After James Altucher lost millions in the stock market, he decided to learn everything he could about trading and the Wall Street industry. He became a professional trader and then left the business for good after he realized it was ‘all a big scam’. James shares some of his personal stories as a fund manager, what he does for investing today, and much more on today’s episode.
Key Takeaways:
[4:35] James shares a bit of his life story.
[6:35] Wall Street is a scam and only three types of people really make money on Wall Street.
[9:45] James invests in micro caps in the stock market.
[12:23] Why do people still bother investing in Wall Street? James shares some of his personal stories.
[16:20] Jason read an article about how the average hedge fund investor doesn’t make any money.
[22:58] Why don’t more Wall Street crooks and criminals go to jail?
[30:30] James does intensive due diligence before he invests in a company.
[35:40] James shares his thoughts about the economy and the future.
Mentioned In This Episode:
@JAltucher
Tweetables:
“If you’re the average rich guy, you’re going to get screwed by hedge funds.”
“Investing is more about wealth preservation, not about wealth generation.”
Transcript
Jason Hartman:
Hi there, it’s Jason Hartman your host and thank you for joining me for another episode of the Solomon
Success show with Biblical wisdom for business and investing. Let’s go to today’s lesson and then I’ll
come back on and then we’ll have our main portion with our guest relating to that lesson.
Announcer:
Much as been written about Wall Street, hedge funds, and the financial industry. The general tilde of this content have been toward the excessive compensation that people in the financial industry pay to themselves at the senior management level. The reason why this is so problematic is because the cost of these executive salaries and bonus package are paid for by extracting funds from the customers who own financial products such a mutual funds and insurance policies.
The problems that are created stem from the fact that the vast overwhelming majority of these financial products deliver no additional value to investors above and beyond simply investing their capital into the market portfolio through the standard 500 Index. What happens is that investors have been sold a vision of what they can achieve through the financial industry.
For short periods of time, this vision seems to be coming true during market bubbles when values are climbing rapidly. Unfortunately, all market bubbles eventually deflate. What makes this particularly insidious is that casual investors typically buy into the market toward the top instead of the bottom. This means that when the market crash occurs, their capital basis is disseminated. This is the time when the dark side of the financial industry comes to bare, since the manager still collect their salaries and bonuses when the market is crashing.
In the book of Psalms, King David writes, “No one who practices deceit shall dwell in my house. No one who utters lies shall continue before my eyes.” King David is teaching us the importance of honesty in all that we do. It is an unfortunate truth of life that many people in our world will take this exhortation to heart. However, we can not let this dissuade us from living a Godly life through fair dealings and providing useful service to other people. This principle serves as the fundamental hallmark of scripture wealth building since it compels us to create businesses and investment that provide useful and valuable service to other people.
To expand on the subject, Jason has brought us an interview with James Altucher, the Managing Director of Formula Capital and founder of StockPickr. He writes the popular blog, Altucher Confidential. He is also the author of the new Choose Yourself: Be Happy, Make Millions, Live the Dream. James also explains how viable self-publishing is and how he gets the word out for his books. The new world is one where the old rules no longer apply and people must think differently about how they’re going to accomplish their person, professional, and financial goals.
Jason:
That was today’s lesson. Let’s get to our guest, but before we do that. Please regardless of what platform you’re listening to us on, whether it’ll be iTunes, Stitcher Radio or SoundCloud. Please go
write us a review, we’d really appreciate that and check out the free resources at our website SolomonSuccess.com. Here’s today main segment.
It’s my pleasure to welcome James Altucher to the show. He is managing director of Formula Capital and founder of StockPikr. He’s a writer, an author, writer of Altucher Confidential, author of 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:
Yeah, absolutely, and Jason, thanks for having me on the show. Pleasure to be here.
Jason:
The pleasure is all mine, welcome. So, you were a hedge manager, you’ve done venture capital. You’ve got quite a great background and a lot of experience on Wall Street, why don’t you just tell us a little bit about that, if you would.
