Build an Awesome Portfolio with Jared Dillian

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• 0:00Speaker 00

  Hi everybody, I'm Michael Martin. Thanks for being here. Today, I have a guest on the show. He's my good friend. I've known him for a long time. His name is Jared Dillian. He's New York Times bestseller, wrote Street Freak. He has a newsletter. He's a commodity trading advisor. He's a DJ. He teaches writing in college. He has a master's in fine arts. He is a Renaissance man, if nothing else. So, we've been friends for a long time. This is a conversation more than an interview. I hope you'll like it. The book is called The Awesome Portfolio, and it's available today. Jared, man, it's so good to have you. I'm one of your biggest fans. I'm glad to have you as a friend. Thanks for joining the show today.

• 0:34Speaker 01

  Awesome to be here. Thank you.

• 0:35Speaker 00

  You're welcome. Good Yankee game last night, nine to three. We gotta, we gotta beat Houston again, I think, later today.

• 0:40Speaker 01

  Did you know that the Yankees are, I think they're forty-six and five when they score more than five runs? Or five runs or more?

• 0:49Speaker 00

  You know, I heard Michael Kay say that. I didn't know, but it brings into sharp relief just how much we miss. The two guys who are over six foot six. I was gonna have to cancel today because I got a hangnail on my, on my mouse thumb. And when Stanton can go out with a calf sore, I just don't understand. The baseball of the seventies compared to baseball, I'm not calling them prima donnas, I just don't understand. There doesn't seem to be a great level of grit anymore. I don't know, but I watch a lot of baseball. I watch the Cubs. My oldest son played against Pete Crow Armstrong in high school. They had a friendly, pretty friendly rivalry. He's a great kid, great parents too. His parents are actors. So, anyway, you're a eclectic person. If there is a Renaissance man in this business, it's you, Jared.

• 1:34Speaker 00

  And, you know, it's, it's great. It's very inspiring to be your friend. You do a lot of great things. You know, you write great books, you're a DJ, you have a few other things going on. And so, as your friend, I want to say, I'm proud, I'm proud of what you do. You know, I'm proud of what you do. Keep pushing the envelope, man. Keep being you. It's great to see. How did you come up with the idea, given the eclectic things that you write about, to come up with a book? You know, like such as this one?

• 1:59Speaker 01

  I was, you know, I kinda have this theory that most discoveries happen when you're bored and you're like tinkering with things, you know? And I have this subscriber, he's a financial advisor out in Idaho. And we were just, we were, we were in this email conversation and like, we were building different portfolios and like, you know, checking out the statistics, checking out the sharp and stuff like that. And eventually, we came to this portfolio. He's, I'm like, what if you had gold? What if you had real estate? What if you had cash? And then I looked at this thing and I'm like, this is, this is it. Like, this is the answer, you know?

• 2:33Speaker 00

  Yeah.

• 2:34Speaker 01

  So, you have this portfolio, which gives you about one or two percent less than the S and P 500, which has half the volatility and none of the drawdowns. Like, the drawdowns are very minimal. And, you know, my whole philosophy ever since 2008, because I got rinsed in 2008 when Lehman went bankrupt, right? Like, I got, I got crushed.

• 2:54Speaker 00

  Right.

• 2:54Speaker 01

  And I said, I never want that to happen to me again. And, you know, the conventional wisdom is, you put all your money in an index fund and it goes up and down and you retire after forty years and you have ten million dollars, you know, you just dollar-cost average. But what professional investors know is that drawdowns are the enemy, right? Like, drawdowns are the worst thing in the world because drawdowns affect your psychology. And also, if you take a fifty percent drawdown, you have to go up a hundred percent just to get back to the high watermark. So, drawdowns are super, super important. And, you know, if you're in the S and P 500 and you have a great bear market, market's down fifty percent and it takes you ten years to get back up to your high watermark, you're just gonna be miserable the entire time, right?

• 3:39Speaker 01

  So, I wanted to build a portfolio where you're not miserable, you know? That's basically what it comes down to. Like, in the book, I say that I'm in the happy business. I'm not in, I'm not in the investing business. And the whole point of this book is, like, you're just gonna be happy all the time. Like, you're not gonna be stressed out, so.

• 3:58Speaker 00

  So, I want to get into that, and there's, there's a lot to talk about. So, I want, I want to be, as my dad would say, be bold, be brief, and then be gone. No throat clearing or blathering. You open with the line that volatility's purpose is to make people do stupid things, right? And we know that volatility shakes people out. I think Dalbar did a study and said that the average holding period for a mutual fund was just over four years. And I sat there in disbelief with my jaw down, thinking like, mutual funds, like, I get, you know, ETFs and this and that. They, they, everything is stockified now. Walk me through that Lehman period, down fifty percent, puking in a trash can. How much of this book, though, when you look back, is the portfolio that you wish you had in 2008?

