James Altucher joins Jason Hartman on this Flashback Friday episode. James is the Managing Director of Formula Capital, Founder of Stockpickr, and author of “Choose Yourself: Be Happy, Make Millions, Live the Dream.” He shares his experience with Wall Street, from losing a lot of money on the stock market to writing software that would model the stock market. Jason and James then talk about hedge funds, 2 and 20 fee structure, and the gold and silver market.
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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 0:53
Welcome to the creating wealth show. This is your host Jason Hartman and this is episode number 329 and on I’m talking to you today from Dubrovnik, Croatia, a beautiful, beautiful city. I’ve been travelling around Europe for the past couple of weeks. And the trip started in Switzerland. And I’ll tell you something, if you want to know what inflation feels like, go visit Switzerland. I was in Zurich, I’ve been to Switzerland before. And I remember visiting Geneva years ago and thinking how expensive everything is. And you know, I was not disappointed this time, either. It’s very expensive there. And that’s just with a minor amount of inflation that we will almost certainly have in my opinion in the United States. But if you want to know what inflation feels like, everything is expensive in Zurich, in Switzerland in general, so just go go go experienced that and of course, that’s a big part of our investment strategy is based on defending against inflation and actually profiting massively from inflation. Because inflation induced debt destruction is a great thing and All those commodities that keep pace with the price of inflation, and namely our rental real estate, our income properties do extremely well in so many ways in inflationary environments. But even if we don’t have inflation, or much inflation, we will still profit because our investments are sound, they make sense the day we buy them, etc, etc, etc, all the stuff you’ve heard on the last 328 episodes, but yeah, my trip started in Switzerland, and then I went through Germany, and now I’m in Croatia, and Oh, don’t forget Austria though. I was in one of my favorite cities, Vienna and spend some time there, saw some friends there and just been having a great time traveling around Europe. And I hope the background noise by the way isn’t a problem here. I’m overlooking a beautiful Bay here on the coast of the sea in Dubrovnik, and there are people on the beach making noise and swimming and splashing around and then in a neighboring property here there are some workers doing some work. So if you hear that Please excuse the noise but recording on location, the sound quality is never as good. I don’t have my swanky microphone with me. I’m just recording on my portable setup. So so we’ll make do with what we have.
But as for the rest of the trip, I leave for Barcelona next and then Iceland. So very anxious to see around Iceland. That’s an exotic place. I’ve been to Barcelona before then the many European countries before and, and you know, as I look at real estate here, by the way, you know, that’s one of the primary reasons for my travels always is to look at property. I’m just not finding anything once again, that really works. I have traveled now to 66 countries. I’ve looked at Real Estate extensively in Eastern Europe A few years ago, I did a show on that when I went to Bulgaria, Romania, Estonia, Latvia, and did a big real estate tour there met with brokers and all of those markets. And you know, again, just didn’t find anything probably lucky. I wasn’t too impressed with anything on that on that last big real estate tour of Eastern Europe because That bubble certainly popped. And I know when I was there, the banks were starting to get fearful and for very good reason. They had a lot of defaults on mortgages. And this time even post bubble, the Croatian coastline or the Dalmatian coast, as they call it is absolutely spectacular. It’s stunning. They have had quite a run up here in prices. This has definitely been discovered as a tourist destination. And for good reason. It is absolutely beautiful. You may recall that just as recently as 1991, not too long ago, they were at war here. And war certainly takes a toll and never seems to be a profitable experience for anybody but it’s been stable for a while, but in places like this, you certainly have to be concerned about political instability. That is certainly a risk the political risk, although seemingly less so now, I don’t know the inner workings or all the details about that, but wouldn’t be a huge concern now but again, the lack of financing The lack of MLS systems, the lack of infrastructure, and just a general tone from people I talked to about corruption. Again, those things make me fearful. I’m a pretty conservative investor, as you know. And so far looking at Europe, both Eastern and Western Europe, looking at South America, looking at Central America quite extensively, looking at Australia, New Zealand, other places around the world.
So far, I still think American real estate has the best offerings. And you know, I really want to change my mind about that. I really keep looking for other opportunities. This international investing thing is quite sexy. I’m meeting on Monday here in just two and a half days I’m meeting with an outfit in Spain down in the Malaga Costa del Sol area and looking at their properties. And I’ll see what works there if anything, and I’ll report to you on that probably on the next episode. But again, I just want you to know I keep looking I very much in favor of being a citizen of the world, thinking with a global rather than a myopic national perspective. Certainly well nationals not too myopic, but local is very myopic. And so I’ll keep you updated. As I look so far, still like American real estate the best. I may change my mind here in just a couple days when I look at some more properties in Spain. Again, I’ve been to Spain a couple of times in the past, every time I go back, I look again, so more to come on that. But we’ve got an interesting show for you today. We’ve got James all teacher. He was originally slated for my speaking of wealth show, but when I talked to him, we decided to do two interviews because he’s such an interesting guy and the interview was on his latest book, choose yourself, be happy, make millions live the dream and it really speaks a lot to the wonderful age in which we live which is the Freedom of Information Age. Well, it’s not totally free. Just ask Edward Snowden and Julian Assange of Wikileaks fame.
