How Anyone Can Become A MILLIONAIRE Through INVESTING | Phil Town & Allison Maslan

Hi everyone, it is Alison Maslin. How's everybody doing today? We are coming to you live from San Diego and Atlanta at the same time for this live broadcast of Allie and you the Business Success and Lifestyle Show. I'm Alison Maslin. I am a serial entrepreneur, business growth mentor and I get the honor of interviewing the most incredible individuals from around the world so that you can learn and grow in your business and your life. That's my passion and my mission is to help you break through and so you'll be able to comment. And we're going to take your questions throughout the show so feel free to participate. So I want to make sure that you all can hear. So we've got already Patty here and we're going to go ahead and get started. So let me know that you can hear me. And I'd love to hear where you all are from, where you're listening from and what your business is. So you are in for a real treat today. Jared, great to see you. Glad you can hear us. Okay. That's always good that the technology is working well. So today I'm super honored to introduce to you a friend of mine and one of the top investors in the world. And I want to introduce you all to Phil Town. And Phil is an ex Green Beret. He is a former Grand Canyon White water River guide. That is a mouthful and that sounds like a blast. He's a self made millionaire and author of two number one New York Times best selling books now in print in 18 languages. He's one of the world's most widely sought after speakers and and he has shared the stage for the past 15 years with presidents, actors, athletes, soldiers and other really famous motivators. He is an expert commentator on CNBC and also on msnbc, the show youw Business. He has been featured on the Millionaire Inside and his podcast Invested which I am hooked. And you have got to listen to his podcast. It's had already over a million downloads including mine and his company. Rule 1 Investing, you have to check it out. He teaches small investors like you and me around the world how to use investing strategies developed by Warren Buffett and Charlie Munger to make low risk, high return investments. The kind we like that match their personal values. So Phil, welcome to Allie and you.

Hi Alison, glad to be here.

Oh, I'm so excited to have you here and I know that all of our business owners out there and our audience are going to be so thrilled to hear what you have to share today. So thanks for taking the time.

Thank you.

Yeah, so we met actually a few times. We met at a Mastermind, and I saw you in the springtime this year and I was so blown away by your talk and invited you to come on this show. And in the meantime, I've been listening to your podcast, I've been reading your books, and I am a fan. So your story, I love the story behind the story. And you weren't raised with parents that were big in investing. It was quite the opposite. So would you share your awesome story of how investing found you?

Sure. Let me give you the short version of this, because I can go on all day, but I came out of a blue collar background and was the first person in my family to actually try to go through college. So that kind of sets you at a disadvantage, right, for doing anything with any kind of serious money as an outcome. And I never really thought about money at all. And when I was, you know, old enough to leave high school, I basically ended up in the Army. I tried school once. I managed to flunk out of Bellevue Community College, which was, you sort of have to not go to class, right?

You have to try.

I didn't take to the college life well. And I went in the Army. I was there for about three and a half years, came out of the military and back into the United States, and I'd been out of the US for about two years. And when I came back, I was sort of a little bit lost about what I should do next. And I ended up interviewing for a job that my mom said I should try out, which was to be a river guide up on the Stanislaw river, kind of near Tuolumne City in California. And so I went up there, really liked the people and I liked the job. And I got a job and I worked as a guide, first in California and then up in Idaho and then down in the Grand Canyon. And I was in the Grand Canyon for almost 10 years until I nearly drowned a boatload of Outward Bound trustees. Whole bunch of rich guys. I made a mistake on a big, big rapid and we got away with it, which was great. And one of the guys got off the boat and said, you saved my life. And I said, yes, I did. And I was sort of hoping that I would get a tip, you know, it was that kind of a situation where I was making $4,000 a year. And we're really sort of tips were just a huge part of my winter income. So the guy didn't tip me. Instead, what he did is said, just come to San Diego. Just happened to be San Diego, right. Said, come to San Diego. I've got a house in La Jolla. Come on out and I will teach you to be an investor. Which was the farthest thing from my mind. I wasn't making any money. I didn't have any money. And I didn't care lot of money at the time. But that winter, I decided I would go and pay a visit to sunny Southern California. And I got hooked by this guy into this idea that I could invest. And what he taught me was just the basics, according to Warren Buffett and Charlie Munger. And so I started in 1980 and I started investing my own money. Well, I started learning, then started investing my own money. And by 1985, I was a millionaire. And I started with pretty much nothing, but it was a big journey. And then from there, I wrote a couple books about it and I ended up on stage with a lot of people. And now we try to teach people what we did. We just sort of by demand, started putting out classes that we do in Atlanta once a month and try to teach how to do this stuff to people, particularly people like me. People who would have never in their lives thought they could invest.