• 4:39Speaker 01

  Oh, my God. Well, you know, the funny thing is, is that in, in 2008, The Awesome Portfolio was only down nine percent. Nine percent. And the S and P was down thirty-eight percent in 2008. So, and, and that was the second worst drawdown for The Awesome Portfolio in history, right? So, in 2008, you know, I kinda had a special situation because I worked at Lehman. Lehman went bankrupt and I had a bunch of Lehman stock, which went to zero, you know? So, there was nothing I could do about that. But then, you know, I was a Vanguard customer at the time. I had a bunch of Vanguard mutual funds. And I outperformed the market, but I still got killed. Like, I still, I still got absolutely destroyed. So, I'll even give you the numbers. So, I was thirty-four years old.

• 5:23Speaker 01

  At the top in 2007, I was worth 2.4 million. At the bottom in 2009, I was worth 1.2.

• 5:32Speaker 00

  Eesh.

• 5:32Speaker 01

  Fifty percent drawdown. And, like you said, puking in the trash can, you know? And I just started the Daily Dirt nap and I had no revenue coming in. And it was, it was tough.

• 5:43Speaker 00

  When did you get out of the Merchant Marines? How, how many years after that were you out of that?

• 5:47Speaker 01

  Coast Guard, Coast Guard.

• 5:47Speaker 00

  Coast Guard, yeah, I'm sorry.

• 5:48Speaker 01

  Yeah. I got out in 2001.

• 5:50Speaker 00

  Okay. So, you're still kinda like, six years, you kinda know what you're doing, but at the same time, you know, this is a shock. I mean, you had meteor, that's a meteoric move from the Coast Guard to be at 1.7. Like, that's amazing. Like, you had to, coming into oh-seven, you must have been thinking like, this is exactly how life is supposed to be, right? I mean, you got it kinda figured out. And damn, I didn't know it was that bad, man. Kudos for you, because, you know, you're a rock star, man. That's crazy. So, the life hedge is the idea, you call in the, is the idea you call the heart of the book. Most people's careers aren't, you know, in nozzle sales, for example. If someone is a tenured professor or an ER nurse, not cyclical income, should their allocation look slightly different?

• 6:34Speaker 00

  Or do you think it should be exactly how you have it delineated in the book?

• 6:37Speaker 01

  No, it should be how it is in the book. I mean, that's, that's actually, you, you bring up a very good point, which I didn't discuss in the book, because some people's incomes are not cyclical, right? So, if you're a government employee, if you're an educator, if you work in healthcare or things like that, like, you don't have a cyclical income, but a lot of people do. And, you know, just to back up, to give a little bit of context, the point I'm making in that chapter is that most people invest in such a way that it makes their life procyclical, right? So, when their job is going well, the market is going well, and it's awesome. And when their job, when they lose their job, when they're unemployed, the market is going down. Those things are correlated and everything is terrible.

• 7:21Speaker 01

  So, what they're actually doing is amplifying the volatility of their life. So, so what I said was, like, really, the ideal investment should be something that's countercyclical, right? Like, that's doing poorly when your job is doing well and vice versa. But that doesn't really exist. This, The Awesome Portfolio, is the next best thing, right?

• 7:43Speaker 00

  I agree, a hundred percent. Now, I read the review copy, you know, to give, to write the review, which hopefully you liked. And I read it twice in preparation for here, because the worst thing is going, is like asking a girl on a date, getting her in the car and going, so where do you want to go? Like, you gotta, you gotta have a plan, right? So, the thing that you stated in the book that I absolutely loved, and I came back to it several times, is that most people are actually overweight in equities because they discount the value of their house, right? They, they, they don't look at that. So, the diversification, you know, I have a lot to say about diversification, like, because I kinda come more from the trading side, although I was schooled at what was then called Smith Barney Harris Up him when they had like three thousand people.

• 8:25Speaker 00

  And what you learn very quickly is that diversification is Milton Friedman is the only free lunch you can get. It's, you know, it's risk reduction, but it's not risk management. And so, I want to put this to you. I know you're, you're a very bright guy. Let's take three, three sets of age groups. We have a thirty-year-old, a fifty-year-old, and a seventy-year-old. If we bought the Invesco QQQ at the IPO at fifty bucks in 1999, at fifty dollars. A year later, it was at a hundred and twenty. That was the boom. Two years later, we were at the bottom of a ninety percent drawdown that took sixteen years to recover to that high watermark. So, you remember what the late nineties were. It's like, you couldn't talk to people about, Bill Miller, who was a value guy, was buying Global Crossing and Cisco, right?

