CW 518 – Douglas Goldstein – Applying Chess Strategies to Investing with Author of ‘Rich As A King’

 

Jason reads two articles to the audience. One is about the perception of Wall Street from Business Insider and another on CEO wages from Newser. Jason encourages you to leave him a voicemail on your opinion about the articles. Today’s guest is Douglas Goldstein. Douglas is the author of Rich As A King and he talks to Jason on using the concept of chess to become a more strategic investor.

Key Takeaways:

[3:40] There’s one common theme in the CNBC show American Greed – investors didn’t have control.

[8:05] Be sure to check out this upcoming Flashback Friday episode.

[10:40] Jason reads an article from Newser about CEO wages. Send him a voicemail on your thoughts about this article.

[16:05] Jason introduces Douglas.

[22:15] How do we apply chess to our investments?

[30:30] Focus on one piece of your investment and try to make it just slightly better.

[35:30] What are zero coupon bonds?

Mentioned In This Episode:

http://www.businessinsider.in/A-fresh-reminder-of-the-average-persons-perception-of-Wall-Street/articleshow/47331522.cms

http://www.newser.com/story/206794/ceo-pay-hits-wild-milestone.html

RichasaKing.com

@RichasaKing

Tweetables:

We ultimately make decisions emotionally and then rationalize them with logic.

Men are more willing to be speculative, they are more willing to be gamblerish with their investments.

If you have cash sitting on the side and you don’t have a good move to make, don’t make a move.

Transcript

Jason Hartman:

Welcome to the Creating Wealth show, this is your host Jason Hartman. This is episode number 518, 518. Thank you so much for joining me today. We have as our guest Douglas Goldstein CFP and he will be talking about chess and investing. Chess is such an interesting game of strategy right and it’s interesting how Watson, the IBM computer can now beat a human quite handily and the best chess players in the world, but the game of life is kind of like the game of chess in my respects, right.

So, that’ll be our guest today, but before we get to him, I want to share with you really, since he’s got a Wall Street background, of course, a couple of interesting articles as I set here on the balcony of the Radisson Blu in Dubrovnik, Croatia and I am looking at a view from this balcony that is so beautiful. It is almost impossible to describe. It’s really just an incredibly, incredibly gorgeous view. I wish you were all here with me so we can talk in person.

You know, maybe I’ll get his view picture up on the JasonHartman.com Facebook page, how does that sound? Yeah, I will put these pictures up there. I put pictures of a lot of my travels up on the Jet Setter Facebook page as well, so if you hear me talking about all these places I’m broadcasting from, or narrowcasting I guess is a more proper word, not podcasting, narrowcasting, because you are a specialized targeted audience, so it’s a narrow, but very capable and very interested and engaged group of people.

So, I always appreciate that very much, but anyway this Business Insider article is quite interesting. It says, A Fresh Reminder of the Average Person’s Perspective of Wall Street and I’m just going to read to you some things, you know, we’ve talked about these so many times over the years on the show, but they are really interesting. The article was by Julia La Roche and it says, “I got a fresh reminder of the average person’s perception of Wall Street on Monday morning.

While I was sitting on a bench having a coffee in Manhattan’s Lower East Side, the owner of one of the neighborhood’s most successful bar/restaurants sat next to me. He asked me what I do for a living. I replied, “I’m a reporter for Business Insider.”

When he asked me what I write about, I said, “Wall Street.”

“Oh, insider trading,” he responded, explaining that he’s watched episodes of CNBC’s ‘American Greed’,” which by the way listeners, watch that show. I’m just going to take a pause on the article here because that show, you know, there’s one thing, there’s one overriding theme in all of those American Greed scams that they talk about on CNBC’s American Greed show, which is an excellent show by the way. You know what the overriding theme is? Can you guess? I bet a lot of you regular listeners know already, don’t you? Well, that overriding theme is not following commandment number threee: Thou Shalt Maintain Control. Almost every one of those scams, I’m going to go out and say 98% of those scams is related to relinquishing control of the investor’s money to somebody else. Not maintaining control, not being a direct investor. So, it’s like you can sum up every episode they’ve done in that one way.