But you know, information is really freer than it’s ever been an access to an audience or a Seth Godin calls it a tribe is freer, and more available than it’s ever been. And the Choose yourself book is a lot about not having a gatekeeper, how you can just choose yourself as I have, frankly, on this show and all of my 15 other podcasts, I decided that, hey, I had something to say. And I was going to do a podcast on it, and do other publishing, blogging and so forth that we we also do, and go out and see if anybody was interested in listening. And God, I am sure thankful that you are interested in listening to my stuff, and my philosophies and my thinking on things. And I very much appreciate that. But you don’t have to be chosen by a gatekeeper. There’s no executive that accompany anymore. That chooses you, literary agent that chooses you, a publisher, a public book publisher that chooses you, a Hollywood producer that chooses you to make a documentary or a movie, you know, you can choose yourself nowadays. And that’s a very, very powerful and liberating concept. It is an absolutely wonderful thing about the times in which we live. So my original interview was slated to talk about that. But as I talked to James, before the interview, I learned that he was has quite a bit of Wall Street experience. And I said, Hey, why don’t we do two interviews? Let’s do one and let’s talk about financial markets. Let’s talk about Wall Street and your experience there, which is very interesting. And by the way, when we talk about hedge funds, I brought up the issue of doing this calculation and he quoted a 7% target return for hedge funds. And I just want to say as a bit of a disclaimer, so you don’t think I’m clueless. When I asked him the question about how you can’t make money in hedge funds, I really thought that the returns promised by these hedge fund managers and I still think it are much higher than the 7%. He mentions, I certainly understand his math, when he does it the way he does in this example, but it’s a great example. And James explains that with the utmost clarity, so I think you’ll enjoy that and just hearing about his other wall street experience and a little bit about his book too.
But if you want to hear the complete interview on his book, choose yourself. Listen to my speaking wealth show and right after I did the interview with him, you know, I don’t read every book or buy every book from every author, I get a lot of them sent to me as review copies, or I’ll download the audio books as well. But I did take advantage of James book, choose yourself after the interview, and I really enjoyed it. It’s a pretty amazing story and a pretty heartwarming story too. So let’s get to the interview with him now and just want to remind you before we do that, our next show will be at 10 The show, and that’s when we talk about a personal development or general success topic and veer off this specific real estate stuff or economic stuff. And we’ve got a lot of great interviews coming up for you on the upcoming shows. And we also have a lot of great properties, although I gotta tell you act with urgency if you’re looking to invest because the deals just they ain’t what they used to be. As Yogi Berra says, you know, the future ain’t what it used to be right? And the deals ain’t what they used to be there. They’re still good. There are still great opportunities in income property investing, but you’ve got to adjust your thinking because prices have appreciated quite a bit. There are still some rare opportunities. I’d say one of the best markets for this is Memphis right now where you can buy properties at or below the cost of construction. But costs are rising prices are rising interest rates are rising. So make decisions get off the fence and do not miss the boat. I know that may Sound like every promoter and every salesman out there. But there are very good reasons as evidenced in the prior episodes where we talk about that in detail. So go to Jason hartman.com, check out properties for that. Anyway, without further ado, let’s get to our interview here with James altucher. And we’ll be right back with that in just a moment.
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Jason Hartman 13:20
It’s my pleasure to welcome James altucher. To the show. He is managing director of Formula capital and founder of stock picker. He’s a writer and author, writer of all teacher, confidential, author of his his newest work, which is choose yourself be happy, make millions live the dream. And he’s coming to us today from I believe New York City right, James?
James Altucher 13:43
Yeah, absolutely. And Jason, thanks for having me on the show. Pleasure to be here.
Jason Hartman 13:48
The pleasure is all mine. Welcome. So you were a hedge fund manager, you’ve done venture capital. You’ve got quite a great background and you know, a lot of experience on Wall Street. Why don’t you just tell us a little bit about that if you would.