• 9:09Speaker 00

  There was style drift across funds. And those were bright guys. Like, they're really good. They have no more finance knowledge in their pinkies than I'll ever have. And so, everything was going to tech. Just in time, from March tenth of 2000, everyone gets blasted. How, how would you overlay risk management to this portfolio? Because losses and drawdowns are not symmetric across age groups. You know what I'm saying? So, a seventy-year-old, I know seventy-year-old people. I'm not there yet, but I, I'll be there shortly, right? They have maybe ninety-year-old in-laws or parents. They have children, and now they have grandkids. So, they're really a sandwich generation on steroids, right? So, when, when do you know, even with the perfect Awesome Portfolio, excuse me,

• 9:49Speaker 00

  when do you know to fish or cut bait? Like, because if you had the QQQ, you know, is it unreasonable to think that, you know, I don't want to sit through an eighty percent drawdown of any asset class? You know, whether it's Bitcoin, gold, or otherwise. What do you think of that?

• 10:03Speaker 01

  Well, you know, the funny thing about The Awesome Portfolio is, actually, let me back up a second first. You know, thirty years ago, they used to say, your age should be your allocation to bonds, right? So, if you were seventy years old, you should be seventy percent in bonds. If you were thirty years old, you should be thirty percent in bonds, the rest in stocks. And the reason you do that is, if you're seventy and it's 1999 and you bought the Q's and you put all your money in the Q's, then your standard of living in retirement is gonna be greatly reduced, right? So, you want to take less risk as you get older. The cool thing about The Awesome Portfolio is, you don't have to think about asset allocation your entire life. It is appropriate at any age level, right?

• 10:45Speaker 01

  So, in the past, you'd say, okay, I'm thirty, so I'm, I'm thirty percent in bonds. When I'm forty, I'm forty percent in bonds. When I'm fifty, I'm fifty percent in bonds. You kinda have to shift your asset allocation over time. Maybe you get a target date fund that does that? This takes all the brain damage out of it. It's, it's really a one-size-fits-all solution. It's appropriate for any age level.

• 11:05Speaker 00

  Okay. Now, let's go back to gold and you picked 1972 because that's when Americans could legally own gold again, but that window also contains the greatest bond bull market since we talked about bonds in the history and a gold price coming off a fixed peg. How much of the back test is a regime artifact, do you think?

• 11:24Speaker 01

  What do you mean by that?

• 11:26Speaker 00

  In other words, do you think the way I was using, maybe I used the wrong word, but there's no curve fitting or data mining in this, right? You kind of did the back test so that the results were very robust is what I'm kind of getting at.

• 11:40Speaker 01

  Yeah, the other thing, which I failed to mention in the book, the other reason I picked 1972 is that was the first point in history that you had an index of real estate. You had to re-index, right? So those two things happened at the same time. So we really can't go back before 1972 and see what gold was doing or see what real estate was doing, right?

• 12:00Speaker 00

  Yeah.

• 12:01Speaker 01

  So, but it's, you know, it's 54 years of history, which is, you know, that's quite a bit. You've seen gold bull markets, you've seen gold bear markets, you've seen bond bull markets, you've seen bond bear markets, you've seen both in stocks. Like you've seen a lot of different regimes over the last 54 years. And the thing about the awesome portfolio is there really isn't any scenario in which everything goes to hell at the same time. It's pretty much impossible. I would say the one vulnerability of the awesome portfolio is rising interest rates. Like if interest rates go up fast, then bonds are going to get killed, stocks are going to get killed, and gold's probably not going to do well either. And that's what happened in 2022, which is the worst year for the awesome portfolio.

• 12:46Speaker 01

  It's down 12%. So.

• 12:48Speaker 00

  So with that in mind, you call rebalancing the portfolio's one flaw. And it doesn't really work without it. Is there something circular about a portfolio designed around the fact that people don't behave the way you want them to, which then depends on people doing this type of behavior, you know, once a year? I know this is kind of nuanced because we're trying to think about people who we don't know, right? So we might be making a bit of a generalization here. But in my experience, there are people who are dug in, who will want their asset class, they want their Bitcoin, they turn into fanboys, and there's no reasoning, you know, with them. What would you say to that type of person who's a bit stubborn?

• 13:27Speaker 01

  Yeah, you have to rebalance it, you know, pick a day that you remember, if it's December 31st or your birthday or something like that, you have to rebalance it. I mean, if you think of it this way, just think of 2025, where gold went up 100% or not 100%, but like 60% or something like that. In the first part of 2026, it went down 28%. So if you rebalanced at the end of 2025, you were able to take profits in gold and reallocate it to the rest of the portfolio, right? Like that's, that's how it's supposed to work. What I would like to do eventually at some point is create an awesome portfolio ETF.

• 14:04Speaker 00

  That'd be a great idea.

• 14:06Speaker 01

  For you, you know.

