3 Reasons Why Your Portfolio Grows Exponentially After $100K

You might think the stock market is a casino, but it's actually your greatest tool for building wealth if you can block out the noise. Today's market is flooded with algorithms and headlines designed to shake you out.

If you panic, you lose. If you stay smart, you win.

In this episode of Money Revealed, Kenneth Polkari shares how the stock exchange shaped his career and why the fundamentals of investing never change.

Technology may rule the market now, but discipline, patience, and strategy still decide who thrives. The real investors ignore the chaos and use it to their advantage.

The game changes, the winners don't.

Stay focused, stick to your plan, and let everyone else make the mistakes. Special thanks to Jeff Hayes for partnering with us to release this content exclusively on our YouTube channel. And if you make it to the end of the video, put a hashtag #Believe in the comments below and we might feature you here in a future video.

Believe.

When Kenny Polcari walked in the room for his interview, man, was there a big presence there. Now I understand why you see this guy so often on the varying business news networks, et cetera. He's very smart. He's got decades of experience. He's got a big personality and knows how to explain it. He pulls no punches. So when we get into some of the more traditional investment vehicles with equities, et cetera, Kenny Polcari is a guy who's got a lot of wisdom and experience. And I think you're going to really like this interview. He certainly not only has great expertise, but he knows how to communicate it. Kenny, thanks for braving these downtown city elements. It's a little noisy around here, but that's okay. We can, we can talk through the noise. So tell us about your background. How did you get into doing what you're doing?

Well, I was in my freshman year in college and I had the opportunity to work as a summer intern on the floor of the New York Stock Exchange, which I was a kid from Boston. I had every intention of going back to Cape Cod and being a lifeguard on the beach at 19 years old. I had no intention of moving to New York City in the middle of summer. Like, it didn't make sense to me. Yet I thought about it. You know, my first reaction was to say, no, I'm not interested. And then I thought about it over spring semester of my freshman year, and I decided, you know, what's the worst that's going to happen? The worst that's going to happen, I'm going to go there. I'm going to have this experience. I'm not going to like it. I'll chalk it up for experience and move on. Or I'm going to go there, and it's going to change the course of my life. And in fact, It changed the course of my life. It was the most dramatic, exciting place I had ever been to. And I had never been there before, right? I was a kid from Boston. I didn't grow up around the New York Stock Exchange. I didn't know what the New York Stock Exchange was. I didn't know a buy from a sell, a stock from a bond, an 8 from a quarter, nothing. And that first summer, which was the summer of 1980, and I was 19 years old, and I moved to downtown New York City on Gold Street, which was— that was like the financial district. So there was nothing going on there. Rents were cheap. But the place was empty. Meanwhile, I moved in and went to work on the floor of the exchange, not really knowing anything, and spent that first summer as really an intern, you know, as a gofer, right? Go for coffee, go for this, write reports, kind of learn, talk to people, read. And so that's what I did. But I have to tell you, I got there in May of 1980, and by the middle of June, it just bit me on the backside. It was the most exciting— listen, 5,500 Type A personalities all in one room. You can imagine the energy level. Level was up here every single day, no matter what the market was doing. And in 1980, remember, we had just come through the Jimmy Carter years. The economy was a disaster. Ronald Reagan had just become president. Interest rates were high. Unemployment was high. Inflation was high. And so it was not the best time in the world to be in financial services. And nor was the market really in a good place, right? The Dow was trading in the 800s. But yet, for me as a 19-year-old kid, it was the most exciting place in the world because everybody down there was a street-smart kid from— they were from the boroughs, right? From Manhattan, from Queens, from Brooklyn, from Staten Island. But they were like street kids, right? My generation really was the first generation that had any formal education beyond high school. And that's not a negative. That was just the way kind of the world worked, right? Because on the floor of the exchanges, you had to have it in your belly. You had to be street smart. You had to know how to play poker, right? Because you had to know how to represent yourself. And you didn't learn that in college, right? You learned that from being street smart. Street smart. You learn that by having a very aggressive Type A personality. It was really unbelievable. And so that's how it started. And then that summer, I didn't want to leave by the time August came, but it was time to go back to college. And I wanted to go to college, so I went back. But I got the opportunity to come back every summer, '82 and then the summer of '83, which was really the defining summer of this whole experience, because in 1983. Now we were well into the Reagan presidency. They had just passed the tax reform bill. So we were in the middle of this kind of sea change in the economy. Interest rates were 21%. Interest rates were 21%. Unemployment was 13%. Inflation was running at 10%. It was a disaster in this country, right? And guys, kids getting out of college couldn't get a job. And guys who were my age then were getting thrown out the same way that we saw during the great financial crisis when we went through that. When we went through that disaster. But I went back in the summer of 1983 for the guy that I had worked for, this independent broker I had worked for in the summer of '80, '81, '82. And things were so bad that this guy couldn't even afford to have me. Now understand, I was making $125 a week to be a summer intern for this guy. But it was just the extra $125 that he just— it just wasn't in the budget, right? And the Dow was trading at— $8.92, and we might have traded 30 million shares a day. Today we trade 30 million shares in about a minute and a half. That's the difference, right? Because we did it in a day, and you did it all by pen and paper. And so I thought to myself in the summer of 1983 when I came back that, OK, maybe this is the summer I'm going to be a lifeguard on the beach, because, you know, I came there, and he basically couldn't have me. But by this time I had gotten to know a number of people on the floor, other brokers. And so I went around saying hello to people. And I went over to this one other broker who is the salt of the earth. I love this man. And, you know, he puts his arm around me, welcomes me back, and how you doing, and how was school, and what are you doing? And I said, listen, everything's great other than Doug can't afford to have me this summer, right? I mean, his business is bad, so it's just another expense he can't have. I said, so I'm just kind of looking around to see if there's another opportunity before I decide to go back and be a lifeguard on the beach. So he puts his arm around me, and he said to me, hey, kid, do you know the symbol for IBM? Yes, IBM. He said, do you know the difference between a buy and a sell? Yes. Do you know the difference between an eighth and a quarter? I go, I think so. He goes, how's $225 a week? Are you kidding me? I just got a raise. It was the greatest day of my life. I said, when can I start? Like, right now. And so that's what I did in the summer of 1983. I worked for this other guy. And his business was actually different. He was actually doing a lot of business because he did a lot of the option layout business, which was becoming part of the financial services experience. So he was in the right place at the right time. And so I was there during the summer of 1983. And the most dramatic thing that happened— and some people that are watching this will remember it and others won't— was what happened on Tuesday, August 17th. And it was a Tuesday morning. And on the Monday afternoon on the 16th, there was this rumor that went around the industry, kind of the floor. It was coming down through different brokers on the phones that there was going to be the surprise announcement on Tuesday morning from the Fed. Well, here was the deal. The Fed never made surprise announcements. Announcements. The Fed came out at 8:30 on Thursday mornings. They opened the door, they stepped out, they told you what they did, they turned around, they closed the door. They didn't sit there and hold your hand and give you a Xanax and say, "You okay with this? Let's talk about it." Nothing. They came out, they said what they said, they walked in. It was up to the market to figure out what was next. And so the idea that the Fed was going to come out with a surprise announcement on Tuesday morning made no sense to anybody because the Fed never did that. So remember, this is 1983. There's no internet, there's no television on the floor, there's no radio. There's no outside sources to poison the mind on the floor. Everything we got came from the phones. People outside that would call down and tell you what happened in the world. It was really spectacular. And so as Tuesday morning came, as we approached 8:30, you know, there were 5,000 people on the floor. And so it was typically a noisy kind of boisterous place. But as we approached 8:30 that morning, I'll never forget it, the room kind of got quiet because everyone was waiting to see if There was a surprise announcement coming. And at about 8:30 and 30 seconds, every single phone on the floor lit up. And they were the old-fashioned phones, the metal phones with the push buttons that would ring like a ring, like a ring. Today they sing songs and they do all that stuff, but they were like— it was like a ring, right? And every phone lit up and it felt like Christmas because when you picked up the phone, everyone on the other side was like, did you see what happened? You said, no, I didn't see what happened. What happened? Because you couldn't see what happened. And what happened was Paul Volcker, who was Fed chair, came out and made this announcement that he was cutting interest rates by 10%. Now, when rates were 21%, 10% was a huge move. It was 2 full percentage points. And so that was the birth of the bull market, right? August 17, 1982 was really the birth of what then became a 25-year bull market. And he drew the line in the sand that day that rates were coming down. He was going to break the back of unemployment. Break the back of inflation. He was going to force money out of the banks and into the market. Because look, if you were anyone who had any money at all, if you could take your money and go to the bank and get 21% guaranteed riskless sleep at night, or you go out and you buy American companies, which are beautiful, beautiful companies— Johnson Johnson, General Electric, all great companies— but there's risk in those companies. And so listen, you have to balance it out. Do I buy something that's risky, or do I put my money in the bank at 21%— 21%! Think about that for one minute— guaranteed and sleep at night? So all this money was in the banks. And so when he came out with this announcement, he lit that fire. The money started coming out of the banks and into the market, and the market exploded. And that day, what was really amazing, the market was up 4.5%. 4.5% was 35 points. But it wasn't the 35 points. It was the 4.5%. Today, 4.5% would be, you know, would be 1,500 points or whatever the number is, right? I mean, it would be— and on Monday, we traded 30 million shares all by hand. And on Tuesday, We traded 138 million shares in the same 6-hour time span, all on pen and paper. It was the most amazing day. Like, I can remember it like it was yesterday. And that's what got me into it. I mean, I just, I just, I couldn't stand it anymore. It was so exciting for me. But I had to go back for my senior year in college.

Do you miss those days?

I do. I miss those days tremendously because that was really the guts of the place. It was the people. It was the excitement. It was the energy. It was the personalities that made the place what it was. right? And it was the time in this country, it was the time in the century when everything was just starting to click and the world was, you know, the world was ablaze in great economic prosperity and certainly this country, that was the beginning of the turnaround. It was the most amazing place in the world. I couldn't wait. I couldn't wait to get up. I jumped out of bed at 4 o'clock every morning. I couldn't wait to get there because every day was a different day and the energy in the room, like I said, you take 5,000 Type A personalities and put them all in one room. And then you tell me what the energy level is, right? And if the market's up, the energy's up here. If the market's down, the energy's up here. It's a different energy, but you can feel it. You know, like when you go to a concert and you're standing in front of the speakers and they play the music and the music just goes right through you, you can feel it in every bone in your body? It was like that every single day. It was the most amazing place in the whole world.

How's it different now?

Well, it's very automated. It's very 21st century. That's great, wonderful, very efficient. But the people are all gone, right? Because the automation, that's what automation does. I mean, Who's kidding who?

So you don't have that craziness going on on the floor of the exchange anymore.

There's no craziness going on. And it's not— I don't mean that to be in a bad way because it's very modern, it's very 21st century, it's very efficient. It is still the New York Stock Exchange. It is still at the very core of capitalism. It's just different, right? It's evolved. But what's happened as a result of the technology is that 5,300 people are gone. There's 200 people left, 225 people maybe left on the floor of the exchange. As members, right, as men and women that are actually helping to trade stock and make markets. And that's not— it's not a negative on the exchange. It's evolving, right? That technology just forced that evolution, not only here, but around the world, because exchanges around the world are like that, right? Most of the human beings that sat in those positions are no longer there because the technology has been replaced. And so today, it's a vastly different place in that sense. But it's still, you know, it's still at the very heartbeat of American capitalism.

You made the transition from the old days into the modern world.

I did.

Are there a lot of people that didn't?

Well, yes, but there's a number of reasons why, right? Because as we were making that transition, as you came into the '90s, it was really— the conversation started kind of in the early '90s because here was the deal. The U.S., out of the 3 major market centers— Asia, Europe, and the U.S.— we're by far the biggest market center out of all 3 of them. But yet the other centers had already automated. They automated back in the late '80s and very early '90s. So they were already trading in decimals. They were already trading in using technology. The US, the biggest capital market in the world, we're still trading with 5,500 people, pen to paper, face to face, eighths and quarters of a dollar, right? And it's now 1992, '93. And so the conversation about what the future was going to look like was all about technology. But yet now it's 1992, '93. And what was going to happen 7 years out was this thing called Y2K that, you know, had the world ablaze because remember those conversations about the world was going to collapse and GPS was going to fall and satellites were going to fail and planes were going to fall out of the sky and utilities weren't going to pump water, right? Because the computer was written— the way the code was written, the date was written in 2 decimal places. So, you know, it was '99. And so when we went from 12:31:99 to 1:1:00, the computers thought we were going backwards and not forwards and everything was going to fail. And so there was this rush around the world, not only in this country, it was really around the world, about upgrading technology. Whether you upgraded it, whether you replaced it. And so being a tech investor or being on the floor of the exchange during that time was tremendously exciting, just because there was so much happening around the world. And so this country made a decision, partly because there were only 7 years to go before we hit Y2K. And look, 7 years sounds like a long time, but when you've got to completely take the US capital market system and destroy every handwritten rule that was written in the SEC Act of '33, '34 and then rewrite automated rule sets and put it out there for comment and then make sure everybody can connect and make sure that the information travels back and forth the right way. 7 years is not a long time. And so partly it was by design. The country made the decision that we would clearly start to move ahead. And so that was all being done kind of in the background. And we continued to trade pen to paper, eighths of a dollar, then sixteenths of a dollar as we got closer to the year 2000. 2000 until we went through the turn of the century. Because look, if we went through the turn of the century and the technology failed, guess who's going to be standing there going, we're okay, was the United States because we're still doing this. The rest of the world was doing it automatically. And if it failed, they were the ones that were going to get hurt, not us, right? And so there was a little method to that madness. But the minute we went through Y2K and the world didn't fall apart, then the push to automate really hit the US market. And so the transition began. You know, it began soon after 2000, probably March or so of 2000, when they started to decimalize, because in order to use technology, you had to decimalize.

So what's incomprehensible is that 5,500 people are face-to-face, you know, and it worked. In other words, no mistakes, you know, things settled at the end of the day.

Things settled. Listen, there were— you would hear the occasional mistake, but the occasional mistake became very expensive.

Yeah.

And so once you made a really expensive mistake, you didn't make that mistake again, right? So it was, it was trial by fire. But the sense is, the most amazing part is that yes, with all those people, with what appeared to be so chaotic as an outsider looking in, was not chaotic at all. It was, it was, in my mind, it was very efficient. It was very exciting. And you know, you just multitask. I could be in 3 different stocks at once, and I could be, you know, I could be standing with you in Coke but listening to what's going on IBM or listening what's going on in Delta Airlines and be able to react to whatever I heard because that's the way it was.

And this is why you're saying street-smart kids were the ones who could do that, not necessarily the Ivy League graduate that's coming in.

Right. Because, you know, you didn't learn this in college. You go to college and you learn principles and economic theory. Great. Wonderful. It's not what you did on the floor of the exchange at all. You had to be able to react. When I had an order from a client— and listen, clients were not retail. We're not talking about going and buying 100 shares of Coke or 50 shares of telephone for your kid's retirement account. You're talking about representing institutions, asset managers, mutual funds, hedge funds, pension plans, foundations that need to buy a million shares of Coke or 200,000 shares of IBM. And so when you walked into the crowd, you had to be able to read the crowd. You had to be able to understand what your client wanted to do, because my client could have been on the other side of the country. But at the moment, he was sitting here right on my shoulder, right? Because in my hand, there was an order. I got to buy 150,000 IBM, and here are the parameters that he or she wants to buy it under. He told me that. She told me that. So when I walked into the crowd, I knew that information. I knew what I needed to do. But now I had to assess what the crowd was doing and what the market was doing, what the stock was doing, what the total market was doing. Maybe what one of the competitors in this industry was doing that might affect what I'm doing. So you had to synthesize all that information. And you had to walk into a crowd and you had to ask the questions, which was another reason technology wouldn't have worked at the time because so much of it was driven by the conversation that you and I had, that he and I had, that she and I had based on I'd walk into a crowd and I'd say, "How's IBM?" And the specialist would represent his interest, but then he might say to me, "I've got 2 buyers and a seller." And so it was up to me to then have that conversation with all the participants so then I could understand what the market was. And so that's where all the information was. That's what made it the most dramatic, exciting place in the world, because it was anyone that wanted to buy and sell IBM at that moment in time had to be standing there. They had to be there, and they had to participate. And if you said nothing, then you weren't included. If I walked in and I said, what are you doing in IBM? And you said you have nothing to do, then you have nothing to do. So then if I go— if I am a buyer and I go take the stock at a quarter, you go, I can sell 50 at a quarter. No, no, no. You didn't offer anything. I'm taking the 50 from him because you didn't open your mouth. So I didn't know you were there. He opened his mouth. So guess what? I'll trade with him. Now, it's your offer afterwards if you still want to make an offer. But so—

It was like a code of conduct.

It was a code of conduct. But that's what made it the place it was because it was understood that there was this code of conduct. And everybody operated and everybody understood the code of conduct.

So now it's gotten sterilized, right? I mean, there's—

Sterilized. Yeah. It's gotten neutered. Yeah, it's gotten sterilized for sure because None of that conversation exists anymore because it's all automated. And you can't talk to the computer. And the computer doesn't react. And, you know, people always thought that it was the boys' club, that, you know, you and I were buddies and so wink wink, you know. It's not the way it was at all because I had a client to represent. You had a client to represent. You and I could be the best of friends, but guess what? Between 9:30 and 4 o'clock, if we had to go head to head, we went head to head because you were representing your client and I was representing mine. I'm trying to get the best price for my buyer, you're trying to get the best price for your seller, so you're interacting with all the other people in the crowd, and so therefore it was dramatic. It was so unbelievable. And then at 4 o'clock, no matter what happened during the day, we could have been going head-to-head all day, and at 4 o'clock I'd say, "Come on, let's go out for a beer," because that's just the way it was. It was this camaraderie, it was this collegiality that didn't exist anywhere in the world.

So I'm just curious how a timid introvert like you got the job.

Timid and introverted? You weren't there. I mean, you would have gotten run over, right? You would have gotten run over if you were timid. There was nobody timid and introverted. Now, maybe they weren't— listen, I'm very excitable. Yeah, maybe they weren't as excitable as me, but they were not Type B personalities. Everyone was a Type A, you know? I mean, I met my wife on the floor of the exchange. My wife was a member of the New York Stock Exchange at a time when there were, you know, 8 or 10 women who were physically members, like running around the floor as physical members. There were women who were quote-unquote members, because you have to understand the difference. If you and your wife were married and you owned a seat on the New York Stock Exchange, it had to be in one person's name. So it might be in your name. But if you passed away, that's an asset that would then pass to your wife. So now the seat's in her name. She becomes the member, but she's not the working member. See, there's a difference when I say the member. There were plenty of women who were members because they owned a seat, but they didn't actually physically work it. So my wife was one of the working members on the floor, and at the time was 1984 when she became a member. Women were just banging their heads on the ceiling, like, you know, in the late '70s. Yeah.

How many total members are there in the Stock Exchange?

Well, then there were 1,366 members, and then the other 4,000 people were all support, right?

Right.

Today there are 200 and 250 maybe.

Yeah.

And all the support people are gone.

So now the technology, with how things have evolved, if, you know, for the typical person out there in the world, is now they have more opportunity to earn money in the market, or was it better back then for them?

No, in that sense, the game hasn't changed. The market is still the market, and the capital markets serve a function, right? Because they allow people to participate. They allow the average American to be able to buy stock in U.S. companies as well as international companies now that trade on the floor of the exchange. And invest their money to generate wealth and income for generations. And so that opportunity hasn't changed. That opportunity is still there. The difference, the difference though today is there's so much more noise today than there was, partly because in the '80s and '90s when there were only 7 price points, it was an 8th, a quarter, 3/8, 5/8, 7/8 between every full figure. That's all there was. Today there's 1,000 price points because the exchanges trade in 2 decimals. So that's 100 price points, right? A penny to 99 cents. But then the dark pools, the alternative venues, the internalization engines trade out 4 decimal places. So they can trade out at 0.0001 all the way up to 0.9999, which creates 1,000 price points with every full figure. And so therefore, that is what's caused a lot of the noise.

When you say noise, what do you mean by noise?

Well, noise, what I mean is— Noise in the market, noise in the way stocks trade, right? When we traded in eighths of a dollar, 7 price points, it was very defined. You would see blocks of stock trade. 20,000 would trade at half, 50,000 would trade at 3/8, 50,000 would trade at a half again. And so you could see volume around price, and so there was less noise. Today, because there's 1,000 price points and because it's all algorithmically driven, what you don't see anymore is you don't see the big prints because nobody prints 50,000 or 100,000 shares anymore, right? They take their order and they break it down into 100-share units, and they spray the market across the 11 exchanges plus the 50 different alternative venues that now exist. They spray the market. So everyone's trading in small lots. And so the noise is— that's the noise. Because you don't— you can't— you know, there was an art to reading the tape. You know, back in the '80s and '90s when you would see the ticker tape go by, you'd see the volume and the prices. And if you were a good trader, You could read the tape. You understood where the market was going. You understood where that stock was going. You understood where the sector is. You would see, you know, you would see IBM and other tech stocks, you know, trading up. You would see that there was demand. You could tell by the tape. Today it's more difficult to see because the way the noise that's created by the multiple hundred share prints, you can't really read it anymore.