James Altucher 14:00
Sure. yeah, I was, um, it kind of started off in a really bad way. And I don’t know if it starts off this way for most people, but I suspect it does. I actually started off by losing a lot of money on Wall Street, I lost so much, I kind of came out of the.com world, and I made a lot of money there, pulled it all out cash, I thought it was very smart. And then I decided, Okay, I’m gonna put it into the stock market, which was very stupid. And you know, there was probably one summer where I lost about a million dollars a week cash, whoa, the stock market. And I got to the point where I was dead broke. And so I took a step back, and I was obviously incredibly depressed and all that, and I could tell a whole story about that. But let’s just take a step back for a second. And I decided, Okay, I made a lot of mistakes. And I wanted to learn what those mistakes were. So I essentially had to educate myself. I didn’t have an MBA, I wasn’t coming from Goldman Sachs. And so I had no experience. And so I read every book, I could, I would I probably read hundreds of books on it. vesting, and then I wrote software to model the stock markets. And I would be very disciplined and I would trade according to my software, and that was very good. I was making money. And then I started managing money for other hedge fund managers and I started my own hedge fund. And then I was doing this long enough and I was meeting enough traders. I started investing in other traders. So I started a fund of hedge funds. So I probably have analyzed several hundred hedge funds in my time and I’ve looked at probably thousands of deals and stocks and so on. And then of course, during this time, I started writing for the Financial Times The Wall Street Journal, the street calm, I sold the company to the street calm, and I probably in the course of my career on Wall Street, probably either analyze or have written about thousands and thousands of stocks. And I can say this with you know, and also I probably been in the management have several different public companies. And I can pretty much say almost all of Wall Street is a total scam. It’s totally manipulated. It’s a scam. I don’t like it. If you look at the kind of people who make money on Wall Street, there’s basically three kinds of people who make money on Wall Street. There’s the guys who hold forever. So who’s that? So Bill Gates, for instance, holds Microsoft stock forever. These are the tie Warren Buffett holds Berkshire Hathaway forever. These are the types of people who build companies, they take the company’s public, and they hold this stock of those companies forever, they have no intention of selling or they sell very small pieces of their company. So that’s one type. Then there are the type of people who hold only for like a billionth of a second. So these are the high frequency traders. You know, like Goldman Sachs has a group Renaissance technologies is a famous hedge fund doing this. So it’s the exact opposite of that people hold forever. These are the people who only hold for a billionth of a second the high frequency traders and this and this is an area that’s probably are illegal or borderline illegal or gray area at the very least. And then finally, the third type of people who make money on Wall Street are the people who are committing crimes. So, crimes we’ve seen our insider trading, mutual fund timing, older crimes from the 90s, our reg s trading calendar trading
Jason Hartman 17:22
Tell us what that is. Reg S and calendar trading.
James Altucher 17:24
Reg S was a loophole in the rules by which you could finance companies. So the United so the stock market had, you know, wanted to attract foreign money. So if you were, you didn’t have to be you weren’t subject to any restrictions if you invested from a foreign location. So you would have many devious onshore people move their money offshore, and then invest in onshore companies and trade immediately out of those companies. And that was really illegal. A lot of people went to jail, calendar trading, what made So many people in the.com, boom, hundreds of millions of dollars. It was basically, you set up an account at a bank that does a lot of IPOs. Well, I’ll just I’m gonna use Goldman Sachs as an example. But I have no evidence that Goldman Sachs participated in this. But you would trade when you knew on the calendar that a hot IPO was coming, you would trade ferociously in the days before you didn’t even care, buy, sell, make money, lose money, all you wanted to do was generate tons of fees for the bank, and then the bank would give you a huge allocation for Juniper. So Juniper, their IPO price might be 25, but it would open up at 200. And you would sell out your million shares at 200. And a ton of money was made this way was completely illegal. It basically stopped after the.com boom. So these are some of the ways in which hedge funds I would say these are the only ways in which hedge funds have really been able to so called create alpha i have an advantage over the average retail trader. This doesn’t mean the retail trader has no chance, it just means the odds are stacked against you. So you have to be really careful. You have to know what you’re doing. And the way you know what you’re doing. The way I invest my money now in the stock market is I invest in micro caps, which are kind of impervious to high frequency trading. They’re basically impervious to insider trading, because not that many people follow the stock. Not many mutual funds are in these stocks because they’re too small, so they’re harder to manipulate. Or actually, the reason mutual funds are not in them is almost because they’re easier to manipulate. So ironically, there’s less manipulation of these stocks. So I tend to prefer micro cap stocks where I can really you know, explore the company in detail, get to know the management team, decide a fair and honest management team or not, and and then invest from that point of view. And I also tend to back stocks that have huge demographic trends behind them, because even Warren Buffett, I view Warren Buffett, not as a value investor, but as a demographics investor. So Warren Buffett We’ll say things like, you can have a great manager but a bad business and it will still be a bad business and buy a bad business. What I’m pretty sure he’s referring to is a business that doesn’t have demographic trends behind it. So a great example for him is Coca Cola. I was just gonna say Coca Cola. But Coca Cola was a was a value stock at one point and he refused to invest. When they were selling clothes and they own Columbia movie theaters. The company was falling apart and had a very low p e ratio, which is the common metric for value investors. Warren Buffett wouldn’t touch it. It was only when they got a new management team. The stock went way up, they sold off all their extra operations and they focused on just soft drinks. That’s when Warren Buffett became their largest investor and it became the source of billions of dollars for him. So he and his quote there was I don’t have to do any due diligence. I know everybody in the world wants to drink a coke. And he was right. He believes in very simple but strong demographic. And he always puts his money behind that.