• 14:07Speaker 00

  That would be great. So let me ask you this though, because I don't know if there's, there's one good answer to this, but I'm always interested more in how you think, right? That's the asset here. Home equity is leveraged, illiquid, and geographically idiosyncratic, right? And you can't sell 3% of your kitchen, right, on December 31 or pick your birthday, whenever you want to do that. So in practice, how does someone rebalance a portfolio that's, you know, maybe one-fifth to one-half home equity, right?

• 14:38Speaker 01

  Yeah. So the way you rebalance it is you add to stocks, gold, cash, and bonds over time. Most people are over-allocated to real estate. Like your, your average person has a $400,000 house, they have $100,000 in equity, and they have a $50,000 portfolio of financial assets, right? So in order to rebalance that, obviously you can't sell your house, right? So over time, what you do is you just plus up the allocation to everything else. And you won't be able to do it in one year. It's going to take several years, but that's the whole goal. So.

• 15:14Speaker 00

  Yeah, I mean, that's fair. The whole point too, well, not the whole point, but we have to consider the tax treatment because your home equity kind of grows and you can borrow against it. So it's kind of like, it gives you a different style where as soon as we start doing transactions in the markets in an account that is not a tax-deferred account, we've got other considerations. I, it always drives me nuts when people buy stuff and hold it and they don't try to protect their gains because nothing goes up forever. Look what happened to GE, right? When you and I started, GE was the oldest component in the Dow. And Jack Welch practically had an endowed chair at CNBC. He was on every day because of his management guru prowess. And then, you know, who knows what happened?

• 15:55Speaker 00

  I don't know if it's all Jeffrey Melt's fault, but company went to hell. So we can't fall in love with these things. We have to be objective. You know what I'm saying? Like, and I think that's where investors need emotional intelligence to understand that these things are basically in your portfolio. They're kind of there to help you for a while, but ultimately, and this is me in my dark way of thinking of things, I think they're like spouses that are eventually going to cheat on you. And you have, you know, because that's what happens. Like they, we all had that Farrah Fawcett picture up on our wall in the seventies. And it's like, you can't fall in love with Bitcoin because that's what Michael Saylor's doing. Like you have to have independent thought. And what I love about this book is that you actually gave people the tools to kind of start to learn

• 16:37Speaker 00

  how to think for themselves. I'm not saying fire your financial advisor. In fact, I think most do-it-yourselfers should have an advisor. 20% cash, though, let's talk about that. From 09 to 2021, that yielded nothing. So just to play devil's advocate, why cash rather than say tips or a broad commodity index, given that you argue that commodities are what can actually protect you during, say, war or inflation?

• 17:02Speaker 01

  Yeah, I mean, gold, so first of all, there's a bunch of questions there. I wanted, I wanted commodities in the portfolio. Like I wanted, I wanted a commodity index. And the problem with commodities is that they're negative carry, right? So it's going to cost you money over time. It's going to underperform. Gold is a little bit negative carry, but not very much. The cost of storage is very low. And gold is a pretty good proxy for the whole commodity basket because it's like 17% of the index. So I was like, let's just use gold. Cash, you know, I first came up with the awesome portfolio in 2019. And, you know, like you said, back then, cash, you know, was yielding zero. And I got a

• 17:43Speaker 01

  bunch of crap from people about that. Like, why am I 20% in this thing that yields nothing? Like, and, and also, I think there's like this philosophy, a general philosophy, that you should be fully invested at all times, that cash is a drag on returns, right? Like, why do you want cash? And my position on this is cash is an option. Cash has optionality. You have an option to buy something cheaper in the future.

• 18:12Speaker 00

  Right.

• 18:13Speaker 01

  Any asset, whether it's a stock, let's say Nike, for example. Nike's down, what, 80% from the highs or something like that. You're like, now is the time to buy Nike. Well, if you don't have cash, you can't do it. You have to sell something else. Now you have a tax problem, right? So you got to move money around, you got to sell things. Or let's say you go on vacation and you see a house that you really want, it's got a for sale sign in front of it, and you want to put down a down payment right away, but you don't have any cash. So now you're selling stuff, moving. The most powerful force in the world is liquid net worth, having liquidity. It's very, very important. And most people just do not have enough. I don't have enough right now. I'm actually, I'm very short on

• 18:54Speaker 01

  cash right now because I'm, I'm busy paying down the debt on my house. But I, I mean, ideally, I would like to have multiple seven figures in cash.

• 19:02Speaker 00

  Yes, sir.

• 19:03Speaker 01

  To take advantage of these opportunities. So.

• 19:05Speaker 00

  Let's talk about that for a minute because I will share with you, I'm in the same boat. I am asset-rich and cash-poor. I don't, you know, I, I live a very frugal, you know, life. And I have, you know, tenants who are paying the bills, so to speak. So what do you think that does to like an investor's psychology when they think about those types of things in terms of asset allocation and/or, because I'll give you my opinion, you can, let's play point, counterpoint here. I think people have greater, people think they can predict the future. And I think studies have shown that humans are terrible at prediction, even though the feelings are so strong in their body. You know what I'm saying? So they lever up their assets into things that are unproven or that are kind of on hunches.