James:
Sure. I was – it kind of started off on 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 dot 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 going to put it in the stock market, which was very stupid.
There was probably one summer where I lost about a million dollars a week, cash, in 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 said, okay, I’ve 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. So, I read every book I could. I probably read hundreds of books on investment and then I wrote software to model the stock markets and I would be very disciplined and I would trade according to my stuff where – 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. 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 fund. So, I have probably 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 the Financial Times, the Wall Street Journal, the Street.com.
I sold a company to Street.com and I probably in the course of my career on Wall Street, probably either analyzed or have written about thousands of stocks and I can say this – and also I’ve probably been in the management of 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.
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 guy who hold forever, so who’s that? So, Bill Gates, for instance, holds Microsoft stock forever. Warren Buffett holds Berkshire Hathaway forever. These are the types of people who build companies, they take the companies public, and they hold the 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, Goldman Sachs has a group, Renaissance Technologies is a famous hedge fund doing this. So, it’s the exact opposite of the people hold forever. These are the people who only hold for a billionth of a second. The high-frequency traders and this is an area that’s probably illegal or border line 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 are insider trader, mutual fund timing. Older crimes from the 90s are (#7:51?) trading, calender trading.
Jason:
Tell us what that is. (#7:55?) and calender trading, what is that?
(#7:56?) was a loophole in the rules by which you could finance companies, so the stock market, you know, wanted to attract foreign money, so you didn’t have to be, you weren’t subjected to any restrictions if you invested from a foreign location. So, you’d have many devious people move their money off shore and then invest in onshore companies and trade immediately out of those companies and that was very illegal, a lot of people went to jail.
Calender trading made so many people in the dot 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’m just going to 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 calender that a hot IPO was coming, you’d trade ferociously in the days before. You didn’t even care, buy, sell, make money, lost 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, the 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. It was completely illegal, it basically stopped after the dot 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 call, create alpha, IE, 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 why 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 are 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. 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. S
o, 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 if they’re an honest management team or not 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 as a demographics investor. So, Warren Buffett will say things like, you can have a great manager, but a bad business and it’ll still be a bad business and by 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..
Jason:
Right, I was just going to say Coca Cola!
James:
Well, Coca Cola was a value stock at one point and he refused to invest. When they were selling clothes and they owned Columbia movie theaters, the company was falling apart and had a very low PE ratio, which is the common metrics 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, 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 trends and he always puts his money behind that.
Jason:
Yeah, very good points, 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. It just must be so incredibly well marketed. I mean, with the, this is not the exact number, but the zillions of dollars, I’ll say, spent on advertising Wall Street products and doing overtly and, I don’t know if I want to say, doing it covertly, but maybe with CNBC, it just seems like that’s kind of the mouth piece for the vast Wall Street conspiracy. There’s just like this under tone of, oh, be an investor, but they forget about all these other things that you can invest in. They don’t mention those.
James:
I’ll tell you several stories if you have time to hear it.
Jason:
I have time, it’s very interesting.
James:
So, one time a friend of mine inherited some money and her bank adviser 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. People work hard on the job, whether or not they’re criminals or not, I’m still not going to prevent him from at least saying his piece to her. 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. 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-version. Many funds have the version where you’re paying for the marketing expenses and the version where you’re not paying for the marketing expenses and I’m not even an expert on the mutual fund industry. I just, 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 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 adviser who is going to stick with them over time even if they are 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 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 I met his boss, we had a great conversation, and at the end of the conversation he said – I really thought he was going to put money in my fund and at the end of the conversation he said, James, I’m sorry if you wanna job here, we’re happy to make an opening for you, but we can not put money in your fund, because we have no idea where you’re putting the money! And here at Bernard Madoff Securities, we don’t want to take any reputation risk.
Jason:
Oh my Gosh.
