CW 636 FBF – James Altucher – Hedge Fund and Wall Street Scams 'Altucher Confidential' & Financial Times Contributor

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Welcome to the Creating Wealth Show. Your host, Jason Hartman and I am talking to you today from Dubrovnik, Croatia, a beautiful, beautiful city. I've been traveling around Europe for the past couple of weeks and the trip started in Switzerland. And I'll tell you something, if you want to know what inflation feels like, go visit Switzerland. I was in Zurich, I've been to Switzerland before and I remember visiting Geneva years ago and thinking how expensive everything is. And you know, I was not disappointed this time either. It's very, very expensive there. And that's just with a minor amount of inflation that we will almost certainly have in my opinion, in the United States. But if you want to know what inflation feels like, everything is expensive in Zurich, in Switzerland in general. So just go, go, go experience that. And of course that's a big part of our investment strategy is based on defending against inflation and actually profiting massively from inflation because inflation induced debt destruction is a great thing and all those commodities pace with the price of inflation, namely our rental real estate. Our income properties do extremely well in so many ways in inflationary environments. But even if we don't have inflation or much inflation, we will still profit because our investments are sound, they make sense the day we buy them, etc. Etc. Etc. All the stuff you've heard on the last 328 episodes. But yeah, my trip started in Switzerland and then I went through Germany and now I'm in Croatia. And oh don't forget Austria though. I was in one of my favorite cities, Vienna, and spent some time there, saw some friends there and just been having a great time traveling around Europe. And I hope the background noise, by the way, isn't a problem here. I'M overlooking a beautiful bay here on the coast of the sea in Dubrovnik. And there are people on the beach making noise and swimming and splashing around. And then in a neighboring property here, there are some workers doing some work. So if you hear that, please excuse the noise, but recording on location, the sound quality is never as good. I don't have my swanky microphone with me. I'm just recording on my portable setup. So. So we'll make do with what we have. But as for the rest of the trip, I leave for Barcelona next and then Iceland. So very anxious to see around Iceland. That's an exotic place. I've been to Barcelona before, been to many European countries before and, and you know, as I look at real estate here, by the way, you know, that's one of the primary reasons for my travels always is to look at property. I'm just not finding anything. Once again, that really works. I have traveled now to 66 countries. I've looked at real estate extensively in Eastern Europe. A few years ago I did a show on that when I went to Bulgaria, Romania, Estonia, Latvia, and did a big real estate tour there. Met with brokers in all of those markets and you know, again, just didn't find anything. Probably lucky. I wasn't too impressed with anything on that, on that last big real estate tour of Eastern Europe, because that bubble certainly popped. And I know when I was there, the banks were starting to get fearful and for very good reason. They had a lot of defaults on mortgages. And this time even post bubble, the Croatian coastline or the Dalmatian coast as they call it, is absolutely spectacular. It's stunning. They have had quite a run up here in prices. This has definitely been discovered as a tourist destination and for good reason. It is absolutely, absolutely beautiful. You may recall that just as recently as 1991, not too long ago, they were at war here. And war certainly takes a toll and never seems to be a profitable experience for anybody. But it's been stable for a while. But in places like this, you certainly have to be concerned about political instability. That is certainly a risk, the political risk, although seemingly less so now. I don't know the inner workings or all the details about that, but wouldn't be a huge concern now. But again, the lack of financing, the lack of MLS systems, the lack of infrastructure, and just a general tone from people I talk to about corruption. Again, those things make me fearful. I'm a pretty conservative investor, as you know, and so far looking at Europe, both Eastern and Western Europe, looking at South America, looking at Central America quite extensively, looking at Australia, New Zealand, other places around the world. So far I still think American real estate has the best offerings. And you know, I really want to change my mind about that. I really keep looking for other opportunities. This international investing thing is quite sexy. I'm meeting on Monday here in just two and a half days. I'm meeting with an outfit in Spain down in the Malaga, Costa del Sol area and looking at their properties. And I'll see what works there, if anything. And I'll report to you on that probably on the next episode. But again, I just want you to know I keep looking. I very much am in favor of being a