The Long Run Show

On the anniversary of the first huge GameStop 50% surge hosts Michael and Austin talk about Buying The Dip As A Trading Strategy.

Hosted By:

Austin Willson

Michael O'Connor

 Back to another episode of the long run show. This is Austin with my co-host here, Mike, and we are going to be talking about buying the dip today.

Very interesting phenomenon that I think we've seen play out. Over and over and over again, this year, I'm in the markets and it's been a bit of a ride and I've actually, I actually have a little story to launch us in, but, um, Mike, if you have anything to add on the intro here, um, yeah, feel free. Yeah. I, I.

Add on that there's been, I feel like stock market means and phrases have begun become such a, a common piece of, of a called the lexicon of pop culture in the last few years, which is really interesting. And I, I, you know, we were kind of titling in our minds. We're titling this kind of a bias. And what does that mean?

And you know, how do we have you try and predict where the market is heading and stuff like that. But I think it was the moon to the moon. Yeah, exactly, exactly. I mean, we've been there before the, a buzz Aldrin and Neil Armstrong have been there before, so we'd always go back. But, um, anyways, anyway, I think that the, the, the focus of this is, is kind of, you know, the psychology of how do we figure out.

Bear markets, bull markets, you know, w w what's going on and, and like, is buying the dip possible? Is it a, is it a real strategy? And you know, maybe some, some we can discuss some FOMO, all sorts of stuff, but I, I'm excited to dig in and I'm excited to hear what your story is as well. Yeah. So I was watching a YouTube video as I am want to do.

Um, and I, this particular one was a video talking about. Um, actually, I can't even remember the full televideo, I think was talking about a recent IPO or something. And then they talked about the market in general, in broad terms. And the, the host just offhandedly said, oh yeah, you can basically just draw, draw a trend line.

He was like, almost making a joke, but like only half making a joke. He said, you can basically just draw a trend line along the, uh, the high points of the S P 500. And then whenever it just goes below that just by, and I was like, Well time out here, like it can't be quite that easy. I mean, I know we've been in a humongous bull run before, you know, all the craziness of 2020, and then of course there was a huge yourself and a huge rebound, I mean, an explosive rebound odd to all time, new highs.

So it's interesting because you know, Draw a trend line and buy below that trend line every time and be all set or, you know, I obviously, from a mathematic perspective, you'd probably better off just dollar cost averaging in, but that got me thinking about this whole trend of buy the dip, buy the dip, and it seems like.

Up until, you know, maybe, maybe recently the Thanksgiving around Thanksgiving, we had had some selloffs the day after Thanksgiving was pretty bearish red day for all the markets up until that point. Like, we didn't have a lot of hard sell off this year and it seemed to be. That EV every one of the talking heads on the new shows was just talking about how investors were buying all of these dips.

And therefore none of the dips were dipping to, to, uh, really lean into it there. So it got me thinking, okay. Is that all you have to do is just look at the S and P 500. By every dip that comes along and you'll be all set. I don't think it's that easy. I think probably you're, you're better off dollar cost averaging in, and that takes out a lot of the psychology, which we can definitely talk about.

You mentioned FOMO and FID and all that stuff. Yeah. We can dive into that, but it was just a very interesting thought experiment for me going, huh? Maybe, maybe there's something to that. Maybe, maybe I should pull up a chart. Look at that. That's really interesting. And I think it. It strikes upon my first, very first question will be like, well, how do you define a dip?

You know, is it, is it, are you trying to define one is like the, was the YouTube we're trying to define one is a day like an intraday dip. Um, or was it over a week or is it over a month or a year? You know, he was using the like month or six month chart. Wow. So there's so many different ways to even look at what a dip could be, that.

Really interesting. And I mean, I like this stickers around the benzene office that just say by the dip, it's almost become a meme in and of itself, which is that always concerns me. Like there's there, there's, there's something to be said about not going with the crowd and not going with the consensus.

And that tends to be a very smart thing to do. However, it seems like at the, at the same point when you're talking about. Such a bra. Market and, and okay. It's only 500 stocks, but it's the 500 largest companies the most financially successful, or at least supposed to be the most financially successful companies in the United States.

That's a pretty big. Data pool when you're talking about that, there is some wisdom in the crowds, right? And that's why we have this whole invisible hand of the market and efficient market hypothesis. And we can, you know, we can debate that and everything, but there is something to be said about the wisdom of the crowd.

And so it almost makes you wonder, okay, well then do you just apply that and, and, and hope for the, you know, hope for the best, but you're just a fly that and go, okay, this, this dip falls below my. One year or six month chart trendline. So I'm going to buy right now, does it, does it really make sense? And I always think whenever it's a meme or whenever I see a bunch of people doing it, I'm always skeptical because things can never be that easy when something's promised to be very easy typically with the markets.

It's not quite as it seems. So that's what concerns me initially. But yeah, I mean, I think if you, you, you really need to define a dip. To. You know what by the dip means. Um, but it's, it's different than, you know, a dip on a single security, which could be caused by a lot of different factors. Some may be fundamental to the company.

Some may be not right. It could be a sector wide sell off or a market wide sell off. And so then you're getting a great company and a discount. So it makes sense to buy the dip there. But when we're talking about a collection of 500 or the largest. Most financially successful company in the United States.

Does that make a difference, um, in the whole buy the dip? Does it, does it make it always right? Instead of only sometimes. Right. Um, I, I, I find interesting that you brought up, you know, the wisdom of the crowds and not swimming along, you know, kind of with the, with the current. But my, my question would be, you know, how did the dip happen in the first place?

Cause he a big, fast dip would have to be a very large chunk of the market. And that kind of the big crowd as has already made their decision in the case of a big dip and they're all selling off. So when you're buying the dip, are you kind of therefore going against the crowd, even if you're, even if you're within some.

Smaller community of market participants who, you know, kind of a spouse, those beliefs and believe in rebounds and stuff like that is, is, but is that then just simply a microcosm of the crowd. It's a smaller crowd, but it's another crowd that you're going along with. Well, yeah, I was thinking it was.

Smaller crowd. That would be a microcosm, but it does align with some great wisdom from, you know, the likes of, of Warren buffet. I almost said Jimmy buffet, it's definitely not one. You should be taking stock from Warren buffet who always says, always says, well, yeah, there's money to make money to be made when there's blood in the streets or, you know, the, the tide goes out and then you really see who.

Swim shorts on. Um, and so, you know, it sounds pretty Jimmy buffet. So I guess maybe the related should dig into that a little more. Um, so I guess it almost does make you a. Oh, what is the word I'm looking for? You're going against the consensus contrary. Yes. A contrarion, which I always like to be, but, um, it does make you a bit of a contrarian, um, if you're buying the dip, right.

So is that the right move? I don't know. I think it needs to be, I don't think you can just rely on that indicator alone, which is why. I think this, this story I told at the beginning of that, that host kind of making the joke of the trend line on the S and P 500, just offhandedly. I think that's what he meant was like, okay, well, yes, you, this is a really act for right now during, during a bull run.

So I really. Great, um, indicator, but it needs to be paired with market sentiment and larger macro trends that will help you understand a little bit more. Um, what's what's really going on there, but what do you think you think you can just buy the dip every time when the S and P and be good to go? Yeah, I think that there is something to be said about the.

The capability of black Swan type events, which are essentially just means like something that really no one sees coming, which is it's impossible for the market. To predict it. And so the whole efficient market hypothesis only, only affects things that are widely known, which is why I personally don't believe in the mission work and her bias, the efficient market hypothesis.

I think it's bubkis I know the options are always priced in on public information, but so many people already it's in don't know all the information. So I am a firm disbeliever of efficient markets hypothesis. Shoot me a message on LinkedIn or something. If you want to argue with me about it, but don't worry, Gilder read George Gilder, and I'll be arguing with him a little bit in a future episode, but I think I might lose.

That's all I'm going to say now, but anyway, um, so I think that there's always, I mean, there's always the opportunity. If you, you buy at a, a perceived. And it could just be the start of a, of a horrific bear run. Um, and I think buying the dip, necessitates an optimistic mentality over the long run, which I agree with.

I espouse that mentality of, you know, I expect innovation to continue to grow. I expect market conditions to improve over time because of innovation because of. New ideas and new ways of doing things that, and I think there's, there are some people who believe that the only reason why economic growth occurs is population growth.

That is patently false. Well, yeah, that's, it's complete bogus and there are plenty of arguments around that. And I think that just very, yeah, very incorrect. Um, so I am of the natural optimistic viewpoint. However, there are some. Dips that, you know, it could simply be a first indicator of a bigger problem.

Um, you know, in the long run buying those dips could be good for, like you're saying like the overall S and P 500, I think that's probably pretty safe. Um, but if you're buying the dip of an individual stock or even a small sector or something that I don't know, I feel like that could get, could get a little more dangerous and it is a little more high.

Yeah, it definitely isn't. What's the comment. Interesting to think of as I was when you said, well, maybe by maybe that dip is, is the initial phase of something worse. I was thinking, okay, well, what happened if you bought at the beginning of the financial crisis, as things were going down, like, well, yeah, that would have taken a couple of years for you to rebound, but now you'd be sitting really pretty.

So it, it almost all of this, all of the talk of. Buy the dip on the, you know, on the SB five, but again, I'm strictly speaking of the S and P 500, if you're buying a broad index fund or ETF, um, then it almost is a moot point. Whether you buy the dip or your dollar cost average and just fricking buy something, please don't just sit on the sidelines.

Right. That's that's the whole, that's the whole thing. It's like, if you had bought the beginning of the 2000 and. Three years later, you would have made your money back. If you, if you dollar cost average to all the way through 2008 and just kept your head in the sand, you'd be good. Um, so again, that's the concern, the very, very conservative risk averse side of me just saying, okay, well I'll just buy it.

Doesn't matter how you buy, just buy please. And then you you'll be fine over the long run, but that's because I have a very. Um, a very optimistic view as well, probably a little bit tainted by your optimistic view, Mike, but, but I do have an optimistic view of, of, you know, the, the business. World and the economy and us, especially, and innovation as a whole, because I, I, in all of my, um, studying and reading of history, it seems.

Humans always find some way to do something better and more, either more efficiently or just better in general. Um, and it seems like that, that, that is the case. Now there are definitely, um, ways that, you know, I guess you'd call them in the economic term to delight Mike here, you'd call them a negative externality.

That's unforeseen, um, from, you know, something Y. The fed or some geopolitical, um, uh, you know, for instance, Russia invading Ukraine or China invading Taiwan or something along those lines that that would have huge effects. Those, those are, those are. Big issues that could cause a dip that could be very, very, very deep and longstanding.

Right. Um, if, you know, for instance, if for some reason the fed just totally misses the mark and mismanages inflation. Well, that could be a very, very bad problem for the markets. Those those sorts of things. It depends. It all depends on your time horizon, right? Because those sorts of things could eventually, as long as, you know, as long as a business and the economy of the U S kind of survive and we don't have an apocalypse, um, those sorts of things will work themselves out over, over a period of years.

Now it might take a while, but, but that, that is the case. They will work themselves out. So it almost seems to me like, Like buying the dip or, you know, debating whether you should buy the dip is kind of a, uh, what sort of, what, what's your goal. And then what's your time horizon because you really need to take those two into account and decide, okay, what what's gonna one scratch your itch.

Cause maybe you're buying the dip to just scratch the itch of, I want to have some fun and see a great percentage return. And also maybe it's just a time entertainment thing where it's like, oh, they get to have some fun here and buy the dip. It's like, okay, well, that's fine. But maybe for your real investing portfolio, you want to do something like dollar cost averaging, or maybe you do look at it and go, okay, I'm going to be really disciplined about this and not use, you know, I almost opposite FOMO, fear of missing out on buying the dip to force you into making rash decisions around, you know, a market reversal.

Just a bump along the road. So it there's so many factors that go into it. It's hard to, it's hard to give a blanket statement, whether it's a good thing or not, I guess. Well, you had something to add there, Mike, go ahead. Yeah. I just said to two quick things was one where I think that's a good, a good distinction you made of the S and P 500 and not because I think to be honest, I think if the 2008 crash happened now, And the same, the same thing that happened.

And, and let's say, I didn't know anything about the background of CDOs and traunches and stuff. And I see Lehman brothers and bear Stearns, you know, the price drop in 70, 80% of the day. I probably would have bought a bunch of like, oh my gosh, like these are great businesses. I know these by name. Like these are well-known investment banks, buy the dip, buy a bunch of.

And then it just goes to zero, uh, like very unexpected. So I think, I think that's a good distinction of buying the dip in, in some sort of index that is reweighted and refitted on a regular basis. It's filtered and filtered. Exactly. I think that's a. Probably a very important distinction. Um, and then the second one, again, kind of mentioning what you, what you said about, you know, over the course of years, even events that can be considered like very serious, you know, let's say Russia, invades Ukraine, and brings NATO into a war and this some sort of cold war ESC.

More hot war as kind of happenings in Eastern Europe, a warm war, a warm war. Hopefully there is no war, but maybe let's say a warm war. Um, I mean, barring some sort of apocalyptic, there really aren't any game ending events that could befall the, the, the economy and stock markets that wouldn't make you worried over this better.

If any kind of game ending apocalyptic event happened to them. You would be worried much more about yourself and your loved ones than you would be about the markets and your money. And then at least that's my hypothesis. At least I hope you exactly. Well, the thing is, I mean, yeah, I've, I've, I've heard it put before, basically, if you, if, if there is such a large issue that.

We're having some sort of apocalypse and it really causes that much damage. And basically up ends our financial system and everything just explodes and goes to zero. And there's nothing left at that point. You're going to have to figure out how to use bushcraft and survive on your own, because that means we're literally in a chaos situation and there's no rule of law.

Okay. So that sort of thing I think is fine to prepare. If you want to prepare for that GoPro go be a doomsday prepper. That's fine. But it doesn't make sense to, I at least I don't think it makes sense to necessarily have that approach. When you're talking about your own portfolio. Now you should be prepared for some, some negative trends you see, or some, you know, maybe you don't like certain.

Companies or the way they run. And so you have some maybe moral or ethical reasons not to not to buy those, or you think there's going to be a huge problem with whatever sector and you know, maybe think gas is going to be obsolete. So you want to get out of gas and oil stocks. Okay. That's fine. Those things you can prepare for, you know, individually in your portfolio, you don't need to be, it makes no sense to me wasting time on worrying about the apocalypse with your portfolio, because you're doing just that you're wasting time.

Like you said, if it gets to that point, you've got much bigger, much, much bigger issues. I would say the best index fund you could buy for the apocalypse would be. And a basket of first aid kits and possibly ammunition and a lot of unique style DTF. That would be a very physical ETF in your basement or something.

Right. I'm talking like pounds and pounds of food, quite literal basket of goods, not some basket of goods made up by a bunch of accountants that doesn't exist anyways. Um, yeah, so I think the buy the dip when it comes to the SMP. It's interesting. I also wanted to ask you what you thought of it, if that sort of attitude throughout 2021.

Cause there was a lot of people who missed out on the amazing bull run from. Uh, from, you know, March, I think it was March 23rd, for some reason that date is seared in my mind, March 23rd, 2020. Um, but from that point that, you know, the absolute bottom of the market in 2020, a lot of people missed out on that.

And so in 21 it seemed like no one wanted to miss out on. So they didn't want to miss out on the bottom. So they kept buying. And also of course we have, you know, it was impossible to have any sort of bond portfolio because those were just getting hammered all year. So people were looking for, they were looking for returns, but it seems like that sort of sentiment or attitude played into the.

Pretty much just linear progression of the markets. It seemed like in 20, 21 now, again, I'm talking high level about S and P 500. I'm not talking about, you know, small caps or mid caps or particular stocks, but it seems like that sort of attitude really permeated a lot of the news. So I'm interested to see what w what, what, what do you think were the effects of.

Um, for this, this past year, 2021. I like that because I think that gets back to what we first discussed of the psychology of buy the dip of FOMO, of, of these kinds of almost meme, investment ideologies, um, that, that kind of grow and changed due to the market and due to the psychology of the, of investors within it.

And I think that, I think you hit the nail on the head of that. The idea that the, the market kind of, you know, had an opportunity in March and maybe a good number of people took it, but it seems like most didn't. And that kind of, like you said, that boiled over and kind of quickly jumped into this flywheel effect of course, of the car across the course that across the course of the next, you know, year or so, a very interesting flywheel effect.

And what I find interesting is a similar thing. Kind of happened in crypto as well in that, um, you know, you have the crypto markets. It's interesting to hear arguments both in favor and against that crypto is, um, correlated to stocks it more recently. It definitely seems to be more correlated to stocks, uh, when we're, especially in small and mid cap tech stocks kind of thing, um, which is a whole, a whole ball game.

And, uh, you look like you have something to say that well, that definitely, I mean, it definitely deserves a deep dive in an episode, but just thinking. Our current theme here that might be driven less by a fundamental correlation and more by a psychological correlation. Hm. That we're, you know, we just discussed how everybody was afraid of missing out.

And I think you were building to this, so I'm hoping, I hope I'm not stealing your thunder, but like everyone was afraid of missing out on the equity. Rebound the stocks rebound. So it was, so it was everybody in crypto and we've seen waves, you know, Bitcoin, the classic top dog there, you know, went way up and wake came crane crashing way back, down and way back up again, had a nice run and then come back down a little bit as we record this.

But, um, so we've had, you know, a lot of volatility, which everyone knows is typical in the crypto market, but you know, you were just saying yesterday, it's amazing to think Ethereum. A few hundred dollars a couple of years ago, and now it's multiple thousands of dollars. So it does seem like there has been some FOMO, which is not necessarily, I guess, that doesn't totally correlate to buy the dip, but it seems like the correlation between the two might be one, the.

Access of retail investors to, to these different assets. And also, um, which I think is great. I think it's great that we have more market participants. Whether, you know, a lot of people are annoyed by that. They're like, oh, the retail investor, they're not smart enough to participate in price discovery. And I say, you know what they are, they have, they can with Benzinga pro they can have the same resource.

That even some, uh, people with Bloomberg terminals have. So I say that's a great thing, more, more market participants, the better, but that has led to, I think more access leads to almost a heavier weight towards that wisdom of the crowds mentality. And, and again, The same. It seems like the same people who would be afraid of missing out in stocks would be afraid of missing out in cryptos and therefore would drive a lot more attraction and traffic towards both of those markets.

Um, therefore almost smoothing out the bumps in the road, um, you know, towards a positive direction. But again, we're, we're fairly young and we haven't experienced a long bull run. Most of our life has been a long, almost decade. Bull run. We haven't experienced a very long bear run, so it'll be interesting to see.

What we, what we experienced over the next, will this turn into stagflation again? I don't know. Yeah. Who knows? Yeah. Stagflation, maybe it's on the rise and maybe it's not. Um, we, we did talk about inflation earlier in the year and how I thought it was not transitory. And clearly it's not, the fed has since, uh, I know crystal ball sear, but the Veta since dropped the whole transitory idea and they're no longer team transitory.

Um, but anyways, I, I think, yeah. Some psychological, uh, correlation and not necessarily a fundamental correlation. That's a really interesting point. And I don't, I don't, I haven't heard that from either side. Um, I liked that because it does seem like the same people who would be interested in buying the dip on equities would be interested also in buying the dip on cryptocurrencies as well, which is very interesting because it seems like the same psychological reaction, right?

It's like, oh, this is, this is on discount. Percentage return, therefore I'm going to buy. Right. And so same thing in crypto. Everyone saw the beginning of 21, 20, 21. Everybody saw the huge run up and people making millions upon millions in returns. And so it definitely attracted a lot more market participants, but, um, we're still not anywhere near anywhere near peak it option with crypto.

I don't think, but yeah, that's another, another, that's a whole nother honk. Um, but it's interesting almost a psycho demographic. Correlation. Yeah. Leave it up to the, the economists guy to just come up with some crazy terms. Psycho demographic. I am neither psycho, nor am I a demographer, but I'll go with that.

That sounds about accurate though. It seems like, it seems like there would be no reason for them to be correlated. It's not like all these big tech names hold crypto. So it's not like their values would be correlated to the military. So it seems that there must be some thing else driving. It seems to be a correlated correlation.

And again, correlation doesn't equal causation. So that's something to keep in mind too, just because it may have happened in the past. Doesn't mean it's going to happen in the future. So don't go drawn trend on some crypto index. That's not what I'm saying. There's gotta be, it's gotta be out there, but it's still like a crypto 10 index or a crypto 15.

No, but there's talks. I keep up regular. Some of the more boring side of finance. So we're talking, you know, kind of like, like the barons of the world and you know, that, that sort of thing. Um, not necessarily the fun meme stocks on Reddit, but, um, there is talk of making. A crypto index so that there can be products based on that some ETF type products, but of course, with the sec and our entire federal government, not knowing what to do with crypto, it makes it really hard to put together any sort of ETFs based on that, because the sec just doesn't know what to do with them.

Um, and that that'll probably continue for a little bit, but eventually I think there will be, I think you'll have some sort of some sort of index, but, um, if you haven't listened to the crypto episode, we put out, um, I can't remember what episode number that is, but definitely go back to that, that episode.

We talked about the, the great calling as Mike coined the term. Um, and I think you'll see some sort of index come on. Because there'll be less coins and less tokens out there. Um, and you'll probably see some sort of index. We constantly try to apply. The same sort of tools to new ideas. And so I see no reason for there not to be an index eventually.

Yeah. That's a good point. I definitely agree that there's been, uh, even just the last year, an enormous uptake of like using equities methodologies in crypto. Yeah. And using those tools. Yeah. Yeah. Yeah. Definitely. Well, I don't know if we have discovered whether or not you should buy this. But what would be some of your, uh, your takeaways here, Mike, for, if someone's looking at their portfolio going well, what am I doing about this whole dip?

The FOMO? What, what are you thinking? Yeah, it's interesting because I think like we talked about at the beginning, you gotta, you gotta define the dip in terms of. Your own strategy as well. You know, if you're looking for individual stock dips and stuff that that's not as guaranteed more risk, probably more reward in the short term.

Um, you know, if you, if laymen and bear Stearns, hadn't gone clearly bankrupt and survived, you know, maybe they'd be doing great today and maybe you've made a ton of money buying them, uh, when they were net 90% down or something like that. But they went bankrupt. So there's always that risk with, with individual stocks.

Um, so I think that I th I honestly, uh, like the, the Austin low risk approach of there's a dip in the S and P you know, that might be, might be a good place to do it. Um, I think buying the dip in a broad index, like that is probably a pretty solid plane, right. Again, if you look at historical, uh, records for the market for a long period of time, whenever there's a big crash or something, I mean, it has so far always rebound.

Like we, like we talked a barring, you know, some sort of apocalyptic event. Really you shouldn't be worried about your portfolio. Uh, that happens if there's an EMP that wipes out all the power grids or nuclear war or a comment or something like that. Um, maybe you'll be worried cause you have got to get the money out of there fast enough to go and buy some food and water or something.

But, um, I would, uh, I would hope that this, uh, you know, hopefully that doesn't happen and even, even large-scale global, I mean, even looking at. Like COVID was really considered kind of an apocalyptic ESC event for awhile. Um, and in some ways it kind of, it's been a minor apocalypse is what I would categorize it as, as, um, as, uh, a very, uh, minor form of, uh, uh, I mean, it hasn't been a world changing event.

There's been a paradigm shift in. Yeah, how we approach things similar to a world war, both world wars have created very distinct paradigm shifts and were almost mini apocalyptic style events that, you know, pretty much all aspects of life were changed in a lot of countries. Uh, so, so COVID has been kind of one of those really unique, uh, events and we've seen the market.

Crash when it happened and come back very steadily and then jump back this year. Now, the question is how long will code would go on? You know, we've got the honor crime, we've got all sorts of. Stuff going on and speculation. So, you know, who knows, maybe it could get worse and become a zombie virus. And we have a real talk, a little big event.

So there's so much, there's so much unknowns. Uh, but just say that not sourced and definitely speculation. Wondering, I just want to assure everyone that's not.

Yes, that is very true. Very important to note is 99.9% chance that COVID will not become a zombie virus. I would probably add a bunch more decimals on there, and that's also not financial. I don't know what stock to pick for a zombie apocalypse. That's that'd be a fun episode. Stock picks for apocalyptic different apocalypses like that space X.

Uh, something, I don't know what you'd pick for zombie. We have to think about that. But anyway, so, uh, barring something like that, I think, you know, for myself, and it sounds like for you as well, Austin, that in the long run optimism is warranted due to human innovation due to technology due to increases in efficiency and convenience.