James:
To see Bernie Madoff on the front page of the Wall Street Journal 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 when we can get a solid 15% a year with Bernie Madoff, so really the whole system was setup to kind of encourage people to take these risks that their competition were the people who were criminals that no body realized were criminals. You know, we all realize now that Bernie Madoff is a criminal, because he was so big, but there are a lot of mini Madoffs out there that no body realizes are criminals and are kind of ruining the whole sector, because – 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 barely had a DOW month the 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 this fund.
Jason:
Right, it’s amazing. It’s amazing how people’s attitude and their tune change with the news getting out there. But you know James, talks 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? 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 pay grade.
I didn’t really understand it completely, but it was fascinating and it was about, I don’t know, three, four years ago maybe, this article about how somehow mathematically two and 20 showed that you just couldn’t make money. The average investor in a hedge fund couldn’t make any money by the time they took the two and 20 and they showed it if the fund 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:
Well, 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 fund is going to 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 fund is returning 5%. Now, out of that, take another 20% off. So, now the average hedge fund is returning 4%. So, what’s inflation? 2-3%? So now you’re left with…
Jason:
Right, right, and the taxes.
James:
Yeah, now you’re left with 0% or 1% or worse. So, why put your money in an liquid investment, so you’re locked up, you have no idea what the manager is doing, you can’t see your daily balance and when times are bad, good luck getting your money back, because it’s not going to happen. You’re not making [cuts out] money and I 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 dot 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 a 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 lend the money, but it’s back by equity and it’s backed by hard assets and occasionally, but when I say occasionally I mean one out of 20 and you have to really know what you’re doing, occasionally you can 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 to look at the company, the company is dead. Forget it.
Jason:
Right, why is that though? Because once Wall Street looks at it, they’re taking all the profits for the insiders and the special clients and so forth?
James:
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 part, because then the party is over. So, you want to get in before the mutual funds start accumulating and getting in. Once the mutual fund starts accumulating, you’re in great shape, because they have to buy millions of shares and the stocks just going to keep going up while they buy. I mean, I’ve seen stocks go from two to 40 while mutual funds start accumulating, but you know, you don’t want to buy at 40, you want to buy at two.
Jason:
Yeah, that certainty makes sense, but back to your hedge fund examine and I really appreciate the way you laid out such a nice, simple example. I couldn’t remember if that article adjust for inflation and taxes, but you know, when you look at it that way, of course, but the big promise of hedge funds is these the investments for the rich. A lot of them have minimums of say $250,000 and, of course, that’s not really rich, but by Obama’s standards it certainty is and they are for larger investors rather than the typical retail investor with a day job and doing stuff in their 401k and so, there are promises that they’ll have higher returns and unique investments, so you use seven percent annually, is that fair for hedge funds? I guess I’m going to defend them for a moment.
James:
Yeah, I mean, look, the average hedge fund is not going to be better than the average investor. Again, how did they achieve better than market returns in the past years, it’s through all the techniques I described and it’s not even me just saying, like 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, calender trading, (#20:57?) trading. Again, no one has gone to jail for high-frequency trading, but this is an area where regulators are heavy looking at them and at the very least, it’s a race to the bottom to see which hedge fund gets the fastest computer and execution time and so one.
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 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. 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 going to get screwed by hedge funds. You kind of have to really know the business and when I saw 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 huge laundromat chain, doesn’t mean you’re going to know how to invest in hedge funds.
Jason:
That’s a great point. Yeah.
James:
It takes a good, like, I’ve put in now 15 years 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:
That’s a great point, no question about it.
James:
Again, I’m not being like, 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 this.
Jason:
Right, but it seems like two big to fail is the same thing as too big to jail. You know, when you look at the scandals with these banks, with the money laundering for drug dealers and all of this kind of stuff and the greater financial crisis that we had just a few years ago. I mean, no body has gone to jail. The Countrywide guy, Antony Mozilo, a 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:
Sure and there’s no defense for these people and the problem is the laws were very unclear, so 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 individuals have taken advantage of a corrupt system.