citizen of the world, thinking with a global rather than a myopic national perspective. Certainly. Well, national is not too myopic, but local is very myopic. And so I'll keep you updated as I look so far. Still like American real estate the best. I may change my mind here in just a couple days when I look at some more properties in Spain. Again, I've been to Spain a couple of times in the past. Every time I go back I look again. So more to come on that. But we've got an interesting show for you today. We've got James Altucher. He was originally slated for my Speaking of Wealth show, but when I talked to him, we decided to do two interviews because he's such an interesting guy. And the interview was on his latest book, Choose Yourself, Be Happy, Make Millions, Live the Dream. And it really speaks a lot to the wonderful age in which we live, which is the Freedom of Information age. Well, it's not totally free. Just ask Edward Snowden and Julian Assange of WikiLeaks fame. But you know, information is really freer than it's ever been. And access to an audience, or as Seth Godin calls it, a tribe, is freer and more available than it's ever been. And the Choose Yourself book is a lot about not having a gatekeeper, how you can just choose yourself. As I have frankly on this show and all of my 15 other podcasts, I decided that, hey, I had something to say and I was going to do a podcast on it and do other publishing, blogging and so forth that we, we also do and go out and see if anybody was interested in listening. And God, I am sure thankful that you are interested in listening to my stuff and my philosophy philosophies and my thinking on things. And I very much appreciate that. But you don't have to be chosen by a gatekeeper. There's no executive at a media company anymore that chooses you, a literary agent that chooses you, a publisher, a book publisher that chooses you, a Hollywood producer that chooses you to make a documentary or a movie. You know, you can choose yourself nowadays. And that's a very, very powerful and liberating concept. It is an absolutely wonderful thing about the times in which we live. So my original interview was slated to talk about that, but as I talked to James before the interview, I learned that he has quite a bit of Wall street experience. And I said, hey, why don't we do two interviews? Let's do one and let's talk about financial markets. Let's talk about Wall street and your experience there, which is very interesting. And by the way, when we talk about hedge funds, I brought up the issue of doing this calculation. And he quoted a 7% target return for hedge funds. And I just want to say as a bit of a disclaimer, so you don't think I'm clueless. When I asked him the question about how you can't make money in hedge funds, I really thought that the returns promised by these hedge fund managers, and I still think it are much higher than the 7% he mentions. I certainly understand his math when he does it the way he does in this example, but it's a great example, and James explains that with the utmost clarity. So I think you'll enjoy that. And just hearing about his other Wall street experience and a little bit about his book too. But if you want to hear the complete interview on his book, choose yourself. Listen to my Speaking of Wealth show and right after I did the interview with him. You know, I don't read every book or buy every book from every author. I get a lot of them sent to me as review copies or I'll download the audiobooks as well. But I did take advantage of James book choose yourself after the interview. And I really enjoyed it. It's a pretty amazing story and a pretty heartwarming story too. So let's get to the interview with him now and just want to remind you before we do that our next show will be a 10th show. And that's when we talk about a personal development or general success topic and veer off the specific real estate stuff or economic stuff. And we've got a lot of great interviews coming up for you on the upcoming shows. And we also have a lot of great properties. Although I gotta tell you, act with urgency if you're looking to invest, because the deals just they ain't what they used to be. As yogi Berra says, you know the future ain't what it used to be, right? And the deals ain't what they used to be either. They're still good. There are still great opportunities in income property investing, but you've got to adjust your thinking because prices have appreciated quite a bit. There are still some rare opportunities. I'd say one of the best markets for this is Memphis right now, where you can buy properties at or below the cost of construction. But costs are rising, prices are rising, interest rates are rising. So make decisions, get off the fence, and do not miss the boat. I know that may sound like every promoter and every salesman out there, but there are very good reasons evidenced in the prior episodes where we talk about that in detail. So go to jasonhartman.com check out properties for that. Anyway, without further ado, let's get to our interview here with James Altucher and we'll be right back with that in just a moment. Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Friday Wednesday.