So you didn't get a tip, but you kind of got a tip. I mean, you got a much bigger tip.

I got a much bigger tip. Honestly, I didn't think there was any way I would ever be interested in this. I didn't think it was dharmic to me. I didn't think it was like, family, Dharma. I didn't think it was anything to do with me. And what he explained to me were these basic principles that we can talk about here.

Yeah, yeah. And I'm excited to share them. I just think it's so fascinating how, you know, the universe, like, sets you on your course. And, you know, I was thinking about this because I think a lot of people don't get into investing because they're intimidated. The idea that I was always raised with is that you have to find the expert to do it. Almost, like, don't learn because you're going to lose your shirt and you kind of say the opposite. So, you know, what are you. What's your feeling about this? And how can we change this idea so people can, you know, take responsibility for their wealth?

It's a big challenge because you have this enormous industry out there that we call the financial services industry which would include the securities Exchange Commission the legislators in D.C. almost all the financial advisors in America. So JP Morgan, Morgan Stanley, all the LP advisors, almost all of them. Are all trained in what's called modern portfolio theory. And modern portfolio theory says very explicitly that you can't beat the market and you should diversify. And risk and reward are deeply related. So if you wanted to try to get a higher risk or a higher reward, you have to take a lot more risk. And that even then in the long run, you're still not going to beat the market. So it's a little bit of a mountain to climb to think, well, I'm going to go against the current paradigm of investing. I'm going to go against every Ivy League professor, I'm going to go against my financial advisor, what my parents taught me and everybody else and go learn to be an investor and do this on my own. So it's this basically, it's a paradigm that says you can't do it, so don't try. And These guys make $100 billion a year by pitching that paradigm.

Yeah. And it keeps those that really make a difference for themselves and their family away from doing it. It just feels.

Yeah. If you're convinced that the earth is flat, you're not going to try to sail around it. That would be idiotic. And so your family thinks the financial earth is flat. They think it's impossible to circumnavigate this globe, if you will. I think it's impossible for an individual investor without just being completely lucky to go out and beat the market at all, much less make a lot of money doing it. And actually the opposite is true. It's an amazing world out there where the current paradigm being taught in every school out there is just dead wrong. They've had, I mean, this paradigm, modern portfolio theory, they've had three Nobel Prizes awarded for that. To convince you to stay in a low cost index, to convince you to do exchange traded funds, to convince you to be in mutual funds, to convince you to diversify across a ton of stuff. And many of you are in 401k plans where you don't even have any alternatives. That's it. That's what you get to choose from. And this is nothing could be further from the truth. And up until 1999, about the only guy out there who was actively saying this is all BS that these people are saying was Warren Buffett. And then in 1999, a professor at Yale wrote a huge paper that was the first torpedo into the modern portfolio theory ship. And then that was followed in 2010 with a Nobel Prize to a couple of Israelis that proved that one of the basic tenets of modern portfolio theory the reason that you can't beat the market, the reason that all prices are the right value in the market, is because everybody's rational in the market. And these Israelis prove that nothing could be further from the truth. People are emotional, they're irrational, especially when they're running a big fund. The wheel started to come off in 2010 in a big way on modern portfolio theory. And then in 2013, Robert Schiller at Yale got the Nobel Prize for proving that you can beat the market, you can kill the market. And he proved it. So now it's shifting, but it's. I've been out here trying to convince people for, gosh, I don't know, I've been teaching this, either writing about it or talking about it for probably 17 years. Just now it's starting to get to the universities where they're starting to agree that what I'm telling people is right.

Yeah. Well, I love it and it's very refreshing. And the way you explain it, it just makes sense. I was raised same thing as far as definitely go the route of the mutual funds. And if you think about it, in business, what we teach our clients is to diversify. Like, don't depend on one or two or even three clients because something happens, you're in big trouble. So I mean it, you know, you think about it, okay, diversifying, that makes sense. But the way that you explain it. So share a little bit your thoughts about why that diversification doesn't work.

