BONUS #3: CONFIDENTIAL BRIEFING Wealth Building Outside ...

[Pages:14]BONUS #3: CONFIDENTIAL BRIEFING

Wealth Building Outside The Stock Market

PANEL: Chris Lowe, Mark Ford, E.B. Tucker, Dan Denning and Marco Wutzer

Fernando Cruz:

So, we're not conference people. This is not what we do, and so, you know, we just don't know any better. Our CFO is like, "Oh, you know, we're losing a lot of money on this." I said, "Yeah, we lose money. It's for our subscribers." And we kind of like to come together and do these things. And I had a lady talk to me earlier and she is in the conference business and she's like--you know, she's talking to me about like the food and the breakfast and the cocktail hour and how--she's like, "You know, that just doesn't happen." So, I'm like, "What do people eat and what do they do at these other conferences?" And you know, so she's going down the list. And I was like, "Well, don't say it to our CFO, clearly, because we don't want to skimp, but I'm glad that we're able to do that." And that kind of leads me to the next thing. I don't know if ?

Okay, so we have our next panel. It is called Wealth Building Outside the Stock Market, and it's a lot of my favorite people in here. Mark Ford, Dan Denning, E.B. Tucker, and Marco Wutzer, and it is moderated by our very own Chris Lowe. Welcome to the platform, guys.

Chris Lowe:

Okay, so we're going to be talking about wealth building outside of the stock market. So as a business, our main focus is stocks. That's how we kind of got started, and it continues to be kind of the core asset class or route to wealth that we talk about at Legacy. But of course, there's a lot more involved, as you probably all know, in building wealth and stocks actually only make up probably a smallish portion or a medium-sized portion, at least, of any wealth building plan. So, I was going to start with you, Mark. Mark, if you don't know him, is the founder of Palm Beach Research Group. And when Mark set up Palm Beach Research Group, he bucked the trend of our industry, because he deliberately set up Palm Beach to look at the other elements of wealth building outside of the stock market. So, Mark, maybe you could just talk about why you made that decision to begin with.

Mark Ford:

I wasn't going to write a newsletter about stocks, because I really didn't know much about stocks, and although I'd been in the investment publishing business for 35 years, I couldn't pretend that I knew anything about it. I'd never taken a course in it. I hadn't really read too many books. In fact, I just wasn't interested in stocks. And when I looked at my own career and back at how I acquired



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Chris Lowe: E.B. Tucker:

my wealth, it wasn't--it was selling information about stocks, but it certainly wasn't investing in stocks. So I thought I would talk about--if I were going to talk about the things that I've done, which are mostly outside the stock market--I will tell you now that I do invest in stocks and I'm very happy to have done that. But you know, when I look at my portfolio today, by far the largest portion of my assets are in real estate. But I do a lot of other things too that are kind of interesting and fun and I'd be happy to talk to you about that.

And I just think to have a--to enjoy a life of building wealth, you need to--I think you need to go beyond stocks. So, I'll just say that.

And maybe ? because I know, Mark, one of the things that you ? I'm going to put it to E.B., but one of the things you talk about is real estate. And E.B., you're known more, again, for maybe your stock market advice and advice on gold. But you actually have an interesting real estate story. Maybe you could go into that for the folks.

I will. But first, there's something really important that I think everyone should know about the stock market, and I'm going to tell you this and you may not ever hear it from anyone else that's involved in our business. And before I tell you, I want to qualify myself by saying I've been interested in stocks since I was a teenager. I was attending annual meetings with my grandpa. We were buying ten shares of this and that and he was teaching me about the business. It's been a life-long pursuit. I'm a director of a public company and I've founded a company and taken it public. The purpose of the stock market is to sell equity to people, okay? So, the actual purpose of the market is to take something that you don't want anymore and sell it to an unsuspecting group of public market participants.

Now, that doesn't diminish my enthusiasm for the market, because as we all know, what happens once those shares are trading is they trade for more than they're worth sometimes and then they trade for less than they're worth sometimes. But if you see an IPO coming to market, you can count on the fact that the board members have said, "Boy, this thing is going to trade for a lot more than we think it's worth, so we're going to sell it to the public." Okay? So just know that about the stock market. It kind of ties in with what Mark's saying. It's really hard to quote/unquote get rich in the stock market. You know, what you're more likely to do is to run into trouble, because there's a big learning curve and it takes time to figure this thing out. So, it is wise to have real, tangible wealth outside of the market.



