323: Douglas Boneparth on Financial Education And Risk

Douglas Boneparth is the president and founder of Bone Fide Wealth. He is also the co-author of The Millennial Money Fix, which helps millennials learn the reasons for their financial challenges and provides the mechanics for their solutions. In this conversation, we discuss how access without knowledge is dangerous, why advisors are better than roboadvisors, FOMO culture, Doug's current view on crypto, and his best & worst investment ever. =============================== BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. https://www.blockfi.com/pomp =============================== Our second sponsor is choice, a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp =============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Douglas Bonaparte is the president and founder of Bonafide Wealth. He is also the co-author of The Millennial Money Fix, which helps millennials learn the reasons for their financial challenges and provides the mechanics for their solutions. In this conversation, we discuss how access without knowledge is dangerous, why advisors are better than robo-advisors, FOMO culture, Doug's current view on crypto, and his best and worst investment ever. I really enjoyed this conversation and I hope you do as well.

• 0:40Anthony Pompliano?

  Before we get into the episode though, I want to quickly talk about our sponsors. The first is BlockFi. They've got a number of products. You can either deposit crypto and earn a US dollar loan, you can buy and sell crypto on their crypto exchange, or you can deposit crypto in digital dollars and earn up to 8.6% APY in their interest-bearing accounts. I'm an investor and also a super happy user. Go check them out at blockfi.com/pomp. Again, blockfi.com/pomp. BlockFi is where all the wealth management services for crypto exist. Our second sponsor is Choice. That's right, they're a new self-directed IRA product that I'm already really excited about.

• 1:23Anthony Pompliano?

  If you're listening to this, you are likely part of the 7.1 million Bitcoin owners. You've got retirement account dollars, but you don't have Bitcoin in your retirement account. I was in that situation too, but now I've got a Choice account. You can actually now buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. A self-directed IRA product that lets you buy Bitcoin, hold your private keys, and use tax-advantaged dollars to do it. Go visit retirewithchoice.com/pomp. Again, retirewithchoice.com/pomp. No-brainer. Lastly, I write a daily letter to over 50,000 investors about business, technology, and finance.

• 2:07Anthony Pompliano?

  I break down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com. Alright, let's get into this episode with Douglas. I hope you guys enjoy it. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got him back.

• 2:52Anthony Pompliano?

  Mr. Douglas Boneparth, how are you?

• 2:54Speaker 01

  Doing well. How are you doing?

• 2:56Anthony Pompliano?

  I'm ready to go. You got your coffee hat on. You are the coffee connoisseur and also, you know, you have a side business, maybe helping people with their finances as well.

• 3:05Speaker 01

  A little bit, yeah.

• 3:06Anthony Pompliano?

  For those that didn't listen to the first episode we did together or don't know you, for the very few, just give us a little bit of background.

• 3:14Speaker 01

  Sure. So I'm the president and founder of a wealth management firm called Bonafide Wealth in downtown Manhattan, where I have not been for many, many months and don't know when I'll be back there. But I specialize in working with your now older, high-earning millennials, so folks with really high trajectory, whether it's white-collar jobs like lawyers and doctors and financiers to entrepreneurs who've, you know, really bootstrapped from the ground up and have really nice businesses to show for it.

• 3:41Anthony Pompliano?

  Awesome. Uh, let's just start off maybe with like, how has your world changed or what are the conversations been, uh, over the last, you know, 12, 15 weeks where there's just incredible uncertainty, chaos, volatility across all these markets?

• 3:58Speaker 01

  Yeah, so I'll never, for the rest of my career life, forget March particularly. You know, that's, that's really where the, the action came on the down, on the downstrokes. So, um, that was what I had been preparing for. I don't know if it was to that extent. Obviously, I had no idea it would be a health crisis, but I figured I would, in my career again, see something. Like we saw in 2008 and 2009 where I was getting my chops in my first few years in New York City. And that was drinking out of a fire hose. I mean, I was working in a practice with pre-retirees who were freaking out. And I learned a lot of lessons. I mean, these were not my clients. I was working with another advisor. But I got all these free learning lessons and I pretty much built an entire practice.

• 4:43Speaker 01

  To mitigate a lot of the things that I experienced, I go with a younger clientele who's not really worrying about retiring in a couple of years. So a lot of the money we manage is really long-term, two, three decades. So right then and there, I know a lot of my clients through the training that we've given them and through the fact that a lot of their money is qualified and long-term, I'm not going to have a lot of that big concern. They, they know they can ride out volatility, even severe shocks like what we saw on a, you know, 33% drawdown, top to bottom. So that was, that was helpful. But yeah, there were still people getting furloughed, laid off, very concerned, lots of calls and forced me to have to communicate at scale. So thank goodness we have all this lovely technology. And we got a great, a great way to absorb content and distribute that content.

• 5:28Speaker 01

  And I like to think we did a good job and also caught a lucky break with, you know, a lot of stimulus coming in, propping up the markets to where they are now. That definitely decreased a lot of the concern that clients in the practice had. And then lastly, I would say, again, my, my clients are, are like me, you know, mid to late 30s. A kid or two now, you know, stuck at home with them. Truth be told, I'm not at the top of the priority list right now, especially since a lot of the money is long-term. And we do, most importantly, comprehensive financial planning. So everything's written down. They have their plan. No one's calling me up, panicking in the middle of the night, even as prices are falling

• 6:07Speaker 01

  or stocks are falling. So again, just a mixture of all of those things have, you know, again, created a very memorable march that I'll never forget. But from there forward, it, it calmed down significantly as we're all, you know, dealing mostly with kids running around the house and doing the daycare thing.

• 6:25Anthony Pompliano?

  Yeah, and so I guess it makes a lot of sense that people who are a little bit younger can weather the storm, especially if they're kind of in a good financial position, have done kind of all the, you know, I kept saying like, the people who are not suffering are the people who did the hard disciplined things during the good times, they don't suffer in the bad time. The people who are freaking out during the bad time usually didn't do the hard disciplined things in the good times. And so what were the concerns? They're not freaking out in the sense of like, hey, I need the money in a year, right? Or anything like that. But like, what were people worried about given that there was just uncertainty?