Okay, so what you're calling diversification, I would agree with is a reasonable kind of diversification, you know, more than three clients. Right. Or something like that. But what the market calls diversification is what we would say is massive over diversification. So just as you wouldn't want three clients because you're locked in and one of them leaves, you're in trouble. You might not want 200 because you might do a very bad job with 200 clients. So if you're an entrepreneur, do you really want to have 200 businesses that you started up in the last couple years? Do you think that that's a really great idea for success, to have massive over diversification? Or if you're an entrepreneur, should you focus on what your business is and understand your business and build that business? And so what Buffett came out to say was that you got to find the right balance, and the right balance is a focus on a few businesses that you really understand pretty well. Forget about understanding the whole market, forget about understanding how intel is doing it. Are they going to be around in 10 years or Microsoft or anything, I can understand a burrito company pretty well. Okay. I feel pretty confident about burritos. So you focus on a few things that you really understand and you just wait for them to go on sale. And the market puts those companies on sale with enormous regularity. Every five to ten years the whole thing goes on sale. Doesn't have to be a problem with the company. Everything's right about the company. It's all good. But it went on sale. And this is very different than real estate. Real estate has really long cycles where everything just keeps going up and then maybe once in a while it'll go on sale over the course of 30 years. Right. But the stock market goes on sale on a regular basis. So this is the difference is that you're being told to diversify and hold because that's what the fund managers have learned how to do. In a world of modern portfolio theory that says you can't beat the market anyway, so you're a fool to try. Better to own 200 stocks with your clients money. It's better to just stay with the market. If the market's doing 5%, great, you're doing 5%, the market's down 30%, maybe you're down 25%, you're going to get a raise. So it's just the fund managers have learned the hard way that they can't do the things that they need to do to beat the market. They simply can't do them as a fund manager. So shall I go on about what those things are? What do you think?

No, I'm fascinated. One thing I just want to say that I love about the way you're thinking is because when you're investing in a mutual fund, there's no way you can get to know all those businesses. You can't really make your decision. But what you say in your work is you're investing in the business as if you're buying the company. And then you, before you even make that decision, I mean, you really know everything about that business as much as you can so that you can make a sound decision. So I'd love to talk a little bit about that too. And what you're really looking for, what are the numbers that you're looking for?

Let's dive in on that with the understanding that in your lifetime you would be, you would be very smart as an investor right now if you started right this minute and said, okay, I'm going to learn how to do this. To get a punch card with 20 punches on it with the knowledge that when you punched out those 20 holes, you can't invest in anything else the rest of your life. You're done. Because if you were to do that, you would be very patient about buying that first one.

Yes.

So that's why we talk about Biden as if that's the only company. Or even if you buy one share, it's as if you're buying the whole business. We want all of our investors to really focus on that company and be very, very patient. There's no rush. The market's going to put stuff on sale over and over again. And the key thing to understand is out of that, those 20 companies, you're going to have an occasional mistake. Okay. But if you get four of those correct, you're going to get very, very rich. Very rich.

Yeah. Yeah. Well, I mean, that's. And, you know, gosh, there's so many questions coming up from me.

What do the good numbers look like? Right. How would you know it's a good company? Was that kind of next on the.

Yeah.

On the list of things we got to know, which is hugely important. So, okay, I follow a couple of guys. One of them is 94. His name's Charlie Munger, and the other one is Warren Buffett. He's 86. And so I pay a lot of attention. These guys have basically been my teachers via someone who learned from them. So I'm going to refer to these guys and what they say is that there are basically four things you have to do. Right. Okay. The first one is you have to know that you're capable of understanding this business. You don't go past that one. I mean, it's no point in trying to figure out the other things about a business that you don't understand. Okay. So just like you just said, you want to treat it kind of like an entrepreneur. You're going to buy a handful of these businesses in your life, and you need to understand that business. So like I said, you know, I can understand burritos pretty well. I like burritos just fine. Okay. It's not hard to understand. It's not hard to understand a good business that is producing, let's say, some kind of a drink where they have a big, big, huge protection against competition from a big brand. Right?

Yes.

Energy drinks, you got Monster. You know, if you like soft drinks, you got Coca Cola. If you like water, you have Dasani, which is owned by Coca Cola. So you've got this idea that once you understand the business, the thing you're looking to figure out is there's some kind of intrinsic quality to this business that keeps competitors from coming into their field. Like, for example, Coca Cola has this huge shelf space and this huge brand. So if you're Monster Cola and you're trying to build this company up and compete against Coca Cola, you can't get the shelf space. You get a little corner of the cooler. That's it. And so Coca Cola bought Monster. All of a sudden, Monster can go on the shelves all over the place. So Coca Cola uses the power of their brand to control that grocery store aisle, right?