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It's my pleasure to welcome James Altucher to the show. He is managing director of Formula Capital and founder of Stock Picker. He's a writer, an author, writer of Altitude Confidential, author of his newest work, which is Choose Yourself, Be Happy, Make Millions, Live the Dream. And he's coming to us today from, I believe, New York City. Right, James?

Yeah, absolutely. And Jason, thanks for having me on the show. Pleasure to be here.

The pleasure is all mine. Welcome. So you were a hedge fund manager. You've done venture capital. You've got quite a great background and a lot of experience on Wall Street. Why don't you just tell us a little bit about that, if you would?

Sure. Yeah. It kind of started off in a really bad way, and I don't know if it starts off this way for most people, but I suspect it does. I actually started off by losing a lot of money on Wall Street. I lost so much. I kind of came out of the dot com world and I made a lot of money there, pulled it all out cash. I thought it was very smart. And then I decided, okay, I'm going to put it in the stock market, which was very stupid. And, you know, there was probably one summer where I lost about a million dollars a week cash in the stock market. And I got to the point where I was dead broke. And so I took a step back and I was obviously incredibly depressed and all that. And I could tell a whole story about that. But let's just take a step back for a second. And I decided, okay, I made a lot of mistakes and I wanted to learn what those mistakes were. So I essentially had to educate myself. I didn't have an mba. I wasn't coming from Goldman Sachs. And so I had no experience. And so I read every book I could. I probably read hundreds of books on investing. And then I wrote software to model the stock markets. And I would be very disciplined and I would trade according to my software. And that was very good. I was making money. And then I started managing money for other hedge fund managers and I started my own hedge fund. And then I was doing this long enough and I was meeting enough traders. I started investing in other traders. So I started a fund of hedge funds. So I probably have analyzed several hundred hedge funds in my time and I've looked at probably thousands of deals and stocks and so on. And then of course, during this time, I started writing for the Financial Times, the Wall street journal, thestreet.com I sold a company to thestreet.com and I probably, in the course of my career on Wall street probably either analyzed or have written about thousands of stocks. And I can say this with, you know, and also I've probably been in the management of several different public companies. And I can pretty much say almost all of Wall street is a total scam. It's totally manipulated. It's a scam. I don't like it. If you look at the kind of people who make money on Wall street, there's basically three kinds of people who make money on Wall Street. There's the guys who hold forever. So who's that? So Bill Gates, for instance, holds Microsoft stock forever. Warren Buffett holds Berkshire Hathaway forever. These are the types of people who build companies. They take the companies public and they hold the stock of those companies forever. They have no intention of selling or they sell very small pieces of their company. So that's one type. Then there are the type of people who hold only for like a billionth of a second. So these are the high frequency traders, like Goldman Sachs as a group. Renaissance Technologies is a famous hedge fund doing this. So it's the exact opposite of the people hold forever. These are the people who only hold for a billionth of a second, the high frequency traders. And this is an area that's probably illegal or borderline illegal or gray area at the very least. And then finally, the third type of people who make money on Wall street are the people who are committing crimes. So crimes we've seen are insider trading, mutual fund timing. Older crimes from the 90s are reg s trading, calendar trading.

Tell us what that is. Reg s and calendar trading.

Reg s was a loophole in the rules by which you could finance companies. So the stock market had, you know, wanted to attract foreign money. So if you were, you didn't have to be. You weren't subject to any restrictions if you invested from a foreign location. So you would have many devious onshore people move their money offshore and then invest in onshore companies and trade immediately out of those companies. And that was very illegal. A lot of people went to jail. Calendar trading what made so many people in the dot com boom hundreds of millions of dollars. It was basically you set up an account at a bank that does a lot of IPOs. Well, I'll just, I'm going to use Goldman Sachs as an example. But I have no evidence that Goldman Sachs particip in this. But you would trade when you knew on the calendar that a hot IPO was coming, you would trade ferociously in the days before you didn't even care. Buy, sell, make money, lose money. All you wanted to do was generate tons of fees for the bank and then the bank would give you a huge allocation for Juniper. So Juniper, their IPO price might be 25, but it would open up at 200 and you would sell out your million shares at 200. And a ton of money was made this way. It was completely illegal. It basically stopped after the dot com boom. So these are some of the ways in which hedge funds, I would say these are the only ways in which hedge funds have really been able to so called create alpha, that is have an advantage over the average retail trader. This doesn't mean the retail trader has no chance. It just means the odds are stacked against you. So you have to be really careful. You have to know what you're doing and the way you know what you're doing. The way I invest my money now in the stock market is I invest in micro caps, which are kind of impervious to high frequency trading. They're basically impervious to insider trading because not that many people follow the stock. Not many mutual funds are in these stocks because they're too small, so they're harder to manipulate. Or actually the reason mutual funds are not in them is almost because they're easier to manipulate. So ironically, there's less manipulation of these stocks. I tend to prefer microcap stocks where I can really explore the company in detail, get to know the management team, decide if they're an honest management team or not, and then invest from that point of view. And I also tend to back stocks that have huge demographic trends behind them, because even Warren Buffett, I view Warren Buffett not as a value investor, but as a demographics investor. So Warren Buffett will say things like, you can have a great manager but a bad business and it'll still be a bad business. And by a bad business, what I'm pretty sure he's referring to is a business that doesn't have demographic trends behind it. So a great example for him is Coca Cola.

