says, the stock market’s down 90%, the economy collapsed globally, but you know, I have a good stock for you. My point is, if you’re talking about—if you start describing this apocalyptic scenario, then no matter, there’s no stock, there is no asset class or stock that is safe. Except when I’m making investment decisions, I’m assuming they’re gonna have a rule of law.


VITALIY KATSENELSON: Assume we gonna have some kind of ordinary society. And therefore, yes, we operate under assumption that [unintelligible] when [unintelligible] turns into Zimbabwe, or something like that. When you operate on this assumption you say yes, we figure we gonna have tough times, pharmaceutical companies will not grow as much, and they may have to, but they should be able to maintain, at least maintain their profitability. Which is, in a deflationary environment, is a big deal. So that would be just an example of that.

JASON HARTMAN: Good, yeah. Fair example. On the Japan analogy, I like everything you said. Here are some of the differences that I see. And you know, the famous last words of the investor who’s about to get himself into a lot of trouble are, this time it’s different. So, you know, knowing that, and going into it with that, you know, there are some actual differences, right? And you mention some of the similarities, which are completely accurate. But what of the—you know, I could say, well, you know, the US has the largest economy, the US has the reserve currency, the US has the biggest military. I could say all of those typical things. But here’s what I’m gonna say that’s actually kind of different. And a lot of people just don’t mention this. And I think this is where I really go over to kind of the Harry Dent, and frankly, Pat Buchanan, side of the equation. And that is, Japan’s problem is more than an economic problem. It’s more than a monetary problem. It’s a demographic problem. Japan is very closed. It’s a very insular society, and because they do not welcome immigrants, and there just aren’t young people to replace the aging population and do the work. I mean, their birth rate is terribly low. They’re basically like Russia. They’re becoming an extinct country. Putin is paying people to have children. That’s what Japan ought to do. Or they ought to be more open, like the US, and welcome immigration, because they’re just dying a demographic death. China is headed that way in 20 years or so.

US, China, Japan, Russia, & the global economy

VITALIY KATSENELSON: Everything you said, I agree with. But [unintelligible] presentation about China and Japan a while back, and those are exactly the points I made. I think Japanese society is, you’re absolutely right, it’s a closed society. Unlike the United States, where our birth rate’s not terrific, but at least we have immigration.

JASON HARTMAN: We’re importing our birth rate.


JASON HARTMAN: As we’re importing deflation. We import it mostly from Mexico.

VITALIY KATSENELSON: Yeah, exactly. No, that’s a great point.

JASON HARTMAN: If we didn’t have—you know, everybody in America is complaining about, close the borders, control the borders. Which, you know, on its face is a logical thing to say. I mean, I’m saying the same thing. If we did not allow the illegal immigration from Mexico, if we were to become protectionist with China, we would have massive inflation, I think. We wouldn’t be allowed to hide the true inflationary pressures in our economy by importing cheap labor from Mexico and importing cheap goods from China. That’s what allows us to put a Band-Aid on the underlying bad monetary and fiscal policies.

VITALIY KATSENELSON: You’re absolutely right. And also, what helped Japan in the past were very high savings rates. The problem with savings rates, as people get older, the savings rate has declined. And the savings rate allowed government to borrow money internally, and pay very low interest rates. You know, savings rates turns negative in the near future, and it might already have, by the way. The Japanese government may have to start either by buying their own bonds, or have to more importantly they’re gonna have to start shopping their bonds outside of Japan. The reason it’s important is that I forget the rates right now, but I think in 10 years Japanese bond years may be 20 basis points, or 50 basis points, where United States, 10 year treasury, even though it yields a dollar, still yields 2½%. And I would argue, everything you know about Japan, and everything we know about United States, we are still in a better shape economically than Japan. If the Japanese government starts to start shopping its debt outside of Japan, suddenly through be paying interest rates not 50 basis points but 2½, 3 or 4%. And if they do that, the interest expense itself, I think they’re right now, they spend 25% of their budget on interest. [unintelligible] interest expense was skyrocketed, and it [unintelligible].

JASON HARTMAN: And by the way, just, you know, for the benefit of the listeners, that would happen to the US too if we weren’t able to bully our way into getting other countries to buy our treasuries. Because we have the biggest military, and we have the biggest economy; other countries want us as a customer, and it’s a false economy that’s going on there! China knows we’re going to debase their investments. When they buy our debt, they know the value of that debt will decline, as we inflate the dollar away. Slow or fast, ultimately we’ll decline either way.

VITALIY KATSENELSON: You’re absolutely right, and China chose that as their way to help the exports. And you know, but I think you’re absolutely right. When you invest, it’s, you know, difficult, because the standards usually apply to stocks should be higher than any other time over the last 100 years. Maybe not 100 years but the last 50 years for sure. Because you are right that we are facing a very uncertain future. If you look at probability trees, there are some positive outcomes for economy, but there is also some high probabilities of fairly negative outcomes for the economy. And if those negative outcomes happen, you want to make sure that your company, [unintelligible]. I mean, that’s not enough. That they have strong balance sheets, that have pricing power, that are not dependent upon the particular segment or like we’ll see not too tied to the government. If you can fault my, from a super companies, a lot of the revenues comes from the government. So it’s very difficult to find, it’s impossible, I would argue, to find a perfect investment. You want to find the best investment you can.