• 6:57Speaker 01

  So I think it was simply a matter of getting back to organization. How is this going to ultimately impact the big picture? And look, that is still a, you know, pretty luxurious conversation to have when you're saying, all right, how does this change my prospects for retirement, which is 20 plus years away? There was a lot of folks revisiting cash flow and fundamentals to see how any kind of decrease in income. So there are clients who were asked to volunteer to drop, you know, their salaries by X percent to make sure their companies wouldn't lay off, you know, more people. So sacrifices were made, some even unfortunately furloughed and laid off some part of companies that have gone bankrupt. But it goes back to the planning that we've done. And you've said it perfectly there. It's in the good times that we prepare

• 7:42Speaker 01

  for the bad times. I distinctly remember writing a monthly newsletter around that theme right there. As a matter of fact, like, I walk a fine line between like worrying clients just the right amount when things are really good. So they revisit planning, they revisit their cash reserve. It's not because I want to say told you so, it's because when it happens, they're prepared. And I think the biggest thing really was stack cash. You know, I'm not here to talk about loving cash as an asset and what inflation can do to it. I'm talking about sleeping well at night. And nobody is going to convince me that a fat stack of cash, like nine to 12 months of your living expenses, by the way, that's well beyond

• 8:25Speaker 01

  that three to six months rule of thumb you keep hearing about nine to 12. So when things were really good and bonuses were fat and, you know, the ability to bulk these very foundational things up were there, we instructed folks to do just that. And look, that comes in handy when your income poof vanishes or gets cut by 20, 30%. No one was worried about their ability to get from, you know, February to now June. And you know, this market's pretty crazy. The economy, no one really has their finger. I mean, people are getting hired and buying homes. I've yet to see someone like be unable to sell their home and buy a home in this crazy time, which is kind of unfathomable. And then again, you know, you have people losing jobs. Economy, on the other hand, is just in shambles. So.

• 9:11Anthony Pompliano?

  I joked with somebody the other day, and I say joked because I couldn't believe that this was a fact. But I said, if I told you at the beginning of this year that there was going to be a global pandemic, 47 million Americans were going to lose their jobs, but personal income would go up over 10%, savings rate would go 33%, and the housing market would go up, you would literally take that bet all day long that it was impossible for that to happen. And yet, here we are.

• 9:35Speaker 01

  Yeah.

• 9:36Anthony Pompliano?

  It feels really, really crazy.

• 9:38Speaker 01

  Yeah, it's funny because in some regards, I feel like this is just a scaled up extreme version of what always is. Like, it's easier to say, you know, back before COVID, like, oh, you know, this happened because of this, of course. So now, scale that up. Like, everything should be falling apart. I think we've been saying that for literally 100-plus days. And, you know, either on a day-by-day, week-by-week, month-by-month, if you're just looking at the markets, people are like, what is happening? I don't know how many tweets and jokes I've made to that extent. But on the other side, look how extreme the response to that has

• 10:19Speaker 01

  been. The trillions of dollars in stimulus. So, you know, rather, it's just a completely gassed up extreme version of that same ping-pong game we play almost every day in the markets. You know, one thing good, one thing bad. Another thing good, another thing bad. What is it all net out to? I mean, if you're long-term and optimistic, positive, right? Like, that's the bull case. If you're bearish and like, want to see it, then you've got the other side. So, we play the same game we played pre-COVID as we are right now. It just seems a lot more extreme.

• 10:53Anthony Pompliano?

  So one of the things that the virus has done is it's kind of exposed a lot of shams in society and then it's also magnified a lot of trends that were already underway. And you recently wrote this blog post about access without knowledge is dangerous. And what you specifically were talking about is kind of a macro trend of the barriers to entry and friction being reduced in terms of getting really retail traders into a public market investing. Most people historically have said that's a good thing, right? And kind of for all the reasons that people would assume. I think you're saying something a little nuanced, which is access isn't necessarily good or bad. It's is it access with knowledge? And so maybe kind of talk through a little bit about like what you wrote and kind of

• 11:36Anthony Pompliano?

  what the driving thought process behind that was.

• 11:39Speaker 01

  Yeah, absolutely. So clearly the talk of the town in the investment community is what we see going on with Robin Hood traders, your pajama traders fueled by Wall Street Bets and Dave Portnoy and all the ruckus taking place right now. You know, stocks only go up if you miss the dip, you're an idiot. Warren Buffett's out. You know, every hedge fund guy who's made it in the Hall of Fame, out. You know, the new kids are here, we're taking over. That's probably said how many times over every decade? This isn't new. But what is new is the level of access that is now being provided to get into the capital markets. And you're seeing that through obviously Robin Hood. And I think overall net positive on providing access.

• 12:22Speaker 01

  Like you can have participants who've never could participate before. They said investing was a rich man's game, right? You needed a broker, you needed to go through someone to get there and you needed minimums to do it. Well, now you can do it for free and for dollars. So I think that's a good thing. But when it goes unchecked, when you don't possess the fundamental knowledge necessary to control that, you can really put yourself into some precarious situations. And it reminded me a lot of what was going on with student loans. So my wife and I wrote a book almost three years ago now called The Millennial Money Fix, which was about the student loan crisis. I was watched her take on, you know, multiple six figures in student loan debt to go to law school.