• 19:46Speaker 00

  Like that's the, those are the kind of incoming calls that I get from folks, right? And they find themselves in a spot just like that where they're not necessarily, they could be asset-rich and cash-poor, which means that they don't really have that six months of cash stored to take care of things if something bad ever happened. And it doesn't mean they're necessarily month to month, but they're almost month to month. Yet they have, you know, a million-dollar business, they might have a $2 million house, you know, in Paulies Island or some, you know, nice place. So what, how, I think your point about the, that's how this question came up. The point about having cash, it does give you optionality, right? It is an asset class that won't zig when everything else basically

• 20:26Speaker 00

  zags. And, you know, we have to remember that in bad times, we can't predict when the black, there's black swans that are good and bad, right? But we can't predict when they're going to happen. We just typically know that when bad news hits the tape, correlations go to one.

• 20:41Speaker 01

  Yeah.

• 20:41Speaker 00

  So what's the, let's talk about the asset of having a sleepy little portfolio that might not have the sex appeal that the people on TV are talking about, but this is a sleep tight at night kind of portfolio. This is a portfolio that if the market's down 2,000, you know what I mean? I think you talked about making lamb chops with Michelle or something, watching bad three-point shooting, right?

• 21:04Speaker 00

  So let's talk about that. Let's talk about the sleep tight at night kinda hug-ability of this portfolio. It might not have the sex appeal, but it's gonna help you get your long-term goals, but without the duress. This is a stress-free portfolio allocation. Is that what you're thinking?

• 21:21Speaker 01

  Yeah, I mean, so let's take a contemporary example, right? Let's talk about Ukraine.

• 21:26Speaker 00

  Yeah.

• 21:27Speaker 01

  And, you know, I was, you read the newsletter, you, a couple of months ago, I said Putin's gonna nuke Ukraine, like he's gonna nuke him. Like, I mean, Russia's lost a million soldiers, like, they're losing the war, he's up against the wall, he's gonna nuke Ukraine. And then, yesterday, the day before, we found out they're actually considering doing it, right? So what happens if that happens? All right, well, stocks are down 10 to 20%, right? I'm not really sure what bonds do. You know, bonds usually, you know, yields usually go up in war, but that's probably a flight to safety trade, so bonds probably do well. Gold goes parabolic, real estate's probably down a little bit, and you have cash. So my

• 22:08Speaker 01

  guess is, if that happens, if you were in the S&P, you'd be down 20%, but if you're in the Awesome Portfolio, you're down 3 to 5%, you know? Because always, something in the portfolio is always working, right?

• 22:20Speaker 00

  Right. And that's something that people have to think about. When I lived, you know, more in the heart of town, I used to say like, "Look, the 405 has five lanes going in one direction." And you kinda, you see these people trying to play pole position so they can get to their destination, you know, three minutes faster. Because that's really when you have a one-hour trip, all that lane change and stuff actually does. But just because I'm into statistic, it also increases your chances of having an accident by 60%. I just try to stay in my lane. Like, when I think about allocation in that regard, the allocation is the asset as much as what you have in the allocations, right? That's the whole point of it, in that anything can happen, and you're kind of like a man

• 23:02Speaker 00

  or a woman for all seasons by, by having that. Now, again, you might not, you know, let's talk about this. On the, on the stock side of things, how do you talk to someone who's like, you know, Nvidia reported last night, like, they're gonna wanna grow by 70%, how can I not have Nvidia instead of like the S&P? Or, you know, Bitcoin has a short squeeze, or there's a bit of a bump in the, in the past week after having a more material drawdown. You know, talk to the sensibility of the person who's, reads, everything in, in the headlines these days seems to be tickerized. It's about all this opportunity, right? So people feel like they're behind, they feel like they're missing out, because that's the job of the media, to either get you angry about the president, or to put you in fear,

• 23:43Speaker 00

  right? Let's face it. So, so let's talk to those people who, you know, wanna participate, they wanna be the people who own, you know, Bitcoin at a dollar, you know, and they missed that boat. You know, what, what do we, how do we help them have an equity allocation, knowing that they also might have real estate, and we're recommending something much more broad, say like the, the SPY or the Q, or the QQQ, and not necessarily individual stocks?

• 24:07Speaker 01

  I guess, I guess what I would say is, you gotta read the book, and you gotta buy into the philosophy behind it.

• 24:12Speaker 00

  Yeah.

• 24:13Speaker 01

  You know, this is, this is not a portfolio for raccoons, I like to call them, you know?

• 24:19Speaker 00

  Yeah.