Right?

So, yeah.

So does it—

so for an investor now, that wants to come in and say, hey, I want to trade this market, I want to see if I can invest, trade, what have you. Are they going to be eaten up by these tech people who know how to get in there and do this?

No. So that's a great question. But here's what I would say to an investor, because there's a difference between an investor and a trader, right? An investor, you have a much different time horizon on your hand. You have a much different plan, right? You're investing for something in the future, whether it's your retirement 30 years out, whether it's for some wedding, whether it's to buy a house, but you're investing for a longer period of time. And so what that person needs to do is eliminate that noise. They can't pay attention to the daily machinations of what the trader wants to do or what the algorithms are doing. They have to say, look, here's my goal, here's how I have to do it. I like Coca-Cola and I like GE and I like IBM and I like Intel and Apple and whatever they like. And then they put the plan together and then they methodically follow that plan, whether the market's up or down, they methodically follow it. Now look, If you want to allocate $1,000 a month, okay, and the market's on one month, you know, Apple's trading at a high, okay, so you're going to take the $1,000, you're going to buy $1,000 worth of Apple. Next month, if Apple's come under pressure, now it's trading down 10 points, you're going to take that same $1,000 and still buy $1,000 of Apple, except you're going to buy more Apple because the price is lower. So over time, you know, you average, you know, you get an average in prices, and so that's how you really build a portfolio. Now, If you're talking about the trader, the trader loves the volatility. The trader loves it. The trader wants more noise because he's not investing, he's trading, or she's trading, right? When I say he, I'm— yeah, let's— I'm talking about everybody, right?

Right, right.

He, she, right? But, uh, they— you're right, they want that noise because they're a trader, they're not an investor. So they're making money based on how the stock moves.

Is it—

you know, it could be within a 2-minute time span, could be in a 10-minute time span, could be in a day, but Their focus is different from the investor.

So they're trading off of volatility.

They're trading off the volatility. They're trading off the noise that's created today on the internet, on Twitter, on LinkedIn, on Facebook, on Google, on Amazon. They're trading all that noise. And now, you know, today what exists, which didn't exist then, the smart logic algorithms. Smart logic algorithms are exactly that. They scan and scrape the headlines, whether it's in the Wall Street Journal, the Washington Post, the New York Times, or Bloomberg, or on or on Twitter or on Facebook, whatever headline it can see. And the SmartLogic algorithms are written in such a way that they react to words. Is the word positive? Is the word negative? Is the headline positive? Is the headline negative? And when it is, then the algorithm then assumes or makes a decision that's a negative headline, negative for the market. They initiate sell orders. At the same time, they withdraw the inline buy-side interest, which creates a vacuum of prices, which is why you see the volatility that you see. Well, right, but doesn't mean as an investor you shouldn't take advantage of that, because you should. Because most of the time that volatility is short-term noise, and in that noise it creates opportunity because it dislocates a stock temporarily. And if you're a long-term investor and you were buying Coke at $50, now it's trading at $46 because of the noise— damn, I'll buy more at $46. I loved it at $50, I damn well love it at $46. Yeah, right.

So what's interesting is how much psychology still drives the market, because— but now it's automated psychology, right? If you're, if you're going out and grabbing headlines and words and so on, saying, oh, we're going to trade based on headlines, not based on analytics.

You as the trader, you've pre-programmed your computer, so you're not really even doing it. You've pre-programmed your computer to respond to how the algorithm reads the market, right? So if the, if the market trades down, your, your black box is going to generate buy and/or sell orders based on what's happening in the market. You're just sitting there. You're reading the paper. You're doing other work. I mean, you're clearly going to oversee it.

Yes.

But you're not actually sitting there every time it happens and typing in, buy 100 shares of this, sell 200 shares of that. You're not doing that. The computer's doing that.

Well, and that's what's amazing to me, because I would have figured, oh, you know, it became somewhat impartial when you got into algorithmic trading.

Right.

But it's looking for certain words that carry certain emotions.

That's correct.

Now, listen, and that's the frustrating part of it. For a lot of people because you and I can have that same headline and you and I could talk about it. Yeah, okay, it's a ridiculous headline, right? But we understand that because we can interpret the headline and have a conversation and not react. The algorithm can't interpret that. All the algorithm knows is that word's negative or that headline's negative. Meanwhile, it really isn't, right? It might feel like it is, but it isn't. But the algorithm reacts, the market either takes off or sells off. So for instance, here's a perfect example. Back in the middle of the crisis in 2010, when the— when global markets were just getting— they would continue to crash. They were up, they were down. This one day, remember when the European banks were getting just crushed? So every week there was a meeting in Brussels amongst the European Union, the 27 member countries getting together trying to figure out what to do. Germany and Angela Merkel was at the head of the table because Germany was Germany, right? Was kind of in control of the place. And I'll never forget it. And this is just one of so many stories like this. But, you know, it was all about the meeting in Brussels and everyone's hanging on every word that's going to happen. And Angela Merkel stands up and leaves the room. And so the Twitter lights up. Merkel just left the room. Okay, is that positive or is that negative? I'm not really sure. Is that a negative headline or is that a positive? It was viewed as a negative headline because Angela Merkel is Germany, representing Germany, and she picks up and leaves the room. So the market sells off. The poor woman had to go to the bathroom. I was just about to say, maybe she just had to go to the bathroom. That's all she had to do. Meanwhile, 5 minutes later, she comes walking back in and the Twitter headline says, "Merkel enters the room," and then the market takes off again. But you see how ridiculous that is?

I was going to make that as a joke.

No, but that is the truth. The funny part about it is it would be a joke. But it's not a joke. Because the Twitter— things like Twitter and LinkedIn and Facebook have created all this noise. That creates this volatility. And so Angela Merkel does leave the room. Wow. Okay, but that's— Twitter viewed that as a negative because we're in the middle of these negotiations. And then she comes back in the room, so they go, "Wow, she's back, everything's great." And so, you know, the market sells off and the market rallies. And part of that is what, honestly, is what annoys the investing public because they don't understand the volatility in the market. Like, why does the market do that? And so therefore, it gives the impression that the market is more of a casino than a place to invest. That's the wrong message, and this is where I get so worked up about the way the industry and the SEC has allowed that to evolve. But listen, there's a lot of pressure from the tech industry, clearly, because they stand to benefit. And so, you know, oh, it's the 21st century, you have to be modern. Okay, great. So what I spend my time trying to do is I try to make people understand that it is not really a casino. If you're a long-term investor, there's huge opportunity to invest in the market. Huge. There are plenty of great companies out there that you would do very well by creating a portfolio. You as an investor just have to learn to eliminate the noise. And that's, I think, the most— that's the hardest part. And it's especially the hardest part for people that are maybe our generation that understand what it used to be like. Millennials say they don't know any different. That's just what it is. So to them it's normal. It's not normal.

So if I'm somebody who say, okay, I want to be an investor in the market. Yeah, I've got 401(k), I've got IRAs, I've got whatever I've got.

Yeah.

Am I smarter to buy indexes, to bet on individual companies?

Yeah.

What do you advise people?

Well, so it depends on your personality, depends on your profile, meaning your risk profile. Are you— do you tend to be a Type A or Type B personality? You know, ETFs And mutual funds is much more passive investing, which are fine. They do— that does very well. And it also relieves you of the sense that you always have to be checking your phone or looking at where the stock is trading because I bought it at 50. Oh my God, it's trading at 49, and you make yourself crazy, right? In an ETF, it's less so, and it's passive investing.

ETF means what?

Exchange-traded fund. An exchange-traded fund is like a mutual fund. Except it trades like a stock. So you can buy and sell it intraday. Mutual fund, you buy it, you get the price at the end of the day. So if you put an order in and buy a mutual fund today, you're going to get the closing price tonight. If you put an order in to sell the mutual fund today, you're going to get the closing price tonight. And an ETF, like, you know, a technology ETF, so it's a mutual fund that's made up of all these different technology stocks that trades like a stock that you can buy and sell all day long, that moves like a stock, and you can buy and sell it all day long. And so, that's a form of passive investing. It lit up in the late '90s. Started with the S&P, the S&P 500. And now, you can buy an ETF. I can't even imagine. I bet you there's more than 5,000 ETFs out there that you can trade anything under the sun, any country, any combination, because they're all very inventive in terms of exposure that you can get. And a lot of those ETFs— are not meant for Joe Q. Public, the average investor. Things like a technology ETF or financials or the consumer discretionary, those are great. But they've also got ETFs that are really designed for the traders and for the big hedge funds that are managing risk. And so you can get ETFs that are levered 2 and 3 times, which really means if the market's up 100 and you buy an ETF that's levered 3 times, you're going to be up 300. Conversely, if the market's down 100, you're going to be down 300. And so those aren't meant for the individual investor. And I would never suggest that an individual investor go anywhere near them. But the problem is everybody plays in the same sandbox. And so everybody gets dragged down, or they get dragged up. And so you have to be able to understand that as well. So depending on your level of risk, and what you can stand, and where you are in your life— are you 30? Are you 60? That's going to make a difference as well.

And you're getting to my next question is saying, okay, so I'm realizing, like you're saying, you know, there's different approaches for different types of people, right? So it's not, it's not just this kind of didactic thing. You got to know the human. What are the most important questions to ask yourself?

Well, what's your risk profile? What's your tolerance level? Where are you in your life? What do you have to provide for? Do you have 10 kids at home that you're trying to provide for? Do you have no kids at home? Is it just you and your wife? Do you want to retire at 40? Do you want to retire at 70? And so there's a lot of questions, and most of it revolves around risk, really. What's your risk tolerance level? What's your wife's risk tolerance, or your partner's risk tolerance level? Because you're in this together. I think one of the most important things, and I wish somebody really had had this conversation with me when I was their age, is that especially if you partner up with somebody, you know, and this becomes your life partner, is that both of you have to be on the same page. You have to— you can't have one person that's way out here in the risk spectrum and the other one that's way over here in the risk spectrum, because then you're going to have a hard time trying to come to the middle. It doesn't mean you can't have those opinions, but you have to find a way to come to the middle so that everybody feels, you know, compromised and everybody feels like they get a little protection on this side, they get a little protection on that side. But I think those are the questions as an investor that you want to ask. And so you want to lay out your timeframe. You want to put together a— if you're an active investor, meaning you want to buy individual stocks, then you got a lot of homework to do. Because there's a lot of stocks out there. So you're gonna do all your homework to figure out what are the right stocks, what fits my profile, what do I like, am I more conservative, am I more risky, do I want high growth, do I want value, do I want some combination, right?

Does it make sense to buy— if you're, if you're gonna do individual stocks, does it make sense to buy things that you are interested in or care about because you're likely to want to follow it?

Of course, yeah, of course. That was one of— I think that was Peter Lynch's mantra, you know what I mean? Buy what you like. Yeah, buy what you understand. Like, for instance, I don't own Facebook. I would never own Facebook. I don't use Facebook. And so therefore I would never buy it. I don't care. It's gone up 500%. I would never use Facebook. So therefore I would never buy Facebook. I just wouldn't, right?

What kind of things do you buy? What do you like?

So I tend to be a little bit on the conservative side and the value side, right? There is a part of the portfolio that's got growth in it for sure because it needs to, but I tend to be more the straight and narrow. I know you wouldn't necessarily tell that by my personality, but I tend to be more of the straight and narrow. And so, you know, it's like the turtle and the tortoise and the hare, right? Slow and steady wins the race. Yeah, you can run real fast, but you're gonna get slammed the next day. Slow and steady for me, and I would advise for most people, especially if you're, you know, you're a doctor, you're a lawyer, you're something else, you're not in this industry, that slow and steady wins the race. And listen, Investing is dynamic. It's not static. It's not like you say, okay, I'm gonna buy Apple and Johnson Johnson and GE and then just let it sit there for the rest of my life. No, you're gonna buy those, but when they make certain outsized moves, you might trim a little bit and then buy something else. You still keep a core position, but you're not gonna— you're not gonna necessarily sell it all, but you're gonna trim. You're gonna take some of that cash and reinvest in a new opportunity. And so it's very dynamic. And that's the other thing if you're gonna be an active investor. If you're going to be a passive investor, it's still dynamic, but less so because, you know, you're going to have your technology exposure through an ETF. You're going to have your consumer durable exposure through an ETF. You might have international exposure. And then as the market goes through its cycles, again, you're going to do the same thing with ETF. If technology stocks really take off and the ETF has really surged in value, you might take a little bit off the top. And put it to work in something else. Doesn't mean take it all off. It could, but it doesn't necessarily mean that. That's what I mean about investing is dynamic. You can't just put it there and leave it.

So you're at this point late 50s, I guess, if I'm doing my math.

58.

58.

You can say it.

So let's say when you were 30, what were you doing then as far as investing versus now at 58?

So when I was 30, I was really just building, right? Because I was young. We had— listen. I had gotten married at 25. We had it— well, I had a child at 26. I bought a house. And so assets were being diverted to other forms of investment. A house was an investment for sure. But, you know, I had— I didn't have a lot of extra cash at the time, but the cash I did have, I had in a 401k or an IRA. And so therefore it was— that's the way it was invested at first because, you know, most of the money I was making was going towards kind of living my life, right? But yet I started to build a portfolio, like I said, that represented— that reflected both me and my wife, right? Because my wife also grew up in this industry and she worked on the floor. She certainly understood it. She understood supply and demand. She understood what the news meant. She understood what investing was, right? And so, so we put a plan together. It tended to be a little bit more conservative, not way— not way out in the spectrum. It was all stocks when I was 30. It was no fixed income. Because I was way too young. But they tended to be more, you know, it was Procter Gamble, it was Disney, it was Coca-Cola, it was all these things that I know and I love, right? Stuff you know. And so today, then as you move along and you get older and your life changes and, you know, your kids grow up and then you potentially have grandchildren and what are you going to do there and what's the portfolio going to look like? So now that you're 58, so it takes on a different tone. There's a little bit more fixed income in there to add some stability.

What do you mean by fixed fixed income?

Bonds. OK. To add some stability. And see, now, at my age now, there's going to be more— especially in the environment that we're in with rates being almost negative, you want stocks that have great dividend yields, right? Because you're going to get income from that. But they're also going to be stocks that you're going to hold. Again, you know, some of the big Americana names, right? And so listen, from that point of view, I'm really boring. Maybe I don't look boring, but from that point of view, because I tend to be a little bit more conservative, right? Because listen, I'm 58, right?

So I hear people that are critical, some gurus of 401(k)s, like saying, you know, that's it, you know, there's so many fees, etc., etc. You're deferring tax, but you have to pay, you know, and maybe taxes are gonna be higher. What are your thoughts on that?

Well, taxes are gonna be higher, but the whole point of the 401(k) and the IRA is that you don't take that money out until you're older, when, when your income bracket is gonna be lower. So you're— I mean, that was really the way it was designed, right? So when you took the money out, In an IRA, if you put the money in pre-tax, yeah, then when you take it out, you have to pay tax on it. In a Roth IRA, it's different because you pay the tax, then you put the money in, and then you pay no tax at the end.

Right.

But the Roth is relatively new compared to the IRA.

Sure, sure.

But that is the difference, right? I wouldn't necessarily— listen, I think any of the savings vehicles, 401(k)s, SEP plans, IRAs, Roth IRAs, I think they're all tremendous plans for Americans to take care of themselves because Who knows what's going to happen to Social Security? Listen, if you're depending on your $2,000 a month to live on Social Security, you better think about working until you die, right? Because that ain't happening. And so all those savings plans in my mind are great, and the government encourages you to do it, and you get a benefit for doing it, so you should be doing it. And whether or not you're 30 years old, whether or not you'd start by putting $100 a month away, whatever it is, Just put it away. You'd be very surprised 30 years later what happens. And then, you know, as you become a little bit more successful, the $100 turns into $200, the $200 turns into $500, the $500 turns into $1,000, and it ends up compounding and adding up fairly quickly. I mean, fairly quickly, it's 30 years out, but when you run the model and you see what that's going to look like, okay, so you're 30 and then you figure out if I put $500 a month away for the next 30 years and I earn 7%, all of a sudden that $500 a month is going to be a million bucks, whatever the number is, right? Right. There's a calculation. You do it on Quicken, you know, you get all these different places, you know, give you the— what the expectation is depending on the parameters you put in, right? So no, I don't— I think all the savings vehicles, retirement savings, I think they're tremendous.

What are most your activities today? Now, you know, you've got all this experience behind you. You've seen the transition from the old days to the new days, et cetera. What do you do now?

So after 38 years, I finally, I finally left the New York Stock Exchange because, listen, I had a tremendous career there. It was— I wouldn't, I wouldn't have changed that for anything in my life. Probably first of all, because I met my wife there and then I got married. Now I have two beautiful children. You know, had I not been there, I would never have met her. Who knows what my life would have been? But one way or the other, and I lived through the turn of the century, I lived through kind of all the automation, I lived through the exchanges going public, I lived through the crash of 2007, '08, '09, '10, '11, '12. And then I finally, in January of this year, decided that it was now time for chapter 2 of my life. That the business that I had on the floor didn't exist anymore because the technology really, really did away with it. And what I recognized ultimately was that it wasn't fun for me anymore. Not that the industry is not fun and not that being at the New York Stock Exchange wasn't fun. It wasn't that at all. The automation is such now that you go to your desk, you don't talk to anybody because the phone doesn't ring anymore because everyone sends you— order flow comes electronically and they send you instant messages because that's all the millennials know how to do. Nobody wants to talk. I want to talk to somebody, but nobody wants to talk, right? They all want to send Bloomberg messages and instant messages. Not me. You know, the 25-year-olds and the 30-year-olds, great, go at it. At least in this business, to be able to relay that action in the stock and be able to make decisions and strategize and be able to be creative with the client, that's what made it so exciting and interesting. Because again, everyone's got a— listen, you could have a client that's like a Type B, very, you know, Type B personality, and then you're trying to get him to understand what's going on in the stock and why he needs to be more excited or why he needs to check, you know. And so it took finesse, it took the ability to be able to sell that story. And if you really want to buy this stock— because listen, a mutual fund's going to buy Boeing, they're not going to buy it and sell it in 10 minutes. They're buying it because 4 years from now they say it's going to go up 70%, and then they want to sell it up 70%. They're not buying it to sell it right away. And so you had to be able to tell that story, why you should be a little bit more aggressive or less aggressive depending on what was happening. And so it was all very strategic. You picked up the phone and you talked to somebody. Again, today they don't do that just because it's all automated.

So what are you doing now?

Well, I moved to Florida and I joined a wealth— I took all this, all this experience, which makes perfect sense, and joined a wealth management firm as a senior market strategist and advisor. And it makes perfect sense for me because it fits my personality. It takes all my experience, both institutional, and brings it kind of to the retail level and allows me to have these conversations with, you know, high net worth and ultra high net worth individuals. And so it makes perfect sense for me. And I did, you know, once I left, once I left the New York Stock Exchange, there was no reason any longer to have to live in New York. My kids are grown, right? And so there was no reason to have to live in New York. And the truth is, the weather's nicer in Florida.

And it shows by your tan. So now, you know, we've got people who are trying to sort through all this. And I know a lot of times, you know, second nature terms to you are, you know, not— are maybe mystifying to other people. Like, you talk about, you know, retail, you know, versus, you know, institutions. Or you talk about— I heard you earlier talk about market makers. So, so maybe let's, let's talk about maybe a few of the terms that people should understand so they can navigate this landscape a little bit. So what's retail versus—

so, so retail, think about retail as you as an individual, you, your wife, your parents, your brothers, your sister, whatever the Retail is the individual. Institutions are asset managers. Mutual funds are institutions. Hedge funds are institutions.

What's a hedge fund?

Okay, so a hedge fund is an asset manager that pools the assets of investors and they bring the money together. So instead of you, instead of you singly, you come into this hedge fund and, you know, 10 guys give them, you know, $1 million apiece. Now the guy's got $10 million and he levers that 3 or 4 times, and now he's got $40 million, and then he'll trade the market. He'll invest on your behalf, so you participate in everything he does, right? Good and/or bad. But a hedge fund, unlike a mutual fund, is a riskier investment, so therefore the requirements to get in are different because you have to have kind of the capital and the wherewithal and the experience to really— right? And that's all good.

Are they a newer phenomenon?

No. No.

Because it seems like they're talked about a lot more now than they used to be.