Jason Hartman 21:02
Yeah. Very very good points very very well said all of this. So Wall Street is largely a scam. It blows my mind James that people think regular everyday investors think that they can beat the insiders that they can beat the high frequency traders and beat the crooks. I it just must be so incredibly well marketed. I mean with the this is not an exact number but the zillions of dollars I’ll say spend on advertising Wall Street products and doing it overtly or even I don’t know if I want to say covertly but maybe with CNBC just seems like that’s kind of the mouthpiece for the vast Wall Street conspiracy. There’s just like this undertone of, oh, be an investor, but they they forget about all these other things you can invest in. They don’t mention those.
James Altucher 21:52
Well, well, I’ll tell you several stories. If if you have time.
Jason Hartman 21:55
I have time. It’s very interesting.
James Altucher 21:57
Everything. Yeah. So so one time about A friend of mine inherited some money. And her bank advisor wanted to meet about what she should do with this money. And so she asked me if I could just go there and sit with her while she listened. So I did that. And I didn’t say anything. I didn’t want to criticize this guy while he was on the job, you know, people work hard on the job, whether or not they’re criminals or not, I’m still not gonna prevent him from at least saying his piece to her. Well, you know, I don’t need to have a fight. But then afterwards, I took notes. And then afterwards, I just pointed out to her five different cases where the guy overtly lied to her, you know, he would lie about the returns of different mutual funds, he would lie about why do a mutual fund versus an ETF he would lie about extra fees. You know, many mutual funds have the fee version and the non fee version. Many funds have the version where you’re paying for their marketing expenses and the version where they’re paying where you’re not paying for the marketing expenses. And I’m not even an expert on the mutual fund industry. I just, you know, he might have lied to her even more. I was just jotting these notes down from my limited experience with mutual funds. And so she she understood that and she really respected what I said. But she still put money where this guy suggested, because people just have an overwhelming need to trust an advisor who’s going to stick with them over time, even if they’re lying to her. So that’s one example. Another example, one time, I was raising money for my fund of hedge funds. So I went down to the city, my neighbor said, you have to meet my boss. He’s the he runs the largest hedge fund in the world. He really wants to meet you. He sees your stuff in the Financial Times, I bet he’ll put money in your fund of hedge funds. So I went down there. And we had a great guy, I met his boss, we had a great conversation. And at the end of the conversation, he said, I really thought he was gonna put money in my fund. And at the end of the conversation, he said, James, I’m sorry, if you want a job here. We’re happy to make an opening for you. But we cannot put money in your fund, because we have no idea where you’re putting the money. And here at Barnard made off securities. We don’t want to take any reputation. We’re at risk. My gosh, I see the name Bernie Madoff on the front page of The Wall Street Journal. And, and then I would go to other funds. And I would say, Hey, can you put money in my fund? And they’d say, why would we put money with you and we can get a solid 15% a year with Bernie Madoff. So really, the whole system was set up to kind of encourage people to take these risks, that their competition were the people who were criminals that nobody realized were criminals. And, you know, we all realize now that Bernie Madoff was a criminal, because he was so big, but there are a lot of many made offs out there that nobody realizes are criminals and are kind of ruining the whole sector. Because every one they either drive out the competition or they encourage the competition to compete via criminal activity. This is why I totally got out of the business. I I barely had a down month I entire time I was in business, but I just couldn’t raise any money because I was competing against Bernie Madoff. How do you compete against that when everybody was telling me he was the best hedge fund manager in the business? Of course, afterwards, people were saying, Oh, we always knew he was a fraud. But meanwhile, you know, they were begging to get into his fund.
Jason Hartman 25:09
Right. It’s amazing. It’s amazing how people’s attitude and their tune change with it with the news getting out there. But you know, James, talk to us a little bit more, if you would about hedge funds. Specifically, we talked about kind of the broader Wall Street issue. But what about hedge funds? And I don’t want to forget to ask you about the two and 20 fee model, because I read an interesting article. And I think this was just above my paygrade. I didn’t really understand it completely. But it was fascinating. And this was about three or four years ago, maybe this article about how somehow mathematically two and 20 show that you just couldn’t make money the the investor, the average investor and a hedge fund just couldn’t make any money by the time they took the the two and 2010 and they showed it if the fun went up and down and all these different ways and there’s just no way I could Explain that. But it was an interesting article.