Right. I was just going to say Coca.

Cola, but Coca Cola was a value stock at one point and he refused to invest when they were selling clothes and they owned Columbia movie theaters. The company was falling apart and had a very low PE ratio, which is the common metric for value investors. Warren Buffett wouldn't touch it. It was only when they got a new management team, the stock went way up, they sold off all their extra operations, and they focused on just soft drinks. That's when Warren Buffett became their largest investor and it became the source of billions of dollars for him. And his quote there was, I don't have to do any due diligence. I know everybody in the world wants to drink a Coke. And he was right. He believes in very simple but strong demographic trends, and he always puts his money behind that.

Yeah, very, very good points. Very, very well said. All of this. Just a reminder. You're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday. So Wall street is largely a scam. It blows my mind, James, that people think regular, everyday investors think that they can beat the insiders, that they can beat the high frequency traders and beat the crooks. It just must be so incredibly well marketed. I mean, with the. This is not an exact number, but the zillions of dollars, I'll say, spent on advertising Wall street products and doing it overtly or even, I don't know if I want to say covertly, but maybe with cnbc, it just seems like that's kind of the mouthpiece for the vast Wall street conspiracy. There's just like this undertone of, oh, be an investor. But they forget about all these other things you can invest in. They don't mention those.

Well, I'll tell you several stories if you have time to hear.

I have time. This is very interesting.

So one time, a friend of mine inherited some money and her bank advisor wanted to meet about what she should do with this money. And so she asked me if I could just go there and sit with her while she listened. So I did that. And I didn't say anything. I didn't want to criticize this guy while he was on the job. People work hard on the job, whether or not they're criminals or not. I'm still not gonna prevent him from at least saying his piece to her. I don't need to have a fight. But then afterwards, I took notes. And then afterwards I just pointed out to her five different cases where the guy overtly lied to her. He would lie about the returns of different mutual funds. He would lie about why do a mutual fund versus an etf. He would lie about extra fees. You know, many mutual funds have the fee version and the non fee version. Many funds have the version where you're paying for their marketing expenses and the version where they're paying where you're not paying for the marketing expenses. And I'm not even an expert on the mutual fund industry. I just, you know, he might have lied to her even more. I was just jotting these notes down from my limited experience with mutual funds. And so she understood that, and she really respected what I said. But she still put money where this guy suggested, because people just have an overwhelming need to trust an advisor who's going to stick with them over time, even if they're lying to her. So that's one example. Another example, one time, I was raising money for my fund of hedge funds. So I went down to the city. My neighbor said, you have to meet my boss. He runs the largest hedge fund in the world. He really wants to meet you. He sees your stuff in the Financial Times. I bet he'll put money in your fund of hedge funds. So I went down there, and we had a great. I met his boss. We had a great conversation. And at the end of the conversation, he said, I really thought he was going to put money in my fund. And at the end of the conversation, he said, james, I'm sorry, if you want a job here, we're happy to make an opening for you, but we cannot put money in your fund because we have no idea where you're putting the money. And here at Bernard Madoff securities, we don't want to take any reputation risk.

Oh, my gosh.

See the name Bernie Madoff on the front page of the Wall Street Journal. And then I would go to other funds and I would say, hey, can you put money in my fund? And they'd say, why would we put money with you when we can get a solid 15% a year with Bernie Madoff? So really, the whole system was set up to kind of encourage people to take these risks, that their competition were the people who were criminals that nobody realized were criminals. And, you know, we all realize now that Bernie Madoff is a criminal because he was so big. But there are a lot of mini Madoffs out there that nobody realizes are criminals and are kind of ruining the whole sector. Because everyone, they either drive out the competition or they encourage the competition to compete via criminal activity. This is why I totally got out of the business. I. I barely had a down month the entire time I was in business, but I just couldn't raise any money because I was competing against Bernie Madoff. How do you compete against that? When everybody was telling me he was the best hedge fund manager in the business, of course afterwards, people were saying, oh, we always knew he was a fraud, but meanwhile, they were begging to get into his fund.