Anyway, the article goes on to say, “A primetime series that examines crimes in the finance world. He also mentioned a scam overseas that a friend of his had been duped by. The bar owner went on to explain how he perceives Wall Street as “smoke and mirrors.”” How many times have I said that, right? The smoke and mirrors economy versus the real economy.

“He said that his broker invited him into the office and showed him Bloomberg Terminal screens of the market going up. He added that his broker suggested he buy shares in one bank’s stock because it was “a great deal” and “on the up.” The stock, he said, ended up going down day-after-day. In the end, he felt like they were there just to take fees from him.

He added that he could simply use technology like E-Trade or Scottrade and open his own trading account and pick stocks just as well, or even better.

He’s probably not the only one who feels that way.” The article says. Now, a couple of comments on that. One, artificial intelligence. We talk a lot about the future on the show. We talk a lot about how it’s an amazing time to be alive. Well, one of the big areas that AI or artificial intelligence is going to come into play in a major, major way is replacing investment advisers, so when you look at these Wall Street type products, who do you think can pick a winning investment better?

I mean, first of all I would say stay out of Wall Street, run for the hills. Wall Street is the, what do I say, the modern version of organized crime, right? But, do you really need a human investment adviser? Hey, I don’t know, do you really need a human real estate investment advisor either? Maybe I’ll be replaced too. I kind of think it won’t be the same in my industry, because it’s so much more fragmented. You know, certainty artificial intelligence and algorithms can read charts, interpret charts, interpret history, and do a much better job of that than a human being ever do, same with medicine, same with the self-driving car.

Same with so many other things as we have talked about on so many prior episodes and the other comment I want to make on this is Harry Dent, who has been on the show many times, is out with a new prediction and he predicted some stuff like this, I don’t remember the numbers, on prior episodes, but he is the Dow dropping to 6,000. Yes, Dow 6,000. What do you think of that? Are you ready for that one? Remember he also predicted gold dropping to 750 and then dropping even further to 250 just totally mind blowing to just think about the massive impact that would have on the financial markets. We’ll see. I don’t know if he’lls be right. He’s been right, he’s been wrong many times. So, we shall see, we shall see. But it’s interesting just kind of contemplate those ideas.

You know, it’s probably about time to have Harry back on the show. We haven’t had him on for a while or the precedent of his company either, Rodney, who was really great to. So, we’ll get one of them on the show here coming up soon again to hear more about what they think. Next thing, oh. I don’t want to forget to mention this to you. Flashback Friday, a lot of you like those Flashback Friday episodes.

This upcoming episode. The next one, it’ll be episode 519 on Flashback Friday is going to be one you really don’t want to miss and one of the reasons I don’t want you to miss it is because during the intro portion of our next episode, 519, which will be a Flashback Friday episode. You’re going to hear something very, very important that you heard of a couple of years ago when the episode originally aired, but you’re going to hear something important again there, okay, so make sure you tune into that one and check it out.

By the way, one of you listeners asked if we could put the dates on the Flashback Friday episodes and the transcriptionist and podcast producers that we’re using have agreed to take care of this by putting the original episode number and date in the show notes that you can find at JasonHartman.com and if by chance they don’t get the date in there, they will have the episode number, the original episode number that had aired. I think I’m always saying that also in audio format and you can just look on whatever podcast platform you’re using to listen to our show and you can see the original date it was published as well. So, I just wanted to give you two ways to see that in case they don’t have it right in the transcript, but they did say they would have it in the show notes, okay. So, make sure you listen to the Flashback Friday episode.

Okay, talking about Wall Street here again, right. This is a Newser article. This one is amazing. CEO Pay Hits a Wild New Milestone. You know, I would love some opinions from you listeners on what could be done about this because the typical leftist argument, the liberals would say, well, we need to pass a law, but I don’t think a law would ever work for this type of thing. I don’t think you can legislate this problem away, but I wonder if there is another solution.