They exploded kind of in the late '80s, mid to late '80s, hedge funds, because the market was just on fire. And so it created a lot of opportunity for people to trade. So they exploded then. I think they're talking about them now because there have been some real big hedge fund blowups, meaning, you know, some of these guys have made wrong bets and they've had their heads handed to them. And so that makes the news. A mutual fund, like a hedge fund, is an asset manager, but they're much more conservative. You know, Fidelity is a mutual fund company. I mean, you could just pick up the Wall Street Journal. There's 1,000 mutual fund companies. But they also pool the money of individual investors, retail investors. And so therefore, they get a bigger pool of capital to invest. So they go out and they buy 1 million shares of IBM. And if you were singly trying to buy IBM, you're going to buy 200 shares of IBM. And so therefore, there's just more bang for your buck if you're involved in a pool of money, right? The retail is just you doing it on your own. Right. Right. And the institution is the institution.

What do you think the future holds now? So you've seen all the changes. You've seen old school, new contemporary market. Now, where's it going?

So let's start with the exchange. The exchange has continued to evolve. Part of it, like, like most things that technology does, is it forces you to evolve. And so the exchange has continued to grow. It's very 21st century. It's very, very high tech. And it will continue to evolve based on where technology drives it, right? And I think at some point, the technology is going to get so sophisticated that the trading will take place immediately. Like today, when I buy stock or sell stock, there's still the 1-day clearance. And so, you know, I buy it, I don't get it till tomorrow. I think in the future, if I buy it, I'm going to buy it— like, I'm going to have it right now. I'm gonna buy it from you and it's gonna be in my account right now. So you're gonna have the money right now and I'm gonna have the stock right now. But from an investing perspective, I don't think much changes in the sense that investing is still investing. You want to buy stock, you're gonna buy stock. You're gonna create a portfolio, you're gonna generate wealth for a lifetime. You have to build a portfolio whether you build it by thinking about, I want to buy 500 shares of Coke, and you're gonna think it and all of a sudden it's gonna be in your account, right? If Google has their way, I'm going to have these glasses on my head and I'm going to think about it. All of a sudden, it's going to trade, right? But investing is investing. And so, the investing game will never change. It might get more complicated, more complex. But see, that in and of itself creates, in my view, creates issues. Because as the products that you create become more complex, then the system becomes more risky. And so, the perfect example of that is the crash of 2007, the great financial crisis. 2007, 2008, because a lot of the products that had been created that were not equity products— and they were all 3-letter acronyms— ABSs, CDSs, CMOs, all these derivative products that were traded against stocks and against the mortgage market and against housing prices and all that stuff were very complex. And the retail public wasn't going out and buying those products. They were all very institutional. But what happened, you know, they were all designed, oh, and this is how it's going to work. And in a perfect environment, this is how they're going to work. And when the environment was perfect and everything traded fine, everyone's patting themselves on the back saying, look at how great I am. Until it didn't. And when the economy started to collapse in 2007, not only the US, but the global economy started to come under pressure. And then we all know what happened. It got worse and it got worse. And then what happened is those complex derivative products that were all built and designed and they work so efficiently and look, this is how it's going to happen. They didn't work so well. And in a down environment or in a difficult economic environment, the whole thing blew up. And so what happened, what really happened during that crisis, and people are so quick to blame Wall Street, Wall Street, Wall Street. But when they blame Wall Street, like they're pointing the finger at the New York Stock Exchange. That's not the Wall Street that created all these products. They were the big investment banks. They were all these other all these other people that work in the industry that created these products. But what ended up happening when the economy started to stumble, some of these products became illiquid, right? They became difficult to trade. And then as the economy got worse, they became even more difficult to trade. And nobody— you tried to sell it, there's no buyer. And so then what do you do? You start to panic. Because now you, you can't sell it, but you want to sell it because you think it's going lower, but there's no one that wants to buy it. So what do you do? You sell what you can, right? And so you hit the button to sell GE or Coke or Abbott because you know why? Because you can. Because the public markets are the public markets. There's always a bid, there's always an offer. You may not like the bid and offer, but could you sell it? You absolutely could. There's no— there were no bids and offers in those complex derivative products. And so everybody around the world, by the way, that owned these products, because that's what they all did. They all sold it to each other. It was a big Ponzi scheme, in my opinion. But it all collapsed. And so institutions that owned all that crap around the world could no longer sell it. And so then the world started to panic. And people started, I want my money. You know, investors who were in those, I want my money, I want my money. Calling up the broker, I want my money, I want my money.

It's like the old run on the bank.

It's all the run on the bank. And so what happened was they sold what they could versus selling what they should have. But they couldn't sell that because there were no buyers. So they sold Coke and Abbott-Johnson and IBM, and they did it, and they did it, and they did it for a year, and the market went down 60%. 60%. And so anyone that, you know, worked their whole life, that maybe had $2, $3, $4, $5 million in their IRA, lost 60% of its value by the time we hit rock bottom. Well, right. And so the problem with a lot of those complex products, and my, my view on the future is We need to be very careful, and the SEC needs to be very careful on what they really allow to be designed and developed. Because remember, I just said it, we all play in the same sandbox. Just like in the crisis of 2007 and '08, we were all playing that sandbox. I didn't own any of that crap. I didn't own CDSs and CMOs and ABSs.

But it still followed you into this—

Of course it did. And it followed you, and it followed him, and it followed her, and it followed him. Followed everybody. And so therefore, everybody got dragged down, right? And so, and so in retrospect, someone will say, but look at the opportunity created because then stocks, you know, the market was down 60%. Yeah, okay. Unless you were one of the guys that jumped out the window or killed yourself because you lost your life savings.

Yeah.

And remember, I'm not making it up. There were people who did that.

Yeah, right.

I remember. And so therefore, what I'm concerned about about the future is the level of complexity that the industry allows to be traded in the public markets.

So there's— so basically it's a full ecosystem. In other words, you can't just say, well, I'm in stocks, right? So I'm not in that other crap. That's correct. But the people, you know, when people are in that, or the institutions are in this other stuff, it still follows you back to your investment.

That's right, because it's all in the same sandbox. It's all in the same. Now, ABSs and CDOs, those are all fixed income products. So they weren't in the equity sandbox, but they were in the bigger sandbox of financial services. And even though I had no exposure to those equity— those fixed income products, I got slammed in the equity market. And you did, and he did, and she did. Because they panicked in that world. They couldn't sell them because there were no bids. And so they sold what they could. You're not going to sell Bank of Hawaii. Who wants to buy Bank of Hawaii? You're going to sell GE and Johnson Abbott.

But the reality, I guess, was that GE was not really worth less from a technical standpoint. It was a psychological standpoint. Everybody wanted to get cash.

Exactly right.

So on the flip side of that, I guess, if you went in and bought it— OK.

But the problem was, you're exactly right. But GE goes from $30 to $25. You go, oh my god, it's down $5. It's a buy. But then it goes to $20. And then it goes to $12.

Where's the bottom?

So then you start to say, I just bought it at 30, I bought it at 25, I bought it at 20, and now it's trading at 12. Then you start to panic because now you thought it's the end of the world.

Right?

Right? And that was the thing. And you ended up waiting and you bought it all at 6, where it traded down to? You're a superstar. But who did that?

Yeah. Well, you said it was something that was really a worry at the time is that it was the end of the world. I mean, the whole thing could just collapse.

Well, the truth is the financial, the global financial system came to the brink. And I don't think many people really appreciate how close we came. I don't really think that they really understood how close we came and the issues with AIG and Goldman Sachs and all these reinsurers, how they were all in bed with each other with these products and what that really meant. And so in the end, Ben Bernanke and Timmy Geithner, the ECB, right, the European Central Bank, the IMF, the Bank of Japan, the People's Bank of China. All these central banks around the world did what they had to do because we were on the brink of Armageddon. It wasn't US. It was global Armageddon. And so those banks did what they had to do. And people were very critical. But the people that were very critical didn't really understand how close to the edge we were. What I'm fearful of— because I think history repeats itself. And that's the problem. And in 20 years, there's not going to be anyone in a position at the Treasury or the SEC that has any recollection of what happened in 2007. And so my fear is that we're not going to learn and that we're not going to put rule sets in place that say, no, you can't do this. I don't care what you say, you can't do it. And I don't think that's going to happen because I think the banks, the big investment banks, have too much power. I think they get down there and they just, you know, and they have too much power because they create these products. And, you know, part of it was the products were unregulated. And I would go back to Alan Greenspan on that because Alan Greenspan said, no, they don't need to be regulated. Well, that's baloney because they were unregulated, which is part of the problem. So, if you want to create the complex products and then regulate them so heavily, maybe. I go, why go there? Why go there?

So, then maybe to sum this all up, as you're looking back through these experiences, you see how things, really bad things happen, people get wiped out, what have you. But at this point, you still think that the market is a good investment for people to go into to buy equities. And to invest here?

I think as a long— again, I qualify by saying as a long-term investor. If you're somebody who's 25 or 30 years old and you're just starting, absolutely, you should be in the market. How you design it is going to be up to you. If you're somebody who's a big risk-taker, well, then go for it. But then understand the risk. But absolutely, you should go into the market. Absolutely. I would still— I'm still a buyer of the US capital system. I'm still a buyer of the opportunity that investing creates to generate wealth, not only for you and your partner, your wife, or whatever, and your children and your grandchildren potentially, that it provides. And so I'm absolutely a buyer of America and I'm a buyer of the investing process for sure.

I guess I could easily say you've seen it all.

Yeah.

And so you have this really great historic and contemporary perspective on the markets and the experience of the markets and what they mean to everyday people in the world. So I appreciate you taking the time, sitting down, sharing all of it. I don't think you held back.

No.

So I appreciate you coming here, showing up, not holding back and sharing it.

You're very welcome.

It's my pleasure.

Next up, Jeff Hays interviews Carl Allen. And this is a unique context or unique opportunity for investment and gaining wealth. What Carl talks about is how to buy businesses and usually how to buy small businesses, something that I'm actually interested in myself right now. You know, we know about real estate. We're learning a lot. We learn about crypto. We learn about the equities markets. We learn about options trading. We learn about all these different ways that we can take capital, deploy it, invest, and try to create wealth. But one of the big opportunities right now, especially when things are a little shaky in the world, is to find good cash-flowing businesses and either invest in them or buy them and own them and make that a way to put your dollars to work to create more dollars into your future. And that's what Carl is really expert about. So enjoy this interview.

So Carl, thank you so much for being here.

Thank you very much.

I'm looking forward to this because this is a topic that I'm fascinated by and excited to learn about. So why don't you tell us a little bit about who you are and what you do and how you got here?

Okay. So my name's Carl Allen. I'm originally from Manchester, England. I now spend about half my time in the States and half my time here. Kind of basically grew up as a Wall Street investment guy. So I was buying and selling businesses for lots of corporates like HP and IBM and Microsoft, GE. And then about 10 years ago, my life changed. I had a little baby, not me personally, but my wife. And I decided to become an entrepreneur and buy and sell businesses for myself, which I'm still doing to this day. But about 4 years ago, I started teaching and coaching entrepreneurs how to basically model my system, which is buying a small business from say $1 to $5 million in revenues and buying it without A, spending your own money to acquire that business, and B, once you acquire it, not having to run that business day to day if you don't want to. So those are the two things that I do. I'm still doing my own deals inside of my private equity firm that I run with a partner, and then I'm still coaching and training entrepreneurs to basically follow my system that I've been using most of my career.

So I've been a lifetime entrepreneur and had some great successes and some spectacular failures. And Vern Harnish was saying a few weeks ago, his new mantra is that money is not in startups, it's in scale-ups. And listening to Vern, and when I found out about you, I'm like, okay, this buying a business, I look at the ideas I had that I thought were brilliant that lost mine and my investors' money. The risk is on the takeoff. Much more than— so I'm eager to hear. So let's do a high-level view and then we'll dig deeper into it. If somebody's interested in buying a business and doesn't have a lot of capital, what do they need to start with?

Yeah, so the first advice I would give to anybody that wants to get into business is don't start a business, actually buy one that someone else has built and no longer wants to own. Last year over 6 million Americans started a company from scratch, and 96% of those will fail within a 10-year period, and 50% of them will fail inside of 1 year. And those statistics are from Michael Gerber, who's the author of The E-Myth, one of the— one of my favorite all-time business books. And he's worked with hundreds and hundreds of thousands of businesses. So, and my kind of analogy with this is like Tesla. So if you want to buy a Tesla, do you, A, go and buy the wheels, buy the glass, buy the chassis, buy the giant iPad, buy the tires, and put it all on your driveway and figure out, you know, how do I build it all? Or do you go to the dealership, buy one that they've built, and then finance the purchase of that car through Tesla, where you're paying for that car month on month? And it's the exact same thing buying a business. So Rather than start a business, go and buy one that somebody else has built and no longer wants to own. There's over 2.4 million of them for sale today in the United States. Only 1 in 12, 1 in 13 are actually going to sell in the next 12 months. Lots of baby boomers, 10,000 a day, looking to retire. Big percentage of those own a small business. So if you're an entrepreneur and you want to become a business owner, go and buy a business that someone else has built. Doesn't want to own anymore, and provided it's a good match to your skills and what you want to do, you can acquire that business and get somebody else to finance that deal using other people's money.

So you're talking about in the $1 to $5 million range.

Yeah.

What example businesses are we talking about? Is this like a dry cleaners, or what are we talking about?

So, no, we're looking more kind of, you know, at a $1— there's not many dry cleaners business that are doing $1 million a year as a standalone. You could buy 20 of them and kind of roll them up into a group, but we're looking at more kind of established, developed businesses. So, in the engineering, in the manufacturing sector, anything in technology or software, anything in professional services. So, PR firms, recruitment consultancies, you know, web design, marketing agencies, those types of businesses. And you can also do deals Although I personally don't like doing deals in retail or buying hotels or restaurants. The kind of leverage buyout model that we utilize, very, very old, 64-year-old Wall Street tool, still being used today. That's how we're doing these deals. But you can pretty much do deals in any particular sector. The $1 to $5 million range, or you could maybe go as high as $10, those two boundaries are quite important. Anything below a million, then really, or kind of maybe half a million at a stretch, you're not really buying a business. You're buying somebody that has a job inside of their own business. So when they leave, they take all the goodwill and all the kind of mechanics of how the business works. So those deals are not very good deals to do. When you go above $5 million in revenues, and even kind of maximum $10 million, there's a lot more competition for those types of businesses. You have private equity firms, and you have a lot of trade competitors that would buy a business at that scale. So, a kind of $1 to $5 million market, that's really our sweet spot, where we're finding lots of really good, high-quality deals.

And where do you find these businesses?

Yeah, so, there's lots of proprietary methods that I've developed over the past 26, 27 years I've been doing this. So, we go to business brokers like everybody else. We'll only typically work with a deal where it's been listed with a broker, say, at least 9 months. Because business brokers, most of them, they're not very good. Some of them are okay, but they're in the market really to sell a business to another business. They're not interested in selling those businesses to people like ourselves, because they promise quite crazy valuations with sellers, and we're obviously coming in and we're looking to do more sensible creative deals. Apart from business brokers, most of our deals come through our network. So building our network of both deal intermediaries like CPAs and lawyers and wealth managers and accountants, but also a lot of the people that we know in industry. And anybody can do it. You can build your own network, whether it's on LinkedIn or going to events or other types of networking activity. And if you're a small business owner and you've decided the time's come maybe to sell the business. Only 20% of sellers ever go to a business broker because it's very expensive and takes a lot of time. Most people, they call their own network. They'll call their wealth manager because the wealth manager is going to be then investing the money if they sell. They'll call their lawyer or their attorney. They'll call their CPA because those are the individuals that are going to help them get that deal to market and get it closed. To somebody else. So if you're an entrepreneur looking to buy a small business, and you're networking with those types of individuals, it's a great way to get some very high quality deal flow. And it's what we call off-market, which means that it's not published on a website somewhere where hundreds and thousands of people can see it. It's a one-on-one kind of situation. And what's great about that is that, like anything in life, Businesses are bought and sold between people. So a massive part of our system and how we teach it is a lot about the psychology of the seller and the psychology of how they think and what they're looking for when they sell their business. And the interesting thing is it's not always about money, it's about other things.

So let's talk about financing for a minute. Yeah. Because that In your Tesla example, you know, I don't want the car assembled in the driveway. Much rather buy it at the dealership. But if they didn't have a financing mechanism for me, then suddenly I'm not in the market.

Yeah.

For a Tesla.

Yeah.

So how do you help people finance businesses?

So there's 4 countries in the world that have got very, very mature financing markets for buying businesses. So obviously the USA is by far the biggest. The UK is next, and then you have Canada and Australia. There are other parts of the world that do these types of deals, but if you went to, say, South America or India or China, it's very, very hard to get that type of financing. But in the Western world, you know, there's trillions of dollars available to put into deals. So when we're looking to buy these businesses, we're typically using 3 types of financing. The first one that we always try and use in a deal is seller financing. So it's like buying the business, like leasing to buy it. So you're not raising any money from the financial markets. So let's say you owned a business, and it was doing $1 million a year in revenues, and it was making $100,000 a year in profit, and I was buying that business for, say, a 3x multiple of profit, which is about the average, maybe a bit less. So that $300,000, I could say to you, I will buy that business from you, and I will pay you for that business over, say, 5 years. So you don't have to come into work anymore. I will take over your business and run your business and grow it, but you still get paid month on month as if you were coming into work. And for a lot of baby boomers and a lot of retiring entrepreneurs or other business owners, that's still quite an attractive proposition. That somebody's taken over their business, dealing with all the problems that that business has on a daily basis. But as the owner, the old owner, they can stay in bed or go play golf or go on vacation and still make the money that they've been used to making. Because a lot of business owners stay in their businesses far too long. A, because they can't sell them, and B, they still want the income from that business to be able to live their lives. The second thing that we do is apart from the seller financing, and sometimes it's enough to be able to just pay the seller from the future profits of the business. In my private equity firm, we're buying a coach company up in the northern elements of Scotland. Fantastic deal. We're raising no financing from the outside market. We're just paying for that business every month over 5 years, and the seller is more than happy to do that deal. If that seller wanted a, say, a closing payment, then we would be looking at using the assets in the business or the cash flows in the business to be able to introduce some financing from an external provider. So it could be an asset-based lender, it could be an angel investor, or it could be the SBA. What you have in the United States, which is phenomenal, we don't have it in the UK or anywhere else, is you've got something called the SBA 7(a) loan program, which is rocket fuel for entrepreneurs buying businesses. The SBA will lend you 90%, up to 90% of the purchase price of a business, up to $5 million. You just have to come up with the 10% deposit, which if you've got the cash, you can put that in. If the business has got surplus cash inside of it, you can use some of that, or you can partner with an angel investor investor that will put that little bit of that 10% in and allow you to buy that business really without using your own money, which is kind of the mantra that we're doing inside of our business.

So how hard is it to qualify for one of these SBA?

So SBA, you need a credit rating, I believe, of around 690. We're actually doing an SBA deal right now inside of our private equity firm. We're buying a phenomenal e-learning business in Texas. Which is going to be a phenomenal deal, and then we're going to roll that up into a much larger opportunity. So to qualify for SBA, you need to have some knowledge and understanding of the market, which I believe is very, very important for any entrepreneur buying a business. If you've spent your life, or you've spent 10 years working, say, in web design, then go and buy a web design company or an IT services company, You know, don't go and buy a restaurant or a hotel or a laundromat. Buy something that's kind of in your lane. So the SBA want to see that you've got some industry experience. You have to have reasonably good credit if you want to apply for an SBA loan. And that's the only time when you're doing a deal where your own individual credit as the buyer actually comes under scrutiny. When you're using other types of financing, so you're financing the balance sheet or you're using other types of investment, then really the financier is more concerned about the credit of the business that's being funded, not the credit of the individual that's going to be coming in to become the business owner. But the SBA is, is rocket fuel. It is a complex process, it does take a lot longer by doing SBA, but they give you a huge chunk of money to be able to put down on that deal, and And like with any seller, the more money you can pay them at closing, the smaller the total amount of the deal's going to be, just because of the time, you know, value of money. So, it's very important.

Yeah, it would seem to be a strong negotiating point to be able to offer that. What's the length— you say it's a lengthy process. What is lengthy in this case?

So, if we hadn't had the government shutdown quite recently, because the SBA's a government a federal government agency, the Small Business Administration, when the president shut down the government however many months ago, there was a huge backlog. So I think our deal is probably going to take start to finish around 3 months from the provider that we've definitely decided to go with. So it's generally about a 3-month process. If you're financing a deal through traditional methods, you're just calling a bank and looking to borrow against receivables or real estate or inventory or fixed assets inside of the balance sheet of the business, then typically it's a lot faster, 30 to 45 days normally. But generally, start to finish, when you're buying a business, you're looking at 90 to 100 days, you know, before you start searching, you find a business, you start having meetings, you do your due diligence, you apply for the financing, and then the lawyers come in and the CPAs and do the due diligence for you, which is making sure that the business does what it says on the tin. Start to finish, about 90 to 100 days if you're doing it part-time. If you were hitting it full-time, it was the only thing that you were doing in your career, you can do it a little bit faster, generally around 45 to 50 days.