James Altucher 26:03
Well, well, let’s give it let’s give it a try. So the market in general returns 7% a year. And since we’ve already concluded that unless you do something weird, you’re not going to beat the market, the average hedge funds gonna return 7% a year, not the best hedge funds, and not the worst hedge funds, but the average hedge fund. So of that 7% 2% take that off the top. That’s the management fee. So now the hedge funds returning 5% now out of that, take another 20% off. So now the average hedge funds returning 4% so what’s inflation? Two or 3%? Or 12%? Right, right. So now your
James Altucher 26:40
Yeah, yeah, now you’re left with zero or 1% or worse. So why put your money in an illiquid investment so you’re locked up? You have no idea what the managers doing. You can see your daily balance and when times are bad, good luck getting your money back because it’s not gonna happen. You’re not good. So have your money. And I can know this from experience. So hedge funds in general are no good. Now I do like the kind of hedge funds that do provide financing for companies that can no longer get financing. So after the.com bust, and after the 2008, bust, all of the investment banks that used to provide financing for small and mid cap companies went out of business. So unless you’re big enough to attract a Goldman Sachs or Morgan Stanley, you’re just not going to raise money. So there are hedge funds out there that do provide a valuable service and make money by providing financing and loans to small and medium cap companies. Now, some of these funds are bad, and some of them are very good. But I think there’s an opportunity in that space still to find alpha because they really get inside the company. They examine the assets. They you know, they lend the money, but it’s backed by equity and it’s backed by hard assets. And occasionally and but when I say occasion, I mean one out of 20 and you have to really know what you’re doing. Occasionally you could find a good hedge fund. Now if you’re an individual investor, it’s not so bad to also, again, invest in micro caps, but you have to do the same kind of work you have to get to know the company understand what their assets are, understand what the potential is, and you can do this before the rest of Wall Street starts to look at the company. Once Wall Street starts, look at the company, the company’s dead, forget it.
Jason Hartman 28:22
Right, right. Right. And what why why is that though, because once Wall Street looks at it, they’re they’re taking all the profits for the the insiders and the special clients and so forth are well,
James Altucher 28:33
Well, then the mutual funds start to load up, the analysts start to do the research. So the retail investor is the last one in and you don’t ever want to be the last one to the party because then the party’s over. So you want to get in before the mutual funds start start accumulating and getting in once a mutual fund starts accumulating. You’re in great shape because they have to buy millions of shares and the stocks just gonna keep going up while they buy I mean I’ve seen stocks go from two to four Well, mutual funds start accumulating. But you know, you don’t want to buy a 40. You want to buy a two?
Jason Hartman 29:05
Yeah, well, that certainly makes sense. But back to your hedge fund example, and I really appreciate the way you, you laid out such a nice, simple example. I couldn’t remember if that article adjusted for inflation and taxes. You know, when you look at it that way, of course, but the big promise of hedge funds is, these are the investments for the rich there. A lot of them have minimums of say, $250,000. And, of course, that’s not really rich, but by Obama’s standards, it certainly is. And they’re there for larger investors rather than the typical retail investor with a day job and doing stuff in their 401k. And so their promises that they will have higher returns and in unique investments. So you use 7% annually. Is that fair for hedge funds? I guess I’m gonna defend them for a moment.
James Altucher 29:55
Yeah, I mean, look, the average hedge funds not gonna be better than the average investor. Again, how do they achieve better than market returns in the past 20 years, it’s through all the techniques I described. And it’s not even me just saying this like it’s, you know, there are some sites that are kind of conspiracy theory sites and make all these accusations. People actually have gone to jail. So people have gone to jail for insider trading, mutual fund timing, calendar, trading reg s trading, again, that no one’s going to jail for high frequency trading, but this is an area where regular regulators are heavily looking and at the very least, it’s a race to the bottom as to see which hedge fund gets the fastest computer and execution time and so on. So eventually there won’t be any so called alpha in that. So again, without those things, and this is the best hedge funds in the world. So you have galleon other hedge funds that are you know, where the managers are going to jail or sub managers are going to jail. You have Renaissance where high frequency trading is, you know, their biggest source of profits, you know, again, I think, I don’t know how else hedge funds make money other than by doing this illegal activity. Now, there are exceptions. And I’m not calling out everyone. But if you’re the average, and when I say average, if you’re the average rich guy, you’re gonna get screwed by hedge funds. You kind of have to really know that business and and when I, when I say this, I knew a lot of rich people, like incredibly wealthy people who put money with Bernie Madoff. So just because you’re a genius, when you sold your, you know, huge laundromat chain, doesn’t mean you’re going to know how to invest in hedge funds.