So, don’t just use the voicemail system for questions you have, although we love your questions; going to JasonHartman.com, click on that link on the right hand side that says send voice mail and don’t just use it for that, let’s hear your ideas. I’d love to hear your ideas on any of this stuff we talk about on the show, but especially this one. How would we solve this problem? I don’t think it can be solved by legislation. I don’t know how it can be solved, but here’s the problem and Lou Dobbs talked about this in his book War on The Middle Class many years ago.

I’ve quoted that many times, but here’s what the Newser article says, it says, “CEO pay hits wild milestone. So what was the average CEO paycheck like last year? Oh, just 373 times higher than your average worker’s.” Now, keep in mind, this is my comment, that’s the average workers, not the lowest paid worker in the company, not the minimum wage worker. That’s the average worker.

Okay that’s, “up from 331 times higher the year before, according to a new report by the labor organization AFL-CIO.” Which by the way, I’m not a support of the AFL-CIO by any means, but it still interesting to note the stats that they’ve complied here. “That means the average S&P 500 company chief made $13.5 million in pay last year compared to $36,000 for your typical “technical and nonsupervisory worker,” reports Mashable.” By the way, Mashable is a great website. I really like some of their content.

“Walmart was singled out for CEO Doug McMillon’s $19.4 million,” Boy, that’s a funny name huh, McMillon? It’s not exactly spelled the same way, almost. “$19.4 million, which is a stunning 810 times higher than the average Walmart employee salary, CNBC notes. “America faces an income inequality crisis because corporate CEOs have taken the raising wages agenda and applied it only to themselves,” says AFL-CIO President Richard Trumka. His solution? Let shareholders decide what CEOs should make, he tells CNBC.”

Well, I agree with that. Of course the shareholders should get a say in that, but do they? No. Not at all. It’s just not right and so what you have when you are not a direct investor is you have this total conflict of interest. This disparity between the goals of the investors, the customers of the company and the employee of the company, right. These are the three major stake holders in any corporation. The share holder, the employees, and the customers and you have this special class, this cognoscente, this elite class carved out of the employee class of these C level executives and the board of directors who give themselves big fat pay checks. They just take advantage of the entire system. It’s a really, really sad scenario.

You know, at lunch today at my conference here, I was talking with a gentlemen who had a company that basically created and programed software for investment bankers and so, you know, he lives in London, of course, a huge financial center just like Wall Street, sold this company and talked about the incredibly complex kind of software and the ten to 20 million dollar installations of this software that he would sell to these companies.

Well, he sold that company and I said, well, what are you doing and he said, eh, he’s kind of looking for his next thing and taking a little time off in between gigs. He’s been investing in real estate and buying properties in London and I put my fury to the test again that no matter where you are in the world, no matter what currency in which you are dealing, the RV ratio formula that I talk about holds up worldwide in every currency, in every language, in every market, and without knowing anything.

I said, let me guess what your typical deal looks like. It’s a one million dollar or one million pound property that rents for $3,500 pounds or $3,500 per month and he said it was actually a little bit worse than that and then I told him, I said, you know, here’s where we like to invest in all these different states around the United States and we like to get 1%. If we’re going to put a million pounds or a million dollars into anything, we want to get $10,000 per month or $10,000 pounds per month.

So, the RV ratio once again holds up, world wide. It’s a global phenomenon and it is just such an easy and excellent rule of thumb that you can use to avoid making big mistakes when you invest. Of course, there’s a lot more to it, but that’s a great first cut and it’s really, really easy to use and understand. So, that’s it for now.

Go check out some of the great properties at JasonHartman.com in the property section where you can earn RV or Rent to Value ratios in the 1% range and not make the mistakes of an investor investing in a market like London or any other expensive market around the world. We would love to have your comments on your voice mail system, so go leave them at JasonHartman.com. Click on the send voicemail button and we’d love to hear from you with comments and questions. Let’s get to our guest.

It’s my pleasure to welcome  Douglas Goldstein to the show. He is the author of Rich as a King: How the Wisdom of Chess Can Make You a Grandmaster of Investing and he’s coming to us today from a place I visited about maybe 15 years or something like that and that is Jerusalem. Doug, welcome, how are you?

Douglas Goldstein:

Hey Jason. Real great to be here. Doing great.