• 24:20Speaker 01

  You know what a raccoon is, right? Somebody who's always looking for like the next hot thing. This is not a portfolio for raccoons. And one of the chapters in the book, I talk about fear of missing out, I talk about FOMO.

• 24:31Speaker 00

  Yeah.

• 24:31Speaker 01

  And the reality is, is that if you invest in the Awesome Portfolio, there's gonna be a lot of times when you're underperforming the S&P by 10% or more. It's happened plenty of times in history. And you're gonna be going to cocktail parties, and people are gonna be crowing about, you know, they made this trade or that trade, and you got your sleepy Awesome Portfolio. But, there's also a lot of times when the Awesome Portfolio outperforms the S&P by 10% or more.

• 24:56Speaker 00

  Right.

• 24:57Speaker 01

  And that's usually when things are really bad. That's in the bad times, you know? So, you know, look, we've had like an 18-year bull run, right? And people just have complete amnesia about how bad things can get. I'm not a bear, I'm not a doomer, I'm not saying we're gonna have, you know, the market's gonna crash tomorrow. But, you know, history has shown that over a 100-year period, you're gonna get four or five 50% drawdowns in the stock market. And it's, you're probably gonna get one of them in your 40-year investing career, right? And if you go through that, there's a pretty good chance that you're going to not see this through to completion. And you're going to puke at the worst possible time, which is

• 25:41Speaker 01

  the worst outcome, because then you stop compounding. And then, of course, when stocks get above the high watermark, and they're making new highs, you get back in, and you're buying the highs, and it's just, you know, the S&P returns 10% over time, most people do much worse than that.

• 25:57Speaker 00

  Yeah.

• 25:57Speaker 01

  Much worse than that, so.

• 25:59Speaker 00

  Yeah, I know that. And I do believe that you can do market timing. Like, I know enough people, when I started in the business, it was the late 80s, and people were like, "You gotta buy and hold, you can't time the market." And, and then you see the commercials that scare people, where they're like, "You know, if you tried to time the market, and you missed the 10 best days, your returns fell to this." When I went back and look at the data, right, you can go to Yahoo Finance and get the, what, the SPY came out in 93, you can go back, and what you find is that things like that happen in clusters. So if you missed the 10 best days of the SPY, chances are you also missed the 10 worst days, because they kinda happen very close to one another. It's an uncanny type of a thing. So I think that's a scare tactic that people, you know, kinda fall victim in. What I'm, what I'm concerned about is that if they don't actually take

• 26:44Speaker 00

  the rebalancing and the allocation part seriously, that, to me, is the biggest asset of the book. Well, it's the biggest asset of investing, I think you make a lot of great points in the book, in that, you know, that all these 20% allocations, including the cash, are there to help you make money, but you also, and I remember I heard this from a guy who traded at Tutor Investments, good friend of mine, his name's Scott Kaminsky, he said, "Listen, Michael," because I was mostly trading softs at the time, he said, "Your job, even if you're hell-bent for election as a speculator, is to play superior defense." The problem with the media is that they're like, "You're missing out, you're missing out, look at these new opportunities." The managers come on and say, "Here's what's in our book, here's what investors should do." And it leaves the investor thinking that

• 27:26Speaker 00

  somehow, like, "My God, I gotta be an idiot, how do I, how come I don't know any of these types of things?" Right? So, I think the book does a great job in explaining to folks that, what you, what's most compelling is the allocation, that's what's gonna save you, and the, the idea is, that what you don't lose, you don't have to earn back.

• 27:43Speaker 01

  Yeah, exactly. Exactly.

• 27:47Speaker 00

  You know, and the diversification is what saves you. When I get into my own head, you say you don't get FOMO, someone gets rich on some coin, and you think like, "Good for them." I don't really think people believe that, I think there's a lot more schadenfreude going on in the world, that, that people wanna let, like, on TV, they're like, "I'm a Christian, good for you, I'm happy to help you, let me know how I can volunteer to help your cause." But in the background, they're like, "I've missed out, I'm angry about that, I want that type of abundance." Just as an aside, we've been around for a long time, what, what is one thing that you watched go up that actually kinda stung, that you missed?

• 28:23Speaker 01

  Chipotle.

• 28:24Speaker 00

  Because I know you, you do a lot of great analysis, you know, and I read-

• 28:26Speaker 01

  Chipotle, Chipotle.

• 28:28Speaker 00

  Chipotle.

• 28:28Speaker 01

  Oh, God. I had, I, I had my first Chipotle burrito in 2006.

• 28:33Speaker 00

  Yeah.

• 28:34Speaker 01

  And I was like, "This is the food of the gods, I gotta buy this stock." And I went in, and it had IPO'd like six months, a year before, and I looked at the PE, and the PE was 80.

• 28:46Speaker 00

  Yeah.