• 13:08Speaker 01

  Where it was pretty much like, hey, if you take out the debt, pay for this education, there's a big law job waiting for you. Even if you hate law, you know, you'll be making this much money, you're making six figures, pay off your debt, go find something else to do. But if you do like it, you can make, you know, partner somewhere and millions of dollars and all of that. Okay, um, what happened? Two thousand eight and two thousand nine happened. It happened to the later end of our generation. So the impetus to write the book was simply about, you know, what is going on here? How did we as a generation fall into what seems to be a trap? Obviously, we couldn't have called the great financial crisis or the financial

• 13:49Speaker 01

  recession in two thousand eight, but it created this idea that access, in this case, education and access to student loans, debt, without understanding how you're going to get an ROI on that education, actually doing like due diligence and critical thinking about it. It's not hard to do that. It's just you're throwing the promise, like you're gonna get a job. So we, we examined that. We took a historical approach where student loans came from and now mirroring that. Here it is again. You know, here we have it with access to the financial markets from folks who don't have like, you know, what happens if you don't forget the knowledge of how, you know, the difference between a stock and a bond, market caps, assets, you know, fundamental value, forget all of that for a second. You can go

• 14:34Speaker 01

  deep dive into investments. What about just knowing what your goals are and having a system for that? What about mastering cash flow? How money comes in and out of your life? Do you know what your savings rate is and you know where you're able to save? And you know the goals you're saving for? And then prioritizing those goals? We call this earning the right to invest. I want people to essentially earn the right to invest, equip themselves with the foundational knowledge that they need to then go invest and do so, not just responsibly, but do it in a way that they can stay invested. I want you to stay in. I want you to make money. I'm thrilled, absolutely thrilled. Anyone would go into the markets and come out making money, assuming it's not all on paper, like you actually have something to show for it, right?

• 15:19Speaker 01

  With Robin Hood, we have this construct now, just like we did with student loans, where dangerous things are happening. So just like the students who borrowed money hit the recession and now are bag holders and can't get income high enough to overcome their monthly payment or get relief for that, they're severely lagging on their ability to accomplish their financial goals. That's the pain point. And when you're young, you're not thinking about your financial goals. You're really not. You're young. I get it. You know, you and I have both been in that position. You feel invincible. You want to go explore and travel. I want you to do those things too. But I don't want you to blow yourself up so that you can't retire someday, that you

• 16:01Speaker 01

  can't build an emergency fund, that you can't buy a house because you're going to get married and you want to have kids. I mean, these are evergreen goals that we almost universally share as human beings and Americans to do great things in life. I'm not here to tell you to specifically do those things, but I do want you to find what it is you're going after. Would you rather just drift, you know, throughout your life paycheck to paycheck? I hope not. I hope not. So, um, yeah, I see it happening again. And I wrote this piece specifically about access without knowledge. And what you saw in the most extreme form unfortunately was a 20-year-old who committed suicide because they really didn't understand how to read the cash balance for the options

• 16:45Speaker 01

  trading that they were doing. And which made the story even all that more sad is they weren't in the hole $730,000, which by the way, would have dramatically, and you know, would have changed anyone's life. How are you coming back from that? Even though there are actual remedies to help yourself there. It's the saddest story you could possibly paint in this situation. And, you know, we were just talking about extremes earlier. Okay, that's an extreme. But what about all the gray area between no access and so much access that you literally lose your life, right? So we gotta, we gotta close that gap. And the only way to do that is really through the financial education component, the financial

• 17:28Speaker 01

  knowledge and literacy component that hopefully people can establish before they go running into the capital markets. I point out that we've really, you know, gamified and casino-fied the entire thing here. It doesn't help. You know that a media mogul is saying stocks go up. It doesn't help and he doesn't get it though, it's marketing. That's marketing, you know, I dunk on the Robin Hood traders for marketing just myself. I'm not going to be a hypocrite about that, but I'm doing it to then bring that attention over to the actual financial literacy. You know, people say, well, what, you know, that's not nice. You're just jealous. You missed the dip. Like, that's the response. Like, I assure you, I did not. But what I want you to do is understand that this is cool.

• 18:12Speaker 01

  This is very cool when you do it responsibly and I want you to do that so you can stay in and be successful and achieve your goals.

• 18:18Anthony Pompliano?

  See, one of the things, um, you know, with Portnoy, uh, that I think is really interesting is he absolutely, I just like the whole idea of like stocks goes up, right? He's saying it from like each individual stock price goes up, right? And, and, and the way that I think it's received, the crazy thing is he's not wrong if he caveated it with stocks only go up when the Federal Reserve is printing tons of money and inflating asset prices, right? Like, to your point, like, the education component is the explanation of that, right? And, and so it's this weird thing where, um, the structural, uh, components of the stock market are working in the favor of asset prices going up. Um, and, and so of course, whenever there's high level of volatilities and anyone who's

• 19:03Anthony Pompliano?

  long can just literally wake up and keeps making money, uh, it pulls everybody in because everyone wants to get rich quick, right? It's just human nature. And, and so I, I guess as part of this, like, what do you think the solution for knowledge is? Is this a thing where, you know, the Robin Hoods, the Etoros, whoever it is of the world, they basically have to say, uh, you can sign up for an account, but we're going to make you take a tutorial, uh, before you, you can actually start trading? Is it something where maybe there's a limited exposure until you do certain things on an education basis? Is it just we say, hey, look, it's not their responsibility as private companies, but instead we need to teach this in schools? Like, how do we solve the problem?

• 19:41Speaker 01

  Yeah, it's a multifaceted answer. A lot of the things you just said are components, you know, to solving this and it's a massive problem and I sincerely doubt that me as one person has all the answers, but I do have an idea, uh, uh, towards some of the things that can be done, uh, to help solve this problem. I think, you know, you get a big calling from a lot of people that we know to put financial education and literacy programs in schools. Like you'll take AP statistics, but you can't, you know, understand the difference between a stock and a bond, or more importantly, reconcile six months' worth of expenses. Can't like get people in the practice of that. So yes, putting it in the schools would be very helpful.

• 20:25Speaker 01

  Regulation would be very helpful, either self-regulation. And I think what Robin Hood ended up doing in response to that event was putting in greater controls over option three level, excuse me, level three option trading, different questionnaires, things like that. How about just showing you like, hey, before you do this, before you hit trade, you know, here's max up, here's max down. Are you sure? Like show people that. And you brought up a good point. What's their incentive to do that? They're not fiduciaries. Now, I'm not going to go as far as to say like, are they putting people in collections and going after assets? Like they literally have an incentive to watch them fail so they can go get something. I'm not saying that. I'm saying they don't have an incentive because they're not a fiduciary.