Jason:

Good to have you. It’s a Sunday afternoon here and it’s like in the evening there, right?

Douglas:

That’s right. Well, we’re used to working around the clock.

Jason:

Yeah, absolutely. Well, you know, I find this to be a fascinating concept that you and your co-author, Susan Polgar are applying the game of chess to investing and really wanting to impart a more strategic overview of this investing game and people really aren’t that strategic sometimes, are they? They kind of like to think they are, I think, but in reality, it’s not, I’m guessing. Your thoughts?

Douglas:

I am sorry to say, but I do think that’s very true. One of the topics that people, it’s actually become more of a hot topic these days, it’s called behavioral finance. In fact, one of the Nobel Prize Winners Daniel Kahneman wrote a best selling book about it, Thinking, Fast and Slow and people began to realize that the way investors handle money has very little to do with logic and common sense, but has so much more to do with the emotions that guide them and sometimes guide them down the wrong path.

Jason:

Well, as I like to say, we all like to think of ourselves as logical beings, but we ultimately make decisions emotionally and then rationalize them with logic. Would you say that’s true?

Douglas:

That’s exactly what happens.

Jason:

Okay, so the game of chess and investing. Give us the broad view here.

Douglas:

One of the things that I discovered. Maybe I’ll step back, I’ll give you a little background for how we got here was that sitting with one of my kids, two of my kids actually are chess champions here and so they have coaches and I was sitting with one of them with her coach, my daughter was a top player and we were examine a game, we were doing a postmortem of a game that I had actually played with my daughter and the coach said to me, he said, Doug, why didn’t you move your bishop away from this square. I had some excuse like, oh, I don’t know, I was busy focusing on something else and then the next move we analyzed, he said, Doug, your bishop was badly placed, why didn’t you move it away from this square.

Again, I had some other reason. I wanted to castle or I was developing another piece. This conversation went back and forth for a while until finally it struck me that I sounded exactly like my financial planning sound when I ask them Mr. Smith, you gotta a pretty poorly performing investment that’s not going anywhere, why don’t you move it? He always say some excuse and that’s kind of when the light bulb lit up and I realized, this one piece of advice and then I began listening more careful to what Boris was saying as far as chess goes. All of the pieces of advice he gave seemed to apply directly to what I discovered I was discussing with clients.

Jason:

Okay, good. I used to be fascinating by the game of chess. When I was a kid I would play chess for hours and hours on end. I never got good at it, but I was certainty fascinated by it and it seems to me the whole key to chess, please correct me, because I may be totally wrong is just being able to think several moves ahead. How one thing impacts another and another and another. Is that what you’re trying to apply to investing?

Douglas:

I’m glad you asked that question, because frankly that’s what most people say and they’ll say, hey, Doug, they’ll speak to my co-author Susan Polgar, they’ll say, what a great idea! Chess players are thinking so many moves ahead and, like you’re saying, investors have to do that as well, and frankly I like to tell them that if that was all there was to this book, we could have saved ourselves years and years of research and writing hundreds of hundreds pages and just printed up a bumper sticker that said, “Plan ahead.” It wasn’t raining when Noah built the ark.

Jason:

Okay, good point.

Douglas:

So, I like to think there’s more to it than that and I really think – by the way, that’s the question you’re raising, I once asked Susan, in fact, it turns out when I asked her when we first met each other many years ago, I asked her how many moves ahead do you think and she laughed and she said, this is the most common question that we ever get and she’s, quite frankly, you know, not so many, maybe one or two, and it was fascinating to me and then I began studying that most of the world chess grandmasters and world champions, they’re not planning ahead 30 or 40 moves like we might expect. In fact, if you do the math, it’s simply impossible for the human mind to do the trillions of calculations that a decision tree would grow into after just a few moves. It’s just not possible.

Jason:

That’s why computers are so good at this kind of thing, because the human mind and I’ve been studying AI quite a bit lately and, yeah, I’m very much a futurist and love studying all of the stuff. I mean, we truly live in an amazing time, Doug, I’m sure you’ll agree, but that’s why computers can’t they – they are very good at that type of thing, you know, all of these if-then scenarios, but our minds aren’t good like that. We’re good at other stuff, but that’s not one of our things, is it?