Right? It's amazing. It's amazing how people's attitude and their tune Change with the news getting out there. But James, talk to us a little bit more if you would, about hedge funds specifically. We talked about kind of the broader Wall street issue. But what about hedge funds? And I don't want to forget to ask you about the 2 and 20 fee model because I read an interesting article and I think this was just above my pay grade. I didn't really understand it completely, but it was fascinating. And this was about three, well, four years ago maybe this article about how somehow mathematically 2 and 20 showed that you just couldn't make money. The investor, the average investor in a hedge fund just couldn't make any money by the time they took the 2 and 20 and they showed it. If the fund went up and down and all these different ways and there's just no way I could explain that. But it was an interesting article.

Well, let's give it a try. So the market in general returns 7% a year. And since we've already concluded that unless you do something weird, you're not going to beat the market, the average hedge fund is going to return 7% a year. Not the best hedge funds and not the worst hedge funds, but the average hedge fund. So of that 7%, 2%, take that off the top, that's the management fee. So now the hedge funds returning 5%, now out of that take another 20% off. So now the average hedge funds returning 4%. So what's inflation? 2 or 3% or 4%.

Right, right.

So now you're taxes.

Yeah, yeah.

Now you're left with 0 or 1% or worse. So why put your money in a liquid investment? So you're locked up, you have no idea what the manager is doing, you can't see your daily balance. And when times are bad, good luck getting your money back because it's not going to happen. You're not of your money. And I could know this from experience. So hedge funds in general are no good. Now I do like the kind of hedge funds that do provide financing for companies that can no longer get financing. So after the dot com bust and after the 2008 bust, all of the investment banks that used to provide financing for small and mid cap companies went out of business. So unless you're big enough to attract a Goldman Sachs or a Morgan Stanley, you're just not going to raise money. So there are hedge funds out there that do provide a valuable service and make money by providing financing and loans to small and medium cap companies. Now some of these funds are bad and some of them are very good. But I think there's an opportunity in that space still to find Alpha, because they really get inside the company. They examine the assets, they lend the money, but it's backed by equity and it's backed by hard assets. And occasionally. But when I say occasionally, I mean 1 out of 20 and you have to really know what you're doing. Occasionally you could find a good hedge fund. Now, if you're an individual investor, it's not so bad to also, again, invest in microcaps. But you have to do the same kind of work. You have to get to know the company, understand what their assets are, understand what the potential is. And you can do this before the rest of Wall street starts to look at the company. Once Wall street starts to look at the company, the company's dead. Forget it.

Right, right. Why is that, though? Because once Wall street looks at it, they're taking all the profits for the, the insiders and the special clients and so forth. Or what?

Well, then the mutual funds start to load up, the analysts start to do the research. So the retail investor is the last one in. And you don't ever want to be the last one to the party because then the party's over. So you want to get in before the mutual funds start accumulating. And getting in, once a mutual fund starts accumulating, you're in great shape because they have to buy millions of shares and the stock's just going to keep going up while they buy. I mean, I've seen stocks go from 2 to 40 while mutual funds start accumulating. But you don't want to buy at 40, you want to buy at 2.

Yeah, well, that certainly makes sense. But back to your hedge fund example. And I really appreciate the way you laid out such a nice, simple example. I couldn't remember if that article adjusted for inflation and taxes, when you look at it that way, of course. But the big promise of hedge funds is these are the investments for the rich. A lot of them have minimums of, say, $250,000. And of course, that's not really rich, but by Obama's standards, it certainly is. And they're for larger investors rather than the typical retail investor with a day job and doing stuff in their 401k. And so there are promises that they'll have higher returns and unique investments. So you use 7% annually. Is that fair for hedge funds? I guess I'm to defend them for a moment.

Yeah. I mean, look, the average hedge fund's not going to be better than the average investor. Again, how did they achieve better than market returns in the past 20 years? It's through all the techniques I described. And it's not even me just saying this. There are some sites that are kind of conspiracy theory sites and make all these accusations. People actually have gone to jail. So people have gone to jail for insider trading, mutual fund timing, calendar trading, REG s trading. Again, no one's gone to jail for high frequency trading. But this is an area where regulators are heavily looking and at the very least it's a race to the bottom as to see which hedge fund gets the fastest computer and execution time and so on. So eventually there won't be any so called alpha in that. So again, without those things, and this is the best hedge funds in the world. So you have Galleon other hedge funds that are, you know, where the managers are going to jail or sub managers are going to jail. You have Renaissance where high frequency trading is their biggest source of profits. Again, I think, I don't know how else hedge funds make money other than by doing this illegal activity. Now there are exceptions and I'm not calling out everyone, but if you're the average, and when I say average, if you're the average rich guy, you're going to get screwed by hedge funds. You kind of have to really know the business. And when I say this, I knew a lot of rich people, like incredibly wealthy people who put money with Bernie Madoff. So just because you're a genius when you sold your huge Laundromat chain doesn't mean you're going to know how to invest in hedge funds.