Yeah.

A railroad company, simple example, has railroad tracks that go from Long beach to Chicago. If you want to haul freight across here, you got to go with those guys. You know, Pacific Gas and Electric has. They're a public company. You want electricity in your office, you can put $36,000 worth of solar panels on the roof. Or you could just sign up for PGD and they'll be happy to provide it. Right. And they have what's known as a toll bridge moat. They have a monopoly almost in California. So there are a few characteristics that companies have that make it very hard to compete against those. And we call those moats, okay? Around the castle. So the first thing is you got to understand this business in a way that I think it needs to be meaningful to you in terms of your own personal values. And that's going to help you be willing to dig in and do the homework. Right? So if I really don't like the values Coca Cola has, because maybe I don't like sugar, and I think it can set off childhood obesity and childhood diabetes, and these guys are selling this stuff, okay, then I don't want to own Coca Cola. But. But if I own an index and I own a mutual fund, I own Coca Cola, right?

This is true.

Right? So Here you got 50 companies that you would be disgusted to be associated with, and you own all of them if you own the index. So one of the things that helps us really start to think seriously about doing the work to find these 20 companies in our lives is that if we don't, then we're turning our values over to some fund manager and they're voting those values with our money. And when you see the people marching on Wall street, you know, the 1%, the 99%, when you see that stuff going on, what you're looking at is people who don't realize that what Wall street exists for is to manage the 99 percenters money. If you want to stop Wall street, all you got to do is take the money and they're done, right? You want to stop CEOs from being a bunch of guys that pay themselves $25 million a year while they're firing employees and making squeezing people by the throat like at Walmart, for example. Then all you have to do is stop buying Walmart. And if we all did that together, Alison, wow, it would be over like that for those buggers, man.

Or big pharma, you know, I mean, that's a big one right now that's.

In your value set. Where you don't think that's a great ide is you shouldn't vote your money. And here's the thing, I don't want to say what the value should be, right? I don't want to tell you what your value should be, and I don't want you to tell me what my value should be. But I want to convince you to vote your values, put your money where your mouth is.

And I love that. These guys, I love that because I don't think people really think that way. And if you are investing with what you're aligned with, right, you're just, you're living congruently in your life. And also you're going to be more interested to learn about that company to make sound decisions because it fascinates you.

100% dead on the money, because it fascinates you. They're doing something in the world that you really want to see, right? So if we took a company like Tesla, let's see, we could all agree Tesla's amazing, Elon's amazing. So, okay, man, now I want to buy Tesla. I think, wow, I'm capable of understanding electric cars and what he's doing. And if he develops those patents and protects himself, the company has a big moat, big brand moat. Everybody wants a Tesla, you know, great manager, super, super smart. So we got a great management team. That's the third thing is a great management team with integrity. And it's hard to find anybody on the planet with more integrity than Elon Musk. And, and so you go, okay, I'm capable of understanding it. They have a huge brand moat and I love the guy running the company. We share our values, right? Now I'm just gonna go run down and buy Tesla. No, no, I can't. If I'm gonna be an investor and not a speculator, then I can't just go buy it at whatever price is out there. I gotta wait until I understand it well enough to figure out what it's worth as a company.

Okay.

A lot of companies I can't figure out, and Tesla is one of them. I don't know. There's no way for me to figure it out. Right. So Amazon's another one. I would love to own Amazon. I mean, if I could have understood in 1996 that, you know, these guys were going to figure this out instead of the other 10 companies that were working on the problem. I wish I would have known. Yeah. So now here it is, you know, we're down the road, you know, 20 years later, and these guys are enormously successful and so brilliant and such a great management team and such a huge moat, and the company is still hard to understand. Where are they going with this thing? What's the business plan? When does the investor see any cash? So what I'm saying is there are thousands of companies out there and what I have to understand is a handful of them.

Okay?

That's all. I don't have to understand everything by any means.

And when you. But what are the numbers? Because when you say going on sale, that could be okay. The company is hurting. They've had a tough quarter, but you know that they've got a lot of exciting things on the horizon over the next several years. So companies, because you know in business that you've got ups and downs. It's that roller coaster. Is that what you're talking about when it's going on sale?