Douglas:

But one of the things we are good at, I think, is reevaluating on a constant basis, which is something you have to do certainty in your business, Jason, you must see that, it’s not just you go into an investment and you never think about it again. You say, listen, I’m going to put all my money here and I’m done for the next 20 years. You’ve gotta keep an eye on what’s going on. You gotta look for opportunities and you have to know how to deal with them, but real life comes up, right.

Real life happens and a good chess player or someone who is going to own a rental property or someone who is going to setup a stock portfolio has to be able to adjust for what’s going on in the market. I’m not saying you have to be trader, because quite frankly, I’m not a big fan of buying and selling all the time, but it doesn’t mean you can close your eyes to what’s going on.

Jason:

So, what do we do? I mean, give us some like, we’re dying for some strategy here. How do we apply this to our investment? So, you know, we’ve got, thousands of clients. They are out there, they are buying income properties, it does become a little bit addictive as long as you don’t have a bad experience, which certainty happens once in a while, but even then it still becomes a little addictive and that’s great, you know, and they are sort of playing this game of monopoly if you will and accumulating all of these income properties. I mean, how do we apply strategy to this.

How do we apply strategy to any investment. You know, I know you deal a lot with stocks and bonds and the Wall Street type traded stuff, either one. Just any examples or stories. I know you have a lot of stories here.

Douglas:

I like the term you’re using, which is accumulating, because one of the problems that certainty I find all the time when I am thinking about money and I bet this happens to you, sometimes you feel what to do when there’s nothing to do. Maybe there’s not a deal that’s in front of you or maybe you just can’t figure out how to improve your situation and in discussing that with Susan, one of the things that she said which is really important is, if you don’t have a good idea, as much as possible do nothing.

So, in the chess game it’s impossible, because every move, every time it’s your turn you have to make a move, but if you don’t have something to do, don’t just start moving your pieces around. She said that’s the easiest thing – that’s what makes it easiest for her to beat an amateur player, because all she has to do is just stick to her plan and after a few moves the amateur doesn’t really know what to do, but he’s forced to move and that’s what ends up, you know, he makes the mistake, but luckily as investors, frankly, it’s a little bit easier for us, because if you have cash sitting on the side and you don’t have a good move to make, don’t make a move. Just sit tight.

Jason:

Yeah, I say that to my clients all the time. Sometimes the best deals are the ones you don’t do.

Douglas:

Warren Buffet has a great qoute about this. I forget the exact wording, but he said that the different between baseball and the stock market is that in the stock market, there’s no such thing as a called strike. So, if you missed a great stock buying, you didn’t buy it, don’t worry. Wait till tomorrow, you’ll find something else and I think that’s very, very true in the world of investing.

Jason:

You know, you’ve got a lot of chapters and sub chapter titles here in the book. How to avoid mistakes when you’re half way there, how to achieve financial goals, you know the plan to get rich and there’s just so many sub heads of all of these things and then you get into the tactical side, so you start with strategy, that’s the higher level and then specific tactics. Do you want to maybe, talk any more about strategy and then get into some specific tactics we can use.

Douglas:

I want to take you back to something, Jason, that I said earlier about behavioral finance, because I really think that’s where a lot of this strategy gets messed up. We don’t have to go into a whole long discussion about the important of planning ahead, because I really want to dive into why people aren’t able to do that an what really happens is that people will tend to get over confident, for example, in their ability to make a decision and they’ll get so over confident, and by the way, men are much worse than this than women, that they’ll start making deal after deal or trade after trade that ultimately leads them to dramatically under performed, not just the markets, let alone being able to stay ahead of inflation, which is impossible of course when you’re losing money.

So, I think the strategy that people have to start with is to look at the big picture and allow themselves to develop an overall plan, so that the emotions don’t come in and ruin every good decision that they’re going to make.