VITALIY KATSENELSON: And if you can’t, you know, just do nothing. Hold cash.

JASON HARTMAN: Absolutely. If you hold cash, inflation will kill you first, and then taxes will kill you second; if you get any return you’ll get taxed on it. But you probably won’t get any return on it, so the cash is a dangerous position. But, to be on the sidelines as I mentioned in the beginning, there are periods where being in cash is much better than being in the market.

VITALIY KATSENELSON: If you can’t find good stocks in the United States, look outside the United States.


VITALIY KATSENELSON: In the past years, investors always looked at international investing as almost like, you had to be Indiana Jones. You always thought it was riskier. I would argue that investing in many countries outside of the United States is less risky than a lot of people think. You own a company in Norway, I would argue that it’s probably one of the list risky companies you own in your portfolio.

JASON HARTMAN: Yeah, and when you say that, are you referring to the corporate governance? Or, are you referring to just general risk?

VITALIY KATSENELSON: I’m thinking about political risk, I’m talking about corporate governance, I’m talking about currency risk. I’ll give you an example. A lot of value investors have been buying [unintelligible]. The industry [unintelligible] 2, 3½ times earnings. Very cheap company. But when you buy [unintelligible], you’re basically taking a huge political risk. You could argue that at two times earnings that’s already priced in, and maybe. And the difference, the reason to buy or not buy it, because we assign different probabilities—oh, what’s the likelihood of Russia nationalizing gas [unintelligible]? In my mind, probabilities are much higher, therefore—

JASON HARTMAN: I mean, Russia’s nationalizing Ukraine, so why wouldn’t they nationalize…?

VITALIY KATSENELSON: To me, Russia became uninvestible in the early 2000s when government basically took one of the largest oil companies away from its shareholders. Absolutely took it away. And after that I realized, you know, this could happen to any company, especially to [unintelligible], which is the biggest source of revenue for the Russian government.

JASON HARTMAN: To a smaller extent it happened here with General Motors. Otherwise known as Government Motors, right? At least at the time.

VITALIY KATSENELSON: The union—well, my biggest problem is that the union, instead of [unintelligible].

JASON HARTMAN: I’ll tell you why, it’s really simple, Vitaliy. The unions have more voters than the bondholders do.

VITALIY KATSENELSON: Right, I actually wrote an article about this. I remember some newspapers ran headlines or something that, instead of benefitting hedge fund managers, or something—

JASON HARTMAN: Those aren’t hedge fund managers. Those are Middle America retired people, probably.

VITALIY KATSENELSON: It’s very easy to say all the bad things about hedge fund managers, but you forget they [unintelligible] money in the pension funds, which basically, their investors are average Joes—teachers, doctors, etcetera—so it’s very easy to go against hedge fund managers, but they manage somebody else’s money. So.

JASON HARTMAN: Right, exactly. That’s what they don’t understand. These corporations and hedge funds, they’re all pass-through entities. Whatever happens to them, they just pass it through to their customers, or their shareholders. It’s a pass-through circumstance. So, that’s a good point. Well, Vitaliy, this has been a very interesting conversation. Give out your website, if you would; tell people where they can learn more.

Closing comments

VITALIY KATSENELSON: Sure. They can read my articles on Our company’s website is

JASON HARTMAN: Fantastic. Well, Vitaliy, thank you so much for joining us today.



ANNOUNCER (FEMALE): I’ve never really thought of Jason as subversive, but I just found that’s what Wall Street considers him to be!

ANNOUNCER (MALE): Really? How is that possible at all?

ANNOUNCER (FEMALE): Simple. Wall Street believes that real estate investors are dangerous to their schemes, because the dirty truth about income property is that it actually works in real life.

ANNOUNCER (MALE): I know! I mean, how many people do you know, not including insiders, who created wealth with stocks, bonds, and mutual funds? Those options are for people who only want to pretend they’re getting ahead.

ANNOUNCER (FEMALE): Stocks, and other non-direct traded assets, are losing game for most people. The typical scenario is: you make a little, you lose a little, and spin your wheels for decades.

ANNOUNCER (MALE): That’s because the corporate crooks running the stock and bond investing game will always see to it that they win! Which means, unless you’re one of them, you will not win.

ANNOUNCER (FEMALE): And, unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing.

ANNOUNCER (MALE): Yep, and that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times, and exploit the incredible opportunities this present economy has afforded us.

ANNOUNCER (FEMALE): We can pick local markets, untouched by the economic downturn, exploit packaged commodities investing, and achieve exceptional returns safely and securely.

ANNOUNCER (MALE): I like how he teaches you to protect the equity in your home before it disappears, and how to outsource your debt obligations to the government.

ANNOUNCER (FEMALE): And this set of advanced strategies for wealth creation is being offered for only $197.

ANNOUNCER (MALE): To get your creating wealth encyclopedia, book one, complete with over 20 hours of audio, go to

ANNOUNCER (FEMALE): If you want to be able to sit back and collect checks every month, just like a banker, Jason’s creating wealth encyclopedia series is for you.


ANNOUNCER: This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit, or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, or business professional for any individualized advice. Opinions of guests are their own, and the host is acting on behalf of Platinum Properties Investor Network, Inc. exclusively.

Transcribed by David

The Jason Hartman Team
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