And, uh, I don't, I don't see. Even slowing down that is, that is sped up dramatically. Um, even though we have, you know, the situation of Moore's law and specifically in computing, we haven't necessarily seen a Moore's law translate into a lot of businesses and a lot of other categories. And who knows, quantum computing might blow Moore's law and with water, there's so many different things to consider.

And I think, I don't know, my, my absolute takeaway from this is. Yeah, maybe by the dip and the S and P when it, when it goes down, that's I feel like that's, again, not financial advice, but I don't know if you're optimistic like us. Maybe that's the right point. What's your dad's. My, my takeaway is that if you're strong enough mentally to.

No Y and set rules for yourself and strong enough to follow those rules when it comes to buying the dip on the S and P 500 specifically, I think that's okay. But if you're a person like me, who just is pretty, I can get very easily swayed. Um, and I'm, I'm not necessarily the most disciplined person, which is why I don't do active trading.

Um, then at least right now, maybe I will eventually, but right now I just don't do that because I want them to busy. And to know that I'm, I'm pretty easily swayed. Um, so if you have good rules set around it, I think it's okay to buy the dip. You have to define what it is. You have to have a trend line that you're comfortable with all of that.

But, um, I think really just if you're going to buy the S and P 500. For a long time anyways, the most efficient way to do that time and time again has been proven. Mathematically is just dollar cost averaging just by the same amount on the same day, every month, no matter what. And it's kind of an ostrich approach, but you can always do that with the large portion of your portfolio in the hand, have some fun with cryptos or NFTs or.

Real estate or single stock picks and just have fun with a smaller portion of your portfolio, just to scratch that itch. Um, but that's, that's personally what I'm doing. Just that's that's my take on them on buying the dip is I, I, I, my thought process is that it's not really worth the. That it would take to monitor when to buy the dip.

Now, if you want to, you totally can't I think it's a valid, a valid strategy. I just don't know that it's worth the effort you might as well. If you're going to hold it. Position over the long-term over the long run. You should just dollar cost average. And anyways, I think that's more efficient. That's a good point because the question is where do you get the liquidity to buy the dip?

Do you always have a dip fund? That's kind of sitting around waiting for, waiting for a dip. How do you so salsa dip, but yeah. Where do you get the liquidity? Because if there's a big dip and you're invested in the stock market, chances are you just lost a ton of liquidity and you're probably better off just holding rather than selling everything and buying, you know, an S and P 500.

And. Right. Hoping that it's going to go back up. So, I mean, maybe, maybe for people that's a legitimate thing, have a dip fund that, uh, is sitting around waiting for something. But I think, you know, in normal, like you said, the psychic effort required and continually monitoring, or even just having the, the funds.

That's a lower opportunity cost perhaps, uh, or opportunity, you know, you're, you're paying an opportunity costs by just leaving funds around, waiting for waiting for something to happen. Yeah. Um, and then a quick caveat as well. I know, I just said, you know, maybe yeah, maybe by the S and P 500 dip is the right play.

I personally would never do that. So I have never, I have never owned a S and P 500 index and I don't plan on doing it. So I'm glad that we have both sides of the perspective. 'cause I, I do, and I do own an S and P 500 ETF and I will continue to probably throughout my life. Yeah. But, well, that's a whole nother conversation.

So I think, I think for today, I think Mike, you, you kind of put your stamp of approval on it. It could be a legitimate strategy. You just would never do it. And as for me, I think there's more efficient ways to buy into the broad market as a whole. Well, that's been this, uh, this episode on the long road show.

We, if you would, if you liked this episode or any others, please give us a five star review on whatever podcast platform you're listening to us on. Um, and we will look forward to talking with you next. On some new subject over the long run. Yeah. Thanks for listening. And, uh, we'll, we'll catch you later.

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Hello, and welcome back to another episode of the long run show. This is Austin Wilson, and I'm sitting alongside my cohost Michael O'Connor indeed.

And today we are going to be talking about E S G environmental social governance investing  a, more of a methodology episode here. We're not gonna be too. Necessarily about specific stocks, although we'll probably get into that, but more on the methodology. Is it helpful? Is it not should you use it in your portfolio?

What to consider if you're going to use in your portfolio really is going to drive the conversation today.  To jump right in Mike, I think it would be helpful if we just give it, give a definition first. So we're sure on the terms  and cover that first, so and environmental, social governance.

Okay. Often throw it around. You want to give a broad level definition real quick? Yeah, sure. Essentially it's the, it, far as I understand, it's the broad understanding and methodology taken to, I believe it comes from real stakeholder methodology and philosophy in business where your company is not operating in a vacuum.

They operate in an environment that consists of the society, that the people who are workers. Consumers who are neither who are just ancillary and around it consists of the natural environment  the physical space, trees, plants all of that. And you have governance you have the regulatory environment, the local state government world level.

 So it's that almost a full stack of different things that are not necessarily directly correlate. The company's bottom line or shareholder value and stuff like that. Yeah. It, and that's where it becomes interesting that this is such a  a hot topic in a world of financial space, normally driven by the bottom line numbers.

 Traditionally that's been the, that's been the number one driver, we get to create shareholder value and that's led to some interesting not. Optimal outcomes with odd externalities that definitely we're not incentivized by just trying to create shareholder value.

So it is it is interesting that we're now getting to this methodology of, okay. Let's look at all the stakeholders. And I remember studying stakeholder kind of methodology in a class in university. So it makes some sense. My. My question is  does it make sense at the investor level?

 Should this be a reason to invest or not invest in a company? Because obviously somewhat the secondary market, so not IPO's, but everything else, the secondary market is somewhat an incentive system for the company. But not always  you're not necessarily, if you're.

And the secondary market, you're not necessarily funding the company. So it's not as a direct correlation or or a relationship as some people might expect, but I do understand the ethical standpoint of, okay. I want to be an owner, a part owner in companies that I believe in and I want to have a framework for deciding that so I can see the impact.

  Might be helpful to give a formal definition as well according to PWC, which is a pretty good source. Environmental side, they say take action on climate issues, minimize to minimize impacts, capture opportunities and deliver value to all stakeholders. And so focused on, like you said, the environmental impact of doing business.

 And then on the social side, creating enterprise value and enhancing public trust by addressing the, and managing, communicating societal commitments. So talking about  what, what happens with. Workforce, what are you doing? What your products and services, how are they impacting the society and the community at large, and then also the local community too?

 So that would maybe include giving back or some charitable work something along those lines and then the governance side, of course making sure all of this is actually implemented. And I actually have the three thing, probably the governance side is maybe the most valuable to the enterprise.

 Because. You can you can give back companies can give a charitable donation, get a tax credit, but actually enforcing any of those things. You have to have the governance side so that the G of ESG is the most important part. So again, getting that out of the way what are your thoughts, do you think it's helpful that we have this framework now?

Does it? I know Milton Friedman was actually very much against. He thought it was ridiculous to say that this was important to businesses.  And that this should be even considered when it comes to the enterprise level of thinking, he thought bottom line is the end all be all.

That's how you measure success. Do you what are your thoughts there? Can we is it just the bottom line or should we be worrying about these as investors? Should we be worrying about these other impacts that business has. And different stakeholders involved. Sure. And I think that there, it's interesting because there have been studies done where they try and measure and kind of show a correlation between ESG activity and profits have seen some studies and read some papers that kind of outline that, that, but the argument out that companies that do good subjectively in ESG You better in terms of their actual bottom line, do better profits.

However, I think one kind of confounding variable in that is that most likely the companies that have the resources to be able to dedicate to ESG are probably doing pretty well already. So I think there's, it's tricky to figure that out. Very difficult to measure. It can definitely be sampling bias.

 So I think it's the bottom line is ESG is a pretty difficult thing to grasp. Especially if you're outside of a company I think it's difficult to like efficiently and effectively judge the real value of ESG, unless you are in-depth inside a company. Cause I think like you said, the governance is very important part of it and unless you're on the board, there's a lot of things that are probably a black box.

 So it's difficult I think to measure and I believe some ETFs and funds that have tried. To save their ESG or even entire hedge funds or instruments that are like, yeah, we're ESG focused. There have been some scandals where you know that then half of their holdings are actually not really doing much.

If anything will come out or one of the big ones will come out and there'll be  there'll be some sort of difficulties in, in vetting that effectively. And so  it's a tricky job to try and. Outside of any, either outside of any company. Now yeah, given that, I think it is, it can be important if nothing else because of brand value and because of perception.

 I think that can be a tangible effect. Probably not easily measurable, but tangible. And at the same time there, there are arguments to be made. If a specific company, the name of the show, The long run.  If a company is if companies producing negative externalities, whether it's environmental or social, et cetera, I guess one example could be, let's say you have a very harsh work environment with high churn is one example that end at work environments are actually becoming more and more of a focus for ESG, which hasn't necessarily been as much in the past as far as I understand, but it's becoming more and more of a focus.

At the end of the day if this company has a very high churn or they're burning through employees, human capital is, it seems like an inexhaustible resource. I'd say for most companies and in the economy, but it's really not. And COVID and remote work and the great resignation and all that has shown that more saliently, I think.

So it depends on the long run and   the kind of environment. And especially the labor economy is just one example where ESG and having some sort of governance may be able to provide tangible value and that you may be, you keep employees for longer, they're more productive, et cetera, et cetera.

So I think there definitely can be value benefits to ESG, but the problem is it's. I think it's very difficult to fully understand those benefits unless you are integrated into that company. Yeah. And that's where that's where I have a tough. I'm using it as a methodology because my to my my, my sense of the situation is that okay.

 If you are a company who is like you said, if you have have high churn you have a negative workplace environment it's very difficult. Or for instance another good one that's an easy historical example is like big tobacco, there's a huge externalities there.

  Causing cancer and your customers or a classic if you're a manufacturer and you're polluting the the Allegheny river down your Pittsburgh or something  that is going to come back and bite you in the buck. So over the long run, it does pay to be playing by these ESG rules for the company.

And I think there's a very good argument that it makes sense from a bottom line perspective for. Company to, to be a good citizen, so to speak. But it make it's like you said, very difficult to make sure that is accurately reported. We don't even necessarily w we don't have the reporting of the financial hard data of companies down to a science yet.

There's a lots of examples of improprieties when it comes to the reporting, the financial data of companies. It's tangible right. That's numbers and that's dollars and cents. So when we're reporting on on the social impact and the environmental impact of a PR one particular company, not only other component variables and not only is there a   an unevenness in the distribution of the information between the outside investor and the inside shareholder, or insight stakeholder, not only that, but it's very difficult to quantify.

So that's why I have  I'm not necessarily against it per se, but it seems like it is being overweighted from an investment perspective, because I don't feel that the data is actually act actionable. It is too. It's not clean enough. The data isn't clean enough for me to go, oh, okay. This person has that.

Cause, cause for instance, when it's used in an investment standpoint, we're talking about like ESG scores where it's like on a scale of zero to a hundred, these guys. Whereas this company is a 75. So I'm going to go with the 95 rather than the 75. There's so many factors that go into how the score is calculated, but then what's the data that went into calculate the score in the first place.

Was that data even good? Does it actually reflect reality or is it fudged a little bit by the company or what have you, so that makes it difficult for me to trust like an ESG framework. So to say so to speak when it comes to. Choosing an investment it, like you said, you don't want to be creating negative externalities that either use it, the resource or  are detrimental to your longterm growth as a company.

 And I think that just, that's more it's almost more common sense and unfortunately common sense is not very common, right? So it's  if people would, especially in  people in management and places. Power steering the ship in the company, if they would use common sense and think forward about long-term growth, maybe yes, you wouldn't have to be such a conversation.

 But we do seem to, a lot of the times sacrifice the long run for the short term, whether it's a financial we gotta meet this quarters growth points at the expense of next year. Decades ability for growth.  Or if it's just I'm going to do this cause I'm a selfish person and this is going to get me my quarterly bonus  there's just, it seems like it's in in the measurement of the thing, it is flawed. It's not necessarily that ESG is bad. It's just that it's flawed in its measurement. And I don't know that could ever necessarily accurately be measured. I'm not sure. Feel free to perspective. No, I think what you said is important because I think there is a distinction to be made between, and this is where my opinions on ESG lie, as well as that ESG is ultimately a management strategy, not an investment strategy.

And I think that while the management strategy is crucial to have as part of the toolbox for a board and C-suite.  The whole company, the whole, it, I think there is a, almost a temptation to pull that out and extrapolate that and attempt to use that as an investment strategy. Whereas investing is in some ways it's a lot easier than running a business in some ways it's a lot, it's a lot easier to lose a lot of money then, but it's, I think that there is a, this idea that any kind of metrics that you can pull out.

The standard business more helps an investment decision and while it's certainly, I think it's certainly true that the more legitimate information you have about a business, the better informed decision you can make. The difficult thing is that I think there's a gap between the value of ESG in a long run management strategy scenario, which I think it is probably high.

It's probably a high value to be able to have a very top down view and. And where your corporation or company exists in relation to all these different factors. I think there's a gap between that value and the value that an investor can or may receive at the same time. There is still perceived value if nothing else.

  The value of feeling like you're supporting companies that are supporting the environment, whether real or not is. It was a factor. And I think that's do you extrapolate that? I think that's a huge draw for people to, to invest in ETFs or to have financial advising and people who don't want to worry about their money at all might be in one category.

But then you have a category of people who are interested in active investing or more passive investing, but choosing their investments. They may still be concerned about exactly where it's not necessarily just for the dollar value. So I think that ESG can bring value in investment scenarios.

But I think, like you said, it's, it seems as if there's a lot of, not necessarily hype, but a lot of talk and a lot of developments going on around ESG that  we saw like with the gigantic Volkswagen scandal, where, how do you, this, there's no way to know that what that's about to happen.

And that's that sticks out in our mind because it's very easy. You to think about. And we have we have that kind of as a heuristic, a bias then that's very easy to think about, but think about all the car companies that haven't done that, but at the same time, it's we know that's a possibility.

 We know that ESG numbers are fungible in a lot of scenarios.  Things can and are manipulated and out there in the world. You can get with a healthy grain of salt. I think not completely discounting.  I do believe that ESG has some value in an investment thesis, but I think not simply taking that as it is, and looking at it in a holistic manner.

Yeah. I almost, I don't know. I like what you said at the beginning there where you said it's more valuable as a management style or a management structure or framework rather than a. Rather than an investing framework. That makes sense to me, because if I'm looking at a company, there might be a better framework that would line up with yes.

I want to make sure that I am choosing a company and supporting a company and owning part of a company that I agree with from an ethical standpoint. And that, and we've talked about this before, like with. The metaverse and Facebook and Mehta platforms, Inc. We've talked about okay, if you're, if you don't like the metaverse idea and you don't want to invest in that.

Okay  don't buy facebook.com, but you have exposure to it if you're in an index fund. So maybe there is some value to the ethical side of it, but that seems like it's a totally different framework than ESG. ESG still seems like a management framework. To me, it seems like maybe it should be called ethical investing, which I think was a term.

And maybe a couple of years ago, and ESG was coming to the light. There was like ethical investing or green investing or something like something along those lines. And I would say, okay, maybe that's a little bit better of a way if you're a financial advisor trying to build a portfolio based on your client's values, or if you're an individual trying to make sure that your investment portfolio lines up with your personal beliefs that's fine.

  And I think that's good. Yeah. That I don't know that ESG is the correct framework. It seems like you would want to look at the company on a case by case scenario and say, okay, does this have your list of qualifications as an investor and go down that list and see if it matches, not necessarily take some third party.

 This is going to be the cynical side of me speaking, but take some third party consultants report on the company and use that as your means of qualifying or disqualifying.  The investment or the the this particular company as part of your portfolio, because the cynical side of me leans towards saying ESG is being hyped because there's money to be made on the reporting and analytics of ESG.

Not that it's actually substantially helpful for the investor and the end user, because if companies are told they must care about. They will pay for consultants and third parties to come in and create ESG reports for them. And that's big money because we're talking about business to business contracts, which are always bigger than B to C products or services.

So that's big money. And so I can see the incentive system there for ESG to become hyped as a investor relations kind of service. But again, I don't know that it's helpful. I think. Jewel investor. If they're consciously choosing stocks, they need to pick that that framework of, okay, these are my qualifications, disqualifications and use that instead of relying on a third party, I think that's a much more clean way to go about it.

And again, you're, you can trust yourself in that because you're to find the information out yourself and qualify or disqualify that company a lot more work. But I think it's probably the better route to go and actually achieve. Rather than tricking yourself into thinking you're actually aligning with your values when really you might not be just exactly what you mentioned with those hedge funds.

 If I was a, if I was a client of those hedge funds, I'd be pissed. If I found out that they had a huge allocation to some company that was completely against my values, because I'd be like, I gave you all this money to invest based on my values. Why didn't you do it well, is it the company's fault?

Is it the hedge funds fault? Oh, yeah, it's probably the hedge funds fault, but is the problem that  they didn't do their due diligence or is the problem they're using the wrong framework entire. So that's my kind of I guess I pushed back against it really being valued at all for, from an investment standpoint.

 But I tend to be cynical.

I'm not surprised that's why I ended up on this particular issue. And I think that, I think. The value to taking a cynical approach, especially when it comes to a and investment hypothesis like this where it's tough because like you said, there's money to be made and  it's a new place to add value and to make value and  it'd be, I think where there is that.

That problem that we've been harping on is that the jump from this is about what this company is doing or planning to do, or et cetera, et cetera, according to these kinds of third-party metrics or maybe a company makes its own ESG metrics. And then just provides that whatever jumping from that to a fund or even an individual investor, et cetera.

 Like we talked about earlier it's difficult to quantify a lot of these things. Certainly there's some situations where companies buying a certain number carbon credits or is hiring a certain number of people from a local areas or different ways that companies try to create metrics around these kinds of ideas.

But it's very difficult to cross reference that because there are multiple different. I said there are multiple different, like zero to 100 ESG scores from different providers. And how do you know which provider is the best of the best? And cause you, then you have to trust a third party about what they're doing to then trust the other parties.

And I actually, I don't know if standard and Poor's has a ESG, but I feel like the standard report is in the Moody's. I'm sure they have ESG ratings and I'm sure that they're probably like the gold standard. So it almost feels like another, almost an augmentation of accredited. Where's the trustworthiness of a company based on ESG but we know where the

last. The big short. Yeah, exactly. Exactly. That's standard and Poor's was for the long and short is basically standard reports was, and Moody's were not accurately rating a mortgage back securities. I hope everything is cool now, but that's my point. Okay. Those risks are financial risks that you can calculate.

Now, clearly you can fudge the numbers on those two, but at least there is somewhere deep in the vault number to back that up. That is exactly correlated to dollar amounts and risk where as with ESG, sometimes that, that can't be fully quantified. Yeah. And so that, that becomes a problem for me. And it's okay how are you?

If this is. Unquantifiable or a very difficult to quantify aspect. And we're trying to put numbers to it. Not only do I have to trust that you put the numbers to it correctly, but then I have to trust that you're accurately putting the formula together correctly and you're not fudging any of the process at all.

And so it's just a, it's a bridge too far for me personally, it doesn't seem like it would add value. I think just going about it, looking at, okay. Do I line up with what this company is? From I immediates maybe it's you look at it from a stakeholder capitalism sort of mentality or a stakeholder   company mentality, where you go, okay what are all the people and entities and situations that this company touches.

And do I agree with the way they're interacting in all these scenarios now that's really, that's a lot of work to put in for each holding, right? So I get. Zero to 100 ESG score. I just, I, again, I don't know that it's that valuable and it might be that perceived value, like it might be all about, which is fair.

 Perceived value is real value, but the perceived value also has to be followed by real value. So for to further explain that, so you can have, let's say out of 10, let's just say there's 10, 10, 0 to 10, right? You could have. I've points of real actual value and then five points of perceived value.

That's fine. But I don't think you can have just straight up 10 points of perceived value because then there's no actual tangible value with what you're with, what you're giving, whether it's a product or a service. So I view ESG as not really having any value at all, even if it does have perceived value.

I don't see that as being real value to the investor. Again, I see it as being a great management system. Yeah. It could impact the long run of the company itself, but from an investment standpoint, trying to qualify the company on that ESG score, I don't really see it having a enough value to warrant.

Okay. That's an interesting point. And I guess, to play a little devil's advocate here  if it's, if it is a best use tool as a management strategy, which I think we both we both believe then is the, almost the correct way of scoring. Perhaps, as as an individual investor, let's say you're not buying into a hedge fund or an ETF or anything like that is the correct way to interpret ESG in your portfolio.

By listening to earnings calls, to reading reports from management and seeing how they're presenting themselves. Because at the end of the day, if you're going to invest in any company and you have to trust their management, and if you trust the management and you're taking them and what they're saying, and the financials are right, and everything, then you can most likely extrapolate that trust.

They're saying any SG. True. Yeah.  That goes back to the governance side of the ESG equation. So maybe out of the two, you can weight the G score more more heavily because if the governance is done correctly, then you could be assured that even   that they're actually following through on what they're saying from the environmental side on the social side.

But if the goal. Is not being accurate, is not being run across the finish line. Then they could just give lip service to the other two. So it makes sense to me. But then again, we're not talking about ESG, we're just pretty much talking about governance at that point, which I think it's, I think that's probably, if you're evaluating individual holdings in your portfolio, I think that's a good way to go about it.

 But I, for one, I'm just, I'm a lazy investor, so I don't

Oh, yeah. I don't really pick individual stocks a lot. I do a little bit, but not a lot. So I view it as I'm letting the indexes do the filtering for me. Now, granted, I'm picking up some stocks that I probably don't agree with ethically, but I, my, my response to that to justify it by justification for that is yes, I'm buying, I'm an owner of that company, but I'm not.

Making the decisions day-to-day that are causing those ethical issues from my standpoint. And also, yes, I'm somewhat funding the company, but I'm not really, if I'm buying it on the secondary market, my funds, my purchase of that security didn't go to fund the company directly. It went to the, whoever I made the trade with.

 So that's my that's my kind of lazy of investing, but. Again, I think there's probably, for me personally, there's more value in focusing on day-to-day tasks that are more meaningful and impactful rather than spending all my time, listening to earnings calls and reading up on the governance of the company.

 You might be better served with the two hours it takes to research to instead pick up trash in your neighborhood or something like that. Again, it comes back to  what's the actual value here? I think it's very hard to pinpoint. And maybe it's different for each person. I don't know.

 Maybe there is a, an argument there that it's so different for each person. Yes. She might make sense. So I don't know. Really. I really don't know where how to answer that question. Is ESG valuable? I don't know. I guess it depends on who you are. Yeah. How has that affect someone's portfolio?

How does that affect

do you think that affects other people. It depends on how much you care to be honest.  It, it could be valuable. I think the valuable or  the value of it depends on how much you care about ESG. If you really care about USG  the underlying components of ESG, then it's probably valuable for you to use it as part of your investment thesis.

If you're actively doing. Stocks because I don't think  I don't think it would really take too much extra time if you're already researching the company or if you're doing, if you're going to financial research on a company and really looking them up and down, then you probably have the time to just glance over the ESG reports on the company.

Maybe look at two different ones to Crawford's cough, reference, cross reference, and a, and you'll be good and move on. But for someone like me, I don't see the value in it. So why use it at all? I use a pretty lazy methodology when it comes to my, the majority of my portfolio.  My thought process is it doesn't affect me.

 So why care too much? I don't, I guess there's my answer to that is how does it affect your portfolio? It affects your portfolio. If you agree with the underlying components of ESG, if not, I wouldn't worry about it. To be honest, if it affects your portfolio, if you want it to affect your book.

honest, honest things you could say about our portfolio because that's not normally very true. I guess from a the reason I don't think it affects long  returns over the long run is because I don't think that there's very good correlation between a good ESG score and actual good a company being a good citizen and taking good actions.

Negative externalities. I don't think there's a F there's very good correlation between the two. Therefore I think it really is more of a a makes the investor feel good, a thing. So I don't think it's going to my personal opinion and you can read all the studies  does it affect returns, but personally, I don't think it really affect returns and knows maybe it would actually hurt returns if you're just qualifying some companies.

If you get a lower return, but you're philosophically aligned with your portfolio and that's important to you. Great. I think it's, I think it's valuable to you. Yeah. And a touching off of that. I think the it's interesting too, to look at a portfolio as not just a tool to make money or not just a tool to make financial goals achievable or achieved, like not just a retirement account.