Jason:

Okay, good. So, tell us how we can do that. I mean, yeah, I would agree with you. Men are usually more willing to be risk tolerant and so forth and by the way, you know, just a side note on that. That’s one of the reasons there is this wage gap that people are, especially on the left are always complaining about, it’s because men will usually, not always of course, they’ll take the more risky jobs, you know, the outside sales job, for example. That pays better than the admin job where you gotta study salary and having employed hundreds of people over the years myself, I mean, many hundreds, I’ve just seen that pattern repeat over and over again. So, you know, risk reward ratio, right? If it’s calculated risk.

Douglas:

Have you found that when dealing – difference between men and women as far as the real estate investing also?

Jason:

Yeah, absolutely. I think that, you know, men are more willing to be speculative, they are more willing to be gamblerish with their investments. Now, certainty women will gamble for entertainment, you know, and unfortunately many people of both genders gamble as an addiction and that’s terrible, but in the markets people gamble too. I mean, Wall Street has been called a giant casino by many, many people.

So, I would say that the non-gambling side of investing is the side that produces income. If you invest in dividend paying stocks, you are an investor and I’m not even going to call it investing if you buy non-dividend paying stocks, you are a gambler, you are a speculator, because you are betting solely on a story. If you are a real estate investor and you buy cash flow properties, that’s investing. If you buy properties that you simply expect appreciation to occur, that’s speculating or gambling.

Douglas:

I think that’s actually a very good point and a lot of people get confused because they get sold a basket of goods by someone who says, buy this property in some terrible area and it can’t get any lower, because, you know, you are required to actually tear down a property when you buy it and so people go wow, it’s so cheap, I can make 100 times my money and it’s exactly what you’re saying. They are not realizing that that may not be a good investment.

They are not identifying a property or a stock or a fund that’s going to create an income stream for them and really what I think most people are looking for, at least in my experience of investing, is they’re not trying to become millionaires, they’re trying to achieve certain goals that the least of which is being able to pay the bills every month securely for the rest of their life and that’s where I think income in one form or another is so critical.

Jason:

Income is pretty, you know, at least when it comes to real estate investing, income is pretty reliable. I mean, you know, nothing is perfect, but it’s a lot more reliable than trying to predict appreciation, okay. I’ll tell ya that much and so my rule is just anything. I mean, this is the rule, anything without an income is not an investment, it’s a speculation. Anything without income is not an investment, it’s a speculation.

So, these people that consider themselves investors and they buy gold and silver, I mean, that’s just a speculative gamble, you know? Bitcoin, speculative gamble. Talk about the ultimate fiat money. It’s a cryptocurrency. I mean, that is the definition of fiat money. You know, they say that the dollar isn’t backed by anything. Well, I would disagree. It’s backed by aircraft carriers.

Douglas:

Full faith in creditors.

Jason:

No, no. Forget about full faith in credit. How about the military. It’s backed by aircraft carriers, intercontinental ballistic missiles, ground troops, helicopters, that’s what’s backing the dollar, okay. I mean, it’s just, you hear these arguments from these gold bugs. I mean, they are just, it’s just crazy. It doesn’t make any sense, it really doesn’t, you know. If it doesn’t produce income, it’s a gamble, you know, and sometimes gamblers win! Listen, I do some speculative stuff myself, but income is the reliable thing, so would you consider that. How would that play into the chess metaphor that we’re talking about.

Douglas:

Yeah, let me give you a good example, as you’re saying, and I’m beginning to think of something that Susan once told me. You know when you play with someone who is so much better than you and Susan and I play a number of games together and needless to say, very, very rapidly she crushed me, but so after the games I would always say, well, what could I have done better and she said, you know, when you feel like there’s nothing to do; meaning you can’t develop some great strategy and there’s no fantastic tactic that’s going to let me capture her queen, she said, just look for one piece you can move that will give you a small advantage.

Try to take, you’ve got a whole arsenal, right, you’ve got a bunch of pawns, a few other big pieces, which one is not performing and how can you switch that into something that’s performing even a little better and so I think that plays very much to the world of investing whether it’s saying, you know, I’m sitting on a hundred thousand dollars in money market earning zero percent, can’t I even put that into a CD as one step upward? Is there a property that’s available? Or is there some sort of portfolio change I could make just to improve it a little bit and I’m not saying necessarily have to do some radical, radical switch, but if you are a long term investor, finding the parts of your portfolio that aren’t performing and just making them improve a little bit, just the compound interest is going to make a huge difference.