I'm talking about when it's going on sale, that you have found the value. You know enough about the business to know what it's worth today. And then you cut that in half.

Okay, Cut it in half. And that's your rule when investing. Right. So buy something worth 10, 4 or 5. If you lose, you're not going to be that bad off because you bought it at such.

Made a mistake on the number. Right. If you've made a mistake on the valuation or if something happens in the world of the real world. Right. There's all these changes that can happen in the world that you can't foresee. But you've purchased this thing worth $10 and you bought it for five. So you have what's called a margin of safety. You have room in there to be wrong and still come out okay with your investment. And that margin of safety, probably the three most important words of investing. And you can't get to a margin of safety unless you understand the business and unless you have a pretty good sense of the moat that's going to protect this business into the future. So you can calculate the value so margin of safety is hugely important. And what we do to figure it out is we look at a few key numbers, just a handful of key numbers. We want to know, can I estimate that this company will be more productive in 10 years than it is right now?

Okay.

I just want to know, will it be doing more out there a decade from now than it is now? Right. And second, can I take a ballpark swipe at what the value of the stock will be at 10 years by knowing that it's going to be more productive and that its earnings are going to be maybe here instead of here? Right. So I'm going to take a guess at how much the earnings today, which is a given number, it's published, how much those are going to grow over the next 10 years. So let's just say I think it's going to double one time, okay, ballpark, one double in the next 10 years.

All right?

So, okay, and then if it's doubling one time like that, and it gets a normal multiple in the market, and let's say it's a dollar a share right now of earnings, okay, it goes to $2 a share. And I'm just. I'm making an educated guess, right? $2 a share. And since it took, you know, it takes 10 years for it to grow, I'm going to give it a normal market multiple, which is the PE ratio. I'm just going to say, okay, it's a 15 PE ratio. So now I've got $2 a share times 15, which is $30. Okay, just ballpark, 10 years from now, 10 years from now, I think I should be able to sell this for more than today. How much more? Well, I think It'll sell for $30. It could be 35. It could be 25. But I think in that ballpark. Right, it'll be in that ballpark. So what should I pay for it right now? If it's going to sell for $30 out there 10 years, what should I pay for it right now? And the answer is, you divide that number by four. Okay, what it's worth right now. Okay? So that's ballpark, you know, almost $8, 7. 50 a share. Okay, so 750 a share is what I should pay for it today, but I don't want to pay 750 a share because I could be wrong about the $30. So I want to pay is. Is three and a quarter. Is that right? 50 divided by 2, 375. So I want to pay $3.75 a share for that thing now here's the catch, is there's no way that's going to be available for $3.75 unless there's some kind of crisis going on that's creating a lot of fear about the stock market. And those crises, fortunately come along about every five years and show up and create a crisis and boom. The stock goes down from 750 where it should be to 375 and you're sitting there knowing that's where you want to buy it. It's been sitting on a list for a year or two while you're waiting. And one day you wake up and we've gone into a recession and there's your great business for 375. And every business out there goes through that cycle, every single one of them. So you need to have to figure out the value someday in the future. And then you got to have the patience to wait for that price to show up that you want to pay for it.

And you know, the other thing that this says, and thank you so much for that, that elaborate explanation makes good sense to me, is that people really fear the recession. And we know that, gosh, something could be coming down the pipeline if we follow history pretty shortly here. And that actually is the time when so many people, if they're following what you're saying, when they really get wealthy. This is the opportunity in so many ways in business too, because you can negotiate great leases. There's, you know, you can get maybe.

Employees at a better rate, 10 cents on the dollar. You know, it's all that stuff. You need a sort of a crisis to come along. And they come along with great regularity. Now the thing is, we haven't had one. We haven't had a big crisis now, a recession in the economy since 2008. And here's the really, either really fabulous thing or the really scary thing, depending on where you are with investing, is that we've never had a period of time longer than 10 years without going into one of those economic crises. So we're there. We're there this year or next year. And unless, of course, we have a new world record in the last 140 years of no recession, it's not impossible. But essentially we're at the top of the curve here in terms of how things are valued, the price of businesses. This is a terrible time to be buying stocks in the market. A really terrible time to be holding, holding on to a big mutual fund, exchange traded fund or index. And remind me to tell you how scary indexes and ETFs are right now.

Okay, I'll remind you.

Okay.