So you said something really compelling to me at the very beginning, that you, you look for businesses to buy that are good businesses, but that you don't have to run.

Yes.

And, you know, that's a very attractive, you know, yeah. You know, when you're talking about somebody, often business owners are working in their business and these are businesses that are large enough that there's some infrastructure. How do you acquire a business but not end up acquiring a job?

Yeah. So there's two elements to that. I think, first of all, you still really have to have some knowledge and understanding of an industry that you're looking to acquire in as an owner investor versus an owner manager. There's no harm, there's, you know, there's no reason why you can't buy a business and go in and run it. You know, there's thousands of students that we're coaching inside of our programs, and about a third of those, they actually want to go and buy a business and they want to go in and they want to run it 9 to 5 or day to day. That's fine if you only want to buy one business. If you want to build a portfolio of businesses, then you can't multiply and scale yourself. You have to become more of an owner-investor. So you still need to know the sector, because it's really important to build rapport and trust and credibility with the seller of the business, and also with any external financiers if your deal needs that financing. So knowing the space is really still quite important. But then once you are going through that acquisition process, then really you're looking for a GM, you're looking for a number 2 that can effectively run that business day to day for you. And that could be someone that you can promote internally from within the business. The e-learning company that I'm acquiring inside of my PE fund with my partner in Texas, that has a phenomenal number 2, a general manager, he's been there been here over 20 years, since just after the company was founded, we're going to make him the CEO, and he's going to be like a small profit interest partner for us inside of that deal. So, having somebody like that, or if there isn't anyone inside of that business, then you can use your network, which I mentioned earlier, having a network's really important for doing these types of deals. Then you can bring somebody in to that deal to be your general manager. And what's great is, because you're buying the business without using your own money, so you're buying the shares in the business essentially for free, you can gift a small percentage of the ownership to that GM, which then effectively means they're incentivised and they're really vested in helping you grow that business. And then if you don't know anybody in your network that you can bring in, and there's nobody inside of the business, then, you know, You can use a recruitment consultancy, or use LinkedIn, or do other online methods to find the ideal partner. And what's great about having a partner in a deal is not only are they there as your kind of wingman to run that business for you once you've acquired it, they can also help you do that deal as well. There's a couple of people inside of our programmes that we met recently at one of our events, and one was a phenomenal marketer, that had a passion for doing engineering deals, but knew nothing about the sector. He met somebody at that event who didn't really want to go through the work of closing the deal, but really, you know, he had the grey hair, really knew that space. So those guys have partnered, and they've closed one deal, I think almost now maybe two, and they've got three other deals that they're doing. So that's another way that you can kind of partner with people. One can do the deal, one can run the business for you and then scale that up and kind of combine all of your experiences and all of your efforts.

So I knew you were training people. I didn't know you were doing events. And that's what, you know, a couple of things you've said, the old line, your network is your net worth. And this is where when people come to me and go, you know, and want to do something, I always look around it. It's the part of the iceberg it's under the water is the relationships that you make. So I love it that you're doing events. Are you bringing a bunch of your students together at the same time? And, and yeah, it's a beautiful place to build a network.

Yeah, it is. And obviously we have different levels and tiers inside of our various programs, but our Academy members and our partner members that we work with, we typically get them all together. The last one that we did was in London. There's about about 50 people there. We did one in San Diego quite recently, there was about 30 people there. And we're not only coaching them in the room with lots of new advanced things that we're doing. One of the things that we also do, which is, you know, really makes my heart sing, is when I worked back on Wall Street and in corporate life, and I was doing deals, whenever you closed a big deal, they used to give you, it's called a tombstone, which is like a really weird thing, 'cause that sounds like death, but you get like a crystal-cut tombstone with your name and the date and, you know, the terms of the deal that was done. So we've started doing that with some of our students. And these are ordinary people that, you know, were stuck in a corporate 9-to-5 or had been laid off and, you know, just wanted more money and freedom and kind of pride in becoming a business owner. We get all those people to our events that have gone through our programs and we hand them their deal tombstone. Stones live in front of the rest of the audience. And there's kind of two reasons that we do that. You know, one is we want to celebrate with our successful students that have implemented and have got the results that they wanted to do by following our programmes. But we also do it as a big kind of incentive for the people in the room that haven't done a deal, because people can look at me and think, well, obviously Carl knows how to do deals, he's been doing it for 27 years. But when they can look at somebody, like there's a gentleman called Koston who's now a very good friend of mine, came from Africa to the UK literally only 3 years ago. And when he got here, didn't even have enough money to feed his family. He's since bought 5 businesses leveraging our program. His son's got a private school. He travels all over the place. And they'll look at him and think, well, he's like I was 3 months ago. You know, if he can do it, I can do it. So we use that, you know, for a lot of kind of inspirational building for the other members that we invite that are kind of quite new, or they've maybe got a little bit stuck throughout their journey. Because they can see other people taking action and doing their own deals, it's a massive incentive for them to keep going.

So because you have experience now training other people to do it, yeah, who have you discovered should not do this? Is there a failure profile of people that—

It's a really, really good question, actually. What I think separates the real winners from the people that just don't succeed, and you find this in any kind of coaching scenario, and it saddens me that 100% of the people that subscribe to a course or they come onto a training program and they go to a seminar, 90% of those people will never implement anything that they learn. And I think that's crazy, although personally I've been to events, I've bought things, I've done stuff, and I've never implemented them. And the reason for that is because I didn't have the leverage, I didn't have the purpose or the why or the fuel to want to change my life in that particular instant by implementing that program. So what I would say is all the people that have been really successful, they've had a burning desire to want to get out of their current situation. Become a business owner. It could be that they, they're stuck in a 9-to-5 and they hate their boss, or they're tired of not earning enough money, or they don't have a work-life balance. You know, they're stuck in the office every day missing their son's recitals at schools and soccer games and stuff. So what I find when I look at all the successful people that have come through our programs, they all had real leverage to want to change and go from being an employee E to an employer. So I think to answer your question, for people that, you know, don't really have that burning desire to want to buy a business, you know, that's why they fail.

Yeah, it's a really good point. And it's— and for some people it can be an intellectual exercise, and if it gives them pleasure, then, you know, God bless them. I'm thinking of nightmare stories of people. So I want to go back, you mentioned very quickly the due diligence of having lawyers and accountants go in. Can you highlight that a little bit?

Yeah, so if you look at the process of buying a business, it's like buying a house. You go, you find one that you like, you build up a conversation with the seller, you make an offer, maybe do a little bit of arm wrestling, and you agree a price. Then, like buying a house, you'd go and get a survey done, you'd make sure that there's no dry rot, and No one's going to build a highway through the door or a nuclear power station at the back of your yard. It's the same with buying a business, but you don't want to do it yourself. You want to hire a CPA and a lawyer to basically go through the numbers and go through the legals and make sure that that business is doing exactly what it says that it's doing, that they've paid their taxes on time, that their financials are true and accurate, that their business model works the way that they say it does, that there's no pending litigation, they're not being sued, sued by anybody, they don't have any employee issues. And that's what CPAs and attorneys will do. They'll go through that business and make sure that everything is tickety-boo, as we say in the UK. And if it's not, what the seller has to do when they're selling a business is they have to sign a warranty to basically indemnify the buyer from anything that could go wrong with the business that they haven't disclosed as part of that due diligence. So very, very important. And what's great about working with CPAs and attorneys is in most cases, once you've found a deal and you've got an agreed term sheet to buy the business, you've been to a financial services company, you've got a term sheet for the financing that you need to do the deal, if the deal actually needs any financing, once all that's in place, you can package that up, give it to a CPA and to an attorney, And in most cases, they will do the closing work for you to paper the deal, and you can pay them from the business once you've closed it. It's called a contingent fee, and it's how the deal-making world tends to work. Not just at the massive kind of Wall Street level, where I basically learnt my chops in this business, but also kind of in the small $1 to $5 million deal range that we're really playing in now.

That's great. So what kind of businesses are you personally, in your private equity, what's catching your eye? What are you doing? Yeah.

Well, yeah, so it's not necessarily a sector-specific strategy. You know, we're fairly sector agnostic, although, you know, we wouldn't, we wouldn't buy a restaurant. Although my, my business partner Adam and I were actually investing in our favorite little restaurant in Baltimore, but that's more of a passion project more than an LBO. So, you know, we wouldn't buy hotels or retail stores or anything like that. Apart from that, we're keen to look at any deal in any sector. What we do look for though, which is really, really important, is we're looking for a distressed seller of a good business, not the other way around. There are plenty of good sellers of distressed businesses, businesses that are not making any money, they have of not very strong balance sheets, not very good customer reputation. We want a business that's really solid. It's not declining. It's at least got kind of flat revenues, or it's growing. It's profitable. It's got a strong balance sheet. It's got a good customer base, good product, good reputation in the market. But it's the seller of that business that's distressed. They either want to retire. They could be sick. Sadly, they could be dying in some cases, which is awful. Or they could just be burnt out, or tired, or frustrated, or they just run out of ideas inside of their business, and they're essentially, you know, they've checked out of that business in their mind. It's just a case of them getting that deal done, and sadly, most business owners that get into that space end up just turning the lights off, closing the doors, and walking away, and unfortunately, letting their employees go, and letting their customers down, and and in some cases having to pay money out of their retirement to actually shut the business down, because the business has got liabilities and leases and bank loans and all those different things. It's actually a lot easier and cheaper for them to give it to somebody like me for a dollar, and I can keep running the business and taking it forward. So, that's what we're really looking for. It's that good business that's got that kind of highly motivated seller that's really keen to kind of exit. Exit and go and do something with the rest of their life. And it's not necessarily a retiree, even though, as I mentioned before, there's 10,000 baby boomers retiring every day. And according to Forbes, 19% of them own a small business. So you've got 1,900 businesses every single day coming to market to be sold, just in the United States. But what we're really looking for is just that, that kind of distressed seller that wants that trusted, safe pair of hands to take their business and kind of— it's like giving away your child. You know, I don't know if you've ever had to give away like an animal. I had a dog once and I was moving from a house. I was getting divorced, moving from a house and moving into an apartment. And sadly, you know, I couldn't take my dog with me. So I didn't want to take the dog out the back and shoot it, put it down. I wanted to rehome that dog. With a loving, caring family that would give my dog a wonderful rest of its life. And for a lot of business owners, it's the same kind of feeling. They want to make sure that their business outlives them and goes to the next level. It's all about their kind of legacy and their kind of love and support for the employees that have been there to help them build that business. If you sell the business to a safe pair of hands, then they're really fulfilling that requirement.

So, Carl, I read your bio and you've got a really rich business history.

Thank you.

So I can see how someone could be watching you talk and go, okay, it's a great idea. I can see how it can be done. I can see how Carl can do it.

Yeah.

Is it really feasible that an everyday guy can do what you do?

The average Joe?

Yeah.

Absolutely. So, as long as they've got a little bit of business understanding, and they're trying to do deals in sectors that they know, and they understand, then really the rest is all about mindset. It's all about your purpose and your why. You know, I've mentioned before, the likes of Co-Stone, and there's Wayne Ticker, and Chris Matthews, and all the kind of students that have come through our program. They wanted to buy businesses because they wanted to get out of whatever they were currently what they're doing. So they're in a 9-to-5 they didn't like, they wanted to make more money, they wanted more control over their, their career and their life, they wanted a work-life balance so they could spend more time with their family and do those different things. So it's all really about the mindset. And people look at me and think, well, he's been doing this all of his life, he knows how to do deals, he's worked on Wall Street, he's got all these qualifications. It makes no difference. If you can, if you understand how business business really works and you know the particular sector that you want to go in, the rest of it is all about mindset. And it's giving yourself enough leverage to take you out of what you're currently doing and to become the buyer and the owner of a business. Because what's interesting is people actually, they don't want to buy a business. They actually don't want to own a business. They want the benefits of what owning a business means for them, whether it's money, whether it's pride, whether it's that work-life balance and some of the other benefits that owning a business can give you when you go from an employee to an employer.

Yeah, we talked with Robert Kiyosaki's accountant, and his number one tax advice is to own a business. There are many benefits to owning a business. You talked about mindset, and I'm, you know, the mindset of the potential business owner, but I'm thinking about the mindset of the seller. And so you mentioned this briefly, but I want the psychology that seems to be really important to— if I'm not paying this seller his best price at all cash up front, I think the exchange— can you talk to us about how you work through that.

Yeah, absolutely. So imagine two identical businesses. So they have the same product or service, they're in the same building, they've got the same employees, and they've got the exact same financial profile. Those businesses are completely identical. The only difference is the psychology of the owner of that business. So this guy could be a 30-year-old entrepreneur. He's having a lot of fun. He's running that business. You know, every business is for sale for the right price. You know, if you had a trillion dollars, you can go and buy Google or Facebook, but this entrepreneur, he might want to sell for a much higher price, and he wants most of that money at closing. The same business could be run by somebody that wants to retire, they could be under ill health, or they're just frustrated and pretty much done with the business. That person might even let you take that business on and just pay them over time, or pay them a much smaller amount of money at closing using the financing that's inside of the business. So those deals, small deals, they're really 90% psychology and 10% numbers. When you're working on like a $100 million deal, and I did lots of those back in my corporate life, they're 90% numbers and only 10% psychology. Those are processes of of financial engineering. So really, when I talked before about the perfect seller, it's that distressed seller, that highly motivated seller of a really solid business. They're not necessarily financially motivated. They might want a little bit of money, especially paid over time, but for them it's about can they find a buyer that's going to protect their legacy and basically take their business to the next level, and they'll cheer them on from the sidelines. My first deal that I ever did, my first, very, very first LBO deal when I came out of the corporate world, kind of encapsulates that point. So when I changed my career from being a corporate slave, which I think I was, to an entrepreneur, I decided to become a business broker. So this was back in 2008, and I started, I set myself up as a business broker. My first deal that I got to basically sell to somebody else was a transport company. So I went down there and I met the two owners, Colin and Alan, they were the owners of the business. And they said, well, you sell the business for us, we want a lot of money, we want to retire, yada, yada, yada. So I created the kind of sales prospectus, the document, started contacting lots of larger companies. So really, if you own a business, it should be quite easy to sell that business to a larger competitor that you've got. And that's what I did. So I contacted a load of those businesses, I went and made my pitch, and then one of them came back with a really attractive offer to buy the business. So the brothers were really happy, they were going to both get a couple of million pounds each, very, very happy. And the kind of deal went through. So they were doing due diligence and doing all the various work, and it was the night before the closing of the deal. So this was a Thursday night, and I'm in my office in my house. I worked from home back in the day, and I'm just going through the checklists and making sure I've got all my ducks in a row because it was the closing day tomorrow. And it's about 8 o'clock at night, and Colin rings me. And this is a big, gruff, kind of North of England man in his 60s, and he was crying. I said, what's the matter? He said, we've pulled the deal. And all of a sudden my heart sank because as a business broker, you make most of your money on a contingent fee when the business sold. So instantly I just lost 200 grand as my fee for closing this deal. I said, you know, why, why, why not? Why aren't you going through with the deal? He said, well, come down, come down and talk to me. So I went down into the business and the whole The whole team was there. There was about 45 people there. They brought all the drivers in. They'd had a big meeting to basically decide that they didn't want to go through with the sale because the trade buyer, the competitor, the larger business that was coming in was basically going to gobble them up, asset strip it, get rid of all the employees. All they wanted was the trucks and the customers. They didn't want anything else. And the legacy that these two brothers had built over 35 years You know, they'd gone through some really painful times starting and growing and making that business successful. All their employees had supported them. They didn't want to see their life's work disappear in a puff of smoke and then to go and retire and sit on a beach sipping cocktails knowing that their employees couldn't make their mortgage payments, couldn't put food on the table. So they pulled the deal. And they looked at me and said, you've got to go out, Carl, you've got to I'm going to find somebody that's not going to do that. It could be an individual. It could be a small management team that you can find that can come and can buy our business. And I don't know what possessed me. I'm stood there, all these faces are looking at me. And I said, I'll buy your business. And then I thought, what have I just said? I'll buy your business. And they looked at me and said, well, you don't know anything about this industry. You're a business broker. I said, I know. I know enough because I've been working on this deal for 6 months. I know how your numbers work. I know how you make money. I know how you recruit customers. I know how your supply chain and all your logistics works. I know everything about your business. I will buy your business. Now, I'm not going to be able to offer you anywhere close to what the competitor was offering you, but if you'll allow me, I'm going to use your balance sheet, the value of your trucks, the real estate. I can raise some money. I'll pay you that as a closing payment, and then I'll pay you so much per month over 3 years. And I looked at the operations manager, I looked at the head of sales, and I looked at the financial controller, and I said, I'm going to give each one of those 3 10% of the company, and we'll run it together. And he looked at me and he said, I'll give you 30 days. If you can make that work, you can have the business. And everybody started cheering and applauding. They were like, great. And we did that deal. That was my first ever leveraged buyout deal as an individual. And basically it was just circumstance. If the trade buyer would have gone through with that deal, I probably wouldn't be doing this today. I'd still be a business broker. So yeah, that was my first ever deal. And the kind of moral of that story is 79%, and I did my own survey on this, 79% of small business owners don't necessarily want to sell for financial reasons. Some of them do. Our system weeds those people out. They want to sell their business for other reasons. They want that safe, trusted pair of hands, bit like the dog story, that can take their business and take it to the next level, safeguard the employees, protect the legacy that they've built inside of the business, and basically take that business to the next level.

That's terrific. Inside that, you mentioned a good buyer for businesses is, is one of their competitors. Yeah, I know this is something you're starting to do. Yeah, I'm helping entrepreneurs grow their own business through acquiring. Can you talk about that?

Yeah. So it's really interesting. If you look at the kind of first-time entrepreneur, their pain and frustration is they're trapped in a 9-to-5, they want more money, time, freedom, all those different things. If you own a business already, you can double the size of your business and more in one day by acquiring a business that's either directly competing with you, so going down the street and buying your nearest competitor. You can buy a company that's in a complementary market. So if you own a software company, you can go and buy a hardware company, and you can sell the software to the hardware customers, and and vice versa. So you're doubling your business, and at the same time, as you bring two businesses together, there are lots of duplicate costs that you can take out of your combined operation, namely the cost of your premises and insurance. And maybe not all of the employees will want to stay. There's lots of things, lots of costs that you can take out. And what you can also do is, if say you're a manufacturer, you can buy companies in your supply chain. So if you're making like steel components and a lot of your stuff goes out in say a cardboard box, you could buy the box manufacturer and you can buy all those different things. If you own a hotel, go and buy a dry cleaning business because then that can serve both sides of the businesses that you're in. So there's lots of reasons why small businesses will buy other businesses because it solves 3 of their biggest challenges. You know, number 1, It's becoming harder to grow a business customer by customer. You know, you can, if you've got 1,000 customers today and it's took you 10 years to get to that point, you can add another 1,000 in 90 days by just going and buying another business. As well, when you bring those businesses together and there's a lot of cost savings to be made, then you're going to increase the cash flow that's going through your business. That's another challenge that a lot of small businesses have. But maybe the even biggest challenge is it's becoming really difficult for small business owners to find and retain really good talent, really good people, which is why a lot of small business owners, they're actually— they don't really have a business, they just have a job in their own business. They're doing all the work inside of that business. They're working in their business when they should be working on their business. So by buying another small business, you've maybe got a ready-made general manager that can come in and run the combined operation, so that then really you can become like a dealmaker CEO. You can come in and just work on your business and be looking at joint ventures, other deals, and not having to worry about the day-to-day kind of operations of the business.

Brilliant. Carl, I can't thank you enough for being here. I really appreciate sharing your experience.

Thank you.

Coming up, my partner Jeff Hayes interviews Tim Sykes. We hear a lot of different investment vehicles. We haven't really spoken yet about penny stocks. A lot of people think that that's the greatest opportunity out there where you can find these stocks that are very cheap and you can trade them and they grow quickly, etc. But it's sort of a territory that you have to know what you're doing, otherwise you're going to get hurt. And Tim Sykes has mastered this, and I think he's got some of the best strategies on the planet for trading penny stocks. So tune into this interview and see if it appeals to you. I think it might.

Tim, thanks so much for being here. We've already had some fun, so I think this is probably gonna be great. So tell me who you are and what is it that you do?

Sure. Um, you know, I'm a stock trader and a teacher and a traveler. Um, I got started with my bar mitzvah money, roughly $12,000 in high school. My parents gave me control of it. I was a tennis player, but I got injured, so they gave me control thinking I would lose it all, put it into the stock market, but senior year of high school, I got obsessed with trying to figure out patterns in the stock market, and I made over $100,000, and then freshman year in college, I made over $700,000, so I was hooked, 'cause I'm from a middle-class neighborhood, so this was big money, and since then, I just keep trading. I've made over $5 million now, and I teach, and I have 5 millionaire students so far, 57 schools with my charity foundation, traveling all over the world, been to 125 countries, loving life.

Well, that's not— how old are you right now?

I'm 38.