Jason:

You know, that’s really an interesting statement, Doug, because Einstein called compound interest one of the great wonders of the world or something like that. You know, he has a quote like that, can’t remember exactly how he said it, but it’s true, you know, and maybe that old story of, you know, the two people hiking in the woods and they see a bear coming in their direction and one stops to tighten his shoe laces and the other one is running and says, c’mon man, you can’t out run a bear. He says, I don’t have to out run a bear, I just have to out run you. That’s really the point though, because economic, financial success, wealth creation, it’s a relative game, okay, the whole economy is based on the theory of relativity.

So, say for example tomorrow there’s another huge financial crisis and let’s say it’s worse than the great recession we just had and some would argue we’re actually still in, even though it doesn’t look like it, you know, that’s maybe another discussion, but I entertain that argument. I’m willing to entertain it myself, but you know, and say it’s worse than the great depression was, you know seven plus decades ago and tomorrow every millionaire is only worth $100 okay.

3We’re just talking US here. I know we have a global audience, but we’ll just make it dollars to make it easy, so everyone is worth a $100, every millionaire, right, but if all the millionaires are only worth a $100 bucks tomorrow and everybody else is only worth $10. Well, they are still rich! Because all the prices in the market place, they may not adjust immediately and that’s what kills investors, by the way is the lag time between cycles, that’s what kills people, but you know, the prices ultimately in every market place will have to adjust or sellers won’t be able to sell anything.

So, a brand new hundred thousand dollar car will then become relative to everybody having a net worth of $10 or $100, right. The car will have to get cheaper or no body will be able to buy it, so it’s a relative game and with that incremental move that you just mentioned, if you can just give yourself a slight advantage. Think about this, when you look at bank rates today, they are meaningless. I mean, you earn half a percent in the bank, right.

Douglas:

If you’re lucky.

Jason:

Yeah, if you’re lucky, good point. If you can make one percent, you’ve not increased. Don’t think of it as a half a percent increase, think of it as a 100% increase, relative to what you were making. You doubled your return and if everybody else is only making half a percent. I mean, wow. You play that out over the course of ten years and that little tiny thing is a big difference. So, you know, I say if you’re not going to buy a property, if you can invest in private lending or hard money lending where you’ve got good security. Ideally you’re even doing short term loans and you can make ten percent on your money pretty conservatively, really. Gosh, you know, you’ve basically taken the bank return and multiplied it by 20. That’s a 2000% increase.

Douglas:

The numbers become staggering. I think when people begin to find new ways of really improving what’s going on and what they’ve got going.

Jason:

Yeah, keeping your money in play over time, exploiting Einsteins compound interest quote is an amazing thing. You just gotta be patient right.

Douglas:

Absolutely and that goes back to the behavioral finance thing, which is simply people aren’t patient and they, you know, when they read a story or hear about someone who made money, they bothered to see how long it took them to make that money.

Jason:

Yeah, no question. You know, you have a subhead in your book about zero coupon bounds. I’m just kind of interested in that, because I have heard a lot about them. Are they even around? I mean, do we even have zero coupon bounds any more? Can you explain what that is to the listeners?

Douglas:

Sure, zero coupon bounds, well, let’s go back to what a plain vanilla bound is. A bound is simply a loan that you make to a company or to a government and it has a certain period, so let’s say it’s a five year bound and maybe it’s a 4% bound, so they pay you every year for a percent and then at the end of the period, they’ll pay you back the face value of the bound. So, most bounds are issued at $1,000 a piece, which basically means you’re lending money, five years later, they’ll pay you back the $1,000 and every year, you’re getting a $40 coupon or $40 payment from the issuer of the bond.

Jason:

4% in the case you mentioned.

Douglas:

Yeah, yeah. 4%, which is $40 a year on a $1,000 bound. So, the value of the bond might go up and down during the life of the bond, but assuming the issuer doesn’t default, then you know you’re going to get your thousand dollars back at the end.