Well, I. Yeah, I mean, so it's something that you can. It's always a matter of perspective. Right. And that's why I love being a business owner, because I'm not dependent on. On employment by a big company that, you know, could ax me tomorrow. And, you know, you have to get creative. And that's where I feel you can create your own economy when you own a business. But I love the way that you look at it, because it really is thinking in the future. Because let's say we do go into a recession, if we're going to follow history, which sounds like it's definitely imminent, that you're saying, okay, let's study, let's prepare, let's do our homework so that we know, you know, a direction that we might go if the companies we're interested in and align with our values go on sale, that we're going to jump on those opportunities. Because we know, just like history, we also come out of the recessions. And so.

100%. Right. I got to tell you, there's, you know, I mean, I'm sure that you guys can read about this, and I'll just give you some references to take a look at. But the most important one, I think, is the best investor in the world. Warren Buffett came out about four or five months ago publicly. Sorry, in May. What is that? Three months ago. And said, every 10 years or so, we get into an economic storm. And when that storm starts, if you're prepared, it begins to rain gold. And when it rains gold, you go outside with a washtub, not with a thimble. So what he's talking about is that he's expecting and is investing in such a way that he's expecting a recession in the next year or so. He is loaded up with a washtub that's bigger than almost anybody's, which is the cash that he's holding. Warren Buffett has more cash on hand right now than he's ever had in his history of his career by over double. He has $100 billion pile of cash, and he's sitting on it. Just sitting on it right now. Yeah. You might want to ask yourself, if Warren Buffett is going to cash, what are you doing in your mutual fund?

Yeah.

Are you really ready to ride that down 60% and have it take another five years to come back? I mean, is that going to work for you as an investor? And you've got some really big fans out there. Who have done extremely well following you and have the money to ride that out and they're not worried. They can just leave it. Follow the advice of the financial industry and just leave it alone. Don't touch it. And they'll go down 50, 60% and they'll five, eight years from now, they'll be back up to where they are and then they'll be growing again at a faster rate. And that's okay with them because they're rich. They can do that. But what if you're not rich? What if this is really important money to you to live on as retiree and you're 55 years old? This is not going to be a fun time this next five years, right?

Yeah. But if you're thinking ahead and you can really look at this as an opportunity. So make sure you make room in that bathtub so you can fill it with the cash.

Fill it with cash. And be ready to buy some great companies. Because here's the problem with doing what most of the investors watching this are doing, which is they have followed the advice to get out of mutual funds, which cost a lot of money of fees, 1%, 2% fees. And they've gone to indexes and exchange traded funds which cost 10 basis points. Or they've gone to a robo Advisor, which cost 15 basis points. And that seemed like really good idea to lower your fees since no fund managers hardly anywhere ever. Excuse me, Ever beat the market. Right. You have to stay in cash for sometimes years at a time in order to do what I do and what Buffett does and fund managers can't do that. They're not going to be able to stay in cash. You're going to take your money away. So these guys can't go to cash. If you can't go to cash and sit in cash, you can't beat the market. So they don't beat the market. Okay, so now you're getting advice. Don't pay the fees. Just go to an index fund. But think about it for a second. An index fund is, is a brainless entity. It, you put your money in there every month and it forces that fund manager, the index fund manager, to buy all 500 stocks in the S&P 500. When you put your money into the SPY ETF, which is the big one most people use, all right? Now they're going out and brainlessly buying those stocks regardless of the price the index is required to buy those stocks. So it comes in, the money comes in, the money comes in, the money goes out and Buys the stocks. Buys the stocks, all 500 of them. Now, you reduce interest rates down to zero, so you cannot get a decent return out of a bond. So that takes the money out of bonds and puts it into the stock market, where they put it into the index, where. Where they go buy, buy, buy, buy, buy, buy. Without a brain, no brain whatsoever, about the value of the business that you're buying. You're forced to buy all 500. And so they go up. So more people come in out of bonds into the stock market and brainlessly buy these things until they go up. And this is exactly what happened in real estate in 2005. 6 Brainless purchase of real estate right by everybody. And it just kept going up and up and up. And then, oh, well, man, my neighbor made a hundred grand.

Yeah.

And I'll tell you what, that's the definition of a bubble. Except this time, the stock market bubble will make the real estate bubble look mild because 36% of the money in the stock market is indexed. So when that index starts to go down and people get scared and pull the money, then there's no brain connected to it. It's a panic stampede to the door, and this market is going to absolutely crash. So I'll tell you, it's not good news if you're not in cash. It's really good news if you're in cash and know what you want to buy or get.