I think. It's starting to become more of a thought process. And a lot of people is that people aren't necessarily just looking at their 401k or their active portfolio or whatever. They're not just looking at it as I'm trying to make as much money as possible. Now there's always wall street bets

but I think it's becoming more options in your 401k.

I think it's becoming more common to talk to people and hear.  They're actively interested in aligning. They're they're more philosophical and their overarching goals in a little bit closer alignment than just the financial goals. So I think that like we talked about, I think that ratings firms and consulting firms are catching on to that and understanding that and saying, this is a good opportunity, which leads back right back to my cynicism.

not quite as cynical. I will say, I think that there is some real value. But I think that in terms of a portfolio I think, and I'll be transparent about this is that I usually do a moderate amount of research and I'm I'm a individual picker as the opposite of you as well, the two sides of the coin.

 So I do a moderate amount of research into each company. But I can't say that ESG scores factor. Really more than a very small degree. So I think it's, I think, like you said, I think it depends on if you want it to be a factor.  Read, I would say if you're more interested in this stuff, read the reports, read  scholarly papers about core possible correlation between ESG scores and profits.

 Do your due diligence. If you're really interested in this  throw money into a ESG ETF or a hedge fund or something like that. But I think that you have to individually ascertain the value, especially in the long run are you interested in this right now? Just as oh, I'm interested in kind of any ESG stuff or are you interested in that in decades?

Are you saying over the course of my lifetime, I want to be invested in companies that align with my goals, not just financial. Yeah. And I think that's what. Thing the the efficacy of that is something yet to be determined because we, ESG is pretty young. It hasn't been all around for very long, so that  the concepts and underlying arguments behind it have been around for awhile, but actually using it as an investment methodology has not met.

So we'll see.  Maybe we find out over a 50 year period that ESG investing actually leads to reduced returns, or maybe at least to outside. Compared to a benchmark portfolio we'll find out, but  yeah, I think it's on an individual basis. You have to ascertain what's the bad for you from it.

Now a metal play over this is even if you don't think ESG is good for the individual stocks, maybe you think that ESG as a niche is going to grow. And so maybe you want to invest in the ratings agencies or the specific environmental consulting agencies. So we don't really have any, I don't necessarily have any tickers, but maybe.

Agencies consulting environmental consulting. If you find these companies that are the ones doing a lot of ESG research and you think ESG is going to grow as a trend, maybe you don't even necessarily, you're not necessarily worried about it in your portfolio, but you say, Hey, I think that's going to grow.

And I want to make one off of that. Maybe that's a kind of a meta play for ESG investing might be. Yeah that really could be not to be confused with Metta platform thing. Exactly. Totally. But okay we appreciate you entertaining us or excuse me, entertaining our audio this long.

 Usually our episodes go a little bit shorter, but this is a big topic. There's a lot here to talk about. So we, we appreciate you giving us a listen. If you would drop a five star rating on whatever platform you're on, that's very helpful. Feel free to share this with with a friend, if you found it helpful and definitely take a look at our other episodes out there.

Crypto. We talked about Anna NFTs at a certain point as well. And we got really meta with Facebook as well, previous episode. So check those out. This has been the long run show with with Austin Wilson and Michael O'Connor. Thanks for listening.

Support this podcast at — https://redcircle.com/the-long-run-show/donations

Hello, and welcome back to the long run show. This is one of your hosts, Michael. O'Connor here with Austin Wilson. Yeah. Good to be here.

And today we're going to be talking about a topic that I think is, has been catching a lot of headlines. Catching a lot of eyes and ears and minds, uh, which is the metaverse what the heck is the metaverse what's going on? Is mark Zuckerberg a wizard? No, and we don't know the answer to that, but we can't, it might be in the metaverse.

We might find the answer to that in the metaverse. Yeah, the metaverse what a, what a meta idea. Um, yeah, there's, there's going to be a lot of puns in this one. Okay. So Facebook just, uh, this past year at the end of end of 2021 changed their name. Everybody's aware of that. Um, had they changed their ticker yet?

I think it's, I don't think they have like an actually look that up. Uh, so anyways, they, they changed their name at big play into the whole meta angle. Metaverse they're really trying to, uh, hone in on this. And it's, it's interesting because. The metaverse it kind of a wild idea. Some say it's the logical, uh, evolution of the internet, which I somewhat do agree with.

Um, but I, I'm not sure that I am ready for this logical next step in, in where we're headed. Um, so there's some spooky stuff there, there might be some good stuff. There is definitely, I will say more opportunity for. Um, more opportunity for data than ever before in the metaverse. Um, and, and we all know that Facebook's bread and butter is data, uh, and, and selling that data.

So really it's. Uh, it's going to be an interesting next decade to see where this takes us, what that means. I have some philosophical questions, but right off the, right off the bat, like, what are your, what are your thoughts, uh, off the cuff here on the metaverse. Yeah, real quick, just to follow up on what we were just so that still is FB for Mehta platforms.

The ticker is still NASDAQ FB, so they've not changed the ticker yet. Um, but I think when you brought up as a good point here, just that the data that will be inherent. Like Facebook is all social media is already tracking just about anything you're doing on their platform. But if you're, if you're in the VR goggles and you're doing stuff in the metaverse, if you're, if you own land, if you're engaging in commerce, whatever is going on on the metaverse, they're going to have pretty much real time data of everything you're doing, um, which is, you know, not, not exactly comforting.

And it's also a place where their eyes far as I know. And I I'd asked you this as well. I think. A little more research on the, kind of the legal and the implications of the metaverse than I have. Um, but the, the, uh, as far as I know, there are less or no privacy laws and like kind of stuff like that in the metaverse, whereas, you know, on, on social media there, you have to opt into certain data tracking and also stuff like that.

I don't, as far as I know, I don't think there's any, any of that for the metaverse yet. Well, they, so Facebook, one really interesting thing about. The metaverse that we do know. So there's a lot, we don't know regarding the legal side of things. Um, I would imagine a lot of the same data C or data privacy laws will, will try to be applied to the metaverse as like a platform.

Um, so you'll probably see a lot of the same rules and regulation. Try to be applied, but it's, it's like, it's like applying, um, it's like the sec applying, you know, trading rules when it used to be paper stock certificates that were exchange to computer trading where there's just ones and zeros making the trade happen.

Um, and there's no physical stock certificates. So it's like that sort of a paradigm shift, at least in my view. So I think we're going to have to have an update of these, of these laws. And, and I think it could lead to a lot of issues, uh, starting out. Um, one thing that we do know from Facebook so far is, you know, they, they have said they're not doing any facial recognition on any posts or, or, uh, photos that you post on, on Facebook.

Um, so that that's nice for their, their platform. However, We have not heard the same thing when it comes to the metaverse and maybe I'm maybe I don't fully understand it. And so, you know, you could be screaming why you don't get it. I don't understand what the vendor says, cause maybe you'll maybe it'll be, you know, totally avatars and you know, that sort of software doesn't matter.

But the fact that they haven't really said anything. Data privacy is concerning just because, you know, in the last five years that's been a huge issue as these social media platforms and, and search platforms. Google has got caught up in the data, privacy issues too. Um, we've seen cookies go away for instance, right?

And so if we're seeing cookies go away, but now everything you do in the metaverse can be tracked, um, that that could present some very interesting legal issues. That again, I think we're going to see existing, uh, laws and regulations regarding data privacy be applied to the metaverse as a platform. But I think what you'll see is the, the, the corporations who are running this, and it's not just Facebook.

I mean, we're really harping on, on Mehta platforms. Excuse me. We're really harping on them. But Disney has plans for, for metaverse, um, content or platforms or capabilities. Um, so it's not just not just. But we'll, we'll see these companies probably looking for the most lenient way for those rules to be applied.

Um, so it's, it's gonna be interesting. It's it's uncharted territory. Um, and I am, I. A bit concerned just because we've seen how well our government has handled the uncharted territory of crypto, uh, which isn't even another universe. Okay. We're just talking about real world innovation, uh, in, you know, the blockchain crypto space.

They haven't handled that well. So we still have, uh, I, I, in fact, in one of those crypto hearings I heard, uh, I think it was a Senator. How the internet works and I'm like, well, we're about 30 years behind on this. And these people are going to be writing the rules and regs for the metaverse. So on that, on that end, I am a bit concerned regulatory wise for what's to come, but I'm, you know, hopefully I'll be proven wrong.

Hopefully we'll, we'll have cooler heads and brighter minds prevail, um, in, in that space. But yeah, the legal aspect is, is. Uh, entirely. So what the, the data on the other hand from a purely business standpoint could be very, very valuable. So I'm interested, you said you, you had some, some kind of like bullish points, uh, as far as the business side.

So I think that's probably the most convincing is that. Gifts, the companies who are creating these Mehta versus, um, a lot of data, which can easily be sold to advertisers or big companies. I mean, it's something we've, I believe there's already been a couple of companies that have popped up that are specifically metaverse advertising companies.

Like they specialize in creating billboards and advertisements in VR worlds. Uh, which is fascinating. I think that's probably going to grow a lot of. And, you know, you're going to, you're going to be able to buy an ad spot in a town square in a virtual town in, in the metaverse. And that could be a big, legitimate way of advertising or, or ad spots in virtual sports.

Or you've already seen, we've already seen that video games. Exactly. Multi-verse or yeah, multi-verse multiplayer role-playing game. Exactly, exactly. And so I think, especially talking specifically in terms of the law, Uh, as we always, as we always talk, um, I think that for on the business side, I think there's some pretty bullish cases because it's almost I from, I, I believe that if we hadn't had COVID when we did and all the, all the bad things that have happened with COVID, but one of the, I think one of the good things is the, uh, the, the democratization of remote work.

I think if we hadn't had that. I don't think the metaverse would be gaining as much traction and also as much hype and kind of talk as it is right now, because at a certain level, what's the use of the metaverse. If you're, if you're working eight hours a day in an office, I mean, sure. You can, you can get off at the end of the day.

And then it's kind of this, the whole thing of second life. I remember when that was all talked about and like second life, this, this kind of metaverse concept without, you know, virtual reality. So it's not as integrated, but that was a whole kind of talk of the. But I think one of the main problems with stuff like that is that it only really affects people.

Either don't have to work or are on it in the night hours, uh, after work. Whereas the metaverse, I think one of the big. Selling points and why it's kind of gaining a lot of traction. A lot of eyes, especially in the business world is that you could be in a virtual office. And that's something that I believe the hedge funds and wall street, they've gone back to fully remote.

Cause if I'm a Cron and I would certainly imagine that they're looking at okay, how do we create a kind of an office experience that's similar. So you have everyone we're in VR goggles and you're in your virtual Goldman Sachs office all day. And then you step outside and you can go. Uh, virtual sports game or something.

So there's, there's some very interesting and, and I think frankly, scary, uh, 24 7 implications of the metaverse that we're not around before. COVID that's true. I mean, if your office is virtual, there's no need for it to shut down so that, yeah, I mean, that could bring in some very odd implications. I mean, I'm just thinking of, like, to me, it's it's so.

Um, from a, from a philosophical standpoint, I really don't like the idea of separating, uh, our, our experiences of the, the real world, the tangible world, uh, through something that's augmented and not necessarily physical. The one hold out. I have some hope I have is that no matter what, there's always, you know, functions of being a human that require the real world.

You have to go to the bathroom, going to have to go to the bathroom. You can't do that. Well then maybe people will start wearing depends on your, I don't know. Yeah, that's a whole, that's that's horrible anyways, but you can't eat necessarily in the metaverse right. That requires real food. So there's, there's certain things where I'm hopeful that.

Well, we won't get entirely sucked in, but we've seen, we've seen the issues that arise from, from video gaming. In fact, China. Has has put in place rules for youth and how it can be on video games. Can't be on video games at all during the week, only certain hours on the weekends. So will we see, you know, we've, we've seen that very strict approach, but we all know that there, there are effects, um, uh, video games are addictive.

So what, what do we say about this completely immersive world of the metaverse, you know, that that could really have some negative implications, um, in regards to. Just our quality of life. Now I will say it would be interesting and I'm sure it would be stimulating and tantalizing and fun, but there is such a thing as too much of a, too much of a good thing.

Yeah. Yeah. And kind, kinda, kind of rolling off of that. The, I think with the metaverse the, another philosophical kind of problem is that it, because it's a very, you know, As immersiveness as we've seen haptic technology. So essentially like touch interfaces, so gloves, uh, you know, full body suits, whatever, um, as immersive technology increases.

Um, I think we're going to continually see a, it's a more potent form of escapism as the years go by as technology increases. It's a more potent form of escapism, which Brooks the question of will people. Begin to care less about the world. I probably, I would say people will probably start to care less about, you know, I mean, you could say that they're, you know, if you're, if you're very well off in the metaverse, who cares, if you're in a tiny, messy one room, apartment, a studio apartment or something like that, you know, if you're, if you're your main life goals and your interactions are all are all in the metaverse, who cares where exactly you are.

Who cares about your neighborhood and who cares about cleaning up trash or having a garden or living in a nice place. It's interesting effects to it because that could, that could accelerate some of the problems we do have, like you just, you just mentioned like cleaning up trash or caring about your community or, you know, or even caring about the environment or any of that that could really kind of counterintuitively have these, the.

Extra niceties that we are not even considering at this point. Well, we are, but right now this is the point at which we consider those extremes. So what do you think is the, and it's always hard to pin down motive or why. Right. But I see, you know, when I, when I hear, uh, that the Facebook higher ups, especially mark Zuckerberg or even Disney, you know, talking about the metaverse now Disney, I.

Is going to probably create like immersive experiences on like a more of a theme park level. Yeah. Not necessarily like we want to create, I don't know, half the time when I listen to mark Zuckerberg, I don't, I don't understand what he's saying. Um, he seems very out of touch, but it, you know, we want to create this whole universe and a other worldly thing.

When I hear that pretty much, what I see in his eyes is dollar signs. Right? That's clearly the motive is it's okay. This is the next way for me to make. Um, which is a bit interesting to me because like Facebook does very well clearly, um, that the stock price reflects that. But, um, you can't be stagnant for long.

So is this like a, and I hate to sound so harsh on it, but is this a, um, a negative consequence of art are, uh, or a possible negative consequence of our constant, um, Hamster wheel seeking for innovation. Hmm. Is this like, is this a, um, issue that, that may really show us that maybe constant innovation for the sake of itself isn't necessarily the right path?

I don't know. Um, that's getting meta about the metaverse, but it is, it is interesting to see, you know, like, This is clearly a very successful company, clearly a very successful CEO, but he doesn't just, you know, sell and, and ride off into the sun. He's still trying to push forward something. Now I can disagree with him.

Many people can disagree with him, but clearly that he's trying to push something forward. Is, is that necessarily a bad thing? Um, it's interesting that, you know, innovation does create value in, we've talked about value in a, in a separate podcast. Does does constant innovation, you know, keep creating this value.

That's the real question. Well, first off mark, we know you're an avid listener to this, so sorry for now. Um, but I think the, the, an important distinction is how do you define, how do you define innovation? Like innovation needs to be defined as something that actually produces value and growth. And this is a whole philosophical.

Business philosophy discussion of, you know, business versus antibusiness, you know, actually things that are written up as business and actually aren't or written up as innovation. That actually aren't because, I mean, if you look at, I mean, it looks the, the studies on Friday, the, I forget it was the wall street journal, the New York times it came out with the big, uh, Instagram can expo say on New York, whoever it was, wall street journal, the New York times, um, they broke the, the big, uh, the big scandal of Instagram.

I mean, you have. You have to kind of weigh that and say, okay, is the value of whatever this is providing the ability to share photos to the public and have a kind of a weird quasi town, common of, of content. Is that providing more value than, than producing anxiety, depression, suicide? Um, yeah, pretty maybe not serious issues and maybe not directly.

I mean, it's, it's so different. To assign causation, uh, in situations like this, like there are so many factors, but at the same time, it's like, okay, I think we had a similar thing with vapes, you know, about 10 years ago, Juul coming out and then getting hammered because it's like, you could, you could call it innovation.

I mean, it's, it's a new way to smoke a new way to get nicotine. So it's kind of innovation, but I think that the definition of innovation has to be kind of tempered and, uh, qualified with. Value creating innovation or is this simply a new way to do something or a new way to package something? Now I think that there could, I think there there's definitely pieces of the metaverse that are genuine and legitimate value creation in innovation.

Um, I think that there, there is probably some unique value to the ability to interact in a more human way. Um, virtually I think. It's probably better than simply hopping on a zoom meeting or a Google calendar meeting or whatever, in some circumstances. However, I think that just knowing some psychology and knowing people a little bit, it's like, I think that people will most likely go overboard and you know, the metaverse in moderate.

We'll probably be a good thing, but how many people will be engaging in moderation? And I, I know myself, like I, sometimes there are just things that there are certain platforms. I pretty much deleted Instagram and Facebook. I just don't use those products anymore. And it's, I mean, so your phone, Facebook and Instagram are three great examples of a product slash platform that is designed to be.

Interact with it as much as possible. Yeah. And so, I mean, it's kind of a red flag to me that the, the company that came up with Facebook and then bought Instagram two of the most, I would say, addictive social media platforms out there. Um, those, that company is now going to create the metaverse and we're going to use it in moderation.

I find that hard to believe. I mean, the like button has no added value. It's one bit of information. And the only reason it's there is to create more interaction with the platform. So it, I find it very hard to believe that, you know, Facebook is in it for good reasons. That's why I say, you know, there's dollar signs.

And again, mark, if you're listening well, if we can sit down for a coffee and talk it out, a virtual coffee in the metaverse yeah, action might be down to drink, but anyways, we'll, we'll, we'll, we'll clear that up later. So I, I mean, that's why I have an issue with it and I think I'm not necessarily alone. I think.

Um, it's we, we saw that with crypto, uh, Facebook tried, what, what was there was, it, it wasn't Facebook coin, but they tried to create a crypto and it completely flopped. Now of course you have wall street against hat, and at the time you had a lot of government agencies against that. Right? So there, there was a lot of force coming to.

Um, so maybe this metaverse play is different. Um, clearly they're bought in as a company. I mean, they changed their name to meta platforms, Inc. So clearly they're bought in as a company, but we've seen them fail at these new, these new ventures into the, the, what is the trend of the moment. Right. And so maybe we can help.

That that's now I'm not saying short Facebook. That's not what I'm saying, but not financial advice. This maybe if I can hope that, that there is some sort of roadblock that gets presented that's unforeseen at this point, uh, that makes it impossible for them to complete this metaverse transformation. And I'm pretty bullish outlook on the metaverse right there.

That's a pretty bare show. I'm sorry. I'm sorry. I'm very bearish. I think, I mean, I think it is. I think some sort of, um, widely accepted use of VR and XR is, is the next, the very next step. Um, I think you're going to see that become more widely used. And I think maybe the talk of the metaverse is a little over hyped.

Um, especially on the heels of, you know, Facebook changing their name and all that. But I think it's a little over-hyped at the moment. I think the next, the very next logical step is using using, uh, you know, these VR headsets for more than just a cool game. Um, there's a lot of, in fact, I've heard of, you know, virtual mixers, um, virtual conferences where you can go to the conference.

So there's, there's definitely business applications. Especially in, like you said, COVID and all the shutdowns and, and, you know, rules and, and people being scared to go out all, all of that has shifted our mindset around virtual work and, and what you can do, uh, and get paid for. Um, that that's definitely a shifted mindset.

So I think the next step is, you know, VR headsets being used in more than just a video game app. Um, so from a, from a trading and investing standpoint, that's probably the next logical step. I mean, if you already pretty much all of us in some way, probably own meetup platforms, Inc. At this point, if you're, if you're in any index fund, you own it pretty much.

Um, so you know, you, you probably have some exposure to it already, but if you're looking for, for kind of like a portfolio. Maybe idea there, maybe looking to the companies that are producing the VR headsets and are, are really producing the hardware that makes the virtual reality possible. That's probably the next play, uh, because those, those, I mean, if we're going to have everyone at a Goldman Sachs office in the metaverse, you gotta have a lot of headsets.

You can't really get around that. That's a real world thing. You gotta have. You can't just have the virtual. That's a good, the virtual VR.

That's the problem with this conversation. It is when you're talking about the metaverse, it all gets so meta. It really does. And I'm not saying that just to make the joke. I mean, it's like, you're talking about talking about talking. Yeah. You're you're yeah, it gets a little, little, a little too far a fuel at some point.

So I think it's helpful to bring it back to, okay, well, we need hardware for this. It's not. We can hop on our computer. Clearly we need, uh, we need hardware. That's got to get out. Those have to be bought and sold the parks for that have to be bought and sold. That has to be made. So there's, there's definitely a big business behind that at this point.

So that, that might be, um, one thing to look at in the short term or, or I guess shorter term. Um, but it could be sustained too, right? Like. We're probably going to see updates to those, to that hardware. Just like we've seen updates to computing power and all that. We'll probably see those updates coming along too.

So those sort of companies may be a good play in the short term, I guess I'm this brings up a little bit of that. The ethical side of. Investing sometimes. Um, which I think sometimes I've, I've had discussions where people go a little too far, I think, to the ethical side. But you know, when we're talking about plot, this, this metaverse platform, I personally very much disagree, but I'm also going to probably buy a, uh, uh, an index fund that has a portion of Facebook in it.

Yeah. So I'm going to have exposure to it, whether I like it or not. Um, so really, I guess, Some of the ethical questions come in, as, you know, if you really disagree with it, should you be building your portfolio to exclude it or do you just, you know, in the long run I'm a buy and hold kind of guy. So do you just say, well, I don't like it necessarily, but whatever, I'm just going to, I'm just going to deal with it.

Um, could almost become a new, you know, social impact could become a new category of the ESG jurisdiction to enter. So we might, we might see that from this. I don't know that that could be a, again, hard to quantify. Um, but you know, a lot of things in ESG are hard to quantify, but we're finding ways. So, yeah.

So there is a, an ethical side to, to this whole discussion too, and investing in it. That's a good point because I think, you know, we're starting to see more and more, um, more and more investors and traders and institutions kind of looking at. You know, stakeholder capital theory and all sorts of, you know, ways to look at the impact, the societal social, um, ethical impact of different technologies, different businesses.

And I mean, Facebook's had all metal platforms. Is that a rough year? They've been a lot of ethical stuff come up. They've had a lot. So I think it'd be interesting to see if that those kinds of things start dying off. If they. Try and really clean up their act. I think, cause I mean, just looking at, looking at their, their stock price, I mean, they've still gone up almost 31% in the past year, but they, they Crested right before the kind of scandals and then they really they've come back.

But not that they haven't fully recovered from that. And I think it'll be interesting to watch and see if they kind of. If everyone stops talking about it, will they just kind of everyone forget about it and move on? Or is it something that is a longterm factor affecting, um, Facebook Mehta platforms? Um, and I think you bring up a good point of the hardware is going to be incredibly important.

I think that's a great investing opportunity. If, if you know, if, especially if we see adoption increasing, uh, VR headsets have to. Treadmills for omnidirectional treadmills. Those are wild. Oh my gosh. Yeah. Yeah. So there's a lot of interesting hardware innovation going on, which could be really solid. Uh, I think that's probably a great long run investment opportunities as well, but in the long run, it's interesting because we, we don't really know.

Um, where does this, I mean, obviously we don't, we don't know what the future, but this is kind of an interesting. Topic, because with crypto it's like the, kind of the, the base qualities of cryptocurrency already out there don't exist. It's decentralized, uh, you know, all of those, all the kind of main functionalities, smart contracts, decentralization, um, anonymity, the blockchain is already very well established.

Whereas with the metaverse it's it's I think, I think Metametrix is a more of a black box and crypto. Oh, yeah, I would a hundred percent agree now, I think to agree with that statement, you probably need to have gotten down the rabbit hole a little bit with crypto to realize how much is already is already out there.

Right. Um, and, and Benzinga has a lot of good information on crypto, um, that the crypto guys, Logan and Ryan have a great podcast on crypto too. So going down the rabbit hole and having gone and gone down the road, And come back alive. Um, there really is a lot already out there and established, and I think in a way, crypto is not that far and, and decentralized, you know, currencies are not that far away from what we already have.

Um, Necessarily the decentralization aspect is, is huge. But I mean, we, our banking system is pretty much entirely run on ones and zeros at this point. So like I do all my banking virtually. I don't go to a brick and mortar bank and deposit a paycheck. It's all done virtually. So that is less of a leap, I think, than taking.