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Now real estate is a fantastic place to hold wealth. It produces income, it's very difficult to fully destroy. I mean, worst-case scenario, you end up with a dirt lot. You can always do something with that. It tends to survive big inflations. It can be difficult to hold onto. A lot of people run into trouble because they take this statement that real estate is good, and they say, "Great, I'll borrow as much money as I can and buy all the real estate I can." But you have to be able to hold onto that real estate. So, in 2006 and 2007, with a guy I was trading with at the time, we shorted Countrywide and Fannie Mae. We lost a lot of money. We carried the shorts for six months and we couldn't afford it anymore and we capitulated, and we quit, but we learned a lot. We learned exactly what was going on in the U.S. market--all of these stories that I'm not going to bore you with; you've already heard them.

Then the market crashed, and everything was in disarray and neighborhoods were boarded up and all of this stuff. And I sat with this trading partner of mine and he said, "You need to try to crystalize your thought here." I said, "Well, the only thing I can think of is that the amount of people that own a home has never been higher, and all of these people are going bankrupt and the houses are boarded up and there's jingle mail." Remember those? "So, these people are going to turn into renters. So, if we an acquire rental property that cash flows today"--so we're not speculating that rents are going to go up. We're not speculating anything's going to happen. But we want these to produce positive, real cash returns now and we're willing to work hard for this--you know, to hire the crews and get all of this stuff done. "This is the time to do it."

Now little did I know that was probably the best idea I've ever had in my life, because the cheapest house that I bought--we've written about this sometimes--is $10,000, and the guys they foreclosed on had a $170,000 loan on this thing. We fixed the house, we put $12,000 into it and we rented it to a family for $895 and they've been there for eight and a half years. So, you just don't come across bargains like this over time. Now you don't have to get a deal like that to be in real estate. You know, there's metrics you can use and this is actually not very complicated. But the point is that when you look at your total picture--you know, if you look at a pie chart of your balance sheet, it's really comforting to have a portion of that in real estate. And it can take you a decade to build that. You don't have to go out tomorrow and buy. In fact, it's probably a terrible time to buy real estate. Interest rates are rising and there's all kinds of headwinds for real estate.



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Chris Lowe: Mark Ford:

But you can learn about real estate and you can keep an eye on all of the listings. You can meet with brokers and you can do your homework and you can put together cash flow models and kind of practice and get to know what's going on, so that when the time is right you can strike.

Mark, I'm just interested, following on from that, to keep on the topic of real estate, what's your view on where the market is right now in the U.S.? I mean, are you looking at buying, or ?

Well, I don't--I'm just thinking why I don't have my energy up. It's because all of my ideas come from disagreeing with people, and I completely agree with what Tucker just said. I don't think of real estate as an actual market, because I invest directly in properties. I see it as a local market. And there are--since I've been investing in real estate, which is more than 40 years, I've never seen a year where there weren't markets for it. You just have to be able to go out and find them. In South Florida, where I live, it's been terrible. I haven't been able to invest in real estate for a long time. I'm about to build a 70,000-square-foot building, but I can explain that.

Just very quickly, because I don't want this whole thing to be about real estate, I have a--the way I invest in real estate is the way I invest for everything. I'm basically an income investor. I have certainly done some land banking and I've done some speculative real estate deals, and I've proven my ? proven that income investing is better every time I've done that. What I do is I just buy based on the--as Tucker said--the current rent I could get. And I use a formula that my brother has now codified into eight times gross rent, which is very rough, but it's helpful when you're starting out. And so if I can't buy a property for eight times gross rent or less, I don't. If you follow that formula, you don't have to actually talk about the general aspects of real estate or what markets are doing what. You don't really need to know that much about occupancy rates and so on. You're just really betting on the fact that rental rates won't have a huge fluctuation, which, they don't, compared to prices.

So I'll give you the best example. My brother, he used to be a financial analyst for Agora and in 2009 he quit and he started buying properties for $25,000. And then he's just started trading up, which is what I've done. You start with a small property. You should buy a property for-- well, we didn't get one for $10,000, but for $25,000. And then the thing is productive right away cash flow-wise, and then you just start-- as cash increases, you start trading up and you get larger units.