Like, listen to Phil Towne and Warren Buffett and get into cash. But let me ask you a question. Do you ever. Because I know you're analyzing everything. You're following history. Do you ever just listen to your gut? I mean, you ever just follow your intuition?

No. I mean, I have, but it's a bad idea.

Kind of like horse racing because you like the name of the horse.

Yeah. Investing is for people who are going to be rational when other people are following their gut. So we want to have a really rational reason why we're doing what we do. And the reason we want to be very rational and objective about everything is because we are going to be investors when everyone else is running for cover and the fear is very high. This is the essence of what we do, is we sell to greed and we buy fear. So when everyone else is following their gut to get out of the market, it's our opportunity to get in. But if you're doing it with your gut, you're going to get drugged the same way as everybody else's guts. You have to be rational. You have to stay calm and objective and you have to be able to load up your truck when everyone is telling you there's going to be no tomorrow.

Right? And that's what you talk about is where your self awareness needs to be on high. Like you really need to know yourself.

That's the key. Know yourself, know what you know, and maybe even more importantly, know what you don't know. So you can draw a very clear, bright circle that you don't cross. And stay within what we call the circle of competence. That area that you're competent in. It doesn't have to be big. In fact, the smaller the better. And just stay there and don't get drug into things that you think you know, but you don't.

Right?

So that's, that's a huge consideration. There's two, there's a huge consideration. Number one is stay into the things you understand. Consideration number two is to try to do nothing. Focus on being lazy to the level of a sloth. Okay? You are, you are out to be so patient and so, so comfortable doing nothing as long as you can do nothing until you get something that is so good and so obvious that an idiot could figure out this investment. Okay, then invest.

Yeah.

Not till then. And then just pull the trigger and do it with a big chunk of your money. Don't do it with, you know, you've got a hundred thousand dollars. Don't do it with a thousand dollars. You're going to do it with $10,000, $20,000 into one investment, right? Get into it. Yeah.

Yeah. Well, your punch card. You know, I studied, I have some real estate investments and it was really how I learned. Unless everything, everything passes the test, if there's one piece that doesn't feel right or doesn't match up, you know the numbers.

So I said, don't follow your intuition. But when it comes to looking at those pieces, if you have a feeling, follow it. That's where you follow. Your feeling is looking for where you're going to lose. Follow that feeling. You keep looking and looking. So you learned in real estate there's this list of things. And if one thing doesn't feel right, dig in there until you find out what's going on. Right? There's a guy out here that says, just pay attention to the tension. So this is what we do. When we start looking at an investment. We find all the reasons that we like it, right? And then we invert every reason we like it. So if I say I really like this company because it's got this huge moat, then the inversion is the moat's broken and this is going to fail. Because abc, we take the exact opposite of why we want to do this and we make that statement and try to prove it's true. And if we can't prove it's true, then. Okay, I got that box checked, right? Next, it's got a great CEO that I love. Yeah, he's great, but he's 93 years old. He's going to die. Okay, well what happens if he does? What then? So each piece of this, at least the top three reasons, we just invert that argument and take the opposite of it and try to prove it's true. And what you're trying to do essentially is find reasons not to invest and you keep working hard. It's just like you do real estate. You look at this one, you look at this one, you look at this one and you, you just find a reason to say no. Until you find something that's exactly what you're looking for and you can't say no. And then you buy it, right? And then you probably won't make on sale.

On sale for sure. And we're going to wrap up here in a second, but I want to ask because you talk about expecting a minimum annual compounded rate return of 15%, like expect that or higher. And you know, we oftentimes hear half that from advisors. Reasonable or you have to go really high risk. What are your thoughts here?

Well, the first thought is that modern portfolio theory says the only way to get a higher return is to take higher risk. But it also says that in the long run the market will level you even with the higher risk. In other words, you'll take higher risk, but you're going to take bigger losses. And at the end of the day, you still won't beat the market. So the only way you can beat the market according to those guys, is you get lucky and you just have a period of time where you just got lucky. Otherwise you're going to get the market return minus the fees that you're paying to your advisor. So the important thing to understand is what's the market return? And there are 20 year periods of time where the market return is zero. And there are numbers of those since 1870. It happens to be, we're in one of those kind of market situations right now where it's highly likely that including dividends, you're looking at a 2 or 3% return per year for the next 20 years because of the price of the market right now. So I wouldn't be counting on any 7% returns by having a diversified portfolio right now, I think you'll get maybe a little bit better than the 10 year T bill, which is currently 2.2%. So diversifying, investing in a large fund is probably the safest way to do nothing and know nothing and sit tight and have your money at least appreciate a little bit. But it certainly isn't going to take care of you in your old age where most people are sitting right now.