Jason Hartman 31:38
That’s a great point. Yeah,
James Altucher 31:40
You know, it takes a it takes a good like I’ve put in now 15 years of work analyzing hedge funds, and it’s still not that easy to spot. I still see criminal activity, but it takes a while to spot it out. There’s a lot of there’s a lot of shady activity out there.
Jason Hartman 31:55
Yeah, that’s, that’s a that’s a great point. No question about it.
James Altucher 31:58
Again. I’m not being like, you know, there’s a site Zero Hedge all conspiracy theory, whatever, people are actually going to jail. So it’s not just me saying this, it’s the court system saying.
Jason Hartman 32:09
Right, Right. But it seems like too big to fail is the same thing as too big to jail. You know, when you look at the scandals with these banks with her money laundering for drug dealers, and all of this kind of stuff, and, and and the greater financial crisis that we had, just a few years ago, I mean, really, nobody’s going to jail. The country wide guy Anthony mozilo, fine, which to him is basically a slap on the wrist. I mean, they just buy their way out of the problem, don’t they?
James Altucher 32:37
Sure. There’s no defense for these people. And the problem is, the laws were very unclear. So you don’t wanna you don’t want to kind of go back and scapegoat people. But now hopefully, the laws are getting better on how to regulate these things. But it’s important also, to separate out the benefits of capitalism from the ways in which Which individuals have taken advantage of a corrupt system? So yes, the banking system was corrupt, particularly in from 2000, let’s say four to 2008. And even afterwards, and the government was corrupt that that bailed them out. And and not that any not that the government was good or bad. It’s just that why did they need this this huge bow, they thought they were doing the best, but maybe it wasn’t for the best. But it’s important to understand banks fuel the American economy, like people can’t buy houses without banks, people can’t fund their businesses without banks. People can’t really economy and innovation and technology can’t grow without the help of banks, you know, leveraging up and lending to good entrepreneurs and and also good people who are willing to pay back on their mortgages and so on. The problem was, is that we had people who were making 380 times on average, the average employee, and totally taking advantage of the system, getting fired and having golden parachutes Regardless of what happened to their company, and like you said, getting away with it not going to jail, hopefully now the next time this sort of situation happens, and it will happen like it always does, people will start to go to jail. But you never want to make up laws retroactively and say, Oh, they should have gone to jail. Because nobody, nobody really knew what was going on with derivatives back in 2006. Now we understand a little bit more how the system was being taken advantage of.
Jason Hartman 34:25
Right, but there will be a new thing the next time around, then the law is always the slowest thing to catch up to the quote, innovation, unquote, the financial innovation of Wall Street, and entrepreneurs in general.
James Altucher 34:38
I mean, the problem is what what do you do like I guess if you make a broad law, like if you knowingly, are taking advantage of a corrupt system, you can go to jail, but at the same time, like countrywide could argue they were they were helping people buy houses who couldn’t otherwise afford to buy houses. So there was a flip. It was weird because there was a flip side to the argument like a lot of people were We’re moving from the ghetto to owning houses outside the ghetto. And yes, they couldn’t pay for it later. But I don’t know at the time, it seemed like a good thing. I thought it was a good thing at the time. Everybody thought it was a good thing. It was only after the fact that we all realized how horrible this was. And then we realized also how much like why does john Paulson go to jail? Why did he help the government solve the problem instead of just shorting all of these bonds that put the banks out of business? So did he do a good thing or a bad thing? Obviously, for his investors, he did a good thing and there wasn’t any law against it. And now he’s losing his investors all their money on on gold, so you know, what goes around comes around?
Jason Hartman 35:40
Yeah, sure. does. It sure. Does it uh, you know, that’s an interesting question. What do you think of golden silver? I just got to ask you that. I’m definitely not a gold bug. I never have been although I do own some of it. Just because I think it’s insurance if nothing else, but I love how Peter Schiff, who’s been on my show, by the way, and I like what Peter says, but I didn’t have a good experience. Investing with him at all with his company but he predicted I remember him saying that gold will be $5,000 an ounce by the end of Obama’s first term and he would certainly be one to adjust for inflation but boy that would go the complete opposite way because in real dollars, gold is way way down it’s down to nominal dollars to obviously but what do you think of the gold and silver markets or do you not play in those and think about them?
James Altucher 36:26
I’ll tell you why I don’t play in them. And I do have an opinion on on price though but I don’t play in them because gold is not a currency right like the United States does not accept gold as
Jason Hartman 36:39
legal tender.
