Dead Simple Strategies to Build Wealth Long Term (And How to Start Now!) with George Gammon

That's the thing. It's like at some point everything comes crashing down and even if you're crushing it right now, I still think you're gonna be at risk as well. Do you agree or disagree with that sentiment?

That really depends. I think that if you're doing online business, an online business, you've got a much better go of it than someone who's got a brick-and-mortar company right now. And I can compare and contrast the two because Prior to me retiring, that's all I did is just offline businesses. And I don't know if you want to call what I'm doing right now an online business. I think it is. Yeah. You do monetize it a bit, so it's worth your time. There's much more of a moat around that when you consider what's going on. But it goes back to that question of the Fed, because if we were just to allow the market to work, and have price discovery, asset prices would come down. We would have a deflationary event. Asset prices would come down, incomes would come down, spending would come down, and one man's spending is another man's income. And therefore, that could affect a lot of online businesses. But if the Fed keeps, you know, cranking out this money and they try to go the inflation route instead of the deflation route, Then the good thing about being any business owner, especially online, is you're not a price taker, you're a price maker. And that just gives you a huge, huge advantage.

What does that mean, a price maker?

Well, you set the price for your goods and services. And so if you've got a consulting business or if you— like I've got this little digital product, I can always raise my prices to go along with with the cost of living. But people who are employees, they're price takers. They're paying these prices. And what we've seen throughout history is our wages typically lag inflation.

Got it. But George, what— why should people start to understand macroeconomics now? Because my thing is, yes, I studied some economics in college, but I was like, man, you know what? It's too complicated for me. I'm just gonna learn business. I'm gonna learn investing. And I don't think I need to understand what's going on with economics. So, um, why do you think people need to understand it now? And, um, be keen to get your thoughts.

I think it goes— a great example is 2008, 2009. Uh, you, you could have been the best investor back then, but if you didn't understand things from a tops-down approach, if you didn't understand the macro picture, it doesn't matter what you were invested in. You could have been the greatest real estate investor, the greatest stock picker, and you lost 50%. Boom, done. And so, so everything goes back to macro. It's these massive crosscurrents that we have to understand in order to position ourselves and take an educational approach and, uh, an informed approach. And there are no certainties in investing or macro or anything in life, but there are definitely probabilities. And I think that if you ignore the things we're talking about Then you're not accurately quantifying those probabilities. And you could be— not you could, you are definitely taking more risk than you realize. Whether you're investing in real estate, whether you're investing in the stock market, bonds, even precious metals. Trust me, if you don't understand this stuff, you really don't understand the amount of risk. And the asymmetry. As investors, we want asymmetry to the upside. And I would argue that most people right now that are whistling by the graveyard, as we said at the beginning, are, are taking asymmetrical bets, but the asymmetry is on the downside, not the upside.

Right.

And I think you can either, uh, get prepared or you're going to get crushed. And it's— I mean, the real estate market in your area, not to pick on you, but it's a great, it's a great example of that, you, you look and you say, okay, well, were we in a housing bubble in 2006? I don't think that anyone would argue that we were not. Okay, well, prices even adjusted for inflation in Los Angeles are higher now than they were in 2006. So, you can say, yeah, but real estate always goes up over time. So, if I just buy it and hold it or whatever. But yeah, but you're buying at the very top of a cycle. And let's just say, that real estate continues to go up for the next 2 years or something like that, and you would have missed out on, let's say, 15% of upside. But what's your downside? Like, I would challenge anyone listening right now or watching this to go back and look at a historical chart of housing in the United States adjusted for inflation and adjusted for size. What you'll see going back to the year 1900 all the way to 2000 Housing prices basically flat, flat. And then 2000, of course, we know it just goes parabolic to 2006. Then 2012, it comes down. Where do you think it bottomed out? It bottomed out on its historic trend line going back to 1900. There's no secret. And then 2012, it rockets back up to where we are today. So you could safely say that those prices we saw in 2012 That's pretty much your downside. So, if your upside, if everything just goes perfectly, is, uh, let's call it 15%, and your downside is another 50% or 60%, that's a bad bet. And, um, you know, people say, well, if I, if I would have taken your advice, George, over the last year, well, then I, I wouldn't have made this extra 5% or whatever I'm up in my housing. But that's a lot like going to a blackjack table. And, you know, Eric, you and I are at a blackjack table. Let's say we're in Vegas, we're having a couple drinks. You've never played. I played a lot, you know, in my earlier days. And you've got a 19 and you say, well, should I hit or should I stay? I said, no, no, you got a 19, man. You want to, you want to stay on that. You're like, oh no, George, you're too prudent. You're too, you know, you Austrians, you guys are too scared. I'm going to go ahead. I've had a few drinks. I'm feeling lucky. I'm going to hit. You go ahead and hit, you get a 2. You got blackjack. Then you look at me laughing and say, see, George, I told you if I would have taken your stupid advice, I wouldn't have, I wouldn't have realized these gains. Well, did you do the right thing or the wrong thing? I would argue you did the wrong thing because the probabilities are against you long term. And if you continue to make that bet, you're going to go bust. Now, maybe some people would argue that you did the correct thing. But those people probably wouldn't enjoy my YouTube channel.