• 21:11Speaker 01

  You know, their incentive is to have you trade and to make money as a business. But I will argue this. There is likely more long-term value to generate by educating your consumer, by not only being a place that you can access financial markets, but that you can also educate yourself, right? Just I think there's

• 21:34Speaker 01

  a way to expand your platform and find other money-making opportunities and other lines of businesses on top of having a more educated client. I have clients that use Robin Hood to take five to 10% of their investable money and go nuts. And by the way, going nuts to them is like buying Apple or Microsoft. They're like their favorite companies that are probably not going to do all that bad. They like, don't have time to go YOLO, you know, go on some Tesla YOLO calls here. Like it's not what they're even doing. But you know, they have a plan in place. They have all these things. So back to like what Robin Hood can do and what brokerages can do, or any financial technology company can do is regulate themselves a little bit better.

• 22:17Speaker 01

  And then I think you can go as high as like, well, we see regulation, you know, from, from our government on down. That's even tougher. And I think. Truthfully, what we've seen here is that financial technology in many regards, fintech is outpacing regulation. Like acts written in the 30s and 40s did not anticipate you being able to swipe a disclosure, click it, margin, boom. Like it was, you're going to sit down with this person and fill out a bunch of paperwork, you know, and hit all these stopgaps before you would go do something. And, you know, not every investment advisor is a saint. You know, we don't have to go too far back in history to find out, you know, folks that have led clients into making some very bad financial decisions, if not just criminal, you know, behavior.

• 23:02Speaker 01

  I'm not saying that, but I am saying, hey, at least there were stopgaps and procedures and compliance offices and, you know, regulations that stuck a little bit harder because, yeah, they were, they were older processes. Um, so yeah, you got education in the schools, you got self-regulation because you want to have a better business and better enterprise. And then you have perhaps, um, regulation in the form of law to ensure that people are safe. Those are three great ways to go about this. Um, it's tough, I think, to, you know, get this into the household. Like if your mom and dad and grandma and grandpa, um, weren't savvy or don't know this stuff, I think it's really hard for them to then go get it and teach it to the kids. Um, but let me flip this for a second.

• 23:44Speaker 01

  If there's anything I can say as maybe a bit of a silver lining, um, from 2008, 2009, and even what we're seeing right now, at least the period of time between, uh, the recession and now, there has been, and it's hard to deny this, a uptick in thirst for this kind of knowledge. I, I think you're seeing it get mutated a little bit with the, you know, whole stock trading thing right now. But, you know, when you get punched in the face, you know, when you're a bag holder of student loan debt and you saw, you know, um, everyone getting left behind, you saw your, you know, brother not get hired or laid off, or mom and dad lose their business.

• 24:25Speaker 01

  Yeah, that kind of trauma, you know, that will stigmatize a person and start having you go out and finding, you know, solutions or making sure you don't fall into similar traps. So I would love to really just hit the, hit this thing even harder right now that there is at least the first time I've seen a real quest to, you know, get financially literate.

• 24:45Anthony Pompliano?

  Yeah, and it's this pretty crazy thing where like, I've always talked about it from the accredited investor standpoint of like, we use basically, how rich are you as a proxy for like, how smart are you?

• 24:56Speaker 01

  It's terrible.

• 24:57Anthony Pompliano?

  And so it feels like financial education would be a great way to kill two birds with one stone, like make everyone take, I don't know, it's gotta be like as cumbersome as like the SAT, but like the driving test wasn't that bad, right? So like, hey, come in, answer some questions. If you pass, like, okay, you're not an idiot and you, you have some base level of knowledge, like knock yourself out, take whatever risk you want. It also feels like that is a great way to structurally, start to add financial education into the system as well. So one, you can open up different asset classes for people that maybe previously aren't available. But two, also, it's a great way for, without coming in and like mandating and saying, you know, Douglas, you need to have a, you know, four-year degree before you could buy a stock. Like, I don't think we're getting anywhere near that,

• 25:40Anthony Pompliano?

  but I do think that a way to kind of seed it is you basically put things behind that obstacle that people want and say, look, here's a path to certain asset classes you don't have available with you today. If you go get this education, here's, you know, 20 different ways you can get it. Some are free, some are paid, and knock yourself out, and you're off the races. At least it's a step in the right direction. I don't know if it solves all the problems, it probably doesn't, but it just feels like that is somewhere that we could go that is relatively not controversial and could also, you know, really have a positive impact.

• 26:13Speaker 01

  Well, again, you know, it comes down to the businesses themselves and thinking about the kind of long-term, you know, business that they want to have for themselves. You know, if you, if you think, if you can get behind this idea that there's more value that you can generate as a business by informing your customers, right? And this is what's, there's at least this advantage that make, if regulation hasn't caught up to you yet, and it's a little bit of Wild West. You know, what we see so many times is people go to the nefarious things, right? Oh, let's shove these products into people's faces. You know, credit default swaps, you know, and stuff like that. You don't have to, again, go too far back to see like, the market always goes to the path of least

• 26:58Speaker 01

  resistance because that's where the money is going to be made. That kind of behavior is really, you know, where the trouble begins. You can instead perhaps use that to test out the market. Oh, like if you're just a little aware, like, oh, my goodness, people are getting in trouble. Like Robinhood has the data. Like, they know how many people are trading crazy options. You know, they know who's racking up debit in their account. They know their age, assuming they filled it out. They have their tax ID. They have everything on you. They know this inside and out. And are they going, hmm, there's money to be made on these rubes? Or are they going like, huh, we're making money here, but this is not good long term. Like, let's try and incorporate these following systems and see what the result is.

• 27:44Speaker 01

  Oh, it doesn't make as much money today, but it will create a more loyal customer over time. We'll get that many more trades or that much more transaction volume by having them stick around further and we did the right thing. So there's a corporate governance and sustainability and responsibility component that really needs to be added to any time you have access to something. And the lack of knowledge can put people in a very precarious situation.