What we currently do, which is sitting in an office face-to-face or in a board board room or, or at a coffee shop and having a meeting, taking that a hundred percent virtual, I guess, maybe it's the next step, uh, from zoom meetings. But to me, it's, it's very, it's, it's a larger step than, than it was from, you know, some digital banking to cryptocurrency.

Yeah, to me, it's a larger step. And again has more, um, more problematic implications. I'm not even gonna say negative because they're just problems that we don't know what's going to happen with them. Right. The privacy issues, the even, even like, okay, if you sign a contract in the metaverse, is that a legal binding?

Well, contract law does not currently have any, any sort of handshake, a virtual handshake, a virtual handshake. Does that count or trademarks? Do those carry over into the no matter verse or, you know, you've got all the people buying. I think it was, I saw some rapper buying like millions of dollars worth of quote unquote real estate, which is, you know, it's not really real, um, real estate or property in the metaverse.

Okay. Well, who holds the DDT? There's no city office with a repository. Right? So again, maybe I'm thinking too small minded and I just sound like your grandpa. So feel free to let us know if that's what it sounds like, but, um, there's a lot of problems with the metaverse that, uh, that I don't know if I don't think Facebook or Mehta platforms Inc.

Will be able to, um, overcome those as quickly as some might be saying right now, just with. Um, because again, I point back to you, you pointed out all the scandals that I wasn't even thinking of this past year, but I point back to the, the crypto issues, um, of when they were trying to create their own cryptocurrency on their platform that didn't even go through.

So there are some, I personally have some questions, um, I'll see it when I believe it or I'll believe it when I see it. And maybe it met Mehta platforms and get saying, well, we'll, we'll see it when we book or no, we'll believe it when we see it anyways. Um, so yeah, I think there's, there's a lot of problems there.

And so I guess I wouldn't necessarily be a hundred percent bullish on them. Yeah. I think that's a good point. But in that crypto, There you go, there you go. Cause it, crypto is a, I think a simply a mindset shift, a psychological shift because you have to just simply understand what's going on and whatever.

Whereas metaverse is a fundamentally, it's a behavioral and it's a behavioral shift. You have to be physically doing the things in your chair, wearing the headset, moving your gloves, whatever it's, it's ultimately a behavioral shift, which I think is much harder. To do, but I think it's interesting because I think that the metaverse is very similar to a platform like Facebook, where there are incredibly, um, incredibly effective social economies of scale, where if you have the metaverse platform with the most people on it, everyone else is going to be going into that one.

And that one will be the place to be because you just won't be able to interact with people. Probably. I mean, There's no, there seems to be no incentive to not create a walled garden of a metaverse, which in it of itself brings up some problems. Exactly. It brings some problematic systems. Um, now, you know, there's already decentral land.

Um, but I, I don't necessarily see a decentralized metaverse working, um, or at least creating a critical mass of social capital because if a company is running it. Very big incentives to just get everyone on board. And I think they're going to, out-compete something like decentrally and probably, maybe not, maybe people will, you know, maybe, um, maybe enough people will be conscious of kind of the risks of that and, um, will not just go along with it, but I, I would expect whatever the biggest metaverse platform is in, you know, two to five years.

Kind of be the metaverse platform that you have to go on for everything. It's almost like it's almost like a Google search. So we might see the same, the same, uh, arc that we've seen with search where Google took over. But now everyone's understanding Google a little bit better. In fact, I keep getting ads on YouTube for Google, where they're like trying to create a really good image, like, well, how does search work?

How do you see certain ads? It's interesting. I'm like, What's going wrong with Google. Um, but you know, Google had a T day where everyone was, was using Google as their platform. But now I am seeing a lot of people, uh, switch over to alternative search engines because they're unhappy with how Google is using their data and what they're serving up and how they're, how they're curating the search, uh, the search results.

And so. We may see something similar with metaverse companies. Maybe the first one does have a lot of staying power, but there might be some very good, um, some very potent contenders and juggernauts that come up, uh, come up through the ranks, as the problems with one are more readily, uh, seen by the users, um, and experienced, we may see some others come up like we have with search.

So yeah, it's, it's hard to say, but I think. Th I do think Metta Metta platforms, Inc. If the, this whole thing is to come to existence, I really do believe they are best positioned for it. Um, unfortunately, which is like not, not really where I want to, not really what I want to say, but I think that's the reality is they've clearly done a great job creating Facebook to be, uh, I mean, we'll just say it highly addictive for interaction.

If there's going to be a sticky metaverse platform, it's probably going to come from, from meta platforms, formerly known as fate. Yeah. Yeah. So there, I think there, you have it in the long run in terms of portfolio, at least it does sound like, yeah. Ticker FB, classic metal platforms. Uh, Hardware. I like the idea of hardware companies for virtual reality, for a ancillary haptic technology, et cetera.

Um, and then, uh, I was just going to say, and then, you know, I would probably be keeping a weather eye on, you know, what are the companies providing additional services in within, I mean, who knows maybe consulting firms like Accenture or. Boston consulting. Maybe they're going to jump in and have a, immediately have a virtual office in the metal world.

And they're going to, you know, there could be companies that are very forward minded perhaps, and, uh, jumping into try and create kind of monopolies in the metaverse, which would be very interesting to watch. Yeah, it'll be, it'll be very interesting to watch another one to one another. Kind of long-term play.

I think you could make, if you're, if you're really like me having ethical issues with the whole metal platforms, idea of the metaverse idea, another one, unfortunately you would still be supporting it, but it's tangental is, is a sort of an energy company play or a systems play. Cause again, you need more than just, uh, the hardware behind, you know, VR headsets, right?

You're going to need energy to run this whole. Uh, 24 7, 365. Right. Um, and so that, that's another, another option. Um, I guess I wonder what Facebook is getting used as far as a computing platform. So yeah, I don't know if that's IBM or AWS or Microsoft. I don't know if they partner with them because that's a good point.

They don't really, I mean, they, I think they build their own server farms, but to, to scale something. The metaverse would probably require a partnership with an AWS. Yeah. So that would be something to watch. Um, that, that would definitely be something to watch. And then if, if we're talking a partnership with AWS or, or IBM or Microsoft, then we get into antitrust issues.

Yeah. So, I mean, possibly, uh, so there's, again, a lot of roadblocks along the way, but I think you want, if you're having a trouble with, if you're in trouble, You know, buying, holding Facebook, uh, from an ethical standpoint, there are 10 gentle ways to get exposure to this, uh, this trend without necessarily buying the metaverse platform itself.

So there's, there's always multiple ways to skin a cat, at least exactly. That's what I've been told. I've never done that. Not serious. Yeah. And that's something I want to do. And on that note, we hope you'll you'll join us next time. We will be addressing another topic over the long run, as we always do, trying to turn to break things down and make them, uh, tangible and, and, uh, salient, but looking over the long run as always.

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Hosted By:

Austin Willson

Michael O'Connor

Hey everyone. And welcome back to the long run show. This is your host, Michael O'Connor here with Austin Wilson. And always good to be back.

And we are this today. We're going to be talking about something that is near and dear to my heart and to my career as well. But I think Austin is going to be peppering me with some questions and  I am interested to hear his takes on many of the things that we're in time, but we're going to talk about artificial intelligence, where it's been where it is now, where it's going.

And most importantly, how it relates to the long run. Is it. Is it a big deal in the long run? Is it a threat to humanity as Elon Musk has said that maybe I'm excited to hear your thoughts, Austin and all that. Yeah.  What's really great about this episode is that you have a lot of experience with it.

You have a lot of experience with deep learning and all neural networks and all of that. So I think that's a, this is a great time for. Crack open that brain of yours and let's see what flops out. That sounds pretty disgusting. When I put it that way, yeah. But really artificial intelligence, I think.

 What overhyped right now, I think any investment decision that you're making at the moment and thinking you're going to get humongous returns for artificial intelligence. I personally think just to get this out of the way, I think that's a really bogus buzz word investment at the moment.

Now I would love for you to tell me that I'm wrong. I just think that the the. Companies that are doing it right now are either private or they're so large. And it's only one small department within a huge company. You're not really getting exposure to the idea or the innovation of artificial intelligence.

You're just hopping on some sort of bandwagon, unless, like I said, unless you're buying a private company, but if you're buying a private company, I want to talk to you if you're listening to this show. So hit me up on LinkedIn. Would that being said, I think artificial intelligence needs to be on everyone's minds because it seems like it's got some very large implications for the future.

  And not only things like what if we had an AI algo bot trading equities that could be wild. Okay, so they're not right now. So there we go. So that could be wild, but what what does that mean for the markets and price discovery and all that? And that's somewhat of a passive versus active debate, but  that could be a very, that could have large implications for the financial system.

But beyond that, just in terms of the meta, I think that's where I'm really interested for the long run future of. Artificial intelligence and humanity's relationship to it. I think it's an interesting proposition. So first off, I think it'd be helpful to define the terms here, artificial intelligence.

What does that even mean? Can you define it simply for us? Make sure. The very academic is simply it's a method of some sort of. External learning function. That is non-human, that's an artificial if you want to take, they're really very technical, it's a non-human learning application that performs some sort of learning feature or the kind of the standard ideas of intelligence can be found within it.

And it is not human, is that does that satisfy your desire? And the answer. Yeah. Can you sum that up a little bit? Just so I can make it more palatable for sure. Yeah. I would say artificial intelligence is at the end of the day. It's not, I think a lot of people think of artificial intelligence as this big glob that's out there.

 There is some sort of artificial intelligence as in the. There is an artificial intelligence out there like a Skynet or a one specific Jarvis or a Ultron kind of thing.   Which artificial intelligence is simply the category of many different ways of. Creating systems that can replicate aspects of human intelligence on their own.

So we have machine learning, we have deep learning, we have enormous there's a wide breadth of different things that all fit inside of artificial intelligence. So it's not a singular thing, but rather a category that's really helpful to understand that it's a category. So within that category, I've heard of deep learning.

Oh, actually, you mentioned all three deep learning machine learning and neural networks. Can you just break those down for us real quick? And I'm sure there's some cross-pollination between all three, but could you break those down for sure.  And like I said, this. More, but just in those three are probably the most commonly referenced kinds of systems and ideas in artificial intelligence.

So machine learning is another, actually a category. So machine learning is similar, a dissimilar word descriptor or to artificial intelligence. And that machine learning is the, it describes certain processes that can create human, like intelligence in machines. And so deep learning is a. As a specific form of machine learning, a specific form of sorry, neural networks, specific form of this, where neural networks are a, there are very specific models that you can use to build neural networks that either there are lots of lack box style ones where they'll have activation functions.

And also you can dig really far deep into what the actual, like what is actually going on in neural network. But a neural network is a specific system. It has machine learning. So it's a machine that has a descriptor and then artificial intelligence. It is a form of artificial intelligence. So a deep neural network is artificial intelligence and machine it's a form of machine learning that is artificial intelligence.

Does that make sense? Yes. It's about as clear as mud. No it, it does make sense. And I think. I'll tell you from a marketing perspective, this whole space needs a rebrand because you just said a black box of artificial intelligence. And that sounds like something scary that I really should be afraid of.

So no wonder everyone and their brother is afraid of artificial intelligence, because it sounds and like you said, artificial intelligence in the singular, it sounds like the antagonist to, in some sort of scifi awful. Totally makes sense. And there's hundreds of scifi and that was up there like that, but that's not necessarily while we might be talking about that a little bit today, but so with all that kind of groundwork laid, I want to go back to my original statement of artificial intelligence being a fad and not a fad, but a buzzword right now.

Do you think that is true or was I totally overstepping my bounds in saying that it's a fad when a co. Excuse me, not a fad, but a buzz word. When it comes to investing, quote unquote, investing in artificial intelligence. Does that seem, does that track with what you know of the space? So it's interesting because the answer is complicated and I appreciate that you mentioned that you feel like there aren't any easy ways to invest.

 I can personally share three individual stock picks that I am personally. And and  I consider solid plays if you want to get into AI again, not financial advice, but while do share. Cause I'm right here and I'd like to know. Yeah, exactly. So there's the biggest kind of, at least the most very.

They're very vocal about it because it's in their name and their ticker is AI is C3 AI, and the ticker is literally AI. So it's C3. They are seeing a P in an O exactly. They are very specifically a artificial intelligence company. You can routinely see their full page ads in the wall street journal. They do a variety of different work and yeah, as their name is their name says their whole Mo is artificial intelligence.

That being said, they're they definitely have other data stuff and they're they're not necessarily. It's actually quite the same as an AI ETF, which is my next pick which is I gotta find it. Where's the AI ETF. It's  maybe I'm not in the air ETF. I know there's an AI ETF out there.

 It looks like I'm not, oh, I'm in the quantum computing ETF. Okay. So I don't actually own an EITF, but I'm pretty darn sure that there's a ProShares or I'm pretty sure there's some sort of AI ETF out there. But the other two picks that I have that I'm directly invested in right now, again, not financial advice.

 One is pounding. Palentier has become a pretty meme stock. And it's definitely gotten hit hard in the last couple of months as of recording this. But I personally am. Long-term bullish on Palentier. I think data structures and artificial intelligence are really critical. And especially because Palentier is.

 So laser focused on data specifically in defense contracting  we've talked about, we've heard Elon Musk quote say that AI is going to be used as a weapon in warfare, and I'm sure it already is. And I'd imagine the first tools that AI that were used in warfare were probably from DARPA or Lockheed Martin or Raytheon, or the other really like very classic legacy company.

But I think Palentier is so laser focused on it that the next big developments in AI for government contracting, whether for war or for defense or for municipalities those kinds of things. I think there's probably going to be some serious innovation coming out of Palentier from what I've heard.

 There are people on both sides of the aisle that people want. Palentier is terrible, like short Palentier. And there are lots of people were like, oh, by Palentier, whatever you do by Palentier, I'm in the middle, I'm focused on what they're innovating in. And I'd say   it's for me, it's a long play.

I'm not looking for a very short term gain on pound here. I'm looking for more, three to eight year kind of outlook and expecting some innovation. So Palentier. And then a, the least well-known I would say, cause I think I'd say most people probably have heard of Palentier to become a mean stock and C3 I've stumbled into pounding.

And I now own some Palentier on not knowing that they were AI involved. Oh, wow. Okay. And again they're not the same as C3 with. AI is there as their ticker and their ML balance. Your does AI some AI that, again, I'm not a totally AI company, but I think they're a good AI play. Gotcha. And then the last one, which is not very well known is I Tron, which is ticker ITR.

I they're in the like heavy technically they're in power and energy and that they make Grid and transformers and load forecasting software for like electrical companies and like the department of energy they make. I'm one of those emitters. Everyone has them on a house. Like they make Mo enormous number of smart meters  internet of things, applications for electrical power.

 And they've gotten collaborative the past three months as well was a similar trend  as Palentier. But I, I. I am pretty solidly bullish long-term on I Tron because number one if we see the kind of changes in our infrastructure, in our load electrical grid infrastructure that  both sides of the political aisle are calling for in the more environmental side, this calls for more and more renewables and.

Under the more kind of hawkish side there's more calls for better power grids. Anyway whether it's more nuclear or more hydroelectric or more oil and gas, I think that. I think there's there's always going to be a need in modern society for innovations and electrical power.

And I try is one of the unique, I think, from what the research that I've done. And one of the unique ones that they don't directly build power lines or anything like that, but they provide the systems and the software to help the electrical companies and the federal government and the state governments to run and operate those systems as efficiently as possible.

And specifically they run. They have some of the best tools mainly neural networks and deep learning AI that helped to forecast electrical loads and grid loads for these electrical companies. And so we've seen, I seen a lot of innovation coming out of I Tron in the past day. And I think they're a sleeper play.

 I think that with innovations and electrical load, I think they're one of those ancillary ones that you wouldn't necessarily think of versus a BP or a general electric or something like that. But I think could be a really strong play, especially with AI using AI for industrial and energy grid use cases.

Interesting. You bring up some interesting points, I guess I still go back to, and maybe I'm thinking about it wrong, but I still go back to my opening statement, that opening statement, like this is a debate or something. My, my previous statement that it seems like there's no. Great way to get exposure directly to that innovation, except for maybe this C3 AI.

And this is the first time I'm hearing of this company. But you also mentioned that they're definitely focused on data at the moment. And so I wonder if it's one of those. I don't necessarily mean this in the accusatory tone that it's going to come out in. But one of those slight of hand moves that companies often play where they say they're working on the buzz buzzword trend and really the revenue that's sustaining the company's coming from some legacy business line that isn't, it could be.

 Tangent next to    the new innovation, but it's not necessarily the new innovation is not necessarily producing any revenue for the company.  Again, I'm sounding like a total bear on AI but I just it is sometimes. Frustrating because you'll find it for instance, I really dove into quantum computing and I was like yeah, there's a quantum computer ETF, but a lot of these companies, most of the revenue isn't tied to quantum computing yet.

Like it's in such a young stage at the moment that there's just not a lot of public money that can get at it. So I still I appreciate you pulling up those three, but it seems like maybe I'm approaching it wrong. Maybe this whole AI. Innovation and applications are within current businesses and you're not necessarily going to get it's not like someone's creating an.

With that's not AI, isn't the product or a sector it's more meta than that and covers multiple sectors and multiple products and processes on the backend. So maybe I'm thinking of it wrong. I don't know. What is your take on that? I think that's a good point because if you just Google best AI stocks go with, I agree with Nvidia.

Alphabet Amazon, Microsoft. IBM, come on a semiconductor. None of that. They're not getting the revenue from which as significant Amazon and IBM are actually ex possible exceptions to that because Amazon is getting an unbelievable amount of money of revenue from AWS. And a lot of that, they're building some really incredible AI solutions in AWS.

And actually I'm, I've been even more. With what IBM is building on IBM Watson and their cloud systems. I've used I, a little background, I started a very small boutique AI consulting company for a short period of time and did some work directly in the field with other companies with mid to small, to medium sized businesses, helping them implement tools and software.

And I was really impressed with what IBM is. I think IBM could be another great pick where, you know, if you want to be investing in what probably is the future of AI, but you don't necessarily want to be completely leveraged on AI. I think IBM is a great stock and I, again, I do own shares in IBM, this disclosure, again, not financial advice, but I think IBM might actually be in, in some way.

Not an exception to what you're saying, because I think it's true. I think AI is it's tools. It's not necessarily a specific product. The products that come out of AI are things like IBM Watson and AWS and not specifically of AI, ultimately their data systems, their cloud data systems stocks like snowflake Qualcomm, or more plays that are in that zone.

I think, like you said it's not an buying apple because you see the iPhone and you want to invest in a company that makes that product, right? Because the re the roots of AI are very academic and are very open to. You can go online and look up ways to create your neural networks and you can make a neural network in a day.

It doesn't mean it's going to be solving a huge business problem, but you can make them, they're not necessarily products that are patented and restricted. So it's difficult to. Very easily commoditize AI, which I think is probably a good thing, but I'd want to hear your thoughts on that. So it's almost like this is way too often use, but the analogy to the nineties and the internet, like open source or even a sub analogy to that would be  the protocols for email, like it's open source.

And so you can't, you couldn't find a company that was. The email company, if there were companies involved in that and building things on top of it and products on top of it, but that wasn't necessarily their thing. So I guess that, that makes sense. I maybe it's yeah. More helpful for me to think of it in internal.

 An open source kind of project. Almost that makes sense. That makes sense to me. I just, I do have trouble with like Google, even Amazon. Yes. They're getting a lot from AWS, but they're also getting a lot from a lot of other revenue sources. Same with IBM. It's okay how do you delineate between AI?

Just data and all of the revenue that they're getting from either storing data or helping people parse out data  how do you really delineate between the two? I guess I was looking for a pure play in AI, which may not quite be here yet. And that's fine. So to pick your brain and  you mentioned some of your background in this, you were doing some consulting for medium and small businesses.

To pick your brain. I've heard. Just from like the pop culture that leads the little overlap between pop culture and the investing world. I've heard some large concerns about AI being this existential threat to humanity. And possibly taking over the world and creating what we would call like a, like an alternate or a Jarvis.

  And obviously there's been a lot of ink spilled and a lot of film rolled on scifi movies and novels that talk about an AI in an all seeing and all seeing eye, which again, really bad branding put this whole thing because it came from the academic world. They didn't market it correctly, but.

It is this something we should be concerned about? Is it something just from a human perspective we should be concerned about? And then also, how does that translate into an investment thesis regarding AI, but I guess first let's handle the fun part, the human apocalyptic aspect. Yeah. So what you're describing is.

Considered to be called general artificial intelligence or general AI, which describes a system that can pretty much comply, completely operate once it's turned on, it can completely operate on its own. Really all of the major faculties of human intelligence. So it's, self-aware it's learning, it can actualize its own learning.

It can guide itself to learn what it wants to learn and to take the actions that it wants to take. It understands that it exists and understands it's that it has has agency this kind of thing. This, the Skynet, the Jarvis, th this kind of. Is that apocalyptic  what happens if slash when we reached general artificial intelligence, the truth is we're really not, we're not there yet by any stretch of the phrase, but there are estimates that maybe we'll get there by 2050 or 2030 or something like that.

Ultimately it's, it is speculation. But it the interesting thing about something like a general artificial Intel, As a system especially the kind of the biggest concern comes to. If it's connected to the internet, there's so much information on the internet that we as human beings, can't process because we just simply don't have the energy forward all the time for if there is some sort of general artificial intelligence that can learn at the pace of whatever amount of Ram it has and whatever computing power it has it and actualize that and complete the full potential why.

Choose to serve us. And then it could figure out a way to reroute itself to a different IP and move and be this fluid object that is all over the internet. And   it is science fiction for now. There is the possibility maybe we will reach general artificial intelligence, but there is also the possibility that we'll never reach it.

There's the possibility that it is something that. Cannot completely be actualized. Because there's a host of limitations ranging from that. We're still trying to figure out how the human brain works and we're still trying to figure out how we understand the causality on. Very prime basis of how we interpret and how we communicate and how we perceive and think and learn.

And there's been an enormous amount of innovation and advancement of that. Just the fact that any kind of AI exists is really impressive to think of. But I think that general artificial intelligence is farther out than most people think. But at the same point there is some validity to the idea that if that happens there's the thought of like, why would.

Why would the general artificial intelligence care about humanity? Why would it have any problem with just figuring out how it could survive as best as possible and wipe us out or do something like that, or enslave, humanity, et cetera, et cetera. But the interesting thing, the, one of the interesting hypothesis that I've heard is that if we reach general artificial intelligence, it's, it could happen where if more than one team of researchers reaches general artificial intelligence at the same time, maybe there will be two or more, and then they'll compete with each.

And there'll be locked in this eternal artificial intelligence combat, which I think is just wild to think about a scifi on-site yeah. Triple Decker sandwich of scifi. Yeah. So maybe there are already multiple general artificial intelligence systems that exist out  in the great ether of the.

That are already competing in a locked any internal struggle. It's very unlikely it's fun. It's fun thought experiments to think about. And  they're often considered similar to a virus and then it'll, it will mutate however it can to survive. And the important thing is we don't even know.

We don't even know the mechanism of teaching a artificial intelligence system, how to survive how to learn that it exists that it has. Any purpose or meaning, or we don't know, we don't really don't understand that at a rudimentary level. And I think that there's so much. I think there is enough healthy skepticism and healthy Warry, there's definitely some over worry.

There's definitely some doomsayers that it's going to be the apocalypse Sunni's of AI. And same thing with jobs. I think the, not Steve jobs, but like working jobs. But I think that AI has been hyped as this thing that's going to. Bye bye. Some of the same people, this thing is going to create a better world.

And then also as a bad thing, that's going to take away everyone's jobs. And when really it's a tool right now, it is a tool that is meant to assist assist with jobs and assist with understanding work and increasing efficiency. And yes for certain that AI has displaced jobs already. Robots that are powered by artificial intelligence that can flip hamburgers or consort mail or do these different tasks, but you need more and more data scientists and machine learning engineers.

You need more and more people. Keeping these systems up teaching these systems, learning new things. So I think at the end of the day  it's simply another form of creative destruction the carriage drivers before the automakers. And so on. And so then you have to go through retraining.

 There's a human aspect to that. I once was very. I'm very bullish in a uncaring way on innovation. And I'm like it doesn't matter. It's just going to create more jobs. So what's the problem it's yeah, but now the person who was flipping burgers or delivering mail has to figure out what they're going to do now.