Look, if you overreact, your downside is capped. But if you don't overreact and things get really bad, what happens, right? So I guess the question now is, what do you think people should be doing? Like, what do you do personally, I guess? Like, do you— what's like your portfolio makeup? Like, how does it all look? You're over there in Medellín right now. Now you're in St. Barts. Like, you're safe. You're safe. Like physically, but also you're protecting your assets too. So I'm just wondering, like, what's your practical advice for what people should be doing right now? Sure.

What I do with my own portfolio is I compartmentalize it into 3 buckets. Number one, we've got insurance. I like to allocate 10%. For me, that's just physical gold. So that's just insurance against a currency devaluation. It's just, you're not— I don't think you buy or you should buy gold to get rich. You just buy gold to stay rich. And then you've got another 10% of your portfolio that I allocate exclusively to speculation. So the way I would define that is I'm just buying something because I think it's cheap and I think that it's going to go up in value over the long term. I'm a very long-term investor. In fact, pretty much everything I've purchased except for a few homes since 2012, I've kept. I rarely sell a stock. I usually just keep it until it gets expensive and then I sell it. Then 80% of my portfolio, I allocate to investments. So, I would define that as something that pays me to own it. So, whether that's a cash-flowing real estate property, whether that's a dividend-paying stock, maybe it's a bond, it's got to pay me to own it. And then, I like to make sure that I'm on that side of it, I'm buying things that are cheap as well. So, when I retired, I went almost all in. with real estate in the Midwest. Why? Because it was cheap. It was super cheap. The cash flow was cheap. The debt was cheap, everything. And it turned out to be a good play there. But as long as you're buying things when they're cheap and selling them more expensive, that's really the key. What most people do is, you know, we always hear Warren Buffett say that he wants to buy a dollar for 50 cents. And that's exactly what I try to do. But most people, they don't do that. especially, you know, in California when you're looking at these high-flying tech names, it might be fantastic companies. I'm just saying that the price of the stock might not be exactly cheap relative to their current, uh, cash flows. What most people do is they, they buy a dollar for $3 hoping that they can sell it for $5. And I just, I don't like to play that game. So right now, you know, what's cheap? I think that commodities are cheap. I listened to an interview with Grant, uh, Jim Grant, the other day where he did a study, or someone I believe maybe that works for him did a study going back to 1900, and commodities relative to financial assets are at a 120-year low. So that's something that I think is pretty darn cheap. So if you can get some of those types of assets that pay you to own them, that's kind of where I'd start looking. And another way I've diversified my own portfolio is, uh, I, I always say I diversify my political risk And I like to diversify my currency risk. So, we talked about right now a lot of the markets in the United States being very frothy when you look at the real estate. And I'm a real estate guy. I think that's where I really have an edge. So, the majority of that 80% I was referring to, for me, I like to have that in rental properties. But I've purchased several properties in Medellín, as an example, where you're just getting— you're still getting a 1% RV ratio. What that translates to is maybe like a a 10% or 12% return cash on cash without using any leverage. But the thing that's different there is you're going into a non-correlated market. So, if you have dollar-denominated assets, just because those assets go down doesn't necessarily mean that the real estate in Medellín will go down. And you're going into a market that has almost zero leverage, almost no mortgages. And I won't go into the stats, but Very few people, like maybe 7% of Colombians actually have a mortgage. So, all these homes, properties are owned outright. So, even if they do have a downturn in the economy, no one is forced to sell.

George, I mean, we literally went— I hardly go over 30 minutes on these. We went for over an hour. What is the best way for people to find you online?

Oh, just go to my YouTube channel. It's @GeorgeGammon. My last name is spelled G-A-M-M-O-N. Uh, same thing at Twitter. Uh, just Google me and I'll, I'll pop right up.

All right, George, thanks so much for doing this.

I appreciate you having me.