And that number is going up really on what we need to have to be able to keep lifestyle that you're.

Used to numbers going up fast. And so yeah, we target a 15% return. And the reason we target that is because think that that's the minimum return we need to get to justify going to the problem, going to the work, doing the work to get and pick and wait and wait and wait for a great company to come along. And if we get these companies at a margin of safety, then our target for that particular investment is actually 26% return. A couple friends of mine have who are running good hedge funds, I'm thinking of Manish Prabhrai actually up in Irvine right now, has 26% on his license plate. I mean that's what his target is every single time. And he doesn't make an investment unless he thinks it's highly likely that this thing will double in the next 30 years that he buys it at. So, you know, this is 15% is a minimum we want, but we're targeting 26 and we're waiting patiently in cash for these opportunities to come along, which come along once in a blue moon.

Yeah, you got your punch card. So like, so I love this. This has been just so informative and so interesting and I hope you all have enjoyed this as well. We have. Don Pascal has asked, do you have any advisors that you recommend that follow yours and Buffett's strategy?

There are very few advisors that follow this strategy, Alison. And the reason is because it's very difficult for them to hold onto their clients with this strategy. So let's say you found an advisor and you said, well, I'm going to give you my money and I'm going to pay you 1% per year and what are you going to do with it? And he said, well, we expect probably for the next two to three years we're going to sit in cash while you pay me 1% of your cash and I do nothing. And so as soon as you figured out that's the game plan, you'd be like, well, I'm going to somebody Else, man. So advisors have figured out that for them to hold on to client money and invest someone else's money, there's nothing as strong in their life as what Buffett and I call the institutional imperative. And that is the requirement by clients that you, the advisor, go out and be smart right now. Not two years from now, not three years from now. Don't show me some 18% a year return, you know, out there in five years, 18% per year annually. I want to know what you're doing for me this quarter, this half year. And if you're not doing anything, you're fired. So now there's almost. I don't know of any.

Yeah, I'm going to pay you not to do your job. I just want you to.

Not to sit there in cash. How many advisors will do that? Very, very few.

Yeah. Well, this has just been awesome. Thank you so, so much. So you lead workshops, and we have a library where we have our guests from Ally and you, where we have all their information handouts. And we actually have your webinar in there, Phil. So everybody can go to allisonmaslin.com library and get that webinar. And then also you can find Phil, right@rule1, investing.com. is that correct?

That's correct. Or just Google me. It'll come up Phil town. And we would love to have you come out. We, we do this workshop for people that have. Have found us one way or another. And we offer a scholarship to, to some of them. We'd offer a scholarship to all of your folks if they want to come, which means if they can get there, we'll be happy to teach them for free for three days. We don't sell anything there. We're not trying to hustle you into something else. I guarantee you, you're going to have three intense days of education, learning. And if you'd like to come, just get on Alison's website and find that link. And that'll get you here.

Yeah. Go to allisonmaslin.com library. And you know what? I'm going to do your workshop. And my husband actually posted on here. Kind of funny. And he says, can I invest in Allison Maslin? I'm looking at the value of her business in 10 years. Well, yeah, that's right.

It's a perfect example. He knows the business well. He sees, okay, you have a big brand and it's getting bigger every year. People love you. You're the only one that does what you do. And then he sees that growing for 10 years. He puts a value on it. He can buy in really cheap today because he knows the people who run it.

Yeah, he's a smart guy. He married me. Right, right.

He knows you very well so he could probably get a deal. I bet he gets a margin of safety price.

I might give him a little bit of his deal.

Just.

Just a little. So anyway we are just thrilled having you. Thanks so much Phil. And for all of you you can also listen to this again. We will be on our podcast on itunes. You just go to allisonmaslin.com iTunes to watch the video version. If you want to watch the Audi listen to the audio while you're driving or I don't know, getting your exercise and then go to allisonmaslin.com audio and thank you all for tuning in to Ally and you until next week. We will see you all soon. Get out there and elevate yourself because you are worth it. Thanks so much Phil.

Thanks Allie.

Bye.