And their skillset may not be. May not be enough to go be at that eScience to build the robot that took their job. Or they may be at a point where they're not, they don't want to go get retrained or can't go get retrained for a variety of reasons. So there is a, there's a human aspect to that. So I just wanted to push back a little bit.

No, that's fair. Just because there is a human aspect that you have to think through now. There's no great solution for that. And one good solution. We're getting a little far-field. Artificial intelligence, but one good solution for that I think is just personal ownership and the person who might see that coming down the pike preparing for it.

I think that's a fantastic solution or asking for help to prepare for it.  So artificial intelligence doesn't sound like general. AI will be. A near term problem. And within the next 10 years, but it seems like there's some potential for it to be an issue in the long run. What kind of percentage risk would you put on that?

If you can, and I'm not expecting you to be a hundred percent accurate, but I'm saying long run as in 30 plus years. So we're talking 20, 51 or more.  That would be within our lifetime too. So this is important for us right now. And and important for probably most of our listeners too.

They I hope you will be around in three years.   The over and not the over-under, but the percentage risk of that actually happening in general, AI one singular general AI being a. In existence. I won't say threat cause maybe it won't be a threat, but in existence that's a great question. I, by 2051, I would say a general artificial intelligence being in existence, whether a threat or otherwise by 2051.

 That's a really difficult question because I think putting you on the spot. Yeah. I would just to give you a raw number, I would say probably. Twenty-five percent, which I think is a very optimistic number optimistic as in optimistic towards it actually being real. Yes. Yeah, because I think people who say a guarantee, it's going to be here by 2030, I think it's that things are much more complex.

  I think we is trying to get clicks. I think we like, like just the scientific community as a whole is revolution of causality and  we're starting to really understand why our brains think the way that we do, why we make mistakes. We have behavioral science and heuristics, and we're learning a lot more about ourselves which I think will definitely speed up artificial intelligence research and the possibility of creating a general artificial intelligence.

The more we understand ourselves and our brains, but at the same time, there's a very there's a huge leap from. Going from a physical piece of a system. Like our brain that has evolved for as long as it  has  it has very special properties that we don't fully understand yet.

And to try and replicate. A system, a non-core pauriol system that can do the same things that we do is it's very difficult. And I think it was Elon Musk who set it himself. He, I think he said something like about autonomous driving in 2010, like we're going to have it locked down by 2015 or the years might not be correct, but some sort of span of time.

And then right before he, right before the, like the year that he said it was gonna have you just released this official statement of yeah, it's a lot harder than we thought to do fully autonomous driving. And instead to think that we can't do fully autonomous driving yet how far away are we from full artificial intelligence?

If we still. Actually do autonomous driving, but it is really amazing and magical to see semi autonomous driving in practice. Like it's pretty incredible to the. The leaps that have been made in the last 10, 20 years in AI stuff that would've seen seemed like magic in 2000 you stepped in the Tesla in 2000 and the person's not holding on and it's just moving and doing its own thing and or they call it up to some insane.

Yeah. It just drives that up. You'd be like, okay, where's the person hiding in the front or something driving it.  It's pretty magical. What already. Has been accomplished in AI. So my, my outlook personally, and in a portfolio and long run view is more of, to be in all of what we've already accomplished in the field.

And to be excited about that I really. Think about general artificial intelligence on a regular basis or am not super worried about it? Because I think the, and I guess the one that the one exception to that is China is very rapidly very rapidly expanding all of their AI programs. So you could see definitely some uses of AI that could be questionable, morally  militarily, there could be a very solid incentive to come up with a very close to a general AI for warfare which talking like gosh, what war games the movie with the nuclear launch codes and everything, something like that.

It it's possible, but. Ultimately it's not as possible or not as soon as people think. And I'm not necessarily super worried about it. I'm more excited about the possibilities, excited about the things that have already been done that are improving lives and making things better and cooler and more magical.

 I think if you bring up a good point of the human aspect of not simply letting jobs. Just die out. I think that's an important thing to note with AI as well. I think that's an important conversation to have policy-wise but yeah, I think my overall outlook is just this excitement and yeah, the answer to the question, I would say 25% chance of a general artificial intelligence that we either know or do not know about.

2051. That makes sense. Yeah, it's it is interesting. I was reflecting on the fact that we, when we don't. No the future. And we're trying to predict the future. And we're trying to predict a, the path of innovation or where something is headed. We often use the past because that's our only frame of reference.

And we all know that past returns are not indicative of future. So we all know that, but we still take that mindset and framework and apply it. And we do the same thing. Tools, we apply old measurement tools to new forms of growth, and that doesn't always work. In fact, to be from an economic perspective, that could be an argument against GDP.

Maybe that's not a really great tool anymore. So for instance we, it sounds like in all of the conversation around general AI, we're applying human characteristics that may not even. Beyond the radar, or even close to being part of what we might call general AI, the future. We're applying these moral characteristics.

Just because that's the only framework we know. And I think that's, what's really interesting. And obviously it's what makes the future hard to predict is we don't know what it's going to be. And we also don't have a way to measure it or plan around it. Which also makes it exciting. And it'd be really boring if we knew what was gonna have.

 So from a, from that's all very helpful from a just abating, my nightmares perspective, but from a investment perspective, you mentioned some tickers earlier again, you heard where I stand. I seem very bearish. And I don't mean to sound so negative, but it just seems like there's not really a pure play in AI.

Maybe the C3 AI is, but what would you. Do from a portfolio perspective after, in light of this whole conversation around AI. Sure. I think directly, I think that at least in terms of their positioning and what they're they're saying, I think C3 is probably one of the best pure play options out there.

 I personally own some, I think C3 is probably a good long-term play for AI. And we get bigger or get bought out or who knows? I think they're probably one of the, one of the top pure play styled options. But I also really IBM I Tron Palentier yeah, there's lots of options. And then if you want to go for more of the chips that AI needs to run Vidia KLA, Qualcomm, Taiwan, semiconductor.

 But I'd say  if you really want it to be. Mostly exposed to AI itself, probably C3 AI probably IBM. Probably I Tron for kind of industrial AI.   Personally I need to do more research myself. And if you really wanted to find pure plays in AI, do some research again, no financial advice here, but always look more in depth.

I would be surprised if there weren't other pure play. I kind of things, but like you said, that probably could be private or just not very well known either, right? Yeah. It's tough from just a trading perspective. When you get to really unknown companies, sometimes it's super thinly traded and you can't hardly get enough volume to make the habit make sense, getting in or getting out which is often more of the issue.

 So would you at all recommend ETFs or like a sector ETF for AI? I would tend to think with something so open source, this would be a bad way to get it. But again, that's me going bearish again, which is the theme of this conversation. So would you even not recommend, but would you even consider for yourself using an ETF to get exposure to AI?

I probably would. I would need to do more research on what their filtering and vetting is as an ETF, but I, yeah, I would say for an ETF, I would say an AITF quantum computing ETF is something I'm looking at as well. I think that might be valuable because then you don't necessarily have to do an enormous amount of digging.

You're leaving that up to the fund managers and you're leaving that out. And I would say personally, I would probably. Hold the stocks. I currently have the C3, the, I turn on the Palentier, the IBM and simply add the ETF on and not sell my other AI plays to, to buy the ETF. It'd be beefing up that portion of your portfolio.

Exactly. I wouldn't swap it out because I think that the individual stocks are all. A good play and especially for something like an IBM I Tron Palentier they're not just AI, so you're not going to get hosed if  something, some government regulation comes out and band's AI or something crazy  which there is a lot of negative negativity around AI general artificial intelligence and all that. So I would no, I wouldn't, I'm not worried about that happening. But possible black Swan event. You never know. So yeah I would look into ETFs as well. Just do some due diligence on the interesting this has definitely been enlightening for me because as you can tell I'm still pretty bearish.

I'm still not real positive on like buying any sort of AI or any sort of stock. Exposure to AI, but I discovered through our conversation that I already own Palentier that, which is already somewhat exposed to AI. So I didn't even know it, but I'm an AI investor. So I appreciate you sharing your knowledge.

 That's very learning for me and hopefully it was enlightening for all of you. If you enjoyed this episode or any of the other ones, and please. Definitely hit us up with a five star review on whatever podcast platform you're listening up. We definitely appreciate it. Helps us get out to a larger audience.

So yes, we will see you next time on the long run show for the next episode where we will talk about some topic in the long run. Yep. We'll catch you later. Thanks for listening.

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The Elevator Pitch For Value

Welcome back to The Long Run Show. Today we are going to talk about how to value your investments.

Starting with a rather philosophical definition of value, hosts Austin and Mike go through techniques to value the new retail investment tools such as NFTs, and MEMEs.

#META,#NFT,#MEME,#VALUE

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Welcome back to the long run show. This is Austin Wilson coming to you with Michael O'Connor. Hello, today, we are going to talk about value. What is value? Why do you buy it? How do we quantify it is qualitative all of the above to do with value. Uh, this is going to be a little bit more of a philosophical episode, uh, but I think it's important to understand.

Kind of the, the philosophical, the mindset, the theory, if you will, around the wiring. Not quite, but that too. We can talk about that. So we're going, gonna dive into everything from crypto alternative investments to stocks, bonds, all of it. And how. Do we value it? Why do we value it? Why invest almost. So it's going to be a bit of a meta episode here, but I hope you'll hope you like it.

So to get things kicked off here, Mike, um, I'm just going to ask you, what is. Ooh, that's a, quite the opening salvo there, Austin. Uh, well, let's see, ready go. The elevator pitch of what is value, sell me on value. Sell me on value, not value investing, which again, that's something we can, we can talk about it here too.

Like value investing, growth investing. I've never really understood the difference to be honest, but, but initially value. What, what is value when we say value? Y what are we, what do we mean? Yeah. At the end of the day, value is a, it's hard to pin down because it it's, it describes so many things in so many different ways.

I think the best way to do it is something like you said, take almost a philosophical approach and step back and try and try and look at what the first principles of value could be. Um, I think that value is a way of. Quantifying what something means in relation to either, you know, uh, the economist of me would say, you know, a utility or a perceived value is kind of also floating around there of, you know, there's this, the element that it is a, a construct of the mind in one way or another, because different people can assign different values to different things.

But at the same time there, I think there is an objectiveness to value that something that has a use or a, some sort of actionable, actionable ability to it that improves either quality of life or survivability. I mean, if you want to get down to the very deep level of, you know, what is the value of food or water or shelter.

And this the, the classic, you know, would you rather have diamonds or water in a desert if you're going to die? So it's a, you know, value depends on the environment that you're in. It depends on the situation that you're in. Depends on how you perceive the things that you're trying to value, but. I mean, without going too far down the rabbit hole there, I think in the average day-to-day life of both of us and in people who are listening and investors all over the globe and especially in United States, I think value is pretty out of our hands in a lot of ways.

I think it's, it seems to be assigned in a lot of ways. And I think that's how a lot of people perceive things. Like if a shirt is. $30 at the clothing store, but it's suddenly, it's 50% off you say, wow, I've got a great deal. Like that's great value, even though maybe the, to make it, it was only a dollar, you know?

So there's, I think there is a, an ideology that value is in some ways assigned in some ways out of the hands of any individual player, um, So there's that kind of value that exterior value that is almost imposed on us and our experiences by exterior forces, but then there's also interior value, you know, how you value a specific NFT painting perhaps, or a different, different things.

So, Well, that was a lot to, a lot to say that it's, it's complicated. It's difficult to pin down. I think. Yeah, it depends on the context. Alright. Talking for a while. So I want to hear, yeah, no, no. So, okay. So, so I think we can both agree that it's complex. So let me try to simplify it. And maybe I'm going to be jumping off a cliff here into the sea of complexity, but my springboard is.

The, in this kind of formulator, as you were trying to put words to what is value. I think I'm going to offer this as a, as a definition of what is value and as a value is the price. Someone is willing to pay to control something. Hmm. So I think that's a. Possibly flawed definition. So I'm willing to willing, willing for you to poke holes in it.

But I think that really sums up the mechanism, which is priced that we use. Now. I think there is a flaw in that because in my background in marketing, we'd always. We are always thinking, I don't always approach things as, okay. There's a certain amount of value that this product or service provides. But then my job as a marketer is to increase the perceived value and sometimes the actual value of the product or service by positioning it correctly by explaining it well.

And clearly it's simply. I don't know that price is exactly correlated to value, but I think it's a helpful tool to understand value. And I think price is the defacto interpretation of value for everything. Okay. Diamonds and water, and they might be priced differently in the desert versus in the jeweler shop.

Right? So you're making the water for free and you might get the diamonds for millions of dollars in the jewelry shop, and it might be the complete opposite in the desert. You might get the diamonds for free and you might have to pay millions for the water. So I think. The everything you said is true that contextual, the context matters at all.

The, all the externalities, I just kind of value is sort of figured out for us almost a lot of the time. Um, a lot of the times, it's not because in the, in the example you were giving of the shirt, you could go in there and barter for it technically, and you could get a deal on that, but it could be at the price that you.

Correct in your perception of the value of that? Sure. So I think there is, um, mind mindset there around value as well, but it's that it's possibly fixed or that it's, um, figured out for us by some external force, uh, when maybe we have a little bit more control over it. Um, or, you know, for instance, a stock, you don't have to buy it at 67.

You can buy it at 43. Or, or you can have your price target set at 43 and wait for it to go back down to 43. Maybe it doesn't go back down. Okay. But that's the value you put on it. And there's, there's a, I guess, I guess maybe I'm going into a bit more mindset around value, but that's the value you place on it and it's not worth it to you at 67.

So I think there's some, um, some wiggle room there on. External nature of how value is determined for some thing, whether it's a stock, a shirt, diamonds or water. Yeah. I think that's a, an important recognition. So it's, it is interesting though, to me. And you mentioned NFTs earlier, it is interesting to me that we have a whole brave new world of different things for the average retail investor to buy and.

Some of them are investments and some of them are complete memes or jokes. So, so it's, it's interesting to me because I think what we're seeing in the last five years really is a testing of what the traditional rules around value hub. Um, how, how are things perceived and valued is being really is, is really being called into question, I think with the advent of cryptocurrencies and NFTs.

And I'm not saying these things aren't valuable, I'm just saying they're so different. You can't apply fundamental analysis to an NFT. There's no PE ratio to an NFT, right? You're not buying future cash flows with an NFT. You're not even buying. Future interest payments with an NFT, like a, like a bond, right?

So there it's a totally, totally different. Um, and yes, of course there's been art. You could buy art, but that's been locked off for, uh, Uh, an elite group of investors for a long time. Um, so this is, is really, I think coming this, this value discussion is really, is really valuable because it's, it's coming into the mainstream for retail investors who may have a thousand bucks to throw it on NFT and they want to want to figure out how to value it.

Right? Hmm. I think that's a great point. Cause it, the, the increase in options. What to do with your money or your time, or which I think time has been the biggest with the internet. There's an increase in options of what to do with your time. And the money side is kind of catching up there now, cryptocurrencies and FTS and all sorts of things that are native to the digital economy that, you know, the, the money side is kind of catching up.

Um, that's an interesting point. Yeah. There, there has been, uh, and, and with the cryptocurrencies, I've heard it explained as a protocol that actually pays the people who build the protocol. Hmm. Yeah. Like unlike email fair. I mean, there's a lot of developers that built email and never got paid for what it was worth.

Yeah. So that maybe, maybe, maybe that technology is, is actually helping us. Um, Distribute not distributed. I don't like that word there, but maybe, um, quantify and reward. People with value who actually deserve it. Um, which is an interesting, interesting discussion. Yeah. Because I mean, that, that brings up a whole devil's advocate situation of, you know, does that mean that something that's doesn't have a price isn't valuable and you know, that's something that like I would consider email to be valuable, but you could, I mean, you could argue that you're paying an internet fee for, for cable, internet, Ethan at whatever.

Phone line or whatever. So you're paying some sort of it make some sort of fee, but the value of individual services, how do you assign that for a free thing through email or something? True? Well, I would say everything technically does have a price. I'm going to go economist on you here because you do have a time yeah.

A time cost to it. Right. So everything does have a price. Um, and, and that's even that goes to the individual to apply. Value to it because they're going to spend a certain amount of time using email or not using email or figuring out, figuring it out or not figuring it out. I just discovered you could do folders and cheat.

Now this year welcome to 2021 Austin, but it's amazing. So, you know, you're, you're, there's a time component as well. So I think that helps with, with, uh, applying a quote unquote price. That is an interpretation of the value of a free thing. Yeah. Yeah. That's I like that definition because then it leaves, it leaves room for a more comprehensive definition of value because this definitely been people who argue that, you know, you can't cryptocurrency doesn't have a value because it's, it's, it's a serial, it's a theory on the theory.

It's, you know, it's something that is. Necessarily, I mean the whole, the whole digital gold Bitcoin argument slash kind of debate, I think is really interesting because, you know, you have a situation where, how do you define what an equivalent measure of Bitcoin is to a covenant measure of gold because you could, you know, 10 years ago, you'd just say, oh, one Bitcoin is let's, let's say whatever Bitcoin was about the same price as.

You can say, oh, okay. So Bitcoin is a, it's a digital gold. It's about the same price per ounces per coin. There's some sort of semblance of. Almost a, almost a similar to like a consumer basket where like the fed will often release reports of, uh, this basket of goods, you know, milk, bread, gasoline, whatever, which always puts a picture in my mind of an economist, going to a store with a picnic basket and picking out things and putting it in his basket and then measuring it.

I don't know why. I'm pretty sure they actually that's actually how it started. I'm almost positive that that's legitimate. Well, they would do originally economists they're literally one basket of goods and they just measure it. But anyways,

it's a, it's funny too, to see the difference between something like that. And I think, I think a lot of people maybe fall into the mindset or maybe the trap of considering. Everything is a basket considering, um, everything directly in relation to other things that are more easily experienced. Um, what do you mean by that?

So I would actually say that this is, I would say this is one of the reasons why. You know, still, I believe it's less than 50% of the U S population has any kind of investments or any kind of, um, stock. I don't, I think bonds included cryptocurrency is still at like 3% adoption. What do you mean no one wants to buy a bond, especially right now.

Exactly. Exactly. I think this ties into why, so. I mean, the numbers are far lower, pretty much everywhere else in the world. I believe there may be some exceptions to that, but I think that these, the, it, there is a difficulty in looking at something in tangible, like a portfolio of stocks and making the, making the leap from, you know, the value of my money can get me these things XYZ, and maybe not even physical things, you know, it could be.

A subscription service to Netflix or something. There's, there's a difference between that kind of value, um, that is very easily experienced and then a value that takes more time to experience or you can't even directly experience. And I think taking. Into that zone is, is a, is a challenge for the human mind as a, as a, as an object.

But I mean, I think it's an important leap to make. I think that's the part of the partly the main difference between something like physical gold and Bitcoin is that there is a leap there, um, that you can't really, there's no way around it, that there is an inherent difference. Uh, In the substance of the thing, you know, the gold at the end of the day, even if you just have gold ETFs or, you know, you just hire someone else to store your gold, you still know it's there.

You still know that there is hopefully, hopefully through there there's some, there's a lot more paper. Yeah, fine. Yes. I know what you mean. There, there's a, there's a leap of like, oh, I know I could touch this too. Yeah. What is Bitcoin? I can't touch that. I can't hold it. Yeah. Yeah. Then again, you might as well argue that it's the same thing with a dollar, except we can touch the paper.

Yeah. But the value of the dollar. Is an inherent to the paper that we're touching. So we're not actually really, it's almost a, it's almost a smoke and mirrors drink at that point. And again, I'm not trying to much out there listening to us. I'm not trying to try to be a, you know, be a conspiracy there's here.

That's what I'm trying to do. But, but it is interesting because, okay, you're, you're saying there's a physical element to something like, or, or an experiential element to something like. Amazon prime or Disney plus, right where you actually experience it versus, oh, I own Google stock or, oh, I own, I own, um, let's say.

And it doesn't really do anything or it goes down and it's like, okay, well there's not really much happening here. Right. And so that's harder thing to experience or it takes time to experience like what I just said. You have to have time for it to go down or go up, hopefully affordable backup, but that's a whole nother discussion.

I listened to our electric vehicles episodes coming up. Uh, I think that's a great point. Time the, the, the component of time in terms of value is extremely important. I would say, because like you said, the some values you can't really experience outside of time. If you look at interest rates. Yeah. That's, that's a perfect example, right there, it's a wild, a wild aspect of, of values that, that there is really inherently in a, as an a majority.

Of things, there is some sort of time value. Like there is always the possibility that something could be less valuable or more valuable. Um, even just in the exact same location, don't have to be in the desert or a jewelry shop, you know, like there's, there's a, a inextricable connection to time in so many different things that.

I think it's easy to, to not look at the long run sometimes. Yeah, yeah. Yeah. And I think probably value makes a lot more sense in conjunction with time, which means you really need to look at it over the long run, um, because that'll help you understand, you know, what, what you're looking at and what you're trying to value there.

So I think that's a, that's definitely an important element and it all wraps into the context of broader umbrella of contexts. The value that matters. But, but I think it's important here. Let's drill, drill into a couple of different, um, I guess asset classes, if you will, different different things you can buy as investments.

Okay. So we've got. Things like cryptocurrencies, which we've already talked about. We've got things like NFTs, um, kind of tied together there. We've got things like Vino vest, which, which is, uh, for those who don't know is a, um, a wine investment platform where you can invest in fine wines for pretty reasonable minimum.

Um, and they have their own Vino vest, 100 index, right? Kinda like the NASDAQ 100, right. Or the Dow Jones. There, there are those kinds of alternatives, if you will. I don't even, I don't even know what to apply to crypto cause it's not really, I don't know. I guess it is sort of an alternative, but it seems to be correlated to the stock market.

Anyways, I digress. Then you have stocks, which you're buying equity in a business, and then you have bonds which are buying debt and future payments. So there's cash flows at you're buying with stocks. You're buying. Ownership in a business, which is most likely going to translate into some sort of future cash flows and the form of revenue and profits.

So those so stocks and bonds, we've got a pretty easy way to quantify the value there. Um, so. Coins, uh, at currency cryptos, some cryptocurrencies you can stake. So there's an interest component, but others, you can't there's like Bitcoin. I mean, there's no staking with Bitcoin. Never will be it's proof of work blockchain.

So there's, I mean, maybe you can. Lend it out for interest. Um, but that's true. You can't, you can't, uh, you there's no future cash flows. So like Bitcoin, how do you value that? Or an NFT? It's just a piece of artwork and everybody can technically see it, which I still don't understand, but it's just a piece of artwork.

It's even fine. Art. How do you value that? Right. So I guess it is. Something that you, you ask, what is someone willing to pay for? It? It goes, which goes back to our original, original proposition, but original Def definition. But how does someone value those things that we don't really have? A framework for it, like cryptos or NFTs or wine fine wine.

Or if you're holding a, a bottle of really nice Macallan 20 year or whatever, right. Fine whiskey investing. How do, how do we put understand the value associated with those things? Because I think that's important as investors. Yeah. I think there's an interesting tie in. To those kinds of things that are difficult to value and stocks that maybe have low volume and you see really weird, like wild jumps in the price, because I think it's similar.

It's, there's sometimes there, there are difficulties in finding other people who value things similarly, and sometimes it, you know, maybe it just takes time. Like maybe you buy an NFT for a thousand dollars and you list it for 2000. Maybe it never happens, but maybe it takes a year. Maybe it takes a week.

Um, but it seems like there are definitely things that have lower liquidity. And that almost seems to be a very important factor in value is the liquidity, the willingness, I mean, and then the liquidity is just the willingness of other people to engage in that transaction. So it is a stock that, you know, there's no volume.

No, one's really buying it. Sometimes I'll just see a big. And it's like, well, no one, no one really wants to buy it. So it was the value. Like, let's say it was $10 on Monday and there's almost this very low volume. And then on Tuesday it just suddenly drops to like $7. Was the value objectively $10 on Monday and objectively $7 on Tuesday.

You know, that's kind of a weird market dynamic. And then it's, well, it's one of the individual's subjective values. So it's a whole, it's a whole, there's a, there's a whole wild game context manager. Yeah, it is. I think you've hit on something really interesting with any of the things that we buy as investors.

We're looking to make money. Otherwise we wouldn't buy it clearly, but we all buy for different reasons and it takes two to tango, at least. So it takes more than yourself. That's a great point to make a market. So. Realistically, it takes more than yourself to have value on something. Uh, when it, when it comes to an investment, obviously there's some intangible value that we're not talking about here, but, but when it comes to an investment, it takes two to tango.