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Chris Lowe: Dan Denning:

And my brother right now is basically, you know, building 400-600unit apartments and hotels. Not in Southern Florida, but he's done very well. And it's just by following this very simple formula. So that's why I like real estate. Tucker said it's simple. It's simple. It's very simple. It's so much simpler than stocks.

I think of it this way. I know Agora inside and out. I used to know Legacy inside and out. But I couldn't predict from year to year how they were going to do, profit-wise. This is my own company, a company that I knew the people, I knew the strategy--I even had some control over it, and I couldn't predict it. How tough it was for my to predict a competitor in the same industry. Now forget about going into an industry I don't know anything about for a company that's 500 times the size. It just didn't seem possible. But real estate is actually very simple, if you invest the way I do. All you need to do is figure out--get a sense for the neighborhood, figure out what the rents are and use that formula. And because it's so simple, you can leverage. I would never leverage in any other field. But in real estate, you know, leveraging is taking out a mortgage. And you can do it without taking great risks.

You probably hear this term Agora a lot. Agora is the parent company of Legacy, just in case that term is throwing you off. Dan Denning, co-author of The Bill Bonner Letter, you--at The Bill Bonner Letter, like Mark, you've made a specific asset allocation. So you've decided and told your readers that they should put--I think it's roughly a fifth of their wealth in stocks. So maybe just talk about why you took that decision and what else you recommend people put their wealth in.

Yeah, it was really something Bill and I jointly arrived at, because neither of us are stock-picking investors. We work with people like Chris Mayer and Thompson Clark, who do that much better than we do, and they're far more interested in it than we are as well. We're sort of looking at the big picture. And in that sense, what we've argued, and I think some of the studies show is a lot more important than the actual stocks you pick are being in the right asset classes at the right time. So, if you're in stocks in a bull market--I learned this the easy way in 1998 when I started working for Mark. My first job was to pick small cap stocks. And I learned that the best time to be a stock picker was in a bull market. If there's a way to make a literature major look like a genius, it's to start picking stocks in 1998.

So, Bill and I now obviously have a different view of the risks in the market. There's $22 trillion in central bank liquidity that has been created since 2009, and we believe for the average Bill Bonner Letter



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reader, for where they're at in their career or in their retirement, that you have a lot of risk owning the conventional 60/40 portfolio. And I'm not sure anybody does own that portfolio anymore, by the way. But they always tell you, you know, 60 percent stocks, 40 percent bonds. So we said that's crazy in a market where we think prices will fall by 50 percent at a minimum. We're going to recommend a much smaller allocation to stocks, no allocation to bonds, and then I can talk about it more later or now if you want, but the term we've used is you've got to de-financialize your life.

We live in a very financialized economy where the largest companies are finance companies. The financial sector makes most of the profits--25 percent of the profits on the S&P 500. And in that respect it sort of goes with the territory on theses trips I've taken in the last year. I added it up this morning. I've traveled 7,000 miles in the last eleven months, by car, looking all around the country, which is a significant achievement for someone who doesn't drive, you know? So just quickly, I'd say, talking to people like yourself, who are on the road, this notion of de-financializing your life is a wealth that's not measured in your portfolio. And I would rank it in this way: family, skills, and firearms. Those are the three common things that I've talked to people about. And that's partly what I did when I moved back after living overseas for 15 years, is--I thought as I got older one of the important sources of wealth to me would be better relationships with my family. And I know that's not the conventional conversation at an investment conference, but I can tell you it's paid off. It's also reminded me the appeal of living 9,000 miles away in Australia, because you suddenly remember all of these petty squabbles that you had.

But family, I think, is a very important source of wealth, or just your relationships. Skills--something important to me. I can type really well, but that's about it. So I'd like to learn how to do some more practical things. And because I was in the Northwest, a lot of people have what you would call a portfolio of firearms. They have a rifle, a handgun, and a shotgun. And for them, that's actually a very important part of defending their property or their personal safety. It's not for everybody, but Amber and Bill give me a lot of latitude to write about these things in The Bill Bonner Letter, so it might be something I write about later. But in general, because of the risks in the economy that we see, this fake bubble world, we think whether it's real estate or other tangible assets, you really need to de-financialize your life so that you don't have a lot of your net worth at risk in the stock market.