James Altucher 36:41
Yeah, you can’t pay your taxes with gold for instance. So you know I’m skeptical then like why then you buy gold? Well do you but gold does have industrial use, but it just so happens by chemistry. That gold has the exact same industrial uses silver and silver is like What one 16th of the price of gold. I don’t even know the latest ratio. So if anything, I like silver a little better, because I do think in an improving economy, there’s always going to be industrial uses for a metal like silver. Silver is an antibiotic, which is why you could put it in your mouth as braces. Silver’s used for silverware. Silver’s used for electricity, you know, and conducting wire. So there’s a lot of, and by the way, gold has all of those uses as well, but it’s just more expensive. Why would you get $600? In, you know, sorry, why would you get $6,000 worth of braces when you get $600 worth of braces? So, again, I’m not, I’m not a big fan of gold. Some people say gold is a store of value, just in case people lose faith in their currency, but I’m also seeing what I call gold 2.0. Like, I don’t think Bitcoin is a trading vehicle. But if you really believe that there should be an alternative to start Standard currency, then bitcoins a nice choice.
Jason Hartman 38:03
It is but I don’t think they’re gonna let Bitcoin exist, I think they’re gonna attack that every way they can. They’re all you’re already seeing signs of it and I haven’t kept up with it in the past month and a half or so but we’ve got to remember is that gold, silver Bitcoin? These are all competition for central bankers and Treasury departments of governments around the world, and there is no way they’re going to let competing currencies exist without trying to attack them and manipulate them in some way.
James Altucher 38:32
Right? And that’s why in the US, none of these things will work. But you see, countries like Argentina, where the currency is getting devalued, are probably going to be devalued. And you know, Bitcoin usage rises very quickly in countries like Argentina or Tsipras. Now, gold usage doesn’t rise but Bitcoin usage rises. So again, I think if you think there’s a one in 1000 chance Bitcoin could could become the currency of some country, then maybe One 1,000th of your portfolio should be Bitcoin, but the main part of your portfolio should be stocks because stocks grow with the economy. The economy historically has grown over time. And that’s, you know, that’s where I would place my money is in companies. Now that sounds odd considering I don’t like Wall Street, but I do like individual companies. And if you study enough, I learned enough about the companies you’re invested in, you can make good investments.
Jason Hartman 39:25
Yeah. So you know, I remember I had Chris Mayer on the show. He’s one of the Gora guys and he has a book invest like a deal maker I had him on a long time ago. And I think that might be the same philosophy you have where he looks at these much smaller companies and gets to know the management really kicks the tires, to end in that way, claims to do better. I mean, is that is that what you do? Do you go out and meet these boards of directors and, and really know these guys?
James Altucher 39:54
Yes, and I agree with that philosophy completely. I meet the CEO. I sit down with him, I meet the board’s I meet the largest investors, I meet employees. I go out into the field and see, you know what the customers think you’ve got to do. Do I invest in private companies? Right? So you have to do intensive due diligence to invest in private companies with private placement memorandums. Oh, yeah. But with private placement memorandum, but basically companies that are not public at all, like they’re like tech companies, right? But I have to do extensive due diligence. I do the same level of due diligence if I’m going to invest in a public company,
Jason Hartman 40:30
What do you you know, one of my things is, you know, as I mentioned to be just a couple minutes before we started recording, I’m a real estate guy, I just, I have this thing I call the 10 commandments of successful investing. And number three, which is probably the most popular is thou shalt maintain control. And what I say there James is be a direct investor only invest in things that you actually own and control and, and that’s why I like income property. I like investing in trust deeds, doing hard money lending, or private lending, and you don’t have to Have some fund manager taken all the profits off the top. And that fund manager could also be the CEO, the Board of Directors, the C class executives flying around the world pan for all their first class airfares and wining and dining and, and you know, kind of the Dennis Kozlowski stuff on a smaller scale. But when you own income property, the only person that can really rip you off as the property manager, and the damage they can do is is relatively small, comparatively to what the excesses You see, and, you know, in Wall Street and companies and so forth, when you invest, I mean, you don’t control that stuff, you do a lot more due diligence, so you get a much better sense than the average retail investor by light years, you’re just light years ahead of them. But you know, what do you what are your thoughts about that?
James Altucher 41:47
I agree, like, you know, for instance, if I invest in a company, sometimes they even try to go on the board of directors because then you know that that’s a restrictions like I won’t be able to sell but once I ended And accompany anyway I don’t want to sell. So, you know, again, I believe in strong demographic trends. So this way no matter what happens to the management of the business, I know I have a strong wind at my back. And it’s the same thing for real estate. Like you say a property manager can hurt you. But let’s say you bought real estate this past year. Let’s say you bought real estate two years ago in Williston, North Dakota, okay, the fastest growing city in the United States, thanks to the oil boom, there. There is no way in hell, you would have lost money on real estate in North Dakota this past year, no matter how bad your property manager was. So it’s the same thing with companies if you’re behind a good strong demographic trend, then you’re going to win.