You got to have more than one to understand, I guess that's the price discovery component of the market to understand the value of that investment or that asset I should say. And ideally, I mean, yeah, that, that naturally. Should create a situation where both parties receive some sort of subjective value from the exchange.

So that's like the beauty of free markets, at least in my opinion, is that really, at the end of the day, you know, a business providing a service, apple, selling an iPhone, Tesla, selling cars, it should all be providing benefit for, for both parties, which is such a unique, you know, you're not just taking a slice of the pie, you're making a bigger pie.

No, that's true. I mean, really the, the. Act of. And understanding the value of the P the price discovery, right? The very act of that increases the pie because then each person is being compensated for that price discovery, whether it's, they're buying the asset or the, or the service, I guess if in your example, or they're receiving payment for that in some form or another yeah.

Or some, some exchange there. Yeah. That is, that is interesting because without that, without the price discovery. Yeah. The value there. Um, you wouldn't have the exchange and therefore you'd be one less. You'd have one less, I guess, exchange that happened. So therefore the pie is one less exchange smaller if that made any sense.

But that, that is really interesting because it does take more than one person. And so maybe that's why value is so hard to define because it's. Maybe that, and maybe maybe value and the definition for value is just a medium of exchange and interaction, which is so we're getting, we're distilling so far down.

We really do sound like philosophers here. So I apologize to the, uh, the down to earth among you who are listening. But, um, I think that that might really be it. I mean, the value is the exchange that happens between the two people. That's really interesting because ultimately the, the value, you know, unless, unless you're at the exact same value, which I think is almost never happens.

I mean, this, I don't think there's any way to quantify that. I value that shirt at $25. You value it as you'd rather have exactly the $25. Yeah. I think there's always a give and take. There's always a, a value exchange that should leave both parties better. I mean, the, of course. Yeah, there are definitely some predatory tactics and misinformation we use.

But, but I think in the, in the moment of the exchange is when, I mean, like you said, the value is itself that in that moment of exchange. Okay. So to drill down even further, hopefully we're not beating a dead cow. Here is the value. Created in the exchange or is it inherent in the goods that are, that's a really good question.

I mean, that's, that's a really good splitting hairs. However, I think it might be, might be interesting to explore that. I think ultimately, I, I think it is created in the exchange because if, if, if the value is inherent in the object, then it, I guess, value isn't necessarily to be a value isn't necessarily communal.

Because if he could, if you can, if you can personally create value, because I think, I think, I guess the, the important distinction would be then, you know, what are, what, what do you describe things that you yourself. Engage in that you value. So there's, there's almost a, the value of things you are. Let's say you let's let's let's think of a very simple example.

Let's say you, yeah. Let's say you cut down a tree and you. On your property. And then we go farther, farther back, but let's say reminds a tree, a micro economics, 1 0 1 analogy for an externality, but let's say you cut down a tree, um, and you carve it up into some, a chair. Let's say you carve it in a chair at the end of the day, there is value created by that action because.

Unless you don't value the chair unless you're like, this is a terrible chair, I'm just gonna throw it away. So there, there is. There's the possibility for whatever you value that ad, but then when you let's say you exchange it, I think that's when I think that's when the value is created rather than utilized.

I would almost just distinct, I dunno, lay a distinction of when the, the activity creates the value. It's it's not necessarily. Value creation in the market setting. It's it's value utilization, like your, your you're spending, you're spending some sort of input to create an output of, of some sort of utility to yourself.

But I think value, I don't dunno. I like your definition of value that it's, it's a communal process. It's an activity. So I think the value creation happens when. There is another actor and there is an exchange, but I want to, I want to hear your thoughts on that. I, this, this might be a cop out, but I almost think that Val, the value is, and I, I think you were here when you made the distinction between utilization and created.

I think it is both inherent to the object and created in the exchange because. If there wasn't some value to the object, there wouldn't be an exchange. Hmm. So I think it has to be both and, um, which, which makes sense. Um, and two, I think what makes that difficult is. Um, you may VAT and this is why some deals don't happen as you may, you may have created this value in, in some object or some offering.

You bring it to the exchange. However, the other person doesn't perceive it as much as at, as high, a level of value as you have created in your mind. So then the exchange doesn't happen, but there's still value there. There's some value attached to the. Right. Um, so that's a good point. That's what I think has to be both.

Um, and I think you, you made a good point about it being utilized versus being created. I think the utilization is it happens in the exchange portion and the creation happens whenever that is whenever that object is refined. So a stock goes IPO or a. Pick nugget of gold gets mined from the ground or a car comes off the line or a phone hits the store shelf, then it, then it has value.

And then an exchange happens when someone buys it almost, it's almost like primary offering versus secondary series a and series B. Yeah. Yeah. Yeah. That makes sense. Because then, you know, the, because in the exchange, there is the creation of more value, but it's not necessarily the, the, the onus of the initial value.

It's not. The first, first mover. Yes, indeed. Okay. So, but how does it, how does this affect our portfolio? Exactly. I think we got, we got real philosophical. So those of you that like, uh, like philosophy, I hope you're still with us. Um, those of you that don't, I hope you're still with us. I really hope you're still with us.

Um, but yeah, when it comes to our portal, First question I have, and we don't have to go super deep into this, but what's the difference between value investing in growth investing? I have heard the distinction between the two and I've never found it helpful because it always seems to confuse the heck out of me.

I've tried to explain it to people. Um, and, and I've also watched others try to explain it to people and. It is always confusing. It's always just a confusing mess and, and everyone at the, at some point, everyone just acquiesces and starts nodding their heads and say, yes, I understand. Just to end the conversation.

So value versus growth. We hear this all the time. Value stocks, growth stocks. Oh, it's the time of the value stock. We heard that earlier in 2021 at the 2020. Um, what is the, what, is there a difference? Should there be a difference? Is that just a dumb delineation? We throw it out. That's a fair. I will say that like, like you said, I'm definitely.

I've heard different, different definitions of different ways to explain it. At least for me and for my portfolio, how I invest, how I engage in the marketplace, I consider value investing to be more of a quantitative endeavor. So if I see a stock that, you know, there's some sort of, I also think it's time to time, at least for me as well, because I think value investing for me is more like, okay, I see a stock.

I really think should be hired price or if I'm going to short at lower price. And I think that there's, you know, there's, there's a definitive, there's a definitive difference in where the price or the kind of market assigned value is and where the more, more correct. I guess the more, uh, More technical value could be, you know, if you're doing technical analysis, but I think it's also more of a short-term thing.

Like it's something for me where I'm thinking value investing, I'm thinking, okay. I think this is going to correct in, I don't know, the next three to six months and I'm going to engage in this transaction. Not necessarily for. The ability to own the stock, but B because I think that the price is going to change because I think that, um, there will be a correction in the value, whereas for a growth stock or a growth kind of investment, I would consider something that I'm more interested in the long-term that I believe in the underlying innovation or activities or the, the, something about.

The stock or investment makes sense on a longer term that I'm not, I'm not just seeing that the technicals are undervalued. I don't necessarily think there might be a big price correction anytime soon, but I think that the. The time horizon for it is such that I believe that it's going to grow in value rather than correct, or, or, um, or quickly change in value.

So at least for me, a value stock is, is more short term. It's more associated with technicals and what I actually, I guess I say even better diminishes for me, a value stock is associated with what I can perceive about it right now at any given instant time. Um, that I see right now, This looks undervalued.

Whereas a growth stock is more qualitative and more, you know, maybe I don't see the price going up right now. Maybe I don't see the value right now, but I believe, and according to research, I have decent enough reason to believe, not just, uh, not just blind faith and a stock, but an actual reason to believe that the price will grow rather than simply.

So that's, that's how I approach it, but I want to, I want to hear your thoughts on that and how you approach value and growth. I mean, since I was the one that answered the, or ask the question, I typically don't use value and growth as a, as a measurement. Um, but, or as a delineation or a. I guess category, um, to segment different stocks into, cause I just haven't found it helpful, but your definitions are actually very helpful.

Um, and make a little bit more sense when it comes to using the term. So I might, I might use those in the future, I guess, value, I guess to me was more long-term in my mind. Um, which is odd because I guess I'm thinking, okay, well something's on sale and it's. It's a good business, then I would buy it and that's value, but it's almost like you're, you're kind of taking the approach of, well, this is just.

Not at the correct price right now. It doesn't really matter if it's fundamentally a sound business. It just, it could be a really bad business model, but they have more assets than their current market cap or something like that. Right. It, it there's some discrepancy there. Um, so I think that's helpful. I think the time component is also helpful.

Interesting to see growth stocks turn into value stocks. Like we may eventually see the apple or Google. Oh, that's now a value stock, right? Like that, that could be turning in. It could be at some point they level off and there's a price discrepancy there. Um, so that's an interesting, interesting, uh, I dunno, I guess, uh, future thought there.

Um, as far as portfolio wise, I typically have looked for. Things I've taken, typically taking a value. Lens to buying, but I also am guilty of just using ETFs a lot that are broad index ETFs. Um, I have recently bought a more individual stocks and actually. I've been playing around in, in shipping you over the last couple of weeks here.

And they've been part of the crazy meteoric rise of the ship. It's a real question of value, right there. It is a real question of value right there, which I believe it does have better value than doge coin as a, as a crypto. But, um, where do we don't need to go down the rabbit hole? Um, but in, in that aspect I've been picking different entry points based on.

Where I think things are headed and where recent levels, I haven't been doing exact technical analysis, but where recent w levels have, uh, have kind of produced themselves, levels of, of support really have produced themselves based on past spikes. So there've been three pretty big spikes. Um, I've kind of played off those as I see some sort of consolidation around a support level happen, like, okay, this is my time to enter, to prepare for the next one.

Um, now with that, I'm, I'm, that's more of a catalyst trade, right? I'm kind of waiting for the Robin hood thing to either fizzle out in which. That's not a positive catalyst on the horizon or to happen in which case that's a huge part of catalyst, which can have amazing, amazing effects on the, on the price, uh, movement of, of Sheba.

So I think that's, I think that's a good example of, okay. I guess I'm looking at, uh, I'm looking for value in the short. At different price targets. So I think of, I think I'm taking more of a value approach to my entry points. Um, and, and not so much to the stock over all or the asset overall. Does that makes no, that does make sense.

Cause I think that, I think that's similar to how I approach it in that the value comes from the price rather than the underlying value, which ironically is. Opposite of what we've been talking about, but I think that, well, no, I think that the price is, I think the price is a tool to interpret the value of the, of the underlying asset.

Yeah. Yeah. Okay. we're going to talk about, and what we just talked about for 20 minutes, we didn't waste their time. Like we didn't waste their time here, man. My brain hurts. Yeah, exactly. I think, uh, I think that is true though. The price is. A tool to understand the value. Can change minute by minute with something like shimmy, you know, but, um, it could change very quickly, but you can also play off of that.

So I think that's something important to, uh, to keep in mind when you're, when you're thinking about your portfolio. And obviously this is investment advice, although I think you'd have a hard time construing any of this as investment advice, because we sound more like philosophers, but at any rate, throw that out there and not, not terribly good philosophy.

So I, um, yeah, as far as portfolios, I think it's important to think about the entry price. And I also think Mike, your definition of value and growth is definitely value in growth. Stocks is definitely more. Yeah. Valuable. No, no, no, no useful. It was not going to save valuable is more useful, provides more utility to the, to the average investor.

I'm glad I could exchange that to you. Oh goodness. Well, I think we better let, uh, let these folks go. We have to go. So appreciate you listening today. Um, if you could definitely hit, hit us up, give us a five stars there. Leave a review. Um, also we are on LinkedIn as well. I know that's the weirdest way to connect, but that's how we connect.

Okay. We're we're not, we're not one of those fast paced Twitter hounds. We are here for the long run. We're we're willing to connect with you and be around, have, have long lasting relationships. Over the long run on LinkedIn. So here's up there. We're happy to connect and have, uh, have conversations and further discussion around value.

Give us ideas what to talk about too. We would welcome those as well. All right. This has been the long run show. I'm Austin, and I'm like, hopefully we'll see you next time.

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The EV Phenomenon

Tesla Stock Hits $1K even after split How did they get to this level?

Hertz Orders 100k Teslas for ental fleet

EV Mindset Change- Will Americans get used to the Idea of plugging your car in?

Magnetic Highways That Charge Your Car

Tesla Wannabes

Welcome back to The Long Run Show. Today we are going to talk about The EV Industry.

#TSLA #ELONMUSK

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Support this podcast at — https://redcircle.com/the-long-run-show/donations

How To Approach Crypto Assets

Welcome back to The Long Run Show. We are going to talk about hot topic cryptocurrencies, or as I sometimes refer to them as crypto assets.

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Welcome back to the long run show. We are back here this week. We are going to talk about hot topic cryptocurrencies, or as I sometimes refer to them as crypto assets. Ah, yes, this is, uh, quite the topic quite.

I'm very interested to hear. What your opinions are you a little behind the scenes? Austin here has said that his opinions have changed regarding crypto in the last few weeks, three months, or it has been modified. I would say they've been, they've gone from being decently. Uh, sure. Two more fluid at this point.

So we can flush that out a little bit, but, um, I will say right off the bat here, as we just kinda introduce the topic of cryptocurrencies, Mike was, uh, was my. True introduction to cryptocurrencies. I would say, um, he actually was, was the first one to kind of get me into actually buying cryptocurrencies and, and trading and all that stuff.

Um, so that that's, I, I gotta give you some props there, Mike, but, uh, I thank you. You're welcome. Um, but I had obviously heard of cryptocurrencies before. Didn't really think much of them, again, probably like most people until early 2021 and was like, what is going on with these? I probably should look into this a little more seriously.

Um, so that was kind of my personal introduction to them, but cryptocurrencies in the long run, I don't, this is where my opinion is becoming more fluid. Um, and I'm interested to see, um, you as the. Expert out of the two of us, what your thoughts are. Um, as far as the long term outlook for cryptocurrencies, it seems like.

If we had had this conversation six months ago would be very different than the conversation we're going to have today, especially in light of just recent news. I mean, you've got China completely banning cryptocurrencies entirely from their country. Uh, you've got the U S who said we're not going to ban.

But we're probably going to regulate them and, or at least stable coins in the very near, near, near future. And they're also exploring, sounds like, um, some plans to create their own U S D um, so that could get old coin Powell coins. Um, so that could get, that could get kind of interesting. So, um, really, I just want to ask, actually ask you to kind of get.

Uh, maybe just a brief overview, which is good luck, even a brief of just cryptocurrencies or crypto assets. Do you prefer one term in the other? You can, you can answer that question in there too, but, um, just so everyone is aware, like the innovation that, that brings to the table. Why is, why is this, why is this a thing in 2021?

Sure that that's a great question. And to tackle the first thing that you said right off the bat, I find it interesting that you use the word crypto assets. Um, and I think that that is a very, a very financial industry kind of term to use for it. Whereas I think most of the people who are on the development side of actually developing on blockchains and stuff say either cryptocurrencies are just crypto or something.

Um, cause I think a lot, most, I think a lot of people who. Deep in the trenches of the, of the actual, like the blockchain industry, don't considering it don't consider it the law, um, an asset as much as a project. And I think that's one of the defining points of cryptocurrency. So diverges, it does divert.

So I mean the whole thing with the whole thing with Bitcoin, you have a distributed ledger. You have, um, you know, instantly verifiable, very, very secure, uh, easily. Pretty pretty darn, uh, impossible to know who's doing what it's a very, it's a very, I mean the whole word decentralized it's it's not, yeah, it's not verifiable by any one person.

They can't take over the whole thing. They can't steal money. Um, it very innovative in terms of, yeah, there's no, there's no, at the end of the day, there's no bank that has the record of your finances. And if they get. You know, theoretically, you could get all your money wiped out and that's the FDA to bail you out in that situation.

But at the end of the day, it's a way to provide a, I think it's just a way to exchange and store. Some sort of value and I mean, that's changed very rapidly since Bitcoin's beginning to now hovering somewhere between 45 and 55,000 per, um, per coin. You know, the store of value has the amount of value per Bitcoin has changed, but ultimately the, the goal is to provide that kind of, that kind of seamless financial ecosystem.

And I think that's the key point of cryptocurrencies is that their projects at the end of the day, they're they're, um, They're meant to be these sorts of entities that have goals, uh, they intend to achieve and once achieved then oftentimes they'll, it depends. It is a lot of defy right now. It's already achieved a lot of their goals and they're moving on.

To more and more, I think a great example of that. Not to get too into the weeds right now, but some great examples of that are coins like cosmos, which is essentially a blockchain of blockchains. It's, it's an inter op it's an interoperable cloud system of, of blockchains and interconnections. And it's meant to make a.

Uh, the cosmos of the blockchain that you can connect an Ethereum blockchain to an algorithm, blockchain via causes all sorts of crazy stuff. Um, and I think they're, they're a great example. Algorithm is another great example of a project that, uh, you know, he's creating these very efficient, smart contracts and applications for a variety of industries.

And they're, they're really aggressively expanding, which is great to see. Um, I think they view themselves. Less like a completely decentralized Bitcoin, everything. I mean, it is pretty, relatively centralized in terms of the, um, the project owners and their goals and everything. I think it's, it's cool to see the variety, uh, and the cryptocurrency sphere, but I think you're getting more to your point of, you know, what is, what is the longterm outlook, uh, cryptocurrencies as a whole.

I think one thing that we've seen in the past, just in the past year, there've been a lot of new coins that pop up and suddenly become popular, like a doge coin or something like that. There's a lot of hype coins and a lot of hype going around. And I think there's going to be like a great culling in the next year where the reckoning, um, where I think a lot of the coins that are either actually completely useless or.

Maybe just aren't picked for store values like Bitcoin at the end of the day is meant as you know, that kind of store of value as that decentralized exchange system. Um, but you know, apart from lightning network coming up in an Ethereum, I would argue does it better. And I would argue that algorithm does it even better than senior, but that's a whole, another one of the topic we get really deep, but I don't want to do that.

Um, but I think that there's going to be a lot less cryptos out there even. Um, but I think it'll also concentrate the value where I think Bitcoin's price will be higher. I think theory's price will be higher and the algorithms price will be much higher. I think cosmos is prices will be much higher chain link, you know, the list the list goes on for the solid ones.

Um, and it's been interesting to see because there are some that really correlate the opposite of the rest of the crypto sphere. Like one example is file coin file coin has. Usually done very well. And, um, like Bitcoin and Ethereum crash, you can almost always see follow file coin going up 10, 20% maybe. I mean, that's, that's from what I've seen, maybe I've missed some crazy corrections.

I think the big correction, it definitely felt a lot as well, but the, I think there's a miss miss thought on a lot of people that all cryptocurrencies are the same or they're all correlated to each other. And it's, it's very different from that. There is. Very different projects and very different applications that a lot of people are working on.

I think one thing that I never realized until I got into the weeds of a specifically algorithm is that there are enormous numbers of developers. Who are developing these apps? Uh, I mean, it's by far the largest numbers on the theorem, but there are a lot of algorithm developers out there and it's, it's, uh, I think we're going to see a calling of coins.

I think we're going to be less and less coins, but I think there'll be more and more developers, more and more applications. And the prices are going to be going higher on probably 15 or so coins. Interesting. Okay. So you're kind of like bullish on what you mean. You're you're bullish on the innovation, I guess, but you're kind of bearish on the overall market, almost like as a whole, you think there's going to be a big, big reckoning, which is going to concentrate value, but you've got to make sure you're in the, the cryptos that are, that are concentrating that value and in the long run, right?

Yeah, I would, I would agree with that. I would say that making sure that you're in the cryptos that are legitimate or viable or providing real world innovation and solutions. Um, this is paramount, right? So how do you so-so, you know, I actually read the Bitcoin white paper way back when, and. The, in my view, it's been interesting to see the evolution as you get Bloomberg and CNBC and Fox business, all quoting Ethereum and Bitcoin tickers on their, on their, a little ticker tape at the bottom of the screen.

You get those prices rolling. It's been interesting to see it go mainstream, but, um, it has changed it somewhat, right? So like Bitcoin, in my initial understanding, I read the white paper. It didn't really Dawn on me until someone mentioned this recently, but in the white paper, they never like Satoshi Nakamoto, whoever he is.

I think it's DARPA. I agree, but we're not going to, I am convinced that DARPA Satoshi, so that's another, that's a whole another conversation on the internet and all that crazy conspiracy theory longer. Yeah. I really wouldn't like that. We probably will get our tinfoil hats on, but anyways, regardless of who, you know, Nakamoto is.

The interesting thing is in that white paper, it never really mentions like, um, a digital gold sort of thing. It never really mentioned like, Hey, this is meant to be an asset. Um, that is going to appreciate a lot and value because it's going to be scarce. It really is just like this, this whole cash. I mean, that's, that's the biggest word.

That's the most used word in that white paper is this is a digital cash. It's a peer-to-peer cash system. Um, It, you mentioned this earlier, but like there's the lightning network, which is making Bitcoins, blockchain work a little bit faster, but it doesn't seem like Bitcoin really achieved that. It does.

It was the first mover. So it does get, you know, it gets props for that, which may be why it has continued to hold value, but it's almost changed. So like originally the idea was okay, it's, it's going to be a store or it's going to be a cash, you know, a transfer of value system. Digital cash system. Um, that's secure and decentralized and all this, but now it's turned into, oh, it's digital gold as a store of value.

Um, and I wonder if there's any problem with that change if that's just a natural evolution as it's gone on, or if there's a fundamental problem. Everyone thinks it's a store of value, but it really isn't. And it's really not meant to be. And will we see that when you, when you're talking about the great reckoning, will we see that be a problem for Bitcoin?

Um, or is it just supplanted itself as the first mover in a ginormous market? And therefore won't be unseated. That's a, that's a great point. At least in my opinion, I think what's going to happen is Bitcoin will be, I think it already is solidified as kind of in the public idea of this digital gold. And I think it's not going to change.

I don't think it'll change from that. So I think it, I think it will always have some amount of inherent value. Just, just on psychology, just on how people feel about it, how it's kind of become normal. I think what will change, however, is the relation of Bitcoin to. Coins, especially the coins that are successful.

Like let's say the, the remaining 10 or 15 after the great coloring or whatever, you know, I don't think, I don't think all the other coins are just going to go to zero, but I think that you'll see concentration. Um, and I think what's going to happen is I think coins like cosmos or taser or file coin algorithm, those kinds of coins.

I think they're going to become more like. In that people will be trading them based on the innovation that's going on rather than the, rather than because Bitcoin is going up, these other things are going up. So I think what you're going to see is a decoupling of the correlation between the price of Bitcoin and the prices of Ethereum algorithm, the whole host of whichever.

Coins and systems are the most prevalent. I think you will see them decoupled in terms of their price from Bitcoin. I think Bitcoin will fill a certain role and will fill that role. Well, I mean, it does well, it it's, it's, it's, it's a good decentralized system for just exchanging money around the world.

And I think it fills that role well, but I think what you will see is that other coins will be. You know, making whatever percent returns and it won't necessarily be because Bitcoin goes up and I think if Bitcoin goes down, maybe these other ones will still go up cause they're still innovating and people will recognize that.

So I think you'll see a kind of shift of, I think Bitcoin will remain kind of this store of value, but I think that a lot of the other coins will become more speculative and more in more invention oriented and more innovation oriented and more honestly like stocks. Interesting. So that's why, I mean, that's kind of what I see happening as well.

I see them being, and I like how you said projects, like they're based around a project, um, which is why I kind of refer to them as crypto assets. I think it makes more sense. But the asset thing, uh, you can just call them cryptos. That's fine. Um, even though it's really kind of a lazy way to name it, but currency, it doesn't necessarily seem to catch all of the, uh, potential that is there within the space, right.

For, for different applications and use cases. Um, so. It, it, that's why I referred to it as crypto assets, but it was interesting. You made the delineation earlier and I want to kind of go back and get your thought on this of the difference between, okay. That's kind of a finance thing to say, um, versus, oh, the developers and the people actually building the, the blockchains and yeah.

Building out the structures behind these tokens and coins. Um, they refer to them as projects and they're referred to them as the token of the project or the cryptocurrency of that project. That's solving them solve X problem or create a meme, whatever it be. Um, so why do you think. Why do you think there's that delineation, you know, or is that, is that a good thing?