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Chris Lowe: Dan Denning:

Chris Lowe: Marco Wutzer:

Dan, what's an easy starter point for that? So like let's kind of get to specifics here. You're talking about having quite a significant amount of your portfolio outside of the stock market. So what would be a good starter point? We talked about real estate. I mean, everyone probably here owns real estate, because people live in houses. So what else would be a good place for folks out in the audience to kind of start thinking about de-financializing?

Well obviously what Mark and E.B. said about real estate, that's partly what I've been doing myself, is looking for properties to buy in places that are cheap. I'm not that creative when it comes to it, so I own a lot of bullion. I've dabbled a little bit in art. Certainly nothing expensive, but stuff that I like. So when I traveled through the Southwest and Santa Fe. Jewelry, a little bit. These aren't securities. These are tangible things that I want to own. So it's a fairly particular thing, but that's where I've started myself. And, because I lived overseas--I lived in Australia for ten years and lived in Europe for five years altogether--two years most recently--I've opened bank accounts in foreign countries. And I think you have different risk there. You have currency risks and you've got to comply with the Treasury Department, who now apparently shares this information with anybody. But that's a part of it to.

Marco, I'm going to turn to you. Marco Wutzer is the editor of Disruptive Profits, which is our newest crypto and blockchain-focused advisory service. And Marco actually crypto retired. I went to dinner with Marco last night and he used that term, "I crypto retired," and I thought, "That sounds good." So, Marco, you went into cryptos very early on. You were actually involved and looking at sort of digital money before Bitcoin even came along, and you're interested in that. What would've happened to you had you gone down a more traditional route of the stock market? Where would you be right now, do you think? And maybe why did you get into cryptos in the first place? Why did you take that kind of a path outside of the stock market?

Well there's two reasons basically why I got into crypto. First off, as an anarcho-capitalist, cryptocurrencies, of course, are a match made in heaven. So, I was philosophically very attracted to that, and so it was only natural to find it early on, if you are interested in this kind of philosophy. And the other reason is, I was really one of the first people who made money on the internet, starting really in the late `90s. And when I got a certain level of success with that, then I moved abroad, and it was still the time of --you know, now you have the concept of the digital nomad and there are a lot of people like that. Back then,



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Chris Lowe: Marco Wutzer:

it was like blowing people's minds. "What? You make money on the internet? How is that possible?" And that was a time before Wi-Fi even. I mean, when I went to Brazil for a few weeks in the early 2000s, like they had to wire an Ethernet cable outside and up the building to the balcony so I could plug in, right? So, it was a very different world.

So I was dealing with online stuff and technology and with that philosophy, so I had naturally found cryptos. And yeah, so basically it's been crypto since then. Now I'm kind of more active again, now that I've joined Legacy. And for me now it's--I do some stock market investing and some real estate investing, but obviously I'm he crypto guy, so I'm all about cryptos. And now I have--we heard a lot of gloom and doom in a lot of presentations--and I have a very different vision. Because everything that we heard about how bad it is is very true. And the more you look at history, the more you realize everything is cyclical, and Doug Casey was very right when he was saying the West is at the end. And I completely agree with that.

But there's something that comes after the end, and if I look into the 2020s and I see the affects that crypto currencies are going to have in so many areas of our lives--and what it's going to do with governments, once a large chunk of the economy disappears into the blockchain ecosystem and you can no longer see who sends money to whom and what amount--it's still all guaranteed by blockchains, but it's becoming completely invisible, so a lot of the tax base is crumbling away. And it's going to liberate so much entrepreneurial force, so much creativity. I truly believe that coming after this dark period that we're moving into right now, I truly believe that in the 2020s we're coming into a new Renaissance, into a second Renaissance, that is based on all of this blockchain ecosystem, so yeah, that's what I'm here for. Now I really want to bring this message to as many people as possible and share the positive vision of the blockchain ecosystem and what this is all about.

Marco, if people out there sort of share that vision or are getting interested in that vision, would you have a simple piece of advice? Is there something that people could do when they go home, if they're interested in this? Is there a simple step? Because this can be very complicated.

Yeah, I mean, in talking to a lot of people, if you didn't grow up with computers, like I do, which is true for most people here, then it can be very overwhelming, because it's very technological still. I mean, this is slowly getting better and will eventually get very easy, but right now



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