So, yes, the banking system was corrupt particularly from, let’s say, 2004 to 2008 and even afterwards and the government was corrupt that bailed them out and not that the government was good or bad, it’s just why did they need this huge bail out? 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, the economy and innovation and technology can’t grow without the help of banks, you know, leveraging up and lending to good entrepreneurs 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, ah, they should have gone to jail, because no body really knew what was going on with derivatives back in 2006. Now, we understand a little bit ore how the system was being taken advantage of.
Jason:
Right, but there will be a new thing the next time around. The law is always the lowest thing to catch up to the “innovation”, the financial innovation of Wall Street and entrepreneurs in general.
James:
I mean, the problem is what do you do? Like, I guess if you made a broad law, like if you knowingly taking advantage of a corrupt system, you can go to jail, but at the same time, Countrywide could argue they were helping people buy houses who couldn’t other wise afford to buy houses. So, it was weird, because there was a flip side to the argument.
A lot of people were moving from the ghetto to owning houses outside of 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, like, why doesn’t John Paulson go to jail? Why didn’t he help the government solve the problem instead of just shorting all 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 gold, so, what goes around comes around.
Jason:
Yeah, it sure does, it sure does. You know, that’s an interesting question, what do you think of gold and 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 has 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 certainty 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 in nominal dollars too, obviously, but what do you think of the gold and silver markets or do you not play in those and think about them?
James:
I’ll tell you why I don’t play in them and I do have an opinion on price though, but I don’t play on them because gold is not a currency. Like, the United States does not accept gold as…
Jason:
Legal tender.
James:
Yeah, you can’t pay your taxes with gold for instance, so you know, I’m skeptical then why then you buy gold? Gold does have industrial use, but it just so happens by chemistry that gold has the exact same industrial use as silver and silver is like, what, 160th of the price of gold, I don’t even know the 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 can put it in your mouth as braces, silver is used for silverware, silver is used for electricity and conducting wiring.
So, there’s a lot of – by the way, gold has all those uses away, but it’s just more expensive. Why would you get a 600 – sorry, why would you get $6,000 worth of braces when you could get $600 worth of braces. So, again, 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 what I’m also seeing is what I call gold 2.0. I don’t think Bitcoin is a trading vehicle, but if you really believe that there should be an alternative to standard currency, then Bitcoin is a nice choice.
Jason:
It is but I don’t think they’re going to let Bitcoin exist. I think they’re going to attack that every way they can. You are already seeing signs with it and I haven’t kept up with it in the past, oh, month and a half or so, but we gotta remember is that gold, silver, Bitcoin, these are all competition for central bankers and treasury departments of governments around the world and there’s no way they’re going to let competing currencies exist without trying to attack them and manipulate them in some way.
James:
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 or probably going to be devalued and, you know, Bitcoin usage raises very quickly in countries like Argentina or Cyprus. Now, gold usage doesn’t raise, but Bitcoin usage raises.
So, again, I think if you think there’s one in a 1,000 Bitcoin could become the currency of some country, then 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’d 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 and learn enough about the companies you’re invested in, you can make good investments.
Jason:
Yeah, so you know, I remember had Chris Mayer on the show. He’s one of the Agora 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, in that way, claims to do better, and is that what you do? Do you go out and meet these boards of directors and really know these guys?
James:
Yes and I agree with that philosophy completely. I meet the CEO, I sit down with him, I meet the board, I meet the largest investors, I meet employees, I go out into the field and see, you know what the customers’ think. You gotta – I invest in private companies, right, so you have to do intensive due diligence to invest in private companies.
Jason:
With private placement memorandums?
James:
Oh yeah, yeah, but with private placement memorandums, but basically companies that are not public at all. They’re like tech companies.
Jason:
Right.