Is that just because it's such a new space and it hasn't been securitized, so to say, um, or, or should it stay that way? Should it stay, um, on financed? I think that. A unrealistic expectation for it to stay on, on financed or untarnished by the hands of the bankers eventually. But what are your thoughts on that?

Yeah, I think that the, because right now we're still, I mean, it's still a very early. Right. It's still really early on. If we're talking, even just in like the history of cell phones, for instance, we're still in the, the, you see it in like a 1990s or eighties show, and they've got this massive brick in their hand, or it's a car phone, so it's big enough to fit in the car, but you can't carry it around.

Uh, I feel like that's where we are right now with cryptocurrency. And I think that, I think as, as we continue on that delineation, we'll probably start to coalesce and be less, uh, Less noticeable. I think it just, it as an example, and I know I talk about algorithm literally all the time. I was dinner time, literally all the time.

It's huge. I mean, huge algorithm from originally from Boston. So big Al grand fan they're out there in Boston. Um, but I, I really, uh, approach algorithm as if it already was a stock. The staking bonus is almost like a dividend interest. Um, I consider that almost like a dividend year, you're holding this. So you're getting part of the, the system's profits.

You know, you're getting part of what the value creation is going on. Um, you're investing in this project, you're investing in this, uh, this idea that with the hope that it will continue innovating and continue growing. Um, and I think. The financial world is starting to catch on to that. I think it's taken a little while.

Sure. But I mean for good reason. And I think, you know, there's been a lot of just in the last 10, 20 years, there's been a lot of financial hardships for a lot of people through the 2008 crisis. I mean, if you look at cryptocurrencies right after 2008, Um, you'd probably be very jaded to me like, okay, this is, this is just a mortgage back security, or it sounds in some ways it sounds magical and too good to be true that you can have this decentralized system that is doing all these amazing things.

And, and it's pretty incredible when you dig into the technology. So I think, I think it's a good thing. I don't think it's a bad thing that the financial sector has approached with caution. Uh, I think that's good. And I think. I think what that has allowed for very intense, uh, market conditions in the cryptocurrency world, where you have very intense competition between coins.

And I think it's allowed for a lot of innovation. And I think what we'll see similar to the.com. Bubble bursting is after that, you know, you have Microsoft and apple and sun and Oracle and all these, these giants of today, you know, back then it's it was a bloodbath. And I think part of that was reminiscent of the crash in, um, may, June.

I honestly don't even remember. I don't remember which month it was, but pretty recently, um, it, it was reminiscent of that, but I think, I think, like I said earlier, I think there's going to be a large. Calling we're not necessarily Bitcoin or Ethereum are going to drop and singing about, but I think a lot of, uh, small coins that are, you know, maybe questionable, et cetera, um, or maybe very real and very viable and performing good things, but maybe they're getting beaten out by some of the larger coins or innovative, innovating faster and more.

I think you'll see that being called out. And I think what will happen is after that, I think you'll see even more tie-in from the financial community. I think once something like that happens where there's almost this, cause I think part of the problem too, with branching, from like you're saying the development environment, the people who are in the trenches all the way to the financial sector, Is that there's so much volatility and there's so much like what's the new coin.

There's so much hype around new projects and what's the new thing, um, which you see. Sure. I mean, in new companies and IPOs and venture capital in the financial sector, but not to the same degree. And I think that spooks a lot of people, especially people who are deep in the financial sector. So I think once this kind of.

Uh, crypto 15 or some sort of, you know, some sort of easy, it was like an se S and P 500 of crypto. Right. Um, that's, that's like, well-known, I think it'll be more familiar and more comfortable for the financial sector to embrace and to kind of bridge that gap. Interesting. But I want to hear your thoughts on all that.

Yeah, so, I mean, I, I had kind of pegged, um, I'd kind of pegged the. Crypto. Um, my, my thoughts on crypto into kind of two different things or three different categories, I guess like the, the kind of you got doge coin and all these crazy meme coins, it's like, okay, well we know there's not actually, it doesn't seem like there's correct me if I'm wrong because I could be wrong on this, but it doesn't seem like there's any real value innovation going on there.

It just seems like it's capitalizing on. Essentially and enemy. Um, and so that that's kind of one category in my head and then the other category was okay. Well, there's also going to be some, some form of. Kind of, uh, uh, again, digital gold Bitcoin sort of thing, um, where there's kind of this category of, okay, that's a fixed amount.

Um, the supply is fixed for instance, Bitcoin, you know, it's, it's, there's only X amount of them. And then the havings come each, you know, every, I forget this every six years or something like that anyways, so that we can, we can know the supply and track that out and therefore you can get. You only have to deal with the demand side of the equation and you can guess where the price is going to go.

And it's pretty much on the up. Right? So as long as people believe it has value, it has value. And I don't really have a problem with that because our entire financial system is a fee yet. Exactly. So I don't really have problem with, with, uh, oh, it's just all based on psychology. Now, some people do and they're like, What's the point and I'm like, what's the point of the $20 bill in your pocket?

You just believe it has value and therefore you can use it at the taco stand. Um, so the, the that's kind of one set is this store of value thing. But as I've looked into it a little bit further, um, I have kind of seen. Okay. So then there's the Ethereum side, which is more applicable. Like there's, there's more applications for Ethereum.

There's a ton of coins that are built on Ethereum. Um, and then you've got things like algorithms, which are solving specific problems in the transaction rates are just crazy. Like. The just amazingly fast, uh, transaction rates. So those seem more viable for the cash system. That Nakamoto kind of envisioned in his Bitcoin white paper, which is odd to me.

And after recognizing that, uh, last month, I kind of recognize the disconnect there had me going back to Bitcoin and these like quote-unquote store of value, coins, and reconsidering, whether that is necessarily true because. The the, the us dollar has changed over time. And so, you know, maybe that's the same, the same way that Bitcoin is going, where it was invented for one thing, but it's actually going to do a different thing.

Um, but gold has always just kind of been a store of value. It's never been. Useful. It's not a very good metal, as far as building things. It's, it's pretty, pretty squishy. So it doesn't really work very well. Um, it, you know, yes, it could be a conductor, but we found out that silver works really well for that.

So we have silver. So gold is always kind of been this, this quote unquote store of value, just because people think it's valuable, it's valuable type thing. Um, and I feel like that consistency has. It is a very big positive to its long-term staying power. So that's my, my one concern, a little bit of a bearish concern for things like Bitcoin that are trying to be a digital store of value.

Um, but I can definitely see the value and, and innovation in, um, things. You know, TSOs or cosmos or algorithm or Ethereum that are more of a, more of almost like a protocol, kind of like email back in the day and less of less of, oh, we're just making a token to make a token kind of a thing. Um, and, and what I, what I can't quite wrap my head around is when you're fighting.

Uh, share of a company, right? If we under the stock market and using that as the analogy, because we've got to have a reference point, if you're doing that, you're buying future revenue, right? Well, in this world of crypto you're, well, I don't quite understand what you're buying when you buy the token.

Right. And it's different each time, which I think leads to some of the confusion on the part of the consumer. Right. I would say I'm very, you know, just, just barely educated about cryptos. I'm practically a retail investor. Right? I have no institutional investor here in, in crypto. I don't know what I'm doing, but that's a kind of spooks me is, okay, what am I actually buying here?

Even if I can understand, oh, there's a problem there. They're solving it this way. It sounds like it could definitely solve that problem. I still don't get what I'm buying. By the token or exchange for the token. However you wanna phrase that, um, because it's a currency or an asset, you see what I mean? So that's what confused me, right.

Is, is what am I actually buying? Um, and so I've become. Maybe a little less bullish than I was. Uh, but it's still very, very much a fluid kind of, I'm still figuring out my thesis as I'm, as I'm seeing things, um, develop. And I think you're right. I think there's going to be some sort of large correction, um, Obviously that's going to consolidate things.

It always does. Um, what do you think is going to be the catalyst? Obviously you can't predict the future. I understand that you're not clairvoyant, but do you know that for sure? Well, I dunno, you're Irish, so you're pretty grounded. The, the, so, you know, I'm not expecting you to perfectly predict the future, but in your mind, what, what could be some catalysts for a large correction?

Hmm, that's a good one. Um, that's tough. I could see, I could see something like, um, you know, perhaps first quarter of next year fed raises rates or something along those lines, or is a harsh tapering. I could see that starting it because, uh, we'll see. I'm sure a lot of people will get spooked or whatever.

Uh, I think there'll be an overcorrection in the stock market, but I think what, what might end up happening is. Um, and we've seen, you know, especially mid medium cap stocks, some, some large cap stocks seem pretty correlated to cryptocurrency or sorry. Cryptocurrency are pretty correlated to stocks. Um, so I think if we see some sort of significant trend in the overall markets, that could be the start of something.

Um, now that wasn't necessarily the case in the most recent, um, correction drop incident, whatever, whatever you want to call it. Um, but I think that. It's becoming closer to what I think. I think the most recent correction was more of just psychology and consumer sentiment. And I think that the next one will probably be more tied towards the financial markets.

Gotcha. So I, that, that's my prediction. I think, I think it'll be more tied towards global financial markets, the fed, um, some sort of event, honestly, here. Here's the thing. What is pretty surprising? I mean, I was expecting a much bigger reaction to the Chinese ban on cryptocurrency. So it was I, so I think that's really impressive how resilient the cryptocurrency market has been to that.

Um, that's been a saga. I mean, it's been, they've been cracking down consistently. Just the, just when miners had to leave, I was amazed. It didn't get hit more. So I think it's, that shows that I think crypto is more tied to the broad financial market. Than individual events regarding crypto. Um, which I think is, I think it's a sign of maturity in the market that it's, I get more of that direction.

Yeah. Well, you just hit on an interesting, interesting point, which I, I didn't quite realize until the less, you know, actually I think it was today. I had the realization that it seems. The, um, overall crypto market is very much tied to like Fang stocks and especially, especially the big indices, you know, think S and P NASDAQ Dow.

Um, they seem to be very correlated, which did not seem to be the case in, in the past. It seemed to be like, it was, it seemed to me that it was a kind of a poor man's alt or the, the normal person's alternative, uh, investment and, and kind of this uncorrelated asset. But. Odd that that has become more correlated, especially because it doesn't seem like many of these companies have a tie.

I mean, Facebook tried to launch their own crypto and it didn't work. Like they couldn't do it. They were not allowed. Yeah. Right. So it's not like they have any direct tie to. The cryptocurrency markets in, in any sort of substantial way. W what do you think's driving that? Because I can't put my finger on.

I just noticed that trend and trend recently. I think it's, uh, I think it's psychology because I think the big three of the bleeding edge of technology right now is quantum compute, Bula, quantum computing, blockchain, and artificial intelligence. And I think that a lot of people just kind of. What's going on at the very edge of technology right now into tech in general.

So I think, I think a lot of sentiment will just kind of naturally bundle like, oh, and how has Amazon and Google and Microsoft doing, um, that's tech and most people's minds. And so I, my guess would be that there is a, there is a psychological factor going on of bundling the things that are at the forefront of that realm together.

So I think that that cryptocurrency is, um, in that sector. Gotcha. Okay. Okay. Yeah. I mean, that makes sense. It's, it's always, we always want to identify earlier with, with stocks and cryptos. We want to compare to something we know, and we also want to, uh, We want to associate things. So there's always a bias there to associate things that actually shouldn't be associated.

Right. Um, which is a good thing to, to check yourself when you're looking at a trade or investment, you want to, to check that bias and other ones, um, you know, at the door or at least know that you have the bias going in because sometimes it's impossible. Behind. Yeah. You just have to know that it's there and, you know, trade around it or invest around it.

So I'm kind of an actionable, I'm going to lean on here on you here for some, some portfolio takeaways, some, some actionable items. Um, as far as what are you doing with your portfolio? Um, I, I was. Kind of dollar cost averaging in I've since just kind of stopped because I might, my focus is elsewhere on individual companies personally.

I don't have the time for cryptos right now. Um, but should people be waiting till the great calling or the great reckoning to, to buy in the dip or, or is it one of those things where it's so early on that it doesn't even matter? As long as you get in, now, it doesn't even matter what the great reckoning looks like.

Um, you just need to be picking innovative, worthwhile coins, you know, what, what are, what is the portfolio takeaway here? Sure. I think for me, one of the things that got me solidly into cryptocurrency now, and I'll tie this in, um, was the waste staking. Um, so let's say, let's say you're staking a, I believe cosmos has a seven or I think it's seven, 8%.

So somewhere around 7% staking bonus on cracking, like for just a completely random example. The key is, is that it's not paid in dollars like a dividend. Um, it's essentially like a drip. It's essentially a. Self reinvesting and you're getting paid in more cosmos, same thing with an algorithm staking or, you know, most, I think almost every, if not all staking bonuses are paid in the cryptocurrency itself.

So I think the key is, yeah, I would say get in now, especially in the ones that have solid staking bonuses right now. I think it's huge that it's the bonus is not the dollars. The percentage bonus is not on the dollars. It's on the actual underlying asset. I think that that just doesn't happen for most investments.

I don't know of any other, I don't know of any other way where you can get more of the underlying thing. That's building the value passively automatically. I just, I just don't know and correct me if I'm wrong. Can't think of anything else that, that does that. Um, the closest thing is just auto reinvesting dividends, but that's not.

There because once you get the dividend, it's already appreciated exactly dividends. Exactly. Exactly. So it's, it's the built in appreciation exactly. Like it's the substance inside yourself that is, um, boosting. So I am huge on getting into staking bonuses. I'm I'm not as hardcore as Austin makes me, I don't, I don't participate in staking pools and pancakes swap.

There are some really wild things you can do out. Um, with crypto, there are some ways to get some really ridiculous yield if you want to dive in. Um, I would just be ready to put a lot of hours into it, but yeah, you can make a, uh, a significant amount of money if you're willing to put the time into a lot of research and, um, a lot of active stuff.

There are some crazy projects out there because there's so much volatility in so much liquidity in the market. There are some amazing percentages you can get on record. Like bank account style things and all sorts of stuff. So if you really want to get into it, definitely check that stuff out. But for myself, and I'd say for probably the, the most, uh, most investors who were interested in cryptocurrency, I would just recommend, um, getting some into staking currencies.

Cause I think the currencies that will survive, I think most of them, well, I think a lot of the currencies that will survive have staking bonuses. Like Tezos like cosmos, like algorithms, um, And I think that's a great way to just get started, because what you can do is you can just put however much money you want into a handful of coins and just let them sit there and steak, and you just don't have to worry about it.

If in 10 years, the individual coin is worth way more money. You not only made all the money on the initial, but you've made money that, that you've been building up that portfolio of those individual coins. So if you're willing to ride out in the long run, you're willing to ride out price fluctuate. The underlying value of each individual thing, doesn't matter, you're actually building more of those things so that, you know, hopefully, uh, after if the great culling does occur and, uh, the ones that you are ownership in survive, you know, hopefully after that you're going to be doing well.

And I mean, you're, you're creating more of that thing with that thing. So especially. Yeah, I think that's just huge to be, to be staking, to be passively building up the, the number of individual coins that you have. Um, I think. It's a really incredible opportunity. So I would recommend for the average investor to get into staking, uh, most of the big exchanges have it on different coins.

I know cracking has, um, I think like six or six or eight coins, you can stake. Coinbase has a bunch as well. Um, Binance has a bunch, so definitely check out all the exchanges. Um, definitely do your due diligence on that. And, um, Yeah, I would, I would personally recommend staking. I absolutely love the methodology to it because you're making, it's kind of like a dividend that you're making, you're making money by facilitating, uh, the system itself.

And the system is rewarding you with more of itself, which I think is just really powerful and really under underrated right now. And I think, yeah, yeah, that's a good takeaway. I mean, it's, it's, uh, it's, everybody's dream is passive income, right? So if you can. Passively generating more assets without having to invest more capital that's, that's quite the unique, and I'm sure there's a break even point to right.

Of, of where you would stake enough that if it went down X percent, it doesn't matter at that point you have you've broken even. So, yeah, that's a great, a great point. Any final thoughts on, I guess this is a really, really tough question for a final thought on, but any, um, Principles that you use when you're looking and evaluating a staking a coin.

Cause we just narrowed it down from the whole crypto universe to staking coins, but there's a lot of stake in coins. So what do you look at when you're, when you're just trying to make sure that it's not something that's going to disappear, you're going to lose everything. Yeah, I would, I would do the due diligence.

Read the white paper. Um, look into the website. I think a really powerful thing is to look into the development community. So go into, you know, the, the, the forums read what's going on. If it's really active and thriving, that's a great sign, at least in my opinion. I think that's a great sign. If there, there are lots of people who are champions of this who are developing projects and doing cool stuff with it.

I think that's a phenomenal sign. Cause that usually means it's good to work with innovating and there's growing numbers of people getting involved. I think that's a great sign. So I think, I think even let's say you let's say you're, um, completely new to cryptos and you're like, you know what? I like what I like, what that sounds like.

I want to buy a couple of staking cryptos, definitely still do the due diligence. Um, and still really dive deep as if they weren't sticking. Because I think at the end of the day, uh, It's similar to investing in that you really shouldn't be doing it if you don't have the money. Um, don't, don't be going into crypto thinking.

You're going to get rich overnight. Some people have, but, but, uh, don't do not go into it expecting that. And I think at least for me, really focusing on the long run as the show is the long run for crypto gives me a sense of, uh, security and. Uh, I think enables me to really focus on what's going on in the cryptocurrency itself and the value that is creating rather than just the hype, rather than who's talking about it, rather than who's tweeting about it, et cetera, which again, you can make, you can make a lot of money, uh, just following that stuff, but that's for the short run shit, which doesn't exist.

This is a long run show. Well, you heard it here, folks. I mean, that's a great, a great couple of takeaways there, staking, and then focusing on, on the long run within that. So I appreciate that, Michael. You got it. Awesome. And, uh, yeah, folks, if you would drop a review five stars, if you thought it was great, one star.

It actually just don't leave that. Just, just move on. Don't leave a one star review, just five stars. Um, if you thought this is great, we would love to have you review it and hopefully you'll tune in next week. Uh, for the next episode of the long-run show, this is Austin Wilson and he is, and Michael O'Connor that's correct.

And this has been the long run show. We'll see you next time. Bye-bye.

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Understanding China

Today in the Long Run Show, Austin and Mike talk about how the Chinese Government plays its role as an economic powerhouse in markets and how retail investors should approach Chinese

China is slated to surpass the US in terms of GDP worldwide in between 2026 and 2030. Austin and Mike discuss whether the regulation risks posed by the Chinese Government is overstated by the Western media and look at institutional investors sentiment towards Chinese stocks.

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Here we are from Detroit, Michigan. This is Michael O'Connor and my co-host Austin Wilson with the long run show. How are you doing?

I'm doing great. I'm doing great. I'm excited to, uh, to talk about China today. Ooh. Yes. Interesting, interesting episode, big topic, big country. Everything's bigger in Texas, but everything's even bigger than that in China. Don't take techs. Don't tell them any Texans who are listening. It's a joke. Don't worry about it.

Just laugh. Yeah. Yeah. So yeah, a big topic today, China, I it's so talked about for very good reason. They've experienced just incredible growth in the last decade. Um, Even the last few years have been pretty incredible. There's definitely been some mixed signals, especially in, let's say in the last year, uh, with the government cracking down on individual companies, there was kind of that whole anti-corruption campaign a few years back that cut headlines, but it didn't seem to, you know, provide the.

Funky stuff as, uh, everything that's been going on recently, at least that's my perspective, but I can't wait to hear your perspective, Austin. Yeah. So China's interesting. China's one of those countries where, um, you didn't, I don't know. I always thought of China and I didn't see it coming, but I have the bias of being very young, relatively speaking.

So I didn't see China really coming until the last. Four or five years as, as a superpower and an economic powerhouse, they obviously have, they have been planning this economic boom for decades. Now, the, uh, Chinese communist party, the CCP comes out with a, uh, basically an economic plan, every, I believe it's every five years.

Um, so they, they come out with. Periodic economic plans of how they're going to grow, what they're doing. They, they definitely forecast things through that. Um, but some of their, some of the bumps along the way have been, I think, a product of them trying to basically take, um, take two different, different views of.

Economics and, and smash them together, kind of the capitalistic Western view of using the capital markets to grow businesses and grow wealth for their citizens, uh, throughout the country. And then combining that with some sort of, um, well, obviously it's in their name, you know, Chinese communist party that some, some, some sort of, you know, then the name communism, socialism in some regard, um, to have more of a planned economy.

And so. Interesting to see how that's played out. Um, they obviously have had, like you mentioned, the, the corruption anti-corruption crackdowns a few years ago, and then this year we've had the, um, the breakups of their education companies and then just general regulation scares throughout the year.

What's what's interesting is even though they've had these sort of, um, regulatory risk scares for investors in the past, they seem to rebound, uh, which is, which is interesting. And it speaks to, even though they're trying to plan their economy, it speaks to their long-term belief in the capital markets and an understanding and an appreciation of the value of.

Uh, capitalism and, and, uh, competition, which they want competition, but in their own way. So it's, it's a interesting to, to see China's growth. And I was just, uh, looking at some statistics, um, beforehand here and, and. Already slated to pass, uh, surpass the U S in terms of world GDP in between sometime between 20, 26 and 2030.

So, wow. Within the decade, um, they will surpass the U S in terms of, of GDP worldwide. So their, their planning has obviously worked, um, They're they're achieving their goals. It's not like they didn't tell us they were, they were planning on this. Um, they're achieving their goals, but really, I think the question for investors is can you, um, can you, or do you want to.

Expose yourself to that regulatory risk and just the political risk as well. Um, that is, that is China. Do you understand it well enough? Is it something you believe is to use the Fed's favorite word transitory or, or is it episode one, a little throwback, a little throwback there to, uh, inflation, but D do you believe it's transitory?

You know, do you think, do you think these are just periods where China's going to have some volatility because. That's that's how it works over there when they're planning their economy and not just having more of a hands-off approach, like the, like a Western style might be. Um, or do you think this is a sign that the Chinese communist party is being a little too heavy handed and might might squash, um, the, the dynamism that could be.

Large capital markets to show her. I think, I think there's probably a, you want to look through it from an investing perspective. You want to look through your own lens to inform how you want to approach those, uh, those companies. Um, but from. From just a headline perspective. It's impressive that, um, that the, the country has been able to grow their economy.

So, well, I mean, just, just absolutely insane and that they're going to surpass the U S within the decade easily. Um, certainly in terms of GDP. So it's, it's just a, definitely an underdog story, um, of, uh, of, uh, economic rise. Yeah. Which is interesting because it. Um, what I always immediately think of is, oh, it kind of makes sense because they've got more than three times.

I believe more than three times the population somewhere, somewhere around about three times, maybe a little more. Um, and it's like, oh, it kind of makes sense. But then you look at a country like India, that is a very different story and not, I mean, India is, has come a long way as well in terms of the last few decades.

And definitely, um, they're doing quite well as well, but there's a, there's a. There's definitely a difference. Um, and the, and the population is not necessarily the only factor. And it's interesting to look at China as a, as a case study of, of geopolitics and how to grow GDP so fast and how to grow, um, just wealth on an incredible scale while having some really interesting and, uh, unfortunate human rights violations and all type of stuff.

This isn't a show to get necessarily into the politics of things, but it is important to, to take a broad, a broad look and a broad context, especially I've talked to some investors who are into ESG, so environmental, social governance, and, you know, they don't wanna, they don't wanna touch China with a 10 foot rod because there legitimate concerns over.

A lot of, I think part of the problem for investors especially is that you never know when China's going to kind of take over a company for, for the, uh, for the country or when it passed to when, uh, when a company's about to go bankrupt and they ask their government government to take over pretty much.

So it's, there's kind of that weird zone where, you know, you could be invested in a private company. And this is almost as harbinger of even if you're not directly investing in China's government in any way, there's always, you know, there, there are ways that things could be going on in the backend and everything.

So it is, it is interesting to get blurred maybe a little bit. Exactly, exactly. It is interesting to talk to you. ESG focused investors. Um, yeah. There's. Real serious concerns for, for good reason. Yeah. Yeah. And I, and I, I, that's kind of an interesting point. You sort of have kind of funny phrase to me investing in the Chinese government, but that's true.

I guess if they take over a company, I guess the term public company takes on a whole new meaning that like yeah. Yeah. The people's Republic of Alibaba. Yeah. Yeah. Really. Um, but, but it is, it is interesting. I think it's. Um, we have to realize where our biases lie. Right? Because obviously we're coming at it from a Western perspective and I'm not making a values judgment on that.