• 28:13Anthony Pompliano?

  I couldn't agree more. I asked for questions on Twitter before we did this because of course everyone on FinTwit has, has an opinion or has ideas of what we should talk about. One of the questions came from Catherine Coley, which was, what is the best net income growth story of someone that you've worked with? Obviously, don't use any names, but just kind of tell us one of those stories.

• 28:34Speaker 01

  So it's usually from, and I'll paint with somewhat of a broad brush because it happens over, it's not any one person, it's usually a group of people. You'll find this with the folks who had the courage to leave their job, you know, which was not bringing them satisfaction and go down the entrepreneurial road and pursue the passion that they had when it seemed, and the earlier they do it typically, the better, like it's harder to do this when you have kids and mouths to feed and a mortgage and stuff like that. But I'm even more impressed by those who are like, despite all of that, you know, and there's planning that can be done around that, like maybe, maybe you stick it out for two, three years, um, you know, have all that retirement savings, go to cash savings, build up that runway so you can go do that.

• 29:17Speaker 01

  But it's usually around the entrepreneurs who go all in on themselves and, you know, they work their tails off and they got seven figure businesses to show for it. Like they would never, ever, ever have made that kind of money doing what they were doing. I mean, they could have been an accountant, you know, and now, you know, now they're selling, you know, the thing that they love most in this world on Amazon, they have an Amazon business or they just have an online shop and they're making a good at home. Oh, it's just the coolest stuff you could ever see. And then to help be a part of that, I mean, I can't take a lot of credit, I mean, they're the ones who did that work, but if, if I could give them encouragement or show them a roadmap to at least financially afford doing that without like their kids starving, going, you know, I as their advisor and getting a continued client who's loyal is,

• 30:02Speaker 01

  is the greatest satisfaction you could have.

• 30:04Anthony Pompliano?

  Yeah. And I guess, how do you think about, uh, from the advisor seat, um, there's, there's big talk in the tech community now about like raise venture capital, don't raise venture capital, bootstrap a cash flow, kind of, you know, seek profitability early, all these different things. Um, and a lot of people don't get to ask like the financial advisors, how do the financial advisors think about that for someone's portfolio, right? In terms of, are you actually drive, driving cash from a cash flow business that's profitable? And you're taking like a annual dividend type situation, uh, or is it, hey, look, you're going to have very little cash flow, uh, for a number of years, but you're building up this illiquid equity that one day should be worth, you know, much more than it is today on paper. Like, how do you think about that?

• 30:42Speaker 01

  Yeah, it's a great point. I mean, it's mostly bootstrapping, at least from, you know, the position of my clients. They're grabbing whatever cash and resources they have, really minimizing their expenses. So, you know, they're fairly uncomfortable, but surviving. And they go all in on themselves and build this thing out to where their cash flows can pay them either greater salaries, or they can do that plus a combination of dividends. And before you know it, if they've worked it right and had a great plan and executed, you know, money's not a problem, right? And you get two benefits. You get cash flow to be able to pay all your bills and squirrel money away while watching the value of your business rise. And, you know, hopefully at some point start talking about terminal

• 31:24Speaker 01

  value, but they might. I got clients that love what they do. They love their business. They don't even want to talk about that. Like, they're having fun. That's the win. The win is enjoying your life. And I think that's, you know, key to our generation and demographic is finding the purpose and making money with your purpose. Why would you stop? Why would you stop? It's hard to put yourself in the shoes of 60, 70, 55-year-old you and say what you're going to do then. You know, as someone who's built a business themselves, I can't. People are like, "What do you want to do next here?" I'm like, "Do I really need to answer that question right now? Do I need to scale up five, six financial advisors and staff of 20 and worry about real estate?" When I get to watch my kids grow up, handle 100 households that I enjoy working with, still grow? Maybe I'll wake up tomorrow and

• 32:08Speaker 01

  say, "You know what? Let's do that five times over." And there's a price to pay for that, right? It's maybe not seeing my daughter's dance recital because I gotta go put out a fire of advisor number 24. And, you know, there's $8 billion in assets on the line. It sounds glamorous, right? I know, I once read a white paper from, it was six billion-plus-dollar RIAs. And the whole white paper was about how to replicate what they've done and build your own multi-billion-dollar RIA. I finished reading it and I stared up at the ceiling for like a good hour going, "No, like God, no, like no, no, no." And it wasn't because I was lazy. It's like,

• 32:50Speaker 01

  "Do you really want to do this?" And I started thinking about the sacrifices these individuals made to get there. And the same could be said for any Fortune 500 company CEO. Go ask Jamie Dimon what he does and does not get to do in his personal life because he's running JP Morgan. Like, I'm always under the impression that all of these people we glamorize, you know, who are running amazing companies, unless you're in their shoes, you really don't understand the sacrifices that they make. It's often their health, their relationships. I see that in my clientele, too. So partners of firms, right? Maybe they're divorced once or twice already. I know some of them don't get to see their kids. I, you know, I'm not knocking it. Their lives, not mine. But anyways, that's

• 33:34Speaker 01

  my take on entrepreneurs as clients and even myself and the decisions that you make from a generational standpoint. You know, I think we're really, what's so characteristically us is that we're willing to disrupt and redefine conventional ways in which we've done things. And we're given such a hard time for that. Like, do it, it's that classic, like, do it my way or not, specifically in wealth management, is, you know, one of the oldest of old boy, you know, clubs around. You get a solo practitioner from the brokerage era who was slinging stocks, is now 65, bringing up a junior advisor, like, and you say, "Hey, I want to start a blog and do video content." It's like,

• 34:18Speaker 01

  no, you get pushback on that. You and I both know that that's the way. Like, if you don't build that business on the internet and direct traffic, right? I remember the first day a lead came through, you know, my, you know, my, wow, when a lead came through just from web traffic, and I was like, "Oh, my God, the machine works," right? It's funnel. Funnel was the word I was looking for. So, you know, it was junk, but like, the machine worked. And now I can apply and move these things around. And oh, my God. Now, today, you know, to get, as a solo practitioner, as someone with only, you know, one staff, to be able to get anywhere from two to six viable leads

• 35:04Speaker 01

  a month?