James:
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:
One of my things is, you know, as I mentioned to you just a couple of minutes before we started recording. I’m a real estate guy, I just, I have this thing I call the ten commandments of successful investing and number three, which is probably the most popular is Thou Shall Maintain Control and what I say there, James, is be a direct investor, only invest in things that you actually own and control and that’s why I like income property, I like investing in trustees, doing hard money lending or private lending and you don’t have fund manager taking all the profits off the top and that fund manage could also be the CEO, the board of directors, the C class executives flying around the world, paying for all their first class airfares and wining and dinning and kind of the Dennis Kozlowski on a smaller scale, but when you own income property.
The only person that can really rip you off is the property manager and the damage they can do is relatively small comparatively to what the excess you see 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 what are your thoughts about that?
James:
I agree, like, you know, for instance, if I invest in a company, sometimes I even try to go on the board of directors, because then, you know, that gives me restrictions, like I won’t be able to sell, but once I invest in a company anyway, I don’t want to sell, so 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. You say a property manager can hurt you, but let’s say you bought real estate this past year, or 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:
Yeah, yeah, good stuff. You know, I just add to that I want to be in control of stuff. When I hear all this Wall Street stuff, it really bums me out, you know?
James:
Yeah, I like to be in control to, 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 fund in some cases or even in a company, I don’t have access to my money and I get very nervous. I’m a nervous guy and I’m nervous because I’ve lost money, so much money, so many times, now you have to put a gun to my head to take money out of my wallet.
Jason:
You know what they say, the best way to become a millionaire in the stock market is to start with two million.
James:
Yeah, well, that’s happened more than once, unfortunately. So, now I’m trying to do it the other way. Now, I’ve done it the other way and I’m trying to hold on to it. Investing is more about wealth preservation, not about wealth generation and the real way to generate wealth is to start businesses.
Jason:
Yeah, well, I agree and I think that’s great. Just last thing before you go on this subject and we’ll ave you back to discuss your books and so forth, give out your website and tell us a little bit about your books, you got some great book titles out there.
James:
Yeah, so my last book is Choose Yourself and I’m very happy with it. The CEO of Twitter wrote the foreword, so Dick Costolo wrote the forward and it’s basically how in today’s economy in order to succeed, no body else is going to pick up. The big companies are no longer going to pick up for the great jobs. Book publishers are no longer going to pick us for big advances. Whether you’re an artist or 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, emotionally, 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 that’s what the book is, you can find it on Amazon, you can also go to my blog, JamesAltucher.com. I also have a Twitter Q&A every Thursday at 3:30. My Twitter account is @JAltucher and that’s basically how you can find me.
Jason:
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 maybe you live in interesting times and we sure do. I mean, what a crazy, crazy environment we’re living in right now. It’s so ridiculous what the government is doing and just what’s going on in the world in general, you know, with the debt that we have and so forth. I just thought I’d get your thoughts on that as well.
James:
Yeah, so on the economy, there are 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 a 100 years, there 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 happen. They – 2008 gave everybody an excuse to fire all their employees and the employees are not coming back and now technology is taking over, globalization is taking over and so on, companies are instead going out and when they need to, they’re hiring temp staff.
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 the temp staffers. So, but at the same time, we have this amazing innovation economy. I mean, we have companies building spaceships that can go to outer space or genetically growing algae for bio-fuel. So, there’s all these amazing things happen in technology that are going to literally fuel the economy for the next 100 years. I have a lot of faith in that and a lot of faith in the United States. We’ve gone through many economical upheavals. This is no different than any other one and I think we’re going to come out strong.
Jason:
Good, good. Well, I’m glad to hear the optimism there 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 100 years, but they’re really different? Say that again?
James:
Yeah, corporatism and capitalism has sort of been conflated together, like as if they were one.
Jason:
And they’re not. They’re different corporatism is almost like government because they have the inside track, they have lobbyist, they have whole different agendas and they are looking to take care of themselves. So, it’s a completely different thing. Very good points. Well, James, thank you so much for these insides 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. Everybody, please visit Jame’s website and get his books and take a look. I think you’ll be very impressed.
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