• 28:46Speaker 01

  I said, "I can't buy this stock, it's too expensive." Well, you know, 5,000% later, and like, there were, there were plenty of opportunities along the way, I could've bought it. Like, I could've bought it in 2008.

• 28:58Speaker 00

  Yeah.

• 28:58Speaker 01

  Uh, 2009, I could've, I could've bought it at any point along the way, and I was, I was always like, "Nope, 60 PE, 80 PE, I can't buy this stock, too expensive." Uh, that, that, that one, I, I don't wanna say I'd be retired, but I, if, if I had bought the stock in 2006 and held it, I'd, I'd be in a much better position right now.

• 29:19Speaker 00

  Mine is Bitcoin. And I will, I, just as a gesture of humility, I'll say the same, the same type of a deal. I was actually with a group of people who really knew this stuff back in like the late 90s, early 2000s, when you could still buy a bunch of it. And they're like, "Michael, with all your success, take a thousand dollars and just buy some, right? Just buy it and have it, you'll forget about it. Just watch what happens." And my, the problem is, is that I have great emotional intelligence, but then you start to get intellectual, and I'm like, "I just don't know what the asset is," because the scarcity thing, first of all, we'll all be dead by the time the thing stops having, right? Having. Two, just because there's a fixed quantity doesn't mean that it's gonna go up, because I know enough from school that the value is really what people put on it, right?

• 30:04Speaker 00

  There needs to be institutional sponsorship, that, that has certainly come along. But back in the day, 20-something years ago, it was, there was, it was a bunch of geeky guys on the internet, and it was crickets chirping as far as the, the other thing. And I, I just, I didn't see it, I didn't believe it, I, I wasn't open-minded enough. And I think that's the big takeaway for me, is that there's a way, there's a way to do it, either with leaps, a fixed amount of money, where I could at least take a stab at something. But that's my big regret, is that I had the opportunity, it doesn't like, I didn't look back at the chart and say, "Oh, look what you could've done." You, I will have a couple, couple more questions. You quote the line that "If you don't own something that you hate, you're not diversified." I laughed out loud when I read that. And I was like, "He gets it, man. If you don't

• 30:49Speaker 00

  own something that you hate, you're not diversified." What do you hate in your own portfolio right now?

• 30:55Speaker 01

  Well, I, I, it's not so much that there's anything I hate, but everybody else hates bonds. Everybody hates bonds right now.

• 31:01Speaker 00

  Right. Or they hate what's going on in bonds, right? I mean, the whole thing, it's like, I'm sick of hearing about it.

• 31:07Speaker 01

  We have 40 trillion in debt, we have $2 trillion deficits, we have $1.3 trillion of interest expense, uh, we have inflation, like, why do I, why should I own bonds? Why can't I just leave that out of the portfolio? No, you have to own everything, even if you hate it.

• 31:24Speaker 00

  Yeah, yeah, yeah, yeah. So with that in mind, and like I said, you know, you live in the Myrtle Beach area, South Carolina, surrounded by people who got rich kinda by accident, owning land that nobody wanted, what has that taught you about wealth, and that finance, you know, or Wall Street never did?

• 31:41Speaker 01

  Well, basically, you have to own assets.

• 31:44Speaker 00

  Yeah.

• 31:44Speaker 01

  Right?

• 31:45Speaker 00

  Yeah.

• 31:45Speaker 01

  Like, that's really the key. Like, you, you, it's, I'm trying to think, I'll, I'll talk about a family member.

• 31:51Speaker 00

  Okay.

• 31:53Speaker 01

  Who is wealthy.

• 31:56Speaker 01

  But doesn't own any assets. He makes seven figures, but spends it on vacations, food, renovations to his house that don't increase square footage, like stuff that just is not assets. It doesn't return anything.

• 32:10Speaker 00

  Right.

• 32:10Speaker 01

  So from an income standpoint, he's in the top 1%, but he, he, he doesn't, he, he doesn't own stocks or very little, doesn't own, I mean, he owns a little bit, he has a tiny house, but basically he's asset poor, you know, and like, he just doesn't have any exposure to something that could go up and make him rich, right?

• 32:31Speaker 00

  Yep.

• 32:31Speaker 01

  Like his income is just consumed, right? So when, when I think about what I do, like I'm always buying assets and I don't necessarily mean stocks, like even physical things, like I buy watches, watches have value.

• 32:45Speaker 00

  You're right.

• 32:45Speaker 01

  I buy jewelry, jewelry has value. I buy art, art has value, right? So I'm constantly buying assets, you know, I, one of these, I, I have a lot of art in my house. I'm a little bit of an art aficionado, not, I, I'm not really knowledgeable, but one of these artists could go on to be super famous and, you know, one of these paintings could be worth half a million bucks someday, you know, I don't know.

• 33:10Speaker 00

  Yeah.