Jason Hartman 42:42
Yeah, yeah, Good stuff, good stuff. And you know, I just add to that, that I want to be in control of stuff. When I hear all of this wall street stuff. It just it really bums me out.
James Altucher 42:52
Yeah, I like to be in control too. I don’t want anybody. I don’t want to not have access to my money. And so when I put it in a hedge fund or even a mutual Funding some cases, or even an accompany I, I don’t have access to my money and I get very nervous. Yeah, yeah. I’m a nervous guy. Good to get nervous because I’ve lost money, so much money so many times. Now you have to, you have to put a gun to my head to take money out of my wallet.
Jason Hartman 43:17
Well, you know what they say the best way to cook become a millionaire in the stock market is to start with 2 million.
James Altucher 43:22
Yeah. Well, that’s happened more than once, unfortunately. So now, now I’m trying to do it the other way or now I’ve done it the other way. And I’m trying to hold on to it. Yeah, sure. Investing is more about wealth preservation, not about wealth generation. And, you know, the real way to generate wealth is to start businesses.
Jason Hartman 43:39
Yeah, yeah. Well, I agree. And I think that’s great. Just last thing before you go on this subject, and we’ll have you back to discuss your, your books and so forth. Well, give out your website if you would, and tell us a little bit about your books. You got some great book titles out there.
James Altucher 43:53
Yeah. So my last book is called choose yourself and I’m very happy with it the seeds have Twitter wrote the foreword. So dick Castello wrote the foreword. And it’s basically about how in today’s economy, we in order to succeed, nobody else is going to pick us. The big companies are no longer going to pick us for the great jobs. book publishers are no longer gonna pick us for big advances. Whether you’re an artist or an entrepreneur, you kind of have to build your own success. And choose yourself first before anyone else is going to choose you. And by choose yourself, I don’t mean necessarily you have to go out and build a business. I mean, you actually have to from the inside out, be healthy. So physically, emotionally, mentally, and spiritually. You have to find and uncover your own health and then external success takes care of itself. After that the way you choose yourself is choosing yourself for health. And so that’s what the book is. You can find it on Amazon. You can also go to my blog, James altucher calm. I also have a Twitter q&a every Thursday at 330. My Twitter account is J alto chair. And that’s that’s basically how you can find me.
Jason Hartman 45:03
Yeah, that’s fantastic. Okay, my last question for you, is just your general thoughts and outlook on the economy. I mean, you know, as the old Chinese saying goes, we live in interesting times, or may you live in interesting times. And we sure do. I mean, what a crazy, crazy environment we’re living in right now. So it’s so ridiculous what the government is doing and, and just what’s going on in the world in general, you know, with the debt we have, and so forth. I just thought I’d get your thoughts on that as well.
James Altucher 45:29
Yeah. So So on the economy, I sort of have, there’s sort of two economies. There’s the economy that’s ruled by corporatism. And there’s the economy that’s ruled by capitalism. And I think for about 100 years, they were conflated to be the same thing, but they’re actually different things. So corporations right now are completely firing the middle class. They don’t need the paper shufflers in the cubicles anymore. I’m not saying this is a political thing, or even an economic thing. This is just what’s happening. They 2000 Na gave everybody an excuse to fire all their employees and the employees are not coming back. And now technology is taken over or globalization is taken over and so on. Companies are instead going out and when they need to, they’re hiring temp staffers. The temp staffing industry is one of these huge demographic trends I was talking about the temp staffing industry is growing enormously, but the economy is not growing so much because companies are getting all their profits by firing everybody and outsourcing to temp staffers. So but at the same time, we have this amazing innovation economy. I mean, we have companies building spaceships that could go to outer space or genetically growing algae for biofuel. So there’s all these amazing things happening in technology that are gonna literally fuel the economy for the next hundred years. And I have a lot of faith in that and a lot of faith in the United States. We’ve gone through many economic upheavals. This is no different than any other one and You know, I think we’re going to come out.
Jason Hartman 47:02
Good, good. Well, I’m glad to hear the optimism there. And, and you’re right, we really do have two economies and the fact that corporatism. And how did you say that again, you know, have been tied together for the last hundred years, but they’re really different. How do you say that again?
James Altucher 47:15
Yeah. corporatism and capitalism have been sort of conflated together like as if they were one.
Jason Hartman 47:21
Yeah, they’re not. They’re, they’re, they’re different. corporatism is almost like government because they have the inside tract. They have lobbyists, they have a whole different agendas, and they’re looking to, to take care of to take care of themselves. So that’s a completely different thing. Very good points. Well, James, thank you so much for these insights. And joining us today. I know I kept you a little longer than planned, but you’re just too darn interesting. It’s your own fault. See? And thank you and every everybody please visit James’s websites and and get his books and take a look. I think you’ll be very impressed.
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