That is not a bad life for a 38-year-old human being.

It's a start, you know, but I trade with a small account because I trade low-priced stocks, so you can't make billions of dollars. That's part of the reason why I teach, because I make a few hundred dollars, a few thousand dollars from places like Bali, and I can trade from anywhere. So a lot of my social media is just like me on my laptop in beautiful places And I'm like, look at how beautiful this is. Laptop lifestyle.

I actually saw a video of you maybe 6 months ago from Venice.

Yeah, I was in one of those boats, right? And like I was on my laptop and like people were like, what are you doing? I'm like, laptop lifestyle. It's amazing.

So, and you say, more importantly, you say you're a teacher.

Yeah.

So how do you teach people?

Yeah, so I mean, I've been doing this 20 years now. I got started in high school, like I said. So I've seen good companies, bad companies. I've created a lot of trading rules. So you can basically see my screen. I have a chat room, I have video lessons. I have 6,000 video lessons, 'cause I have too many lessons to talk about. Good trades, bad trades, and I show everything, just what I've learned.

And so these are low-priced stocks, or the, that's what you specialize in?

Yeah, I mean, pretty much the whole world hates on them, and they've made me rich, and now several of my top students rich, because The world hates on them because they don't understand them. They think, okay, if you're gonna invest in these companies, they're all gonna crash, which is true. But I don't invest, I trade. I know that they're gonna crash. I know that most of them are gonna fail. Like 99% of them fail, right? Have you seen Wolf of Wall Street? It's like those companies. But what you don't know is that in the meantime, before they fail, their stocks can rise 200%, 300%, 500%, even 1,000% in a few days and also crash in a few days. So I ride the volatility. I go long and I go short. This pump, kind of pump and dump pattern. If you know that a stock is being promoted, you know, the Wolf of Wall Street was before the internet, but now there's a lot of little wolves of Wall Street wannabes. And they promote these stocks, and the stocks go from, you know, 2 cents up to $1 a share, 50 times your money. Then they come crashing down just as fast when the promotion ends. It's not an exact science, but that's the gist of it.

And is there liquidity in the market?

Yeah, so this is the thing. So I also had a $500,000 loss along the way, on my way to making $5+ million. And I learned to stay away from illiquid penny stocks. I believed in the company. I believed in the technology. I was actually right about the technology. They invented printed home ticketing. But it doesn't matter about the product. The company had big debts. And I couldn't get out of my position because it was illiquid. So now I stick to the most volatile, most liquid stocks. They trade 5, 10, 20, sometimes 50 million shares in a day.

So what does your day look like?

Name a time zone. You tell me. Because I'm trading in Asia. I'm trading at night and just trying to sleep during the day. In Europe, it's fantastic. I go to Italy every summer. I've been very fortunate to go to Positano, Italy. I don't know if you've been there, on the Amalfi Coast. You should go. It's beautiful. The food and the people, it's amazing. So the US stock market, which is what I trade, I don't trade international. The US stock market opens around 3:30 in the afternoon, so I can sleep till noon, have a nice little lunch, trade from, usually it's the first hour of the trading day where there's volatility. So, like 3:30 to 4:30 PM. Then I go out, have fun, go to the beach, and come back around 9 or 10 PM for the last hour of trading at night. And then I go out for dinner, and then I go out to a club. That's my life.

So, this style of trading you're doing, you need an hour— the way you're doing it with your own account is you need an hour in the morning and an hour in the evening.

Yeah, roughly. I mean, sometimes there's no trades. Like today, I didn't make a trade. There's not always a trade, because there's not always a hot penny stock. So for me, I need some, you know, pump going on, I need like a hot trend like Bitcoin or weed. Right now there's no clear hot trend. What's been happening lately is there's a lot of short sellers in penny stocks, and they short too aggressively, because most penny stocks fail eventually, but they don't realize that these penny stocks can go very high. You know, insanity can last longer than they can last in their short position. So a lot of these penny stocks are going from $2 to $20, $2 to $50 in a few days. And it's been a crazy few weeks. So the short squeezes have been the main trend.

So is that something that you watch, is short positions?

Yeah, 100%. I'm always looking for the next big short squeeze. And similar companies move in similar directions. You know, there was a company SES, and they bought another company, and the stock skyrocketed. It went from $2 to $27 in 2 days. The next day, BIMI, which is another low-priced stock, was trading around $2, and they acquired a company, so very similar news, and it traded in a similar fashion. So I missed SES completely, 'cause I was just like, this is crazy, this isn't, you know, I'm scared. But the second time, I was like, wait a minute, this could be a trend. So I bought the stock, it was already up to like $2.50 a share from like $1.50, so it was already up like 75%. Bought it at $2.50, sold it at $3.20. The same day, like a few hours later, I think I made like 20%, right? That was pretty good. And by day end, it was up to 11%. So I sold it too soon, but if I can make 20%, that's fine. I said out there during the presentation that I'm like, I take singles. I'm like the Jewish Ichiro, if you like baseball. I don't go for home runs.

Well, a bunch of consistent singles—

Yeah, singles add up. So my average gain is less than $2,000, but it's added up to over $5 million. Again and again because I cut my losses quickly. When I'm wrong, which is roughly a third of the time, I lose 1%, 2%, 3%. But when I'm right, I make 7%, 8%, 9%, 10%, 15%.

So when you have students and they watch you trade, do they just mirror your trades?

I don't want anybody to follow my trades. So for me, the best thing is that I do watch lists and I do video lessons. So I say like, I'm watching this stock ahead of time. I trade with a small account. I go back to $12,000 $10,000 every year, 'cause I don't want to like, you know, trade with a big account. For me, I trade like my students trade. So they have like $12,000, $5,000, $20,000 accounts. So I put myself in the mindset of a student, and I say, okay, how do I make, you know, $500? I say $500 a day keeps the real job away. So I do that, and the cool thing is most of my students are already in the stock, like they already know my strategy, 'cause I have DVDs, I have video lessons, so it's the same patterns. This isn't like some rocket science. Penny stocks aren't that complicated.

So I didn't know— so you start every year over, a reset, and with $12,000 in your account?

That's why I'm pretty much stuck at $5 million, because every now and then I make some money, but like it only adds up to like $100,000, $200,000 in a year. So compared to every other trader who's trying to trade with as much money as possible, my niche is smaller, so I trade with a small account. For me, it's teaching the process, and I donate all my profits to charity. That's how I built my charity foundation and built all these schools.

That's just spectacular.

That's good. So it's a little different than what I thought. I thought I was going to be a big hedge fund manager and, you know, manage billions. But my niche is very small. Like, you cannot trade these penny stock moves with, you know, billions of dollars. There's not enough liquidity for that.

So you're not really like— you're not looking at the fundamentals of a company because there are no fundamentals.

That's the beautiful thing with penny stocks. There's no fundamentals. Everyone's like, oh, what's the valuation, what's this technology? We know that 99, probably 99.9% of these penny stocks are gonna fail. So even if they do have fundamentals, they're probably just stacking their accounting to look good. Even when they do have some revenues or profits, I mean, not all of them are totally worthless, but they have hype and they're just trying to get their stock price up so they can do a financing in order to last longer. So penny stocks, there's two reasons to have a penny stock. Either the insiders are trying to sell in the inflated price, a pump and dump, or they might raise a financing. So like a penny stock might go from like, let's say, $2 to $7, and they'll do a financing at $4 a share. But they couldn't do the $4 a share financing when it was at $2. So they increased the price with like 7 press releases over 8 days, hype it up with all these new contracts, whether they come to fruition or not. They got their stock up, they raised $5 million. And then they gradually take the $5 million in employment salaries over the next few years as they drain the company and it goes to oblivion. It's a very sad, cynical message. I say expect the worst out of everybody and you won't be disappointed.

I was going to say, it's a little bit of a cynical view for such a happy guy who's having such fun.

You have to realize the odds. Again, penny stocks are hated because so many people fall for their scams. They fall for with their stories. Oh, we just found this gold in Peru. Oh, we have this cancer vaccine. And they just, they're just wrong. Every single time they're wrong. So I don't mind the hype. I respect it, because that's part of the niche. There's always going to be another small company and another hot product. But it just never works.

So who are the people that are buying these shares?

Who are they?

I mean, it's like the people who go to racetracks and they bet on the 50-to-1, you know, horses, and every now and then a 50-to-1 horse wins, actually probably more than a penny stock wins if you look at the odds. They don't have a lot of money, they're desperate, the stock is trading at 5 cents a share, it's being pitched to them in an email, or maybe their friend is giving them a tip, they don't know much about finance, they look at it like a lotto ticket. Sometimes they buy 10 penny stocks and they're like, well, one of them has to hit, and then sometimes it does and they learn the wrong lessons. So for me, I don't believe in any companies anymore. Like I said, I had a $500,000 loss, Once upon a time, I did believe in the technology. I learned the hard way. But like I said also, I was actually right about the technology, but the company went out of business. They had too many debts. The CEO who looked me in the eye and said, this company is good, don't worry, he put it into bankruptcy. He actually personally bought the company in bankruptcy, somehow held on to all the contracts for their print-at-home technology, print-at-home ticketing. And the stock later went up as all the original shareholders like me were wiped out. And he sold it for the equivalent of $80 million. So I actually would have made like $10, $15 million, but it was the wrong time, and I'm thankful for that lesson because that would have been a bad $10 or $15 million because then I would have been like, oh, I know everything, you know, I was batting 1,000 then. A $500,000 loss for someone like me, you know, when I was young and I was on a TV show, it really knocked the wind out of my sails, which was great. It was tough in the meantime, but it was It's beautiful.

Everybody needs that. I had one of my kids when he was 10, we were in a line for a buffet in Las Vegas and all the slot machines are there. And he begged for, he wanted his $5 that his mom had in her purse for him. He wanted to put his $5 in the slot machine. And she's like, no, you're not gonna, we're not gonna let you do that. And he's, you know, please, please. And I said, let him do it, this will be good.

But he won $1,000.

Terrible, terrible lesson. Everybody needs a failure story to reset the clock for what reality is.

That's why my parents gave me my $12,000. They thought that I would lose it all. They're like, give the kid the $12,000, he'll learn the value of a dollar. And I screwed it all up by making $100 grand, then $700 grand, then I was hooked.

Well, I think you did better with the lesson And of course, the lesson ended up costing you $500,000, not $12,000, but you were in a place to lose it.

But it was amazing. And, you know, I lost— I was running a hedge fund at the time. I lost roughly a third of my hedge fund in one year. I was on the TV show Wall Street Warriors at the time. So all the press was circulating, being like, oh, Tim Sykes lost. You know, they thought that I blew up, first of all, which wasn't true. But back then, you couldn't show your hedge fund numbers publicly. I was like, I did not lose everything. I lost 30%. But I I couldn't say it publicly. I was like, damn these laws. Now you can say it, but they equated it because the TV show was airing, even though it was like 6 months ago, and they thought that my loss happened because I was on TV. So all the press said, Tim Sykes was on TV, he got too cocky and he has a loss. And I'm like, I was in this position long before the TV show. Yes, it was a mistake, but it was an illiquid. So I tried to go into like the nuances, and the press weren't having it. So I have all these embarrassing, headlines like when I started teaching, it said, "Failed hedge fund manager tries again on the internet." That was Reuters. I had a 4-hour talk with her and she didn't understand.

That wouldn't have been a good headline.

The New York Post said, "Party's over for hedge fund king." I was like, "I'm a hedge fund— I have $3 million in my hedge fund. I wasn't exactly a king." But it was like the most popular article on Page Six for like a month. So I was up with the TV show and I was down with the press and that was actually the best lesson 'cause it really humbled me. More than just the money, but the bad press really like hit home for me. I was in my early 20s and I was a cocky, dumb kid.

And best lesson?

Amazing.

I am so thankful for it. It was a rough few months, but it made me, you know, recognize how little information was out there, because I was trying to explain what an illiquid penny stock was. No one even understood. They're like, what is this technical talk? What's illiquidity? And I was like, ah, so I was like, let me just teach it. Let me just get into that. And that's what made me get into teaching.

I think to the novice, it's very difficult to conceive that the company can be doing one thing and the stock can be doing something completely— that these are two different markets, two different things. And when, especially as you get down these lower price stocks, there's even less relationship.

But there's a whole movie, you know, Sirius Satellite Radio, right? Everyone uses it. There's a movie made by investors in Sirius Satellite Radio who claimed that their stock wasn't doing well because there's a whole conspiracy of short sellers holding it down. And they're trying to make the case, everyone uses Sirius Satellite Radio, this should be a blue chip company, this should be a blue chip stock. And they interview like all these different investors. And yet all they had to do was look at the balance sheet and look that they acquired all their growth, they acquired all their customers through debt. The company was actually hugely overvalued, even though it was a low-priced stock. And the stock really, I mean, it's done decently, but it's not a blue-chip stock. And no matter how popular the product is, they paid for it with too much debt. So, their whole company is screwed.

So, how do you, when you're researching these stocks, I got to assume they're— are they traded? Are they NASDAQ stocks?

Yeah, NASDAQ, OTC Bulletin Board. But I mean, you can look through their SEC filings on OTC. Otcmarkets.com. So you can see it, and I have a whole DVD on learn to read SEC filings, and you can see red flags. I mean, the companies say that they're pretty much failing. They're like, we do not have enough cash to last for more than 6 months. Our accountant says that we are at great risk of going bankrupt. Like, they say this in black and white, but people don't read the 40, 50, 60, 70-page SEC filings. People read the 1 or 2-page press releases saying we found gold in Peru. So there's 2 different sets of data. And the majority of people who invest in penny stocks don't even know about the SEC filings.

Now, I'm way out of date, but there used to be rules that made it difficult to invest in stocks that were under $5 that were—

Easy. Online discount brokers have allowed anything. You know, now brokers are going commission-free, so there's even more of a free-for-all for these low-priced stocks.

And they don't have a know-your-customer—

No, they don't care. Wow.

Yeah. So this really is the Wild West.

It's the generic gambler, you know, like this is the 1840s gold rush.

I remember there used to be brokerage firms that specialized in penny stocks, and the SEC pretty much systematically eliminated them.

I mean, there's still brokers, there's still specialized brokers. I use E-Trade and Interactive Brokers, two big multi-billion-dollar brokers. They work well. You know, Robinhood is a new upstart broker, and you can trade penny stocks there, and you don't even need more than like $50 to to open an account there. So it's very bottom of the barrel investing and trading, and most of these newbies just lose everything, and then they just hate penny stocks. Not because penny stocks are bad, but just because they don't know the rules, and they don't know the rules of the game. So that's why I teach.

So this is brand new. I mean, I love the little niche here.

No one knows this stuff.

This is beautiful. That you've cut out for yourself. It's, again, I don't think I would call it investing. It's trading.

It's trading. 100%. I call my students degenerate gamblers, and I'm a degenerate gambler too. I'm like the alcoholic bartender serving up drinks, but I've put rules in place so that I recognize my own issues. I'm a degenerate trader. Part of the reason why I travel so much is not just to build schools and because I love travel, but because it's tough for me to trade from Bali. The Wi-Fi, as you know, is not that great. The time zone is not that great, so that prevents me from overtrading, 'cause there's so many different penny stocks in play, but I need to be patient enough to wait for all my indicators to line up. Like, I only wanna buy penny stocks that are hitting new highs, with enough volume, with a news catalyst, ideally in a hot sector, and ideally the overall market is in a bull market too. So if I have all those indicators lined up, the odds of success are greater. But if I'm only buying a penny stock that has no history of spiking, and they only have like one great press release, it's probably not gonna spike that much. So I need multiple indicators.

[Speaker:JAKE] So how long would it— How long does it take your students to become competent at what you're doing?

Yeah, so this is a long time. So my top student, Tim Grittani, has turned $1,500 of his own money now into $8.7 million in 7 years, which is awesome. He's done, you know, made nearly double what I've made in half the time, because he's a superstar and he's really dedicated. I took him to the Maldives and I was trying to get him drunk and he wouldn't even drink. He was like on his laptop in the middle of the night. He's dedicated. But he made nothing his first 9 months. And he was studying at home, he was living at home, working at State Farm during the day, and you know, the penny stock niche is so weird, right? A lot of the lessons are counterintuitive. I think of myself as a retired trader, and I only come out of retirement when there's a play that's good enough. Like, what kind of rule is that? But it actually works. So 9 to 12 months is just to really break even and learn the ins and outs, and you have to see examples of good stocks, bad stocks, And that's in a hot market. So if there's no hot market, it really takes 12 or 18 months. And a lot of people don't wanna have that perspective. That's why I like teaching this, because everyone wants quick money. Just like the slot machines, right? Penny stocks are so cheap, I don't care about your rules, I don't care about your patterns, just gimme the money. And sometimes in a hot sector, like with weed stocks or CBD stocks, or Bitcoin stocks, my rules didn't even matter. You could buy any penny stock in that sector when they were spiking, and they would go up 500%. So I had a lot of my students being like, screw your rules, Sykes, I just made 500%. And then when the sector ended, they lost it all.

Yeah, and what causes these sectors for pot stocks, for Bitcoin, all of these suddenly at once, all the companies in the pot stock market were going up.

Yeah, I mean, it's a self-fulfilling prophecy, and it's also just dumb lemmings things who just pile onto each other and like, oh, I'm buying this, I'm buying this. Obviously, there are reasons behind, like the pot stocks spiked because of legislation that was making it more and more legal in more states. Bitcoin spiked, frankly, just because it was like a mania, and everyone got all excited. And now, it's come down a little bit. But it's still up. We're at $9,000 right now on Bitcoin, and it was at under $30 a few years ago. So, it's still holding the majority of its gains, even though it's down from $20,000. My niche doesn't have hedge funds. It doesn't have quant traders. It doesn't have a lot of big money. So it's really just individual investor optimism. And they get really excited very quickly, even though there's no real hope in the future. They don't really think about the future.

They're just—

they're gamblers. You know?

Well, I love that, you know, there are professional gamblers who make a great living being professional gamblers.

You can be meticulous. In and out of the herd, you know, like the herd isn't smart, right? So a lot of my best trades are based on informational inefficiencies. I'll tell you my first $100,000 profit in college, freshman year in college, I bought this stock, it was already up from $5 to $17. This was 20 years ago, but the pattern still works. $5 to $17 in a few days, they had this technology that theoretically could take the fuzziness out of your cell phones, right? Like cell phones were very fuzzy, They had a whole scientific approach. And the stock was spiking. And on Friday, they said, we're going to be on TV on Sunday. We've been interviewed. It's a great interview. It's going to finally air on Sunday. They announced it on Friday. So I said, wow, this is going to be big news over the weekend. Back then, there were no exposés. So, and back then, I didn't have my big loss yet, so I was betting too much. At that time, I was worth about a quarter of a million. I bought 10,000 shares at $17. So I put in $170,000. Of my $250,000, like an idiot, like a newbie idiot that I was. But back then, there were no exposés. It was a positive interview. The stock gapped up on Monday. There was no pre-market trading back then. So I thought that it would gap up to like $20. I could make like $30 grand. It gapped up to $27, $28, $29, and I made $120 grand. And I ran around the whole quad just screaming. And I sold too soon. An hour later, it was over $40. So I didn't purposely— perfectly like adjust to the hype, but I still locked in my biggest gain ever.

So what are some more of your rules that you've— because I like these lessons, you know, because these are from the real world. This is not academia. This is— so what are some more of your rules that guide you in your—

yeah, I mean, I really like weekend plays. So that's why I have like a newsletter where, you know, if a stock has good news on Friday with penny stocks, because the whole world hates on them, they don't really see the news until Saturday, Sunday, Monday. They They put in their buy orders, the buy orders stack up. On Monday you have a gap up, you can sell into the latecomers. Sometimes it's not even day 2. I'll tell you one more example. Carl Icahn, you know, big investor, invested in this little penny stock VLTC. On the news of his investment it went from 1 to 2. I bought it at 2, it was already up 100% on the day. My whole chatroom was like, why are you buying a stock up 100%? It's gonna go down. I was like, no, Carl Icahn just vetted this. He can invest in any company he wants and he basically just gave his seal of approval for this little crappy penny stock. Next day, I sold it like in the $3s. I made my 20%, 30%, 50% on different positions, like just a few thousand dollars, very small position. 2 weeks later, it was at $20+. Another 2 more weeks, it was bankrupt, or back down to like nearly zero. So the media caught on, I think on day 7, day 8, and they said, look at this stock that's spiking on Carl Icahn. So there's an informational inefficiency with what I do, where even if a company has the best news, because everyone hates on penny stocks, you don't see it for the next few days. But it's not an exact science, so it might not spike on day 2 exact. Sometimes it spikes on day 8, and I can give you 20 examples where it spiked on day 8 for whatever reason.

So how many trades will you do in the course of a week or a month?