That's a great point.

Yeah, it takes a good, like I've put in now, 15 years of work analyzing hedge funds and it's still not that easy to spot. I still see criminal activity, but it takes a while to spot it out. There's a lot of shady activity out there.

Yeah, that's a great point. No question about it.

And again, I'm not being like there's a site zero hedge, all conspiracy theory, whatever, people are actually going to jail. So it's not just me saying this, it's the court system saying this.

Right, right, right. But it seems like too big to fail is the same thing as too big to jail. You know, when you look at the scandals with these banks with their money laundering for drug dealers and all of this kind of stuff, and the greater financial crisis that we had just a few years ago, I mean really, nobody's gone to jail. The Countrywide guy, Anthony Mazzillo, a fine, which to him is Basically a slap on the wrist. I mean, they just buy their way out of the problem, don't they?

Sure. And there's no defense for these people. And the problem is the laws were very unclear. So you don't want to kind of go back and scapegoat people. But now, hopefully the laws are getting better on how to regulate these things. But it's important also to separate out the benefits of capitalism from the ways in which individuals have taken advantage of a corrupt system. So, yes, the banking system was corrupt, particularly from 2000, let's say 4 to 2008, and even afterwards. And the government was corrupt. That bailed them out. And not that the government was good or bad, it's just that why did they need this huge ballot? They thought they were doing the best, but maybe it wasn't for the best. But it's important to understand banks fuel the American economy. People can't buy houses without banks. Banks people can't fund their businesses without banks, People can't. The economy and innovation and technology can't grow without the help of banks leveraging up and lending to good entrepreneurs and also good people who are willing to pay back on their mortgages and so on. The problem was, is that we had people who were making 380 times, on average, the average employee, and totally taking advantage of the system, getting fired and having golden parachutes regardless of what happened to their company. And like you said, getting away with it, not going to jail. Hopefully now the next time this sort of situation happens, and it will happen like it always does, people will start to go to jail. But you never want to make up laws retroactively and say, oh, they should have gone to jail, because nobody really knew what was going on with derivatives back in 2006. Now we understand a little bit more how the system was being taken advantage of, right?

But there will be a new thing the next time around that the law is always the slowest thing to catch up to. The, quote, innovation, unquote, the financial innovation of Wall street and entrepreneurs in general.

I mean, the problem is, what do you do? Like, I guess if you make a broad law, like if you knowingly are taking advantage of a corrupt system, you can go to jail. But at the same time, like, Countrywide could argue they were helping people buy houses who couldn't otherwise afford to buy houses. So there was a flip. It was weird because there was a flip side to the argument. Like, a lot of people were moving from the ghetto to owning houses outside the ghetto. And yes, they couldn't pay for it later. But I don't know. At the time, it seemed like a good thing. I thought it was a good thing. At the time, everybody thought it was a good thing. It was only after the fact that we all realized how horrible this was. And then we realized also how much like, why doesn't John Paulson go to jail? Why didn't he help the government solve the problem instead of just shorting all of these bonds that put the banks out of business? So did he do a good thing or a bad thing? Obviously, for his investors, he did a good thing and there wasn't any law against it. And now he's losing his investors all their money on gold. So, you know, what goes around comes around.

Yeah, it sure does. It sure does. That's an interesting question. What do you think of gold and silver? I just got to ask you that. I'm definitely not a gold bug. I never have been. Although I do own some of it just because I think it's insurance if nothing else. But I love how Peter Schiff, who's been on my show, by the way, and I like what Peter says, but I didn't have a good experience investing with him at all with his company. But he predicted, I remember him saying, that gold will be $5,000 an ounce by the end of Obama's first term. And he would certainly be one to adjust for inflation. But boy, that would go the complete opposite way because in real dollars, gold is way, way down. It's down in nominal dollars, too, obviously. But what do you think of the gold and silver markets? Or do you not play in those and think about them?