So, zero coupon bonds are kind of a derivative of these bounds for people who don’t need the $40 every year and what happens is the bond is basically stripped of that coupon. Imagine literally it was a piece of paper that had little $40 tags associated, coupons, that if you just tore those off, put them to the side, that $1,000 bond would no longer really be worth a $1,000, because you took off the $40 interest payments every year.

That’s called a zero coupon bond, because it now has zero coupons on it and those are sold at a discount. A lot of times people would buy those because they could buy them at a discount to the $1,000 final value and they might pay let’s say $800 dollars today and they know sometime in the future they’ll get back a $1,000 and because they don’t need the income currently, all of that interest is growing on a compounded basis as well. So, that’s what a zero coupon bond is. I don’t necessarily think they are as popular today as they’ve been in the past when interest rates were higher.

Jason:

Right, right. What about a lot of the sort of asset protection people talk about bearer bonds. I’ve interviewed several of them on my show. Are those around any more? Are those even legal to have, bearer bonds?

Douglas:

I have not seen one in at least, I dunno, ten or 15 years, and I’ve been in the business a long time. These day, especially people who are global, I strongly advise them not to walk around with stock certificates or anything where it’s physical, because of the difficulties in trying to actually trade such a security if it’s held by a brokerage firm, you know that they are the ones validating the security, but if someone walked into my office and said, hey, Doug, I have a certificate for 100 shares of XYZ stock. I wouldn’t just sell it for them on the spot. We have to go through a whole procedure to make sure that it’s a good certificate and it could take you literally weeks, if not months, to be able to sell that. So, you lose all the benefits that the liquidity of having stocks or bonds normally have when you have them inside a brokerage account.

Jason:

Yeah, yeah. Very interesting. I just kinda wanted to ask you as on a side about that. Part D of your book, you know, talks about 64 strategies to make you as rich as king and you like those all to chess moves and as we’re kind of wrapping up here, you did talk about, you know, the small moves and so forth. I think you alluded to every piece has a purpose and so forth, but are there any one more of those you wanna pick out just before we wrap up?

Douglas:

I tell ya Jason. There’s one I’d like to touch on and it sort of comes from when I was getting ready for this interview and I was looking at your website and I noticed that one of the things you have on your website is a huge amount of information that’s free that people can learn from and I remember when I was talking to Susan, once again it goes back to a game that we played and I lost a piece to her and she said, Doug, you just gave me a free piece, and she said, that’s a good lesson in chess and investing.

Whenever something is free and really free, meaning it’s of value and it’s not that it’s a hidden thing where you’re going to, someone gives you a free offer, but really you’re going to end up spending a lot of money, nothing wrong with taking advantage of it and it certainty, when you go to websites like yours or like the Rich as a King website, we have tons of information, whether it’s blog posts or podcasts or articles or calculators.

I think that people who are really interesting in improving their investment game like they would their chest game take advantage of all this stuff, because there’s so much you can do. Just to learn to trade the stock market, you can play free fantasy stock games. You can find financial calculators all over the web that can help you determine what sort of training or what sort of investing or loans that you can offer and I don’t understand really why people aren’t taking the time to find these great tools like you have on your site and we have on our site.

Jason:

Yeah, well, some do and some don’t. You know, I think one of the challenges nowadays is the world is so awash in information. It’s really hard to find the good stuff. There’s just a lot of stuff out there and now the job, you know, it used to be in the old days that the job was, you know, can you find the information and it was really hard to get the information. Now the problem is sorting through the information that’s out there. That’s a huge job in of itself, but hey, I appreciate you sharing this with us today and the website is RichasaKing.com, is that correct?

Douglas:

That’s right. Just like the name of the book and the Twitter handle is the same as well.

Jason:

RichasaKing.com and the book, of course, is on Amazon with 32 reviews and five stars, so congratulations on that and Doug, thank you so much for joining us today. Keep up the good work.

Douglas:

Jason, I really appreciate it. Looking forward to speaking to you soon.

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