I mean, usually like 3 trades per week, so, you know, roughly 10 trades per month. There's not much because I wait for all the indicators I need to wait for for the news and a good setup. But different months are different. You know, like when Bitcoin was exploding, I would do 5 trades a day because there were so many plays. Bitcoin's not exploding. I mean, sometimes there's no trades for 3 or 4 days. Usually, there's 1 trade per week. But that's like bare minimum.

And are you always long? Do you ever short?

No. I mean, I made my first million going long. I made my second million shorting, like in 2002. No more penny stock breakouts. The year 2000, I made $700,000+ for the year, but I made it all in the first 4 months. The last 8 months of the year, I lost $10,000 when I did not know short selling. So the penny stock breakouts dried up, and it forced me to learn shorting. Right now, I'm going mostly long, 'cause the short squeezes are insane. It's not good risk-reward. But if there's a pump and dump that's gonna crash, I will gladly short it. There's just usually not a lot of shares to short. When there are shares to short, to short, it usually spikes even more. So you have to risk a little pain. It's not as easy as it was in the beginning.

And so how do you do the research? How do you find out there's a big short position in a stock?

I mean, you just look on social media these days. The beautiful thing is, like, you know, if you're a short seller, you're usually telling everybody, because you want everybody else to know this is a bad company. And you can just look, and you see, like, 50 of the biggest short sellers, and they're so stupid, but it's like, you know, how do you tell if someone's vegan? They'll tell you. How do you tell if someone's a short seller? They'll tell you. They're so proud of it. They think that they're so noble and mighty and everyone else is wrong. So that's not going to change anytime soon.

Yeah, how do you tell if somebody's vegan? They'll tell you. How do you tell if they have a rescue dog?

Yeah, 100%. They'll know everything. It's the same thing with shorting penny stocks. There's a lot of traders who are like, I will never buy a penny stock. And the crazy thing is that some of the worst The most fundamentally flawed companies become the biggest spikers when so many shorts are involved. There was a penny stock, DRYS, DryShips, right? And they're a shipping company. Terrible fundamentals, huge debts, like not a good business model. And the stock started spiking from, I think, like $5 to like $8 a share on some positive press releases and some positive industry news. And all the shorts were like, this doesn't deserve to go from $5 to $8, we're shorting it. It doesn't even deserve to go to $5, it's fundamentally worthless. And they went crazy. And it went 8, 10, 12, 14. And the shorts are going crazy on social media being like, this is not legitimate. This does not value it. It goes from 5 to 120 in 5 days. So many short sellers I know were wiped out shorting it. They went all in at 40, 50, 60, saying this is madness. But it went up to 120. It was actually halted by the SEC premarket at 120. It probably would have hit 200 that day if it hadn't been halted. Then it crashed. And eventually, it was worth it.

Worthless.

So it looks like to me that you've— it's funny, it's— I can almost envision somebody managed to walk through a shooting gallery with bullets flying all around them.

And I mean, I'm like The Matrix, I can bend different ways, right? So what do I get hit every now and then too?

That's— well, you should, you know, it's— you're in a risky place.

Yeah, but I have a lot of 1, 2, 3, 4% losses. So a lot of the time, even when I short like a pump and dump, there's all these penny stock promoters who absolutely hate me, 'cause I teach this stuff openly, right? Before me, no one even really knew that you could short sell penny stocks. When I was on my TV show Wall Street Warriors, I was shorting penny stocks on TV, it became a hit, and I would get daily emails saying, my broker says you can't short sell penny stocks, what you're doing is illegal. Brokers would say that it's illegal because they couldn't find shares to short and they didn't wanna look like the crappy brokers that they were. So they told their clients, they lied to them, no, you can't short sell penny stocks, So that's what got me into education. I was like, my blood boiled. It wasn't even about making money, it wasn't even a business. I was just like, of course you can short sell penny stocks. And I was using E-Trade at the time. You didn't need a specialized broker. So it's just about getting good information out there and understanding that you're not perfect. There's no magic formula to getting rich. But more times than not, if you learn the patterns, you can make money. And that's what I do.

So what do you see coming up next? Or do you— what's drawn your attention for the next 12 months?

Whatever happens, happens. Like, people ask me, what's the Dow going to do? What's the next hot sector? I have no idea. I learned to react to price action. I don't try to predict it. So everyone's like, what should I put my money in right now? And I say, invest in yourself, right? What should I study right now? Study the past. I wait for the setup. And then if the setup is there— I'll tell you another story. I actually said this outside. I do an annual conference every year, and I had 600 students at my Orlando conference. It's a 3-day conference. Zero trades. There were no good trades. We're sitting there for 3 days. Everyone's like, you know, I'm teaching these rules. I'm like, you gotta have patience. You gotta have patience. Everyone's like, yeah, you gotta have patience. But they're traveling. I mean, they're flying in from all over the world, right? And there's a little disappointment, I can tell. 'Cause even if it was a bad trade, they just wanna see me trade live. And I was like, there's no good trades. Some people had already left going into the last break. It was like 3:15, 3:30 PM, and I have this all on video. It's actually pretty fun. I have to put it on YouTube. People left, they said, "Thank you for the conference," you know, kind of dejected. And I was like, "Oh, I wish there was a play, but I can't force a play to happen." Then, do you know Dan Bilzerian on Instagram? So he has nearly 30 million followers, but he also probably has like 20 million followers who can't officially follow him, but they're like watching what he does, but their girlfriends and wives would be angry if they followed him, right? So he has a massive audience. And around 3:15 PM Eastern, maybe 3:20 PM Eastern, he put on his story— he has a weed company, BILZF is his ticker— and he put it on his story and he's like, you know, my company now has a US symbol. And the stock immediately spiked from like $1.20 to $1.40 as some people bought, because they didn't know that he had a weed company, they didn't know the ticker. And he said, you know, he gave like a disclaimer, like check with your broker, whatever, but people had found out about it for the first time. And I had said this in a webinar years ago, I was like, if Dan Bilzerian ever mentions his ticker to all his followers, the stock is gonna spike, just because of the sheer amount of followers. So the stock spiked from $1.20 to $1.40 in the last 20, 30 minutes of my conference. And I'm up on stage and I'm like, literally I'm just going down my list of big percent gainers, this is how I find the stocks, anything that's up 20, 30, 40% on the day, and then I go back and look at the news. So I see 20%, 30%, 40%, some winners, but no exciting news. Then I see BILZF, and literally, we have this on video, and I'm like, what, did Bill Zarian say something? And I check my phone, and I'm like, oh my God, he mentioned it, right? And so, are you on Instagram?

I am.

So you know, like, their story lasts 24 hours, right? So he didn't do a post, he put it in his story, but he put it around 3:15 PM, 3:20 PM Eastern. So the story lasts 24 hours. But you only had a 40-minute window to buy the stock, otherwise you're gonna see it when the stock market opens the next day. So most of his followers, they're not like stock market aficionados, they're not meticulous, they're not even checking his story right away. Especially if you don't follow him. This is the thing. If you follow somebody, you see it. But there's a lot of people who unofficially follow him, so they might check in, especially at night, right? They wanna see his girls, so like at 10 PM, I'm sure his traffic spikes. Likes, or like at midnight, guys check his feed, like what's Dan up to today? Stock market is closed at 10 PM or 12 AM, right? So I bought the stock, it was already up from $1.20 to $1.40, I got it on a little dip at $1.30, it closed at $1.40, and I was like, I just wanna gap up to $1.50 or $1.60, I think people are gonna see it overnight and they're gonna put in their buy orders, no different than my first $100,000 gain. And I was happy that it was like my perfect kind of play, I had 3 students up on stage, and they're like, that's your kind of catalyst, right? Where it's like an informational inefficiency. And all I wanted was like a 10 or 20-cent gap up, and then I would sell into that. I had like 9,000 shares, right? Instead, the stock gaps up to 2, and I sell immediately. I'm like, I made 40%, every one of you saw that, yes!

Right?

7 minutes later, after I sell it at 2, the stock is at $4 a share. 'Cause the market makers just pillaged, right? Like, I guarantee you that his followers are not financially meticulous, so they use market orders. I always use limit orders, 'cause I never wanna chase a stock too much. But I guarantee you most of his people didn't even know the difference between a market order and a limit order. So they probably put in buy 10,000 shares of Bilzerian stock and thinking, oh, I'll get it at 2, right? $20,000. Meanwhile, the market makers see all the buy orders and they just take advantage of them. And somebody who tried to buy 10,000 shares at 2 probably bought it at 4. And now they're down from 4, the stock is down to $1.60, and that person and is like, "I hate penny stocks," even though they just didn't know the rules of the game. Meanwhile, me and all my students who know the rules of the game sold ahead.

So, and I'm sure most people know, but explain the difference between a market order and a limit order.

Yeah, so market order means you can buy the stock or sell the stock at any price, whatever the market will bear, right? It's like going to a grocery store and you really want milk and you're like, "I'll pay whatever for a gallon of milk," even though a gallon of milk should be like $3, $4, $5, right? That's it. But you want milk so much and you just gave the grocery store, okay, I'll charge you $100, and you said sold, because you want the milk so bad and you're just paying what the market will give you and the grocer sets the market. It's the stupidest thing ever. Never use market orders for any stock. No company is worth the unlimited risk that it comes with. Normally you'll be okay, 'cause the market is usually rational, but in this case with Dan Bilzerian's company, the market was not rational. I guarantee you that probably half, maybe even more than half of the orders were market orders, and that's what drove the price up from 2 to 4 in 7 minutes. So I made my 40%, but I missed out on the extra 100%.

I love it.

And the limit price is you just specify. So if you want to buy 10,000 shares at $2, you put a limit at $2 a share. And if the stock goes past it, you don't get executed. And that's fine. I've missed a lot of stocks' run-ups and run-downs when I use a limit order. But I don't need to be in a stock that bad. No stock is worth unlimited risk.

So a lot of what you're doing is mindset. You have manipulated your thinking. Where instead of being upset, oh, I could have if I'd have held on longer. That could really ruin somebody in this kind of trading if they can't be happy with walking away with the percentage that they set.

Yeah, 100%. There's FOMO all the time. I mean, I can't tell you how many of my students, like, even when I made my 40% on the Bilzerian stock, and I'm like, perfect trade. And they're like, what do you mean perfect trade? You missed out on 100%. I'm like, I don't care. I'm used to that. If I make 40%, that's like the upper level of what I make. You ever play skee-ball? You know skee-ball? Where you try and shoot it up and you make 10, 20, 30, 40, and then there's 200s? So newbies would go for the hundreds on the top corners, and it's so hard. I just go straight up. Whether I hit 50, 40, 30, I'm happy.

And they all add up.

That's what it is. I literally have a whole video lesson on skee-ball. That's what it is. So I'm happy, I'm very happy with 40%. But newbies, they want home runs. They see stars in their eyes, they see they see money, because they see my millions of dollars. Like, I post my pictures of my cars and my trips, and they're like, oh my God, that's going to cost a lot of money. But what they don't see is that it's lots of small gains meticulously added up over time, and lots of small losses.

I love the way you have taken what is really the bottom rung of the ladder and made a really brilliant career out of it.

I'm a coward trader. DVD where I say I'm a castrated choirboy, and I talk like this. This is how I trade. This is how a castrated choirboy talks. I don't know any, but I feel like that's how they would talk. And I talk like that for hours, and people are like, what are you, are you losing your mind? But I need people to understand that the stock market is dangerous, trading is dangerous, and penny stocks are extra dangerous. And I'm short selling, day trading, and penny stocking, the 3 most dangerous things together, but I trade it in a very conservative manner.

With some really good rules that came harder.

Time-tested rules. That's what it comes down to. So a lot of newbies ignore my rules, and they're gunslingers, and they might make some profits faster than I do. But I win more in the long run. I can't tell you how many gunslingers have ignored my rules, and they've made a lot, and they're like, Sykes, you're a dinosaur. Adapt to the— you know, when the weed stocks were spiking, adapt to the market. I'm like, these are my rules. I've learned them over 20 years in good markets in bad markets, you go do your thing. And then they get crushed, and they get very introspective on Twitter. And I don't like saying I told you so. This isn't about I told you so. It's just rules, and you either learn them the hard way, or you learn them through me. Or maybe it's a combination. I don't know everything, but I know rules, because frankly, I've been doing this for long enough.

Well, it's almost like Zig Ziglar talked about the cross-eyed discus thrower. He said He didn't set any records, but he did keep the crowd alert. The one thing about it, you may not set the trading day records, but I can see how you keep the crowd alert.

It's funny when I'm on these panels and like, I've only made $5 million over 20-plus years. Mind you, I'm trading with a small account, like teaching, so I've kind of shot myself in the foot for big trading gains over the past 10 years, but that's fine. But they're literally laughing at me, because some traders make $5 million in a day. But for me, I'm teaching people. Most of my students have a few thousand dollars to their name. And if you try to trade with a big money strategy in penny stocks, you'll get destroyed. So my strategy is tailored for people with small accounts that pretty much all of Wall Street forgets and the whole world forgets. And they laugh at me. Like, I've been on panels before, and I said this outside, like, I've been on panels where I made $350 in a day. And I was like, oh, I just made $350. And literally the panels are like billionaire traders and like billionaire investors, and they're like, you only made $350,000 today? And like, they think that's small. And I was like, no, I made $350 today. And the crowd is laughing. I said this in Vancouver. And I was like, they're like, $300, like my lunch was more than that. I'm like, well, that's a good lunch.

You know?

So there's a whole kind of opportunity, I think, where you have all these Wall Street snobs and elite people where they forget that there's a lot of opportunity with the small market. And all the small market people, most people who trade penny stocks are either promoters or scammers or people who believe in these companies. So there's a lot of opportunity for somebody who's just meticulous and kind of ruthless and disciplined in this niche full of idiots. Like I say, it's like kind of like playing like basketball against a midget, right? Like, I'm not that great at basketball, but if you place a midget in front of me, I'm just gonna block him all day long.

Well, $500 a day keeps the job away.

Yes, keeps the real job away. It's still a job, but it's not a real job. I'm trading from a beach in Bali, you know, I'm in Italy, like I can trade from anywhere. Anywhere, so it is a job. I don't want people to think, "Oh, money's just gonna fall from the sky," but it's not a real job. Like, I don't have to commute, I don't have to stay in the office, I don't even own a suit. If you see me wearing this outfit, because this is like my fanciest outfit that I have, so I keep wearing it over and over again to any fancy thing. Literally, this photo of me outside has the same exact sweater, and I was like, "Does anybody notice?" So I'm gonna call myself out on that.

Yeah, we'll have to get some B-roll of that so we can cut to it.

Do it! Fun.

So Tim, thank you. This has been just terrific. What a, what a pleasure to get to know you.

Thanks for having me, man.

Next is my interview with Vijay Anma. Vijay is an entrepreneur, most of his success coming in the tech world. And when you combine expertise in the tech world with wealth development and cryptocurrency, etc., you start to find someone who is putting together expertise in how to succeed and how to grow and how to become wealthy when it comes to cryptocurrency. So enjoy this particular interview. I think you'll find it really stimulating. Vijay, thanks so much for taking the time to have this conversation. I know we're going to learn a lot.

Thanks, Patrick. Happy to be here.

Let's talk about your, your background. What, what did you— what was your academic background and business background that got you doing what you're doing today?

Yeah, so my background, I'm originally from India I came here in '98 to do my master's in computer science. I went to University of Illinois at Chicago, which was one of the top schools at the time. I was really interested in graphics and animation, and Star Wars was a big inspiration growing up. And one of the professors who developed the animation for Star Wars was at University of Illinois. So went there, got a Fulbright scholarship, incredibly. Fortunate to be able to do that. And while I was in grad school, internet was just blowing up, right? That was during the late stages of the late '90s is when internet was really taking off and ended up creating a website to be able to listen to Indian music. And that started my entrepreneurial journey. I'm a programmer by background, but had to learn business through trial and error.

So you learned business, you became an entrepreneur. What moved you toward the crypto space?

Yeah, so I've always been interested in technology, especially cutting-edge technology. I went to Singularity University, which is this campus in NASA Ames, and they are designed to study the latest cutting-edge technology and using the technology as a way to impact a billion people's life positively, right? So that was the mission of Singularity University, formed by Peter Diamandis and Ray Kurzweil. So I attended that. I was part of the first batch of students, 40 students that were selected from, I think, over 3,000 people to have an intensive summer program where we study different technologies. So I was always actively looking for the cutting-edge technology, and when Bitcoin came along, was fascinated by it. And to be honest, initially I thought it was some kind of a Ponzi scheme, it was a scam, I was highly skeptical about it. And later on, going through and reading about it and understanding the technology and math behind it, was super fascinated and started dabbling in the crypto space then.

So what are your main activities now? You as far as business and entrepreneurism?

Just to fill in some gap between, uh, 2012, which is when I first came across Bitcoin, and we started doing some trading, arbitrage trading in different markets. So the market in India had a premium of Bitcoin compared to the market in the US, so we would do some arbitrage trade between here and India, and in the process we were having hundreds of trades a day, and all of that had to be reconciled at the end of the year. And that was an issue. Now, my accountant was charging a 5-figure just to consolidate all the trades, and I thought there should be a better way. So we created software for doing tax and accounting for cryptocurrency, and that was sold to Ernst Young in 2018 or so. And then after that, I currently run a crypto fund, called Genesis Vault Capital. And with Genesis Vault Capital, the fund is designed for investors to participate in this emerging asset class of cryptocurrencies. And our goal is to provide alpha over Bitcoin. So we want to make better returns than Bitcoin. And we do that by investing in some of these emerging early-stage tokens and opportunities.

So, and this is kind of like the world that everybody looks through saying, okay, there's kind of Bitcoin and then there's all the altcoins, and people have various opinions around this. For your strategy, for your fund, what kind of approach do you take to get better returns?

So just to make things clear, we are super bullish on Bitcoin. And at the same time, Bitcoin had its 10,000x return, right? It is not going to go up another 100 times over the next year or two. But the fundamental technology behind Bitcoin blockchain is a groundbreaking technology. It's a breakthrough technology in the field of computer science in the last 30 years that is going to give birth to many, many billion-dollar, multi-billion-dollar industries. And our strategy is to focus on those emerging early-stage opportunities, similar to how Bitcoin was 10 years ago. We look for those investments that hasn't captured people's imagination. People don't understand what it's about. And we have a thesis and we invest in them. And that's how we get better returns than Bitcoin.

You have this unique perspective because you come from the world of computer science. And like everything, timing is everything in life very often. And you happen to be there at a very exciting time in the late '90s when this was all developing. And I guess it's almost like a surfer catching a wave, it seems like. When you first started observing blockchain and understanding it from the lens of a computer scientist, what occurred to you? What were you thinking about the future?

Yeah, so that is a great analogy to understand that these innovation happens in waves, and some of the waves are small waves and some of the waves are big waves, right? You never know. There are some indications. You are like a surfer waiting for the wave to come. You see the wave at a distance and you never know whether it's going to be a big wave or a small wave, right? But our goal is to be able to become a good surfer So when there is a good wave, you're able to catch that wave. If there is a small wave, you still ride it. And how we see that evolve in the market is if you look at what happened last year, this whole amount of money coming into this decentralized finance space, right? So DeFi summer 2020 was the summer of DeFi where so many of these decentralized finance projects were able to launch. And that is a big wave. So last year around this time, less than a billion dollars were locked in this DeFi, in the area of decentralized finance. And now it is close to $150 billion or so. So it's 150 times increase in just a year. And that is a big wave. So being able to see that wave before it comes on and being able to capture that. And then once that wave happens, you would have smaller ripple effects, smaller waves. So you had DeFi come to Ethereum, which is one of the largest chains right now for being able to build smart contract applications. And we saw that, and guess what's going to happen? It's going to happen in other chains, right? So you see that happen in the main Ethereum chain and some of the other smaller chains like Binance and Fantom and Solana. So many of these other chains are still riding on the big wave, which is the decentralized finance. So that is the kind of thesis of being able to capture these smaller waves. There are other thesis around how we see the market evolving and we see other waves that are coming on. And some of them might be, we might be a little bit early and some of them we might totally miss the market, but as long as we are a good surfer, we are going to catch these waves.

You talk about DeFi, for example, like really increasing a lot. And you cited some of the examples. Are there other technologies that are coming around? Blockchain is one thing where you look at quantum computing starting to make headlines here and there with some breakthroughs. Do you see major shifts in computer technology that would impact all this? This coming down the road?