I'll tell you why I don't play in them. And I do have an opinion on price, though. But I don't play in them because gold is not a currency. Right. Like the United States does not accept gold as legal tender. Yeah. You can't pay your taxes with gold, for instance. So I'm skeptical. Then, like, why then do you buy gold? Well, do you buy. Gold does have industrial use, but it just so happens by chemistry that gold has the exact same industrial use as silver. And silver is like, what, 1/60 the price of gold? I don't even know the latest ratio. So if anything, I like silver a little better because I do think in an improving economy, there's always going to be industrial uses for a metal like silver. Silver is an antibiotic, which is why you could put it in your mouth as braces. Silver is used for silverware. Silver's used for electricity and conducting Wire. So there's a lot of. And by the way, gold has all of those uses as well, but it's just more expensive. Why would you get $600 in. Sorry, why would you get $6,000 worth of braces when you could get $600 worth of braces? So, again, I'm not a big fan of gold. Some people say gold is a store of value just in case people lose faith in their currency. But I'm also seeing what I call Gold 2.0. I don't think bitcoin is a trading vehicle, but if you really believe that there should be an alternative to standard currency, then bitcoin's a nice choice.

It is, but I don't think they're going to let Bitcoin exist. I think they're going to attack that every way they can. You're already seeing signs of it, and I haven't kept up with it in the past month and a half or so. But what we've got to remember is that gold, silver, bitcoin, these are all competition for central bankers and treasury departments of governments around the world. And there is no way they're going to let competing currencies exist without trying to attack them and manipulate them in some way.

Right. And that's why in the US none of these things will work. But you see countries like Argentina where the currency is getting devalued or probably going to be devalued, and bitcoin usage rises very quickly in countries like Argentina or Cyprus. Now, gold usage doesn't rise, but bitcoin usage rises. So again, I think if you think there's a one in a thousand chance bitcoin could become the currency of some country, then maybe 1/1,000th of your portfolio should be Bitcoin. But the main part of your portfolio should be stocks because stocks grow with the economy. The economy historically has grown over time. And that's, you know, that's where I would place my money is in companies. Now, that sounds odd, considering I don't like Wall street, but I do like individual companies. And if you study enough and learn enough about the companies you're invested in, you can make good investments.

Yeah. So, you know, I remember I had Chris Mayer on the show. He's one of the Agora guys and he has a book, Invest Like a Deal Maker. I had him on a long time ago. And I think that might be the same philosophy you have, where he looks at these much smaller companies and gets to know the management, really kicks the tires, and in that way claims to do better. I mean, is that what you do? Do you go out and meet these boards of directors and, and really know these guys?

Yes, and I agree with that philosophy completely. I meet the CEO, I sit down with him, I meet the boards, I meet the largest investors, I meet employees. I go out into the field and see what the customers think you've got to do. I invest in private companies. Right. So you have to do intensive due diligence to invest in private companies.

With private placement memorandums.

Oh, yeah, yeah, but with private placement memorandums. But basically companies that are not public at all. Like, they're like tech companies. But I have to do extensive due diligence. I do the same level of due diligence if I'm going to invest in a public company.

One of my things is, as I mentioned to you just a couple minutes before we started recording, I'm a real estate guy. I have this thing I call the Ten Commandments of successful investing. And number three, which is probably the most popular, is thou shalt maintain control. And what I say there, James, is be a direct investor. Only invest in things that you actually own and control. And, and that's why I like income property. I like investing in trustees doing hard money lending or private lending. And you don't have some fund manager taking all the profits off the top. And that fund manager could also be the CEO, the board of directors, the C class executives flying around the world, paying for all their first class airfares and wining and dining and you know, kind of the Dennis Kozlowski stuff on a smaller scale. But when you own income property, the only person that can really rip you off is the property manager. And the damage they can do is relatively small comparatively to the excesses you see in, you know, in Wall street and companies and so forth. When you invest, I mean, you don't control that stuff. You do a lot more due diligence. So you get a much better sense than the average retail investor by light years. You're just light years ahead of them. But what are your thoughts about that?

I agree. Like, you know, for instance, if I invest in a company, sometimes I even try to go on the board of directors because then, you know, that gives me restrictions, like I won't be able to sell, but once I invest in a company anyway, I don't want to sell. So, you know, again, I believe in strong demographic trends. So this way, no matter what happens to the management of the business, I know I have a strong wind at my back. And it's the same Thing for real estate. Like. Like you say a property manager could hurt you, but let's say you bought real estate this past year, or let's say you bought real estate two years ago in Williston, North Dakota, the fastest growing city in the United States, thanks to the oil boom there. There is no way in hell you would have lost money on real estate in North Dakota this past year, no matter how bad your property manager was. So it's the same thing with companies. If you're behind a good, strong demographic trend, then you're going to win.