• 33:11Speaker 01

  So you just, you, you just want to be buying assets, period.

• 33:15Speaker 00

  Yeah. And I think, you know, in, in many ways we have parallel lives, we're buying assets. I actually paint, this one is one of mine. It's one, it's very meditative for me. I practice jiu jitsu. I got a black belt. I do yoga every day. Uh, you are, are very eclectic too. Just, I don't get too much into your personal life, but you know, you got master in fine arts, which is a great achievement. You're a college professor in writing, right? You're a DJ, a professional DJ, and you play at some pretty swanky joints. Let's talk about having balance in life, right? I mean, cause this is the type of business where you and I know we could go nuts with, and go down rabbit holes with research and, and charts and fundamentals and all this other kind of stuff. Let's talk about taking, taking

• 33:58Speaker 00

  everything in stride, right? Like how does, how does, you know, writing is easy, writing well is very difficult, right? So, so, so let's talk about, you know, the teaching and the DJing and that stuff that you do outside the business and how important that is to you.

• 34:13Speaker 01

  Well, first of all, I, you know, I have a very out of consensus belief about the investing world. I think there is a very low correlation between how hard you work and your returns, right? So I'm sure you know, some people that just work an insane amount of hours. They work 16 hours a day. They work a hundred hours a week. They're always doing research and their returns are mediocre. You know, investing is about making decisions, right?

• 34:42Speaker 00

  Right.

• 34:42Speaker 01

  Every trade is a decision and it's about the quality of your decisions. And there is such a thing as having too much information and polluting your thought process with a bunch of noise, right? So I'm, I'm getting, I'm going to answer your question in kind of a roundabout way. I don't spend a great deal of time on my investment process. It doesn't take a lot of time. I look at some charts. I read some stuff. It, it does not consume a lot of my time. I have time to do other things like music, writing, teaching, stuff like that. Like, you know, I, I, I really, I really have this strong belief about there is such a thing as knowing something too well, and you're not seeing the forest for the trees because you're really focused on the trees, right? Like I really make

• 35:27Speaker 01

  an effort to kind of limit my information intake and I find that's super helpful to my process. So.

• 35:34Speaker 00

  You know, it's a different book, but that reminds me of the opening line or something that I think I read in, uh, simple heuristics that make us smart. You know, if someone was going into a heart attack, they used to do 12 different measurements to kind of figure out or tests on the body to see if the heart was under duress. And over that period of time, like time is muscle in heart attacks, right? So they were finding that there were a lot of people dying because they were taking so much time to get the test. What they were able to do is to take the three most important ones that had like 80, 90% efficacy. They cut that amount of time and they started saving more people's lives. Like I think the idea of people trying to outperform the market or this and that is, is the big ruse. And I'll say this, you know, with, you could have an account at Goldman or Guggenheim or wherever,

• 36:17Speaker 00

  and you could take 12 months of, of 12 of your monthly statements in PDF format, upload them into Claude and say, where's my financial advisor falling short? Where should they have seen the writing on the wall? And I think, you know, this book is a big, you know, time will tell, but this kind of challenges the investment advisory business in many ways because it's the allocation. That's the key here, right? But if the modern day advisor is just getting their 1% asset management fee over the course of the year for allocation, I think that is absolutely going to put, you know, pressure on them to actually have to perform. What do you think about that?

• 36:51Speaker 01

  Yeah. I mean, advisors are human beings. They're very fallible. I have a lot of opinions on the financial advisory business. You know, there, I mean, they can be very helpful. They're also subject to, you know, all the fallacies that are out there. I mean, the thing about the awesome portfolio is that, uh, it's a real threat to financial advisors.

• 37:12Speaker 00

  Yeah, for sure.

• 37:13Speaker 01

  Like, I mean, if somebody read this book and they took it into their FA and they said, look, the crazy guy that wrote this book says I should be 20% in gold and 20% in cash. They'd be, they'd be like, no, no, no, he's the crazy guy. We're not going to do that here. You're going to have a 60, 40 portfolio. Like it's just so far out of consensus that like people are going to dismiss it as like some crazy idea when it's really not. And the fact is, is that if this, if this took off, if people started doing this, they wouldn't really need a financial advisor. I mean, the only purpose of the advisor would just be to tell them when to rebalance, you know?

• 37:49Speaker 00

  Right. Hold them, have an accountability coach, that kind of thing for sure.

• 37:52Speaker 01

  Yeah.

• 37:53Speaker 00

  Well, folks, listen, admittedly Jared's a good friend for a long time. Uh, the book comes out today. I'll put a link in the description. Go get it. It's the awesome portfolio. I know you're going to love it. Jared, uh, uh, great job with the book. Let's have you back on.

• 38:05Speaker 01

  Yes. Thank you. Appreciate it.

• 38:07Speaker 00

  All right, buddy. Take care.