So blockchain is a fundamental technology that's going to have impact across our lives, across multiple areas of our life. Right now, it's starting in the area of finance, but it's not going to stop in the area of finance. It's going to spread beyond, similar to what happened in the internet. Internet was a big wave. And an analogy would be when Bill Gates was on the David Letterman Show, and he was talking about— David Letterman was asking me, what can I do with the internet? Bill Gates was saying things like, oh, you can watch your sports and football, you can buy tickets online. David Letterman, you could see, was not very impressed because he can do everything that Bill Gates was talking about already. However, we did not have the foresight, or Bill Gates did not have the foresight to see, oh, it could enable something like Airbnb or Uber, because those are fundamental businesses that completely did not exist or cannot exist before internet was there, right? So similarly, the blockchain technology, we are gonna see things that are gonna disrupt the way that the current businesses are being done. So some of the things that is happening in the DeFi world is every single product that your bank could offer, all of them are being replicated in a decentralized manner, right? You have your savings account, your checking account, being able to take loans. So all of the products are being done in a decentralized way. However, that is, you know, it's a huge market being able to do that in a decentralized way. However, what is really interesting is the emerging opportunities, right? It is things that we have never seen before. You have one thing which is a self-repaying loan, and it just blows your mind to understand what How can a loan repay itself, right? And things like that are possible using smart contracts where you have loans that essentially are arbitrage opportunities between interest rates and the loan is able to repay back itself. And even if you forget to make the payment, like what we do for credit card, with a smart contract, it automates the process. So there are so many of these innovations. We are just seeing the very, very early stage of what these innovations are. And that is what we are super excited about. Not being able to do things that we currently can do with the banking system, but new things that were never possible before and to make that possible.

Do you think 10, 20 years down the road, banks as we know them are going to be somewhat obsolete?

I wouldn't say they would be obsolete, but they're going to change completely. There is going to be banking services that people would need. However, the way that we do banking would completely change. So similar to what happened to the publishing companies, right? Are publishing companies going to be obsolete when internet came along? In some ways, yes. Like the newspapers went out of business. However, the way in which people consumed information did not go away, right? So there are new evolutions of it. And 10, 20, 30 years down the line, I do think that blockchain has the greatest potential. If you look at all the emerging technologies, if you look at artificial intelligence, you talked about quantum computing, You look up, you look at biotechnology, all these different technology waves that are coming, that we see them coming. Blockchain would have the greatest impact on humanity compared to all the other technologies. And I'm not trying to compare different technologies with each other. However, it is something very fundamental and something that is going to have an impact on people's life. Our prediction is that we are going to see the world's first quadrillion-dollar industry. We're not talking billions, we're not talking trillions, it's going to be the world's first quadrillion-dollar industry. That's 1,000 trillion. And that's because it's an enabling technology. You can do real estate transactions with it. You can buy movie tickets, you can have art, you can have so many other ways of being able to transact, not just in the financial world, but outside of the financial world, which makes it really, really interesting.

When you are managing your fund or when the people who manage fund get together, because this is such a wild, wild west in a sense, how do you manage risk? You have this fund, you want to get returns, but risk management is probably a little bit different than what would be considered traditional risk management. How do you approach that?

That's a great question. And that's something that we think about every day. And if you look at all that, top 50 legendary investors, right? If you look at people like Warren Buffett or Ray Dalio, their investing approach might be different, but they're all focused on how do you manage risk. And they talk about asymmetrical risk reward, right? So asymmetrical risk reward, I want to clarify that because some people misunderstand it. Asymmetric risk reward is that you take little risk, you make little money. You take a lot of risk, you make a lot of money, but the ratio remains the same. Asymmetrical risk, people think that, oh, I can take a big risk and I'll make a lot of money. That is not asymmetrical risk, that is still symmetrical risk. Asymmetrical risk is when you are making a bet, say you bet $1, if you win, you make $100, but if you lose, you still get your $1 back. So that is asymmetrical risk. And many people have a misunderstanding around that. Now, all of these people talk about asymmetrical risk, but how do you take asymmetrical risk? We believe that asymmetrical risk comes from asymmetrical knowledge. So asymmetrical knowledge means that there is something that you know, that you believe in, that others in the industry have not thought about or have not believed in yet. So when we are taking these risks, we only take risk when we have asymmetrical knowledge. So making an asymmetrical bet without asymmetrical knowledge is gambling. You go to Las Vegas, you can put a dollar, and if you win, you make like $30. That's gambling. We don't do that because there is no advantage between one person playing and another person playing. Whereas if you know that this particular project has some technology that is gonna change the way real estate is being done, right, or this particular project would have an impact based on other people being able to understand it, or the project is going to get listed in a bigger exchange. So all of this is asymmetrical knowledge, something that the wider audience doesn't know. And I'm not talking about people in the general world, right? It's not talking about people in the investor world. I'm talking about people who are in the crypto world, but they still don't know. Because you have huge universe of these tokens. There are about 10,000 projects right now. And we find pockets of these various tokens. We find pockets of this information that is still not widely understood and still not widely known. That is how we manage risk.

With your investments, I imagine, because you said you're very bullish on Bitcoin, but you think the huge, huge gains that it's enjoyed are probably not going to be that big in the future or continue to go the way it has. Do you still place a good amount of investment in Bitcoin? Bitcoin because it seems to be the most stable, even though it also is very volatile compared to other coins, it still seems to be the most stable. How do you kind of spread your investments?

This is a very interesting topic and very interesting question because as we know, the security selection has an impact, but not as big of an impact as asset allocation. Asset allocation has a higher impact in terms of return compared to security selection, which is whether you're buying Bitcoin, Ethereum, or any of the other tokens, and also what quantity that you are buying them in. So in the fund, personally, we want to get alpha over Bitcoin, and we cannot do that if you are holding Bitcoin in the fund. So we have not a significant amount of Bitcoin in the fund. And we still use it for being able to do some of the trades. We don't hold any significant holdings of Bitcoin in the fund. Personally, I'm super bullish on Bitcoin, of course. I hold some Bitcoin on my personal side of things, but my personal investment objective is different from the fund investment objective. So that's our kind of thesis or theory around super bullish on Bitcoin and we are looking for alpha. We want to get better returns than Bitcoin and we cannot do that by holding Bitcoin, so we hold some of the other coins.

You said, and it's been cited multiple times, you know, it's like 10,000 coins, right? And boy, that's a lot to filter through, isn't it, to try to say, okay, I gotta try to pick some, I gotta try to see something that maybe other people don't, right? And You know, so how do you, how do you approach studying this market? You know, because, and there's really two versions to this question. One, you know, you're a professional investor, you know, with a fund, you know, so that's one thing. And so be curious to see how you kind of go in and out, do your research and try to pick, you know, place your investments. But then somebody who, you know, like me, has a job but wants to invest, can't go study 10,000 coins. What advice would you give somebody like me?

Yeah, so this field has a lot of opportunity, and guess what? It also attracts a lot of bad characters, right? It's an unregulated industry, and the nature of unregulated industry also means that people can come and do and say whatever they want. So we have to be really careful around being able to navigate and enter this market. At some point in time, we would have passive ways of being able to invest like an S&P 500 index or something like that. And it's very difficult to do in the crypto space, even though there is like a top 20 crypto investment. I would say maybe 2 of the, maybe 3 of the top 20 coins right now are scams or fraud.

Right.

They're intentionally defrauding the investors. They are saying one thing to the investor, but doing completely differently. And so you cannot take a passive index approach in the crypto space because of that. So for someone who has a normal job and being able to navigate the space, I would say keep the approach very simple. One is have a long-term approach. Being able to have a long-term horizon, maybe 10, 20 years down the line, we are still going to have Bitcoin, we're still going to have Ethereum, we're going to still have a couple of other coins, things like LINK and Cardano. ADA is their token. So all of those projects are high-quality projects that are going to exist at least for the next 5 to 10 years. Again, things might change. The nature of technology is that the rate of innovation that happens changes so quickly. So most likely they're going to be there for the long term. And focus not on finding new projects, but adding more to the existing projects. And the way to do that is to follow dollar cost averaging. So if you just set it up and take a portfolio of 4 or 5 different coins, these can be really well-known successful coins. One thing would be what is called as a BELLA protocol. So B is Bitcoin, E is Ethereum, L is LINK or Chainlink, and A is ADA or Cardano. So that is 4 different projects. And to be able to invest in equal amounts, we can get really sophisticated and go, okay, we need to do 8.34% in Bitcoin and 93.7%, whatever it is. We can get really specific and technical. However, complexity is the enemy of execution. If you just keep it really simple, take 4 or 5 coins, and divide them equally and set it up so that you're investing on a monthly basis, that is the best approach for someone who is not doing it on a professional basis. So that is what I would recommend is one, focus on asset allocation. Don't just hold one coin. Still bullish on Bitcoin, but we don't know if it's going to survive or not, right? So we need to be very realistic about it. The first social network did not succeed. The first search engine did not succeed. Google was the 9th search engine that came along. And we do believe that some of these opportunities are going to evolve. And we don't want to risk everything in one particular project or coin. So take a portfolio approach of 4 or 5 different coins and do a dollar-cost averaging over a period of time. And that would be the best approach from a passive investment perspective.

Really good advice. Thank you for that. Now, looking at for the professional investor, you know, like what you do, how do you go out and try to identify high probability, you know, early stage, you know, coins?

Yeah, that's a, that's a good question. We have our own methodology. So there are about 8 different signals that we look for in the coins that we are going after, right? We call it GREAT methodology. So it has 8 signals, they all start with T. And it's GR8T, Genesis Research 8T methodology. And 4 of them are qualitative signals and the other 4 are quantitative. So things like we look at team and the quality of the team behind the project. Sometimes the team is anonymous, like in the case of Bitcoin. So we use other signals as proxy on evaluating the team. Then we look at how the team is able to, coalesce a community around it, right? So that's one of the signals. We also look at the, that total addressable market. We are interested in projects that have huge impact, right? We are interested in billion-dollar opportunities. We are not interested in small opportunities. The next T is transformative impact. How can this project completely transform the way the businesses are done, right? We are again looking for businesses that doesn't do a 10% improvement, but 10x improvement on what's happening. Lastly is the thesis. We go through and read the white paper. We understand what is the thesis or the theory behind the individual team and how are they approaching the market. Those four are what we would call as qualitative, meaning that someone goes and looks at it and makes a judgment, whether it's me or myself from the team. Around making qualitative decisions on those 4 signals. The other 4 signals are quantitative, meaning it's a way to quantify it. One of them is token economics. And token economics is a fascinating new field. It's a combination of finance, economics, and psychology. So it's a combination of all those 3 areas. And understanding this token economics, it's a super skill, right? It's a superpower. Because when you go through and read what the projects are about, typically they write a white paper, right? And the white paper is more like a recipe of how a cake is made, right? So the Bitcoin white paper talked about there will be 21 million Bitcoins ever, and this is what the emission schedule looks like, or this is how many Bitcoins which will be created over a period of time. And the creation period is going to cut in half every 4 years. So that is the recipe of the Bitcoin. Now the superpower is being able to read the recipe, which is like a recipe of a cake, and already knowing how to taste the cake, right? So that is a super skill because what is happening is that you have different projects and a lot of these projects are open source. So anyone can take the project and can change it and change like one small thing. And that one small thing could make a huge impact because you have your cake recipe and it's adding cardamom to the cake, right? So maybe adding that cardamom completely changes the taste of the cake and makes it taste really good and delicious. If you taste the cake and know that adding cardamom is great, then it is good, but it's not as good as just reading the recipe and thinking about, oh, cardamom, if you add to the cake, man, this is going to be mind-blowing. right? So similarly, it's going and reading through the white paper, understanding the token economics, and already projecting how would it look like in the future. So Nikola Tesla, he had this famous quote wherein which, um, somebody asked him how does he test his motors, right? So he's designing this electric motors, and Tesla, he constructs the motor in his mind and he's having it run in his mind in real time. And if he does a good job of constructing in his mind, then there is no difference for a motor that is running for 20 hours versus a motor that is running in mind. They will both have the same kind of impact. And that is Tesla's super skill. So similarly, this is an area of the token economics field. If you can learn to do that, if you can learn to taste the recipe of this understanding the token economics, how many tokens are being emitted, and seeing what the impact is projecting it into the future. That is a super skill that I would encourage anyone to learn how to do that. Again, you know, there is a certain science to it and certain art to it. So that would be the fifth signal. And we have three other signals that I'm going to go through real quick. I just dove deep into the token economics because I think that is the very crucial signal for us to determine the quality of the project. The other 3 signals are also quantitative, meaning things that can be quantified. One is the technology. Most of these are open-source projects. We go in and look at the quality of the code. They are available on GitHub and other publicly available platforms. The next signal is around traction, and it's about how the project is able to capture the imagination of the community. Most of the crypto projects is about community and you have some really great technology, but they don't have a good community. Whereas some of the projects have a great community and the technology is not there yet. We would bet on a great community over technology any day. Ideally, we have both, but community makes such a big impact. And the last is the timing because these are volatile markets. You need to know when to enter and when to be able to exit, and that is our last and 8th signal. So that is the great methodology, and I want to give an overview of how we go about evaluating these projects.

Well, thank you for sharing all that so openly. You have a unique perspective in the fact that you've lived in multiple cultures, and, you know, so you're from India, you went to in the United States, so you've got this perspective that's different than somebody like me who's only ever lived in the United States, and I'm looking just through one lens. One of the interesting things about blockchain and cryptocurrency is the fact that, hey, it kind of transcends borders, it's decentralized, it transcends governments. So can you culturally speak to crypto and blockchain having your perspective saying, hey, I kind of see a broader part of the world and experience the world maybe a little bit differently than people who are born in a place and stay there their whole life. How do you see it culturally?

Yeah, so one of the main attractions for Bitcoin initially was the money remittance. I've been sending money over to India to support my family there. And I saw it and I immediately got it, right? Being able to do something cross-border. Without touching the banking system, hugely helpful. So that was tremendously helpful because I had the background of being able to understand the pain point firsthand of sending money overseas. Now, there are so many other issues that we don't experience on a day-to-day basis in developed countries such as US, right? For example, my sister, she's still back in India and I asked her to open a stock trading account. Here it's so easy. You go to Schwab, like now you just go sign up, maybe it takes 5 minutes, you connect up your bank, boom, you're done. My sister worked on it for 6 months just to open a stock trading account. If it is so difficult for her to open it and she is in India, there are other parts of the world where they don't even have some of these brokerages. So how do you participate in the wealth building if you don't even act have access to being participate, being able to invest in, uh, in a stock market and, uh, being able to have access to the best companies, right? If you have like an Apple or a Facebook or Tesla, a lot of people, they don't even have any way of being able to participate in the ecosystem. If you are not even playing the game, then forget about winning the game, right? However, blockchain allows participation in a decentralized manner, meaning there is no blockage. There is no one who is guarding from being participating in the ecosystem. What do I mean by that? Now you can participate and buy stocks as a token, right? So instead of buying an Apple share, you can buy an Apple token and it is backed 1:1 with Apple shares, meaning like someone took like 1,000 Apple shares and then they issued 1,000 tokens and they said one token is worth one Apple share because we are holding onto 1,000 tokens. Any point in time, people can come give us the token and we'll give you the Apple share, right? So what does this mean? This means that anyone anywhere in the world with just a decentralized wallet like MetaMask can now participate in the financial ecosystem. They don't have to go through their local bank. They don't have to sign up for a stock brokerage account. They now have access to being able to participate in the upside of the best financial companies in the world. Things like Apple, Netflix, Tesla, and other companies, this opportunity was not there before. And it'll take a long time before centralized banks would even catch up there. I mean, imagine somewhere in a small country, somewhere maybe in some of the developing parts of the world, maybe in Africa, maybe some parts of Asia, if a stock trading company has to launch, they have to do a countrywide launch, right? And if there is not enough market for people in the country to be able to participate, guess what? They're not going to be able to launch. Whereas this allows complete democratization of financial inclusivity for allowing anyone, even with the dollar, if you want to buy Apple share, you would be able to do that, not through the traditional centralized banking system but through a decentralized way. And that is just one example. And that, when I came across it, I was like, man, this is mind-blowing. This can open up the access to financial ecosystem for so many people who never had access. And so seeing things like that and having cross-cultural view around it is really crucial because there are some products that may not be ideally suited for the developed country, meaning that even Bitcoin with its volatility may not be suited for a developed economy, but for a developing economy or for an underdeveloped economy, that would be a crucial product. That's what we have seen in countries like Venezuela, where you have huge inflation. This allows people to park their wealth in a way that is inflation protected. You see these pockets and of application. And that comes from looking at it from a global perspective. What works in one country may not be the way in which things work in another country.

Yeah, that's a very fascinating answer because we feel, I think, very often, you know, when you live in a place where you can just open up a brokerage account, as you said, you know, just takes maybe minutes or not very long as compared to other people in other places to don't have the access. And so this does democratize things, I think, quite a bit, where everybody can enter the game and creates kind of a new economy. And I think that, in a sense, is sort of the vision of blockchain. And the vision of crypto is to democratize and to level playing fields, to take smart contracts where you've got people who have real estate, but it's a dead asset. Really don't hold the title to it even though they've lived there for multiple generations, etc. All this starts to come alive. Are you seeing, you know, and maybe this is kind of a final question because maybe it's a little bit big picture, but are you seeing that there's going to be new wealth development and a better distribution of wealth based on what's going on right now?

Definitely. This is rebuilding of an entirely new financial ecosystem, and being part of it is going to be helpful, not just from a money wealth perspective, but also in other ways of being able to democratize power. It's not about democratizing wealth, it's also about democratizing power. We are going to see that evolve over the next few years. And this allows, blockchain technology allows people who are interested to learn more. You still need to spend some amount of time to be able to learn and understand, It's not an easy technology right now. However, it'll become easy at some point in time. But if you focus the time and effort right now to be able to learn, to be able to go in and understand some of what's happening in the space, it's going to be hugely impactful from a financial perspective. But more than financial perspective, we can have true democratization also of power, not just of wealth. Of course, you see the same kind of cycle that is going to play through. You're going to have centralization and decentralization. That is like a wave you go from, or a pendulum, you go from one end to the other. Right now, we have too much on one side wherein which power and money is centralized. And I think it's going to swing the other way. And we have already seen this swing the other way. And we're going to see the impact of that play out over the next decade or so.

Well, your views are very stimulating, and I appreciate you so much taking the time to sit and share this with us. I think you have some very unique perspectives around this whole developing story around cryptocurrency and around blockchain, and you seem to be riding that wave really well. So thanks for sharing your ride with us.

Thank you, Patrick. I also want to thank you for taking the time and taking this message to everyone. For people who are watching and have heard about Bitcoin, but they want to learn more about it, I highly encourage people to do that. It is a technology that eventually have to learn, right? It is like WhatsApp. My mom never sent me anything before, but she's sending me WhatsApp message now. So everyone has to learn how to do it. The only question is, are you gonna learn it now or 10 years from now, right? Is your time gonna be more valuable now or 10 years from now? For most most people, time 10 years from now is going to be more valuable. So it's better to spend the effort and time to be able to learn it now, which will also increase the— not just the financial reward, but in being able to apply this technology in your business, in being able to apply some of the innovation that is happening and bring the domain knowledge into what you are working on and what your business is. And that is super exciting because that's how we see the change going super exciting indeed.

And smiling, you're talking about your mom sending messages on WhatsApp. This is, this is the world, right? So this is, it's really exciting. So thanks so much, Vijay, for again taking the time and sharing all this wisdom.

Thank you. Thanks, Patrick.

Coming up for you now is Jeff Hayes' interview with Bill Barhydt. Now, Bill was ahead of the curve. He gave his first talk on Bitcoin in 2012. So can you imagine knowing about and investing in Bitcoin that long ago, you'd be sitting very well right now if that were the case. At any rate, he is also currently the CEO and founder of Abra. Now, Abra is a really interesting thing because it allows you to take your crypto holdings and earn interest on them or borrow against them or trade them. So it is really modernizing the ability to have financial transactions in many directions with cryptocurrency, and it gives you, I think, a sense of the future of crypto. So very fascinating conversation. I think you're gonna learn a lot here, and it's important that you understand these things. So let's dive in.

Bill, thank you for being with us.

My pleasure, happy to be here.

You've got a great bio, so that just because it's interesting, tell everybody where you came from and how you got to be here, but start way back.

Sure.

So I'm from New York City, techie through and through, computer science guy, studied computer science, never lost the bug, ended up, you know, finding a passion for math and kind of integrated with computer science, which, which led me to encryption of all things, as well as early days of 3D computer graphics and animation and modeling. They were kind they were very similar because the math was so complex. So I spent some time working at the CIA and doing some work in encryption and other messaging and also three-dimensional systems. Believe it or not, like I said, very, very similar. And yeah, spent some time there and out in California at NASA where I was when I was at Stanford and never lost that bug for all things new and modern tech. Really wanted to try my hand in in kind of Silicon Valley startup culture. But lo and behold, somehow I ended up working on Wall Street. I still don't, to this day, I'm not sure quite how it happened. One thing led to another. I was meeting with some friends and seemed like the next week I was at Goldman. But that lasted for a few years. I tried my hand in capital markets. Now it's fantastic because I got a great education on fixed income and bonds, which really drive a lot of world events. And behind the scenes, it's really bond markets that, you know, are the ultimate culprit for almost everything that happens from a macro perspective. You know, at the end of a debt cycle, it's who's holding the bag. And that's where we're fast approaching right now is who's going to be left holding the bag in this long-stage debt cycle and what are they going to do about it. And, you know, it normally doesn't end well. So that gave me a great insight as to how those markets work. But tech was my calling. And so, I found my way back to Silicon Valley. It was the early days of Netscape and internet kind of.com 1.0. And I had the best time of my life helping build a lot of early internet.com infrastructure, fulfilling my passions for all things tech and worked on some projects related to SSL, which is the, was the original encryption standard for surfing the web. And yeah, I've really been doing payments and internet software ever since. And now at Abra, you know, many, many years later, I get to bring all of those passions kind of together in one play. But the last kind of 10 years has been a labor of love on how to integrate emerging markets, democratizing access to financial services, into my passion for technology. And Abra is a big manifestation of that passion.