Yeah, yeah. Good stuff. Good stuff. And. And, you know, I just add to that, that I want to be in control of stuff. When I hear all of this Wall street stuff, it just. It really bums me out, you know?

Yeah, I like to be in control, too. I don't want anybody. I don't want to not have access to my money. And so when I put it in a hedge fund or even a mutual fund in some cases, or even in a company, I. I don't have access to my money. And I get very nervous.

Yeah. Yeah.

I'm a nervous guy.

Good. Yeah.

And I'm nervous because I've lost money so much money so many times now. You have to. You have to put a gun to my head to take money out of my wallet.

Well, you know what they say, the best way to become a millionaire in the stock market is to start with 2 million.

Yeah, well, that's happened more than once, unfortunately. So now. Now I'm trying to do it the other way, or now I've done it the other way and I'm trying to hold on to it.

Yeah, sure.

Investing is more about wealth preservation and not about wealth generation. And, you know, the real way to generate wealth is to start businesses.

Yeah, yeah. Well, I agree, and I think that's great. Just last thing before you go on this subject, and we'll have you back to discuss your books and so forth. Well, give out your website, if you would, and tell us a little bit about your books. You got some great book titles out there.

Yeah. So my last book is called Choose Yourself, and I'm very happy with it. The CEO of Twitter wrote the Forward, so Dick Costello wrote the Forward. And it's basically about how in today's economy, in order to succeed, nobody else is going to pick us. The big companies are no longer going to pick us for the great jobs. Book publishers are no longer going to pick us for big advances. Whether you're an artist or an entrepreneur, you kind of have to Build your own success and choose yourself first before anyone else is going to choose you. And by choose yourself, I don't mean necessarily you have to go out and build a business. I mean you actually have to, from the inside out, be healthy. So physically, emotionally, mentally and spiritually, you have to find and uncover your own health. And then external success takes care of itself after that. The way you choose yourself is choosing yourself for health. And so that's what the book is. You can find it on Amazon. You can also go to my blog, jamesaltucher.com I also have a Twitter Q and A Every Thursday at 3:30. My Twitter account is J Altucher. And that's. That's basically how you can find me.

Yeah. That's fantastic. Okay, my last question for you is just your general thoughts and outlook on the economy. I mean, you know, as the old Chinese saying goes, we live in interesting times. Or may you live in interesting times. And we sure do. I mean, what a crazy, crazy environment we're living in right now. So it's so ridiculous what the government is doing and, and just what's going on in the world in general with the debt we have and so forth. I just thought I'd get your thoughts on that as well.

Yeah. So on the economy I sort of have. There's sort of two economies. There's the economy that's ruled by corporatism, and there's the economy that's ruled by capitalism. And I think for about 100 years they were conflated to be the same thing, but they're actually different things. So corporations right now are completely firing the middle class. They don't need the paper shufflers and the cubicles anymore. I'm not saying this is a political thing or even an economic thing. This is just what's happening. 2008 gave everybody an excuse to fire all their employees. And the employees are not coming back. And now technology has taken over, globalization has taken over, and so on. Companies are instead going out and when they need to, they're hiring temp staffers. The temp staffing industry is one of these huge demographic trends I was talking about. The temp staffing industry is growing enormously, but the economy is not growing so much because companies are getting all their profits by firing everybody and outsourcing the temp staffers. But at the same time, we have this amazing innovation economy. I mean, we have companies building spaceships that could go to outer space or genetically growing algae for biofuel. So there's all these amazing things happening in technology that are going to literally fuel the economy for the next hundred years. And I have a lot of faith in that and a lot of faith in the United States. We've gone through many economic upheavals. This is no different than any other one. And I think we're going to come out strong.

Good, good. Well, I'm glad to hear the optimism there. And you're right. We really do have two economies. And the fact that corporatism and. How did you say that again? You know, have been tied together for the last hundred years, but they're really different. Say that again.

Yeah. Corporatism and capitalism have been sort of conflated together, like as if they were one.

Yeah. And they're not. They're different. Corporatism is almost like government because they have the inside tract. They have lobbyists. They have whole different agendas and they're looking to take care of. To take care of themselves. So that's a completely different thing. Very good points. Well, James, thank you so much for these insights and joining us today. I know I kept you a little longer than planned, but you're just too darn interesting. It's your own fault. See? And thank you and everybody. Please visit James websites and get his books and take a look. I think you'll be very impressed.

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