• 35:06Speaker 01

  Like, do that two years. You, I gotta hire someone. I can't sustain that. I'm not bragging. It is six years of doing that. So, yeah, there, there, there's a lot of those issues. Getting off topic here, but a lot of those issues here when we think about entrepreneurs and growing income and the ways in which we do stuff.

• 35:24Anthony Pompliano?

  For sure. And I guess, help me understand, Teddy wrote in and he was like, look, what's the advantage of an advisor? A human advisor versus kind of a robo advisor or the Robin Hood places in the world? I think I know what your answer is going to be, but like, how do you think about the, the difference there?

• 35:42Speaker 01

  Yeah, um, I'm kind of getting tired of people not recognizing, I mean, this, I'm getting, what I'm getting tired of is advisors not admitting to themselves and to others that the retail investment space is not commoditized. Like, it, like, what did robo advisors show you? It showed you exactly that, the commoditization of this space, which is a big threat to advisors who are simply running risk-adjusted portfolios. Cause you can go get that, you know, through a robo, you can do it yourself, right? You do it for free. You don't even need to pay the 25 basis points or less to do that.

• 36:23Speaker 01

  Where, and I think, by the way, for, for down market, for folks who don't want to pay, you know, thousands of dollars or have the complexity in their financial life to need that detailed analysis. You can do this all for free. You can do this all super cheap and I would encourage people to do that. You know, you always get the advisors who are like, oh, the robos will never replace me. I got news for you. If you're just doing investment advisory and creating these ETF portfolios, which we do for our clients for, for, you know, just basic asset allocation, that is something we offer. If that is all you're doing, you're going to be in for a rude awakening over the next 10, 20 years. Some people say, if not sooner, fine, pick your timeframe. I, I'm already telling you, like, that's going to be trouble.

• 37:08Speaker 01

  But when you bring in financial planning and advice, you know, you can't, you know, you bring in a human relationship, you bring in someone who understands your unique financial situation, not just to create the financial plan and go through the six key areas of financial planning as the CFP board would prescribe, very important stuff, very helpful to organize people in that way. But when you get that basis, that document, and then you can have conversations with someone based on their real life that ties back to that plan, yeah, that value just can't be replicated, you know, through an algorithm or through a piece of software. It even can't be replicated if, you know, you are a robo offering financial planning and advice. Hey, Steve, you call up next time, it's Mary. Like, were they

• 37:52Speaker 01

  passing your financial plan around and expect to really understand that, that point? So maybe over time, it will separate, you know, those with enough sophistication that need comprehensive financial planning and the estate planning and the tax planning and all of that from those who simply just need to focus on their cash flow, be disciplined with saving, and systematically invest their money into a risk-adjusted portfolio. That's fine. You know, that's fine. So I use a robo in conjunction with this. I think it solves a lot of problems for advisors who need to scale up investment advisory and do it the right way and can pass savings on to their client. So it's an in-conjunction thing. It's never like A versus B, but let's just, you know, let's just call it as it is, like

• 38:34Speaker 01

  investment advisory for these types of portfolios, you know, very low-cost ETF passive portfolios is commoditized, but very powerful when you pair it with financial planning.

• 38:46Anthony Pompliano?

  I love it. Where's Bitcoin and crypto fit into all of this? Like, what are your kind of current views there? And what do you see your clients wanting to do or doing?

• 38:53Speaker 01

  Yeah, more and more clients come in with a crypto position with some knowledge. So there's a definite uptick in that, not as much as you would think. Yeah, one in 10, you know, have, have experience, which is sweet. I mean, it's really cool. That's, you know, four years ago was, you know, one in none, you know, once in a while.

• 39:14Speaker 01

  I was on CryptoDales podcast live from Iowa. Awesome podcast. He's a great host and he and I chopped it up specifically about that. Like, and I've even been with you and Mark at a lunch, you know, getting off 1% like, and I think that pretty much captures like what we need to do. But my biggest problem is this, until SEC and FINRA or regulators come in and say, "Here is the prescribed methodology that will let an investment advisor make the recommendation to put this in a portfolio." You know, it is a, it is very worrisome if you're the chief compliance officer or if you answer to a compliance officer of how to do that.

• 39:53Speaker 01

  So we can educate, we can, we can talk to our clients about how their positions work in conjunction with their portfolios. We can show them risk, we can show them potential reward. We can show them all that based on what they've done, you know. But for me, and even though I might want to say, yeah, there's awesome data out there. It's just 1% you know, of a portfolio in Bitcoin of what it can do. Yes, you'll have more volatility, that much is true. But as a diversifier, as an asset class that has never really been used, you know, in portfolios before, like it has a tremendous amount of potential. I just don't have the rulebook, you know. I, so it's really just risk management from a firm level.

• 40:34Speaker 01

  Like you don't want to get audited and saying, "Hey, I'm looking at this financial plan and it says, you know, a diversified portfolio of cryptocurrencies, you know, whether it's Bitcoin or anything else, or Doge coin, or anything you want in there." Um, but I would say this, you know, and we talked about this previously. I mined Bitcoin back in 2014. So I have my own story with familiarizing myself with it. I've, I've been toying with it for quite some time. I wouldn't say toying with it. I've, I've literally held it since 2014. My friend called me up, said, you know, started... Going on crazy about hashing and a computer and mining and blockchain.

• 41:17Speaker 01

  Never heard this stuff in my life before. I could tell he was just looking for money, like he wanted money from me. He wanted to go do something and I wanted to get him off the phone. So I just, we just came back from our, my wife and I came back from our honeymoon. We're like really cash poor at the moment and I know no better way to get someone off the phone who's asking for money than say, let me talk to my wife. So I literally go, I go, hey, Heather, Seth's on the phone. You know, he, he's looking to put money into some kind of supercomputer. And she's like, oh, Seth, yeah, give him the money. I'm like, what? Like totally blindsided. He's a super smart guy. He's like one of these neurobiologist type folk who you can't have a normal conversation with. So my wife's impression is like, he knows something, you know, with some crazy technology that we don't and is probably worth a shot. So he won that day.