So yeah, so tell us what you're doing at Abra and what you're creating there.

Sure. So Abra is meant to be the world's first global crypto-based bank. What is a crypto-based bank? Well, crypto-based bank is meant for any consumer, business, any entity to buy, sell, trade cryptocurrencies, but also to be able to earn interest on products, taking advantage of crypto markets, to borrow against cryptocurrency holdings, to eventually use cryptocurrencies for payments, to participate in next-generation opportunities like NFTs and their offshoots smart contracts. And our goal is to ultimately make all of these services easily accessible and consumable to the average everyday investor. The bank account of the future, in our opinion, is going to be crypto-centric. And we can get into why that is and how that is. But our goal is simply— our mantra is to conquer crypto. And we believe that this is the future of banking and we're just getting started.

So before we brush past it, let's cover why that is. Why is the future of banking crypto?

Sure. A few things that are happening at the same time. You have the monetary system and then on top of that you have the banking system. Okay. And then you also have kind of the political system kind of on top of that. Yet still, all three are basically undergoing a radical shift. A shift in, let's call it, lack of consumer trust. There is a broad-based untrustworthiness in the mind of the average consumer to the existing monetary system, mostly driven by the fact that inflation, which is just the printing of more and more money, is an artificial tax on the lower middle class.

Okay?

The banking system, as we saw in 2008, and with Occupy Wall Street, is simply rigged in favor of the big bankers to the point where the taxpayer will always bail them out. There's zero doubt in anyone's mind now that the banks, the big banks, who basically have a regulatory moat in order to prevent competition, are simply too big to fail. And then lastly, as we've seen with kind of this movement, right, under Trump, you know, towards you know, these kind of, I don't know, individualistic perspectives on how society should be run, away towards centralization and more towards effectively decentralization or individualism. I would posit that large-scale centralization, particularly in tech, peaked in 1969 with the moon landing. Ironically, probably at the time the monetary policy in terms of its value peaked in 1971, almost at the same time when we came off the gold standard. Since then, our country has been undergoing a massive movement towards decentralized systems. Think about it. First the microcomputer, then the PC, then the internet, then the smartphone, then Bitcoin, then Ethereum, and it's just going on and on and on. It's unstoppable. China will try, governments will try, This movement towards decentralization is unstoppable, and it is the best hope that I've seen towards fixing what is effectively a broken monetary system. All fiat systems are inherently broken. It's simply a question of at what point does human frailty override the original parameters of the system. So, in other words, post-Bretton Woods, after World War II, we agreed that the dollar would be backed by a certain amount of gold reserves. Human frailty came in after the Vietnam War started and said, "Well, wait a minute, this system is unsustainable." As a result of Vietnam, France saw where we were headed. They sent warships up the Hudson and said, "Okay, fine, give us our gold back." And Nixon said, "Whoa, whoa, whoa, we can't do that for everyone. We have a big problem." So he basically took us off the gold standard and reneged on the promise. And ever since then, the dollar has been moving more and more towards worthlessness. which is basically driving massive inequality. It's created the financialization of everything, effectively, which led to, you know, just insane changes in capital markets, which ultimately created, you know, the subprime crisis and a whole bunch of other crises. On top of that monetary system, of course, we have the banking system, which go hand in hand. And as I said, that game is also rigged in favor of the banks. And of course, politics drives that. And, you know, it's a give and take between are we going to raise interest rates? Whose fault is it when we're in a recession? And, you know, it's never— anyway, it is what it is. But at this point, the existing system is headed towards a cliff. Right. The analogy I use, the rocket is headed towards the cliff. The question is, which direction is the rocket going to go when it gets to the cliff? If the current system is based upon the existing monetary system and existing banking system, the existing political system with no change, the rocket is going to go this way. And I believe if we've embraced a decentralized model based upon a sound monetary standard with open access, I believe the rocket has a chance of going this way. And that's never happened in human history before. What I mean by that is, is if you read Ray Dalio's new book, what he so eloquently articulates is that we've had these debt cycles over and over and over again, and human frailty always trumps the parameters of the debt cycle, or this new debt cycle coming in. These parameters are always meant to do the right thing, just like post-Bretton Woods. We had a great gold standard and it worked for the first umpteen years until it didn't. Okay, but now Instead of what normally happens at the end of that debt cycle, which is war, we now have an opportunity to say, hey, well, wait a minute, we actually have a way out of this, which may not lead to global war. But at the same time, I see China screaming about the South China Sea, troops on the Russian-Ukrainian border, you know, people talking about who's going to buy our debt, what's going to happen with the debt that's sitting in China, you know, Russia basically being taken out of the the SWIFT system because of what's going on. All of this sounds really familiar. Unfortunately, I wasn't there, but I know how that, how that ended, and it didn't end well. Okay, and, and this populism that we're seeing now is, is not— was not created by Trump, right? Populism created Trump or enabled Trump, and it's exactly what happened at the end of the last debt cycle. Bitcoin, Ethereum-based banking and everything that it represents to me is the single best opportunity we've ever had to have not only a sound monetary system that's infallible, but a banking system that really exists in a way that's completely democratized in terms of how it's accessible, who can participate, who can help build it, etc., etc. And so sorry for the diatribe, but There's your answer.

And that's what this format is for. We're definitely here to learn from you, not from me. So do you think that Bitcoin and Ethereum and these others, will these be stable enough to build a banking system around?

Yes, that's a great question. So think of it, you have to think in decades, right? So I always say when you're thinking about these new technologies, and you're dealing with the pullback of Amazon's price in 1998 where it looked like it was going to go to zero, or Bitcoin when it has yet another 50% pullback, when in doubt, zoom out. And if you look at the price of Amazon and the network effects that Amazon has achieved from 1996 until now in a log chart, it looks like a straight line up and to the right. And but if you were living the price in 1998, in 2000, 2001 and 2007, it didn't feel like it was up and to the right. And of course, if you're basically all in on crypto like I am and you're following the price right now, it doesn't feel like it's up and to the right. But again, if you look at an 11-year log chart, right, which basically shows its exponential growth, which is more on a smooth function, is 150% a year for 10 years, that's what it is. Now my point is, is that this is the run-up towards Bitcoin becoming stable. We're on the front lines and are reaping early financial benefits from a first-of-its-kind private money becoming stable. It is not stable yet. It is not an inflation hedge yet. Its price is going up because of the promise of it becoming that once it's been hoarded by the masses, which is exactly what the Austrian economists predicted would happen if you had a private money for the first time, meaning a private money that could not be easily printed ad infinitum by a government, it would be hoarded by the masses, which is exactly what's happening with Bitcoin slowly.

Right.

You're getting these huge network effects that are starting to accelerate. At some point, its value stops growing because it's consuming everything else. And then people will want to spend it again. Totally predicted decades ago before the internet by, by this kind of Austrian economist way of thinking. My point is, for the next 15, 20 years, which is probably coinciding with the end of this debt cycle, yes, you're going to see wild swings in Bitcoin. You're going to see a lot of volatility in the functionality of Ethereum, in hacks and contracts. That's the price we pay to get to stability over the next 15, 20 years. Just like when I was working on Internet 1.0 in 1995, there was all kinds of articles in the New York Times, the Internet's broken, it doesn't scale, we can't— we don't have any more Internet addresses, it's going to break. You know, IPv4, which is the home routing standard, doesn't work anymore. The Internet's still here. It's in more devices than ever. And so crypto and blockchain technology underlying it and smart contracts that power, you know, NFTs and stablecoins. It's going to evolve very, very fast over the next 15, 20 years. And by the time that epoch is up, will be the backbone for the new financial system, in my opinion.

So I often think one of the luckiest things that ever happened to Jeff Bezos is that I wasn't an early executive hire at Amazon. and assuming he would have listened to me, I would have advised him against just about everything he did. I remember how stupid it was when Amazon started selling stuff that wasn't books. And I thought, I don't want to buy anything but books from Amazon. And now our Amazon drivers call my wife and I by name because we buy everything from Amazon. I've cured myself of that negativity as I look at Bitcoin and Ethereum and all the cryptocurrencies that I've taken little positions in. I have a hopefulness without a complete understanding. We're getting to people like me. How is your company going to make that a broader, easier—

Yeah, you got to make it easy. You have to make it approachable. You have to make it accessible. You have to provide, uh, oodles and, and, and just unbelievable quantities of educational content every day. It has to be contextually relevant every day. Uh, content that we produced a year ago, in some ways we can't use today, right? As people's ability to understand this evolves, the quality of our content has to evolve with it. If you watch, I gave the first TED Talk on Bitcoin in 2000 and 2012, so 10 years ago next week. And if you watch my ability to explain Bitcoin in that video compared to what we've been talking about for the last 20 minutes, it's like it was a whole other person speaking because we didn't have a framework. I didn't have a framework for discussing Bitcoin because no one ever did. No one ever publicly discussed this thing. So I'm like, how am I, how am I in the world going to explain this idea of a decentralized money with no off switch? To a big group of old white people that is not gonna want this in the first place. So you have to basically, you have to move with the continents as they drift. Our audience is evolving. They're becoming a little bit more mature. You have early adopters who are evolving. You have people who are coming into the fray, particularly the young people who get things faster, which is always the case with more modern technology. And, you know, you have to provide for that upper middle class who are bringing lots of money into this tools and handholding and educational content and support commensurate with, you know, with their needs. And it's not easy. You can't just say, okay, here's the app, have a nice day. It just doesn't work. Right. So, so it's a big, big commitment to do that. But that's what it means. Back to the earlier discussion to be a crypto bank. You're all in on not only providing the, the technology for access, but the content, the support, the presence, the banking rails to get your money in and out in every country because everybody has a different payment system, etc., etc.

So is your platform a good place for an active investor to use as home base?

Absolutely. So I have all of my liquid crypto holdings and my stablecoins in Abra. My, my dollar stablecoins earn— I think I'm up to like 13% interest right now. My Bitcoin and Ethereum are sitting in my Abra Earn account earning 8% interest. I dollar-cost average into my account by buying ACH or wire money automatically into Abra. Via my salary and buy every Monday a little bit more Bitcoin and Ethereum. And it's a very simple wealth management tool in that regard.

So I currently have Bitcoin and Ethereum and a few others sitting, earning no interest whatsoever. So if I'm at your— I mean, if I'm at your crypto bank, I could be earning 8% I get 20% on my—

Correct. And that's the biggest source of deposits today is people who already have a little bit of crypto. They move it over to Abra, they withdraw it from their Coinbase or Kraken or Gemini account into their Abra wallet. It's very easy to do. You just push a button in the Abra app, you say deposit, say deposit my crypto, and it shows you how to do it. And then you start earning the interest when you move it over. And then if you want, you can wire more money in to buy more crypto. Or just keep holding what you already have.

And what is the risk to me moving my crypto there?

So we run a very sophisticated risk management system, just like a bank. Right. The biggest difference between Abra and a traditional bank is that the traditional bank also earns interest on your deposits. They keep like 95% of that interest for themselves. We actually pay 80% to 85% of the interest to you. That's the big difference. And then the second difference is how do we generate that, that interest that you make on the deposits? So our lending business is what we call collateralized crypto lending. Collateralized crypto lending allows a consumer or a business to borrow dollars against crypto deposits, similar to how wealthy have been borrowing against their equity for decades. So, right, so I can— if I'm a high net worth customer of Goldman Sachs, I have a bunch of Apple shares, let's say I have $10 million worth of Apple shares, they'll probably give me a 10% loan against those Apple shares for close to free because they're hypothecating the shares, which means they're lending out the shares to someone else. Okay, so, so that's a great deal for me. Because Goldman is obliged to make me whole. And I now have the ability to not only borrow cash against those shares, if the shares go up in value, I now continue to reap the benefits of the price of the shares going up. So we're doing exactly the same thing with Bitcoin, Ethereum, Stellar Lumens, a bunch of other crypto assets. We let you hold the crypto assets. And if instead of earning interest, you want to borrow against them, you can use it as collateral. Will do a loan up to 50% of the value of the collateral, and you continue to get the value of any increase in the value of those underlying cryptocurrencies.

And this is operational now. You guys are doing this on a daily basis.

Yep, we're live in the Abra Earn product is live in 49 states. I think we're just waiting on New York. The Borrow product is— Abra Borrow is live in 42 states. States and like 100 countries. Our trading product is live in 49 states and 100 countries, and we have a couple of million customers, a couple million wallets that we're hosting all over the world. And not only do we have a brisk US business, we have a brisk business in Europe, but also in many emerging markets in Southeast Asia, Central America, India. It truly is democratizing access to this for a lot of people.

So where do you see where would you see, or do you see the best opportunity for someone who's wanting to invest in crypto right now? Where would be the biggest opportunity? And then maybe where would be the safest opportunity?

So these prices, because we are early, as I said earlier in my explanation, are going to be very volatile for many more years. Smooth out the historic volatility, it really does look like the price has been going up and to the right for 10 years. My belief is, is that we're very early in that run, similar to where Amazon was in like 2004 or 2005. And obviously it's had another historic run since then, but it has also been ups and downs. So I think the same thing is going to happen with crypto. I think the two gold standards are still Bitcoin as the monetary system. Bitcoin and Ethereum as the platform for the banking system. There are other interesting projects like Solana, which seems to be doing incredibly well, for example, in entertainment, gaming, this new NFT phenomenon, and a couple of other protocols. But those are the 2 or 3 that I'm personally most excited about. And for people who are new into crypto, we, we recommend— I have about half my— most of my liquid crypto in each of Bitcoin and Ethereum right now, and I'm very happy with that. And then I have a bunch of money in, in dollars, which is earning, you know, like I said, the high interest, high yield interest in the Abra Earn account as well.

I didn't catch that. So you can have your dollars in the Abra Earn account as well?

Yeah. Yeah. So when you deposit your dollars into Abra Earn, they get converted automatically to stablecoins. So to you, it looks just like dollars and you're earning interest on the dollars, and the interest on the dollars is even higher than the Bitcoin. So right now, I think the highest tier of interest we have on dollar deposits is about 13%, and it fluctuates a little bit, but it hasn't fluctuated much over the last couple of years.

It's being— those dollars are being loaned out collateralized by—

Correct.

By crypto assets.

Correct.

So it's just the opposite of the other example. So we'll be lending dollars collateralized by Bitcoin or Ethereum instead of lending Bitcoin collateralized by dollars.

So I have a son who just through luck or timing invested in, I think it was Dogecoin, one of the ones that took a run and suddenly made an extra $20,000 or $30,000 that he wasn't counting on. And he called me for advice and said, okay, now what do I do? In crypto. And I had to tell him I hadn't finished doing the interviews yet. I don't know what to tell him. So what would you tell a 30-something who has $20,000 or $30,000 and wants to grow it? And what's the best advice for him that you would have?

Yeah, the way I look at crypto right now is, again, if you really believe in the future I'm describing Bitcoin as the basis for the monetary system, Ethereum as the basis for the banking system. There are other projects, right, that are going to fill in different blanks and different parts of the, of the kind of stack, if you will. I mentioned Solana. Luna is another one. I could go through a whole list. What I, what I personally do is I have my conviction for where Bitcoin and Ethereum fit in the stack, and those get the majority of my crypto investments. And by the way, those Bitcoin and Ethereum positions, they really don't change. They're long-term positions. My time horizon there is a decade or more. Then I have like maybe 10% of my funds or a little less where I'm willing to come in and out of different projects based upon either trading or some new project that I might have some conviction on, or my opinion may change over time, and I'll be more likely to come in and out of those positions. Now, personally, I'm not really interested in what I would call kind of social token investments yet, like meme coins or social tokens. I would put Doge in that category. Now, if certain folks have their way, Doge will actually become a payment system. As opposed to just more of a meme coin. And if that happens, its value could go up.

I don't know.

I'm not, you know, tracking it that closely to have an opinion, but it's possible. But I would basically then try to gain some conviction if I, if, if I really had the time beyond those 2 or 3 cryptos to say, okay, I might put 5% of my, of that $20,000 to $30,000 in this project or that project and understand that that's much higher risk. Than Bitcoin or Ethereum. I think, you know, I feel fairly safe in saying that Bitcoin and Ethereum are not going to zero, but they are going to be volatile on the way up and to the right. And if you can stomach that, you know, just like you could stomach Amazon in 2004, 2005 before it started the latest 10x run, you know, you should be very happy at the end of the cycle.

So how risky do you think the US dollar is now and over the next 10 years?

Well, unless something changes. Let's, let's just say that history should be the same guide for the dollar that it's been for crypto. The dollar has— the dollar loses 90% of its value every, what, 35 years?

Okay.

And that's happened on a rolling basis regardless of when you start. That's true. It accelerated in 1971, but basically it's true. Okay, now it's losing it even faster than it was in the '40s and '50s, but I'm still correct. So unless something changes— and it's not going to change, it's getting worse— we printed something like 80% of the money supply in the last 10 years. I mean, that's just— there's no words to describe the insanity of that. What does that imply for the dollar? Well, for people who have a hard time grasping these ideas of money supply, Let me give— let me put it to you in very simple terms. I'm from New York City. I was a Yankees fan. My mom and I went to baseball. I collected baseball cards. She collected cards. She used to brag about a Mickey Mantle card she had when she was a kid, which I don't know if you know anything about baseball cards. A mint Mickey Mantle rookie card right now is worth a fortune. Now, I would say to her, I said, why is that card worth a fortune? She would say, well, it's really old, a lot of people want it, and there's not a lot of them. I said, great. Now let's say you go to an auction and you're gonna sell that card, retire for life, and take the money, and off to the races. Somebody offers you $1 million. You say, you know what, okay, thank you for the offer. I'm gonna sleep on it overnight. I'm gonna come back to you tomorrow, and— but I think I'll, I'll probably take your offer. Just give me a few hours to sleep on it. Now overnight, the Wall Street Journal publishes an article that somebody found in their closet, in their attic, a box of 500,000 Mickey Mantle rookie cards. What does that do to the value of the card that my mother was going to sell? All right. The next day, right?

Plummets.

I would assume that the value of the card is going to plummet, if not go to zero right now. That is exactly what is happening with our money. Exactly. Not approximately, exactly. Nobody questions it because the way it happens is just not, you know, it's not a direct pinprick to your head, right? It's happening out there, but it's not your baseball card that you were going to sell in a minute. It's more like death by like 1,000 little cuts. And but it is exactly the same thing, but nobody questions it. Because it's not as acute as the baseball card example I gave you. So when people hear it in those terms, they're like, no, that's not really what it is. And think about it, right? I mean, we just printed, what, 80% of the money supply from nothing? It's just dead trees, that's all it is. And we artificially created more of it like mana from heaven and said, here it is. And most of that goes to the wealthy and hedge funds and other accounts, but there it is. Okay, a little bit trickled down, which is why prices are going up so quickly. And so here we are questioning, you know, how this can happen and where the monetary system is going. So that's why I think the monetary system is, is basically dead man walking today, and Bitcoin is the best chance we have, because you can't do that with a digital currency based upon the code that underlies Bitcoin. You can't just put— there is no print button, right, to change. And so there are no politicians or central bankers that can arbitrarily change the standard. That's why we call it the Bitcoin standard.

So how does somebody get started on Abra?

Just go to Abra.com, press the download button from your iPhone or Android phone is the easiest way to get started. Go to the App Store, download and the Abra app and you'll be up and running in a few seconds. You can link your bank account. Probably the easiest way to do it if you're in the US. If you've already got crypto, of course, you can transfer that into Abra. But if you're new to crypto, just link your bank account. You can use an ACH just like you would with Venmo or PayPal. And in a few hours, you've got your crypto in the app. It's that simple.

Well, I'm glad you're there. I'm glad you're doing it. And I love that you went from the CIA to NASA. You know, I always wanted to work at NASA just so I could say one time in my life, it's not rocket science. Well, yes, it is.

There's a lot of smart people at NASA, and I was, I was pretty humbled every day because they walk around not understanding half the people you're talking to. It's pretty humbling.

There's a lot of smart people in the crypto space.

That's it.

So I'm not surprised No surprise that you ended up there. Thank you so much for being with us.

My pleasure. Great to be here, Jeff.

For another amazing Money Revealed interview, check it out right there next to me.

I think you'll love it.

Continue to believe, and I'll see you there.

Education is very important, but for me, going to school was a waste of time.

Money is designed to make the rich richer but keep the poor middle class poorer.

That's why schools don't teach us about money.