• 42:02Speaker 01

  Months later, you know, we get a two Terra hash miner. I'm like, look, I'm limited partner. You set it up, create a wallet for me, pull this, you know, pull the hashing and just drop the coins in my account. Well, six Bitcoins later each, not bad, right? $3,000 a piece for a miner. You know, I think Bitcoin was worth 400 bucks, you know, at the time. And I was like, um, it's so funny, the miner itself. So I don't think I've told this part of the story. The miner itself, your contract to receive the miner itself was worth $10,000 on eBay. So you're buying a $6,000 miner that, you know, basically you had a derivative of Bitcoin. You could just sell it for 10,000. I'm like, dude, that's the play. Go sell our contract and we'll go buy the Bitcoin. Like, don't be stupid here.

• 42:47Speaker 01

  And he's just like, no, no, you're not going to ruin my fun. I want to set this up. I want to mine it. I want to do this. I'm like, he goes, remember you're the limited partner. I'm like, okay, GP, you call the shots. This is dumb. If your goal is to make money, you're, you're being very stupid right now and you're a bad general partner, but let's go with it. You know, you're running the show. Anyways, flash forward. You know, now it's like December 2017, you know, I got six plus figures in Bitcoin. What the, you know, my friends are getting, they're like, oh Doug, you're, you're gonna be a multimillionaire. It's unbelievable, you know, womp, you know, I think that's like the second drawdown of 80 plus percent. Either then or, you know, then again after.

• 43:28Speaker 01

  And my attitude towards this the entire time was like, I'm playing with house money every day that I have it. I have the privilege of going through any environment, you know, whistling Dixie. And whatever it will be, if it goes to zero, like, let's say, you know, it turned out to be one giant Ponzi scheme. By the way, I do not think that at all. I think it's here to stay. It's hard to say like this thing's anything but real. But if it went to zero, I probably will have the best jokes on Twitter and troll everyone, including myself. And I will laugh. And if it goes to some absurd value in the future, I will also laugh, but to the bank, right?

• 44:09Speaker 01

  So it's win-win for me. It's very fun watching, you know, what's going on. There needs to be more applications. When it comes to Bitcoin, I'm looking for store of value, digital gold. That's a selfish opinion, you know, obviously I have, I have some, and I think that's a really good purpose for it. Blockchain technology really should be, you know, taking care of things like real estate transactions. Anywhere that you've been signing, you know, you buy a house and you're sitting in a title office and you're like, what am I doing here? You know, if you've had any experience with anything related to cryptocurrencies or blockchain, you're just like, doesn't that solve this problem? And where is it? So I think we're probably got a lot of time to go. I think we're way ahead of the curve here.

• 44:53Speaker 01

  But that's my opinion and I'm going to see more and more of it in client portfolios. I'm going to be forced to have to have an opinion. I would suggest any financial advisor to go read white papers and get foundational understanding. I know a lot, but compared to you and everyone who's like really in love with this space, I'm humbled every single time with really just how little I know. And if I relatively know a lot compared to everybody else. That is just a huge gap that needs to be filled. So what people can do, you know, go get Cash App and go, go get a, you know, go get some Sotoshies, like full of, tinker with it, you know, you learned, you learned your iPhone, you learned how to drive a car. There's no reason you can't play around with this and see what it is because when clients,

• 45:38Speaker 01

  if you're an advisor, if clients are coming in and the difference, I can't tell you how many relationships I've secured because of that story. Because I was able to say, you know, I, I ran into a guy, um, who worked for a crypto trading desk previously before, um, doing FX. And I'm pretty, you know, we spent 20 minutes outside of the regular pitch just talking about cryptocurrencies and what our experiences were. Became a client because of that, because of that. And, and honestly, doesn't, and because he did that for a living previously, doesn't have any cashed out, just needed planning for his wife and kids and

• 46:19Speaker 01

  to retire someday. So here we are, a plan that has nothing to do with cryptocurrencies, but a relationship that was secured because of it.

• 46:27Anthony Pompliano?

  I love it. I absolutely love it. Uh, somebody else asked, what's the worst investment you've ever made?

• 46:33Speaker 01

  Oh, um, wasn't luck and coffee. I did not buy any of that. Um, the worst investment I've made, there, there's a few of them. I think there was this, uh, there was R cap, you know, five, six years ago. Um, I forget the, the guy who did that. Um, it was, it was a real estate holding company. I had hardly anything in there. There is something recently that, oh yeah, it was MedMen. It was MedMen. It was like my first play in cannabis. And like, obviously cannabis will be absolutely massive. Like when my kids are old enough, it, you know, it should be, uh, not old enough to use it, my kids are older, you know, I can't see a world where, um, you know, this isn't like, they're not going to be thinking

• 47:17Speaker 01

  about weed like we did, you know, when we were kids.

• 47:20Anthony Pompliano?

  It'll be federally legal.

• 47:21Speaker 01

  Yeah, it'll be legal, you know, or, or just like, no one will really care, like at that point, however it gets dealt with.

• 47:28Anthony Pompliano?

  And what happened with MedMen?

• 47:30Speaker 01

  Um, you know, is held as the iPhone or Apple Store of weed, you know, being in New York, you could walk by the store on Fifth Avenue. I flew out to California for a conference and I was going through, you know, going through Hollywood and boom, there were stores all over the place and they were packed. And I was, I was like, cool. Like this is cool. You know, this is a, um, this has promise just based on that small position. And, you know,

• 47:56Speaker 01

  down, down we go. Um, I actually practice what I preach with investments, um, you know, just long-term risk adjusted. Here and there I'll find, you know, opportunities to invest in that are probably more private placement than they are, you know, uh, trading stocks. But, uh, you know, some winners and losers. Hopefully I generate a little bit of alpha, but that's probably in recent years, the worst investment that I've made.

• 48:20Anthony Pompliano?

  I love it. I, I tend to agree with you. I think the, uh, the marijuana space is going to, uh, in hindsight, appear to be a no-brainer. Um,

• 48:28Speaker 01

  How are you gonna pick? How are you gonna pick that amongst like, you know, 10, 20 company? I, I bet the winner is one that's not even, you know, formed yet, you know? I bet the one like that is the Amazon of weed or whatever. The Microsoft of weed doesn't even exist right now.

• 48:43Anthony Pompliano?

  Is there a weed ETF yet?

• 48:45Speaker 01

  Yeah, I think it was, there was one MJNA, I think. Obviously, you know, go do your research before you look up any ticker symbols here, but there was one, nothing I've ever seen a client invest in or nothing I've personally invested in, uh, despite really believing in this space and knowing it's going to be massive. I mean, there you go. I mean, there's your buyer beware. I have yet to see someone, I've seen people hit it out of the park with crypto more than I've seen people hit it out of the park with marijuana. What does that tell you?

• 49:19Anthony Pompliano?

  Crazy, crazy. And, and look, and I tend to think that that's actually, you know, makes sense in some weird way. Uh, last question for you is, uh, if you were sitting today, let's call it, uh, under the age of 30,

• 49:36Anthony Pompliano?

  And you had to put all of your net worth in one single asset class. What asset class are you choosing and why? So you have long time, you know, long term horizon and you have to have the most conviction because 100% of your net worth is going in. And you're going to hold it for that long period of time. What, what is it not necessarily, I don't care about the company or the stock, right?

• 49:58Speaker 01

  Yeah, no, I got you. I'll give you a sector. I, I, I go for technology. You know, I just, as someone who's grown up with the computer in front of that, it, it, you know, who's going to argue that? You know, like, think about that, like, oh, man, I went all in on like retail, like, and it didn't work out. Like, yeah, no shit, you know, like, we get, you, you see how many boxes, you got a kid, you see how many boxes? I read a funny joke the other day. Um, it was the UPS guy knocked on our door to see if we were okay because an Amazon box wasn't delivered that day. Uh, you know, anyways, um, you know, technology is what defines our lives.

• 50:40Speaker 01

  You and I are doing this right here on Zoom right now. You know, you have an iPhone in your hand, all the things I wish I had as a kid were like, you watch it. Yeah, you, I remember watching Inspector Gadget being my favorite show as a kid. My brother and I glued to a screen, watching Penny with her computer book. I remember getting those black and white journals and making computer books. Like, you know, I remember watching The Simpsons in the future and a big Simpsons fan, watching the episode. Um, you know, where Lisa's in the future and uh, Mary's, I was the Hugh Grant, but ends up Mary, yeah, it was Hugh Grant. Um, I guess, sorry, that's how much I know this stuff. And, you know, they were doing a video call, you know, and I was just like, we got, we're going to get that.

• 51:24Speaker 01

  We're, you know, or like, will we ever get that? We do. We have it. We have it.

• 51:29Anthony Pompliano?

  Even like Jetsons, like all this stuff, right? Like it's coming and now the equivalent of that isn't like some cartoon, right? That like The Simpsons is going to predict the future, even though they continue to do that pretty well. It's more of like the Black Mirror stuff. Like, you know, I debated a friend recently, I said, if you watch every single episode of Black Mirror, which I have not done, but just take generally it's futuristic kind of, you know, fiction sci fi stuff, what percentage of that stuff is true in the next 20 years? 50% probably.

• 51:56Speaker 01

  Minority Report is probably one of my favorite look into the future movies, even though I'm on cruise control.

• 52:03Speaker 01

  It's probably the last one I'll watch, but yeah, there's a lot of things going on in there. Autonomous cars are in there. That was the big one. You know, you just, if you want to go for a drive, go into the countryside, but otherwise you're plugging into, you know, a grid, precog, all that kind of stuff. I've been for now weeks and months trying to, you know, craft some kind of teleporter or teleportation joke because of what's going on with the airlines. Like, like I'll be the one, you know, let me be the first to say it, like teleporters? Like it's not, you know, all right, now we're getting into some pretty crazy physics stuff. But look, if we can, you know, FaceTime all of our buddies and, you know, have a drink. And if you said that 20 years ago, you know, you'd get laughed at. Who knows?

• 52:46Speaker 01

  So that's why I say technology, clearly buying like a technology, you know, ETF.

• 52:53Speaker 01

  I mean, rule of thumb, how many of those companies will not be around? You know, how concentrated are you towards, you know, fan favorites and FAANG stocks? Quite a, quite a big deal. Someone posted a chart today, like in 2000, what the top 10 companies were in my market cap. And I think the only one, maybe it was one or two, but the only one that was there, that's still here today was Microsoft. I think it was, that's the only one that hung around. It was interesting to see the comparison between the two. Oh, by the way, the PE, the collective PE of the top 10 components, cheaper today than 2000. So we got, you know, everyone calling, we got a tech ball. You got room to go if 2000 is your barometer of when this thing pops. Who knows? Who knows?

• 53:36Anthony Pompliano?

  I love it. I mean, look, and it's just, again, you said it in the beginning, so much of this stuff is not new, right? So I tend to think that it's a great way to look at it. Where can we send people to find you on the internet or learn more about the wealth management platform?

• 53:51Speaker 01

  Yeah, if you want to find me and just, you know, laugh a lot, go to the Twitter account at Doug Boneparth. If you're interested in anything having to do with financial advisory, free financial literacy content, or just want to chop it up about the industry, I like talking to young advisors who are like, how do I get in? How do I grow a practice? Because it's insanely hard to do, given the massive transition going from broker era to this new era of financial planning advice. BonafideWealth.com. Google the name, you'll land on it. Reach out. I'm around.

• 54:26Anthony Pompliano?

  Awesome, man. Listen, I appreciate you taking the time to do this. I always get a few laughs and learn something. So we'll have to do it again in the future.

• 54:32Speaker 01

  Thanks for having me. Be well.