I'm not not saying that's correct or not. Correct. I'm just saying that we're going to look at it through. Uh, Western economic lens. Yeah. And we're not necessarily gonna, um, you know, look at it through a, oh, well maybe, maybe this whole planned capitalism is a good thing. Right. So I think automatically you have to kind of take that into account, um, as well, but it is.

Yeah, like you said, politics, this isn't a political show, but politics is, is a risk when it comes to investing. Yeah. And so there's a trade offs there that you have to balance and have to be okay with and, and have to be okay with a company who may have to, or be forced politically to support, um, a government.

Maybe has some, some human rights violations or some, some issues in it. Right. And so that's, um, that's also a kind of added risk on top of just normal regulation or political risk in a country. Yeah. And the interesting thing to think about too is, you know, the, the long run show, um, in the long run, you know, we, we all hope that.

China as a country. I hope that, I mean, I hope that every country in the world continues to grow Richard and prospers and better at treating their citizens and citizens around the world. So, so it's, it's I think, I think our show, ultimately I think. Pretty optimistic. Um, and I think if you're, if you're a human being, looking at the long run, generally you do want to be optimistic and you kind of have to be optimistic to, to be able to stomach some of the downs, the drops that can occur.

Um, but I think, you know, in the long run, as, as the show states, I think the. You believe that, uh, human beings as a whole or an optimistic and, um, progress or any people. So I think China is still, I mean, like you said, GDP, if it's growing as fast as it is, is it going to overtake the United States soon? I think the interesting thing is that you'll see a lot of positive.

Yeah, interiorly in China. I think you'll have even more advocates for, um, for your markets and for more accountability on the global stage coming from inside China, trying to improve it from the inside out. Right? Yeah. And that's, that's, that's a good thing to highlight as well, because I think. At this point, geopolitically, that seems to be the only lever that might push reform in China itself.

I don't, I don't really see any other country having a enough influence to, to really including the U S to, to really make that sort of a change. Um, but yeah, I think my, my opinion, my overall kind of premise on China at this point is that. It's probably, I think these, these downturns are probably overstated.

I think that the regulation risk is there, but that it is overstated by Western investors and media, just because they don't understand that, um, that China is trying to be a planned economy. And then they're not trying to be a carbon copy of the U S economy and the us stock market. That's a really fair point.

Um, and so. Necessarily again, I'm not making a values judgment on whether a planned economy is better than just a more free market laissez-faire economy. But I do think that's just the reality that China is going after China. China is the apple and we're the orange. You can't compare the two. Right. Um, so I think that's something that's missed in this whole discussion.

Oftentimes reporters and journalists will just start out by saying, oh, well this is, this is an overreach, or they'll have pundits on, on, uh, you know, CNBC or Bloomberg going, wow, this, this is really poses a risk to investors. And it's like, yes, it does. Short-term for sure. But in the long run, it, it may not, uh, it, it, it may work itself out as it has been shown to do in the, in the past.

Um, Again, this year has been, uh, quite the sell off for, um, for Chinese stocks, but you are seeing people like Cathy would Ray Dalio some, some high profile, uh, investors with a lot of money, a lot of institutional funds going back into China because they. Long-term value by the dip. Yeah. Yeah. Maybe buy the, buy the dip.

Um, but yeah, I mean, they, they see long-term value and Ray Dalio has always been bullish on China because he's got a ton of connections in China. Um, and he, he lived over there. His son lived over there for a while, so it's, it makes sense that he's very bullish on China, but that was, that was kind of his op-ed on LinkedIn, uh, was that this was being misunderstood now.

Again, I am not sure that I am. Uh, actually, I, I know that I would not prefer a planned planned economy to a more laissez-faire economy. That's just my, um, my outlook. However, I setting aside that bias of my, my own. I do think that it's, it's overstated. So that's kinda my, my premise on the whole China and regulation risk and what we've seen this year, as far as the sell off, that's a really.

I like that. I, cause I think it is easy. Like you mentioned to take things from the perspective that we always take things or we're used to taking things. And I think China is a very salient example of something that you can get burned if you're taking it from the U S of, of an example of, you know, if something happened in the U S where they were like, yeah, we're gonna, we're going to shut down Google and take it over.

You'd immediately. Yeah. People would be crazy. It was absolutely insane. Um, and so just the, the difference between, well, I mean, look at 2008 too though, but uh,

oh, geez. Okay. Oh man. Well, yeah, but I mean, I guess a good, a good analogy to, to explain, to put a little more meat on the bones of what I, what I mean is if you want to understand if you want to thoroughly understand, um, The literature of a country. So let's say you, you want to thoroughly understand. You want to thoroughly understand French literature, you would be best served by learning French and reading it in the native tongue because the translation over to English is going to lose a lot, especially if there's, you know, uh, you know, innuendos and plays on words that you would not have seen, um, in, in the translation.

So the same thing holds here. If you're looking to invest and understand the business world and cycle and business value in China. You're better served by understanding how the Chinese government looks at that and how Chinese businesses look at that rather than bringing your own approach to the table there.

Right. And you do want to temper the two obviously, but I think you're, you're best served by understanding that the native tongue so to speak. And here's a, here's a bit of a devil's advocate kind of question here is, do you think it's worth it for. The average investor or, or the, the non average investor to spend the time to really dig into, like you're saying into the Chinese culture, into, you know, whatever the factors are that, that you think are necessary for long-term investing over there.

Because I think, I think, I don't know. I think the answer is yes, but probably not for everyone. I've been to hear what your thoughts on that is. Well, I think, uh, Again, realizing I have my own biases. I think that don't, we all, yeah, exactly. Just important that you recognize them. Um, I think that the best way to go for most people and most investors, if you don't really have the time to sit down and like you said, immerse yourself in the culture and understand how, how the Chinese government has acted in the past, how they might act in the future, what the politic, the political landscape looks like.

If you're, if you don't have the time or resources to understand that, put, put effort into it, what I would do is just diversify your exposure to that part of the world. So. By some sort of ETF, um, there's even leveraged ETFs from direction out there. There are unleveraged, lots of unleveraged, emerging market, ETFs, Chinese ETFs.

Um, and there's a growing number of indexes, um, for, or indices, I guess, for the, uh, the Chinese market footsies got some, um, so there's, there's a lot of. Options as far as a basket of stocks, which sure is going to obviously reduce a little bit of that, that, uh, regulation risk. If you can get across multiple industries, industries, instead of just focusing on individual stocks, uh, that's going to diversify a little bit of the regulation risk away.

So that, that would be my approach for the average investor. Now, if you have some sort of, you know, idiosyncratic. Like, I guess, expertise, um, that you studied abroad in China for 10 years, then you might be able to, to get more into the individual stocks, but yeah, for the, for the normal everyday investor, I would, I would say an ETF is a good way to get exposure to that space without getting, without having to burden yourself with becoming fluent.

The Chinese business and political landscape. Yeah, that's fair. I, I am the more risk heavy of the two of us and I don't even have any Chinese stocks, so no, I don't. Well, I, I used to invest a lot in Korean and Japanese stocks actually, really, um, and Korea, Taiwan and Japan. And those do very well, but you know, it's a different growth opportunity at this point, especially in different industries.

I mean, tech is absolutely everything in, in Korea and Taiwan. It's huge. It's absolutely huge. I mean, in manufacturing, um, but tech and tech, really tech manufacturing. Yeah. And in Japan as well, but in China, it's interesting because there's, it's, it's pretty much the same, the same. Or a similar opportunity of investing in the U S and like the sixties and seventies kind of thing.

Similar, it seems to be that kind of trend, which is just crazy to think about. Do you think, do you think it's worth pursuing then individual stocks and, and again is my premise wrong? Do you not need to not need to understand thoroughly the landscape over there? Can you, can you bring a purely Western.

Investment philosophy to that to pick, you know, individual winners and losers. No, I think that's an easy way to lose money if you're bringing the Western investment philosophy. I think you're, I think you're spot on, um, which makes it tough because I think that it is very likely that you could see incredible gains by picking individual companies, but the risk is just so high it's.

Yeah, it's, it's, it's a completely, it's a completely different risk profile compared to picking stocks in the United States. Pretty much any time period. Yeah. So it's, it's, it's totally different. The gains are probably there. I mean, if, if. GDP does surpass the United States by 20 26, 20 30. Yeah. We're going to see insane stock gains between now and then that's just guaranteed, but which ones that's a real dangerous game.

Right? Which is why it might be better to go ahead and just go with the top 50 or the top 100 of some index, which. I'm surprised there isn't a, there probably is. Um, but I would be surprised if there wasn't some hedge fund or some specific fund that is going after individual stocks and trying to, to do that, like exclusively.

Like I would imagine that there's some Western funds it's, it's trying to do that. So if you can, uh, invest in them, if you're a, you're a high net worth and you can get in them, that's probably right. I'd probably be what I would do. Yeah, that would, that would probably make the, uh, make the, the most, the most sense, because again, you're farming out the expertise to someone else.

You can outsource it, obviously you're gonna pay for it, but it might be well worth it because I think the, with all of the, uh, risks at the, at the very micro level that we see, I think. Almost no risk. Again, this is okay. Very low risk. I think there's very little risk to the statement that the Chinese economy is going to be larger than the U S economy.

Interesting. I, I really am very. I am very impressed after doing some, some research into the Chinese economy and where they're headed. I'm thoroughly impressed with how efficient they are at, at building their economy and, and how, uh, dedicated solely to that goal they have been. And I look at, you know, I look at the U S and, and I, and I think, okay, well, this.

Uh, obviously an amazing story. I'm not discounting that at all in the U S the U S and its growth, and it's being a world superpower and amazing story. But, um, the, the unity with which China now, albeit maybe forced unity with which China is pursuing that goal of being the number one economy in the world, it's going to be very difficult to stop.

Just purely because we have a different free market scenario, right? We are not going to the U S is not going to be forcing unity in, in the pursuit of, you know, economic success. That's just not how we work as Americans. So I think maybe, maybe I would be, I would love to be proven wrong because I guess that would be, uh, a further, um, I guess, battle of the philosophies, whether free, uh, free.

Markets and free will really drive innovation and value higher than a, than a planned efficient market. Um, that would be, uh, that would be something I'd love to be proven wrong. But I think within the decade, I, I believe China is going to be the larger of the two economies. So interesting. That's kind of interesting though, because you have the micro level risks, but at the macro level, it seems to me very certain that.

China will we'll be the number one economy. So like you said, it's, maybe you take that, maybe take that broader base bet, but there probably will be a large winners and losers on the, on the individual stock basis. Yeah. Yeah. And that's a fair point because there is, I mean, just the. The basis, the philosophical basis of culture in the U S is so individualistic.

Whereas, you know, in China, it's, it's so communal, um, that, that, yeah, exactly what you're saying, you know, that, that kind of group goal is much easier to aim at when you have a communalistic society rather than individualistic. So yeah, that makes sense to me. Yeah. So with the, um, with the. No kind of political risk and the regulatory risk in China doesn't seem like even you as a risk-taker would be, would be buying individual stocks.

Yeah, I would rather, uh, I'd rather be buying individual cryptos than individual Chinese. Okay. All right. Well, I mean, yeah, I guess that's fair. I. As far as a portfolio, what would you, what would you be doing to kind of prepare for what seems to be maybe an inevitability that the Chinese economy is going to be bigger than the us.

And does that matter when it comes to your portfolio? Sure. That's a good question. I think right off the bat, I will say that one of my strategies currently is to be looking into the ancillary effects of Chinese growth. I think that the more China grow. Sure. You're going to have huge winners in China, but where you can actually have less, a little bit less, um, upside possibility, but also definitely less risk is by investing in companies that are in the area.

So Japanese companies, Korean company, Um, I think are great investments because if you have an absolutely exploding economy in China, there's going to be more demand for consumer products, luxury products, software. Everything's gonna be more demand for everything as wealth increases in the area. And as China increases its ability to be this, this kind of regional powerhouse as it has been, uh, you're going to see.

More and more trade between China and its neighbors and more and more opportunities for the neighbors. To me, making a lot of money, uh, Japan, you know, specifically absolutely incredible story as well. Um, made an enormous amount of money by creating the best electronics in the world and then selling to the United States.

They're just going to be able to also sell more and more and more to China as more and more people in China. Um, as wealth increases, I think investing in the Korean stocks and the Japanese stocks, that's, that's actually a part of my strategy for, for China growth. So the individual stock side comes in for me.

Um, for those regional stocks that have less political risk. And then, like you said, an ETF for, for Genesis. Right. Yeah. And, and there's, I, I agree. I think there's, you know, like, uh, like we mentioned earlier, some large cap ETFs you could go after, as far as Chinese, um, indexed funds, um, that would be a smart move and a good play.

Do you think, um, you mentioned the, the, uh, China increasing its trade with its neighbors. Do you think. As they grow. Do you think they will play nice enough to put it in a elementary way? Yeah, I think they'll play nice in the sandbox over there. I mean, I mean, I think it's interesting because I think they'll in, in one way or another, they're going to have.

Um, because the alternative is, you know, rapidly deteriorating relationships. The problem is, is it's kind of the, the apocalypse conundrum where you could, uh, short sell the whole market and make an enormous amount of money. And then just not be able to withdraw or not be able to do anything with it as soon as world war three starts.

Right. So hopefully that doesn't happen. Uh, hopefully, you know, again, kind of the optimistic long run out, uh, Uh, hopefully that doesn't happen. Hopefully they do start playing nicer with neighbors. Um, and I, I think they probably will. I don't know for sure that's speculation, but I think that as time goes on, I think we've had probably in the last, you know, two, three.

Even five years, we've kind of had just, just funky relations with China in the region and in the United States, um, to China. And, you know, I think part of that is, is some of the, some of the things that China has done, you know, like we talked about human rights violations, um, some of their actions to aggravate their neighbors, et cetera, but I'm hopeful that as time moves on that, that there will be more cooperation.

There will be, um, More trade, especially in that regional area. Okay. Yeah. And actually on that note, uh, it, it, it just crossed my mind here. There, China is doing some interesting things in, um, Africa and Latin, and that's a really good point. And, and they are increasing the amount of financing that they send that way.

Yeah. Some of it is a little nefarious that the, what was it? The south African, uh, like broadcast center found that they, they got financed by China and then they found that they were bugged. So, I mean, that's not, that's not ideal, but, um, in those emerging markets, I mean, Africa, especially. Is, I believe Africa is probably one of the most untapped and under reported stories of, of this century.

Um, they're very, they're, they're poised for a lot of growth. Um, and China may play a very large part in that and maybe come good, good trading partners or just financing partners as well for, for, um, Africa. So exposure to Africa, African-based, uh, Companies and stocks is a little bit hard to come by. Um, there's no real good exchange if correct me if I'm wrong.

I don't think there's any real centralized exchange in Africa. Um, but so, so that may, that may be something to look at as far as trade, um, which again, you were mentioning trade over in, in the. In the Pacific, but they're going to be obviously global superpower. They are a global superpower and will continue to be so, so things like shipping, anything that's, uh, that supports global trade, that that would include airlines as well.

But shipping being the main one, um, that's also probably a good, um, Kind of investment in a more, uh, more of a de-risked profile compared to investing directly in Chinese, uh, individual company as well. Yeah, that's a really, really good point. Cause I, I totally agree. I think in the long, long run too long, the long run, uh, India and Africa are the, the biggest opportunity for growth and gains, um, in the world.

And, you know, I think that's going to take longer than. Then people think, but I think that is the place. Uh, those, those are the places as it were. Right. Yeah. And I think you're right. I think China is going to have a big hand in that. Um, they know how to, they know how to, how to finance debt like they do to us.

They're the experts. They definitely, and Brazil is a huge asset. If a couple of years ago, Brazil was a huge, huge trading. For, uh, for, uh, raw materials with China, supporting China's manufacturing and industrial, um, growth as well. So that's another country to keep an eye on as well. Um, looking at more raw materials, but as they grow, I mean, they're, they're going to have huge problems.

Internal problems just with real estate and growing the number of houses they're going to need. So that's the building, the number of houses, I guess you can't grow a house. Can you? Yeah, maybe it's a tree house. A tree house. Yeah, you could. Uh, but building, building the number of houses. So you know that, that's another, another thing to keep in mind.

I think there's a lot of tertiary downstream effects. Burgeoning economy that we might not initially think of whether that's trade and therefore shipping or whether that's raw materials, because they just need to grow infrastructure, both business and, you know, transportation infrastructure. Human infrastructure for, for living as well.

Uh, so I think there's definitely opportunities, uh, kind of from a downstream perspective in China, but it is, it is something to keep in, keep an eye on and, and balance the risk that you're taking there. You don't, obviously you don't want to be buying anything that you don't understand. Could easily be the case with China because you might look at it and go, oh, I understand the fundamentals on paper.

Uh, but the, the, uh, inherent regulation and political risk, and I guess you could even debate cultural risk over there. Um, I didn't learn that one in my textbook. Um, even the cultural risk that may come around to haunt you. Yeah, that's a good point. Yeah, none of the, as always, none of this is financial advice.

And then I just talk to your financial advisor. Um, but I think that's a good point of in general, you don't want to invest in things that you don't know what's going on. And I think China is probably one of the more opaque, um, places to invest, but it's tough because it's, it's almost a situation where there is so much opportunity.

But it is such a, such a black box in some situations of what's going to happen, that it sits a bit of a conundrum. I think for a lot of people because they hear, oh, everyone's invested in China, buy these stocks and they really don't understand it. Or maybe they do a little bit and they go in and maybe they see really good returns and or maybe they don't.

But there is that, that, that paradox of, you know, it is very likely ground for extremely. Solid returns, solid growth as a country, but it's not as easy as investing in United States or Europe or most of the other Asian countries as well. Right? Yeah. Somewhere where you understand the, how the systems intending to be run.

Right. It's it's, there's definitely a, an understanding gap, I guess, that us investors, right. Realize when they're going, going and looking at the Chinese stock market. So yeah, I think that about does it for us here today on this episode of the long run show, obviously hit that subscribe button. And if you want to drop us a review, that'd be awesome.

Five stars really help us out. Um, if you want to just tune into the next episode, Right review after that one, because it's going to be even better. So we will see you next week on the, uh, on the long run show. This is Austin Wilson and he is Michael O'Connor and we have had a great time. All right. See you next time.

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The Long Term Inflation Trend

In the first episode of The Long Run Show, Mike and Austin discuss inflation, what causes it, how it's measured and what tools the FED uses to control it.

Austin and Mike also look at long term inflation and how hourly wages, job numbers and tapering will affect it. They discuss methods of investing that help hedge against inflation.

They also share some tips on how to get rich quickly by "pulling a Rockefeller".

Hosted By:

Austin Willson

Michael O'Connor

NOT FINANCIAL ADVICE

The Information Contained on this Podcast is not intended as, and shall not be understood or construed as, financial advice

Unedited Transcript:

Welcome to to the inaugural episode of the long run show with Michael O'Connor and Austin Wilson. I'm Austin. And he is Michael O'Connor.

Yes, that is correct. Today. We are going to be talking about inflation and kind of taking a zooming out and taking a macro look at it. What we are our opinions on, on the future of inflation and what we might do to position our portfolios, um, in accordance with that, uh, we, we may have different opinions.

We may have similar opinions, but we're going to flush that all out and we'll also do a little. Kind of a deep dive on, on inflation itself, how it's measured. Um, and then some of the levers that Mr. Jerome Powell and the federal reserve are pulling to kind of, uh, either dampen, inflation or respond to what we're seeing, I guess, is a better way to put it.

Um, what we're seeing with the CPI reports, we just got one out today. As of the recording of this podcast, uh, new, new report. Uh, CPI for August and that measured, um, a little bit of a slight decrease. I believe it was 0.3%, uh, decrease. Um, so basically you could say a softening or a flattening in the uptake and inflation we've seen over the period of, uh, of a few months here last six months or so of 2021.

Um, we knew some of this was coming. Based on last year since no one in the beginning of 2020, if you forgot what happened, there was a little pandemic lockdown thing. Um, no one back then was going out at all and buying things. So obviously there was a lot less money floating around Jason. Hardly any goods or services.

Um, so that, that makes sense that we didn't see a whole lot at the beginning of this year, as far as inflation goes. But, um, now that we are into the latter part of 2021, and we're seeing a little bit of an uptick in a lot, a bit of an uptick in, in, uh, economic demand and consumer spending, um, we're going to see more inflation.

That seemed to be the narrative of, oh, it's transitory. Um, We had had a conversation Mike, about August, September, October, November, that timeframe that we're in right now and looking to those, those time periods, um, to see what's going to happen with inflation and how that might indicate the longer term trend we're looking at here.

And, and just to kind of go high level for a hot second here as well that, uh, Kind of inspired this whole podcast. Cause you know, we're, we, this is the first episode of the long run show. So our goal is to kind of provide a expanded view and just a top-down view, try and step back a bit from a lot of the short-term stuff, fluctuations whatever's going on.

Um, and to be able to take a real bird's eye view. What our thoughts, our opinions are for things that are happening and, you know, not just a intra month or intern month period, you know, I would say let's not give ourselves a minimum time span for the long run show, but we're not gonna, we're not gonna put ourselves in a box.

Um, It is for the long run. So the long run. Exactly. So with the, with that in mind, inflation, I'm interested to just kind of hear your take on the long run, uh, trend of inflation and, and where you think it's headed from here. Obviously we've got the CPI data, um, inflation rate of over 5% for a couple of months in a row here.

We saw a huge uptick, you know, obviously end of spring, beginning of summer. Where do you think it's headed? Where do you think the ball's going here? Yeah, for me, I think the, the, the two immediate takeaways, um, from the last, even just the last month have been number one, you know, the, the whole idea of transitory inflation and how the, the fed has.

Trying to pacify. It seems like, you know, a lot of concerns, which at the end of the day is their job. You know, they're trying to make sure the economy is as stable as possible. So, you know, there's definitely some voices out there I would say criticizing them, but you gotta remember that's their job to just exactly things, uh, very calm.

Uh, so the, the whole transitory factor, I mean, it, I mean, if you look at it, just looking at the numbers. It makes total sense to have this kind of inflation after such a period of like, like you were saying, like decreased consumer spending, everyone got government, most people got government checks and everything is more, there's a lot more money in the ma in the overall monetary supply.

Right. It just, it makes sense to have inflation. So it's, it shouldn't be a surprise. Um, and in some ways, you know, It depends a lot on the economy and factors. You know, it's probably not a, not a blanket statement for every economy in history, but sometimes it is good to have, um, certain levels of inflation, you know, keeps kind of keeps the, uh, the economy turning and moving.

And it's interesting, it's it, it seems like consumer prices for products and you're going from cars to milk, whatever, um, have gone up the fastest. Cause that's kind of the easiest thing for. You know, the companies to directly increase the prices on, but the, the upshot of that is we'll probably see a real salary growth occurring because, you know, on the one hand, if it really is transient, The pressures that are, have already been put on.

I at least I think this opinion. Um, but I think that we'll see real real salary increase just from the number of job openings. You know, the job it's, that's a whole nother topic of the job data, but it's interesting because there's less jobs being filled than forecasted, but this. So many openings, right?

And it seems like there's just a lot of people leaving the labor supply, which is a prime indicator for increased real salary. A couple that with inflationary pressures on the consumer side, you get a, an economic, uh, a real economic system. Probably going to move in that direction, which, I mean, we haven't seen him in a while.

There has been relatively slow growth in terms of real salary. Right. We've seen uptick in real productivity, so that's kind of do, but at the same time, you know, back to the first point of transitory ness of the transitoriness level, uh, of the inflationary pressure, it definitely seems. Because at the end of the day, inflation, what, what creates inflation is the psychological anticipation of inflation.

So when consumers think inflation is going to sack and what creates exactly. So, I mean, by as, I mean, in reality, it, inflation is always transitory because the federal, the fed the central bank of whatever country we're talking about here is, is designed to. Control inflation. So any rise or decrease in inflation is going to be transitory because ultimately the central bank of that country is going to try and get it back to the target rate.

So I think it's pretty disingenuous. Th the fed to just say transitory without maybe trying to, to put some more meat or contexts around that, except I know that they can't because as soon as they're wrong, everyone's going to freak out. Cause we look for we, we try and read the tea leaves whenever the fed says something.

Um, but you know, you bring up the, the kind of parallel discussion of the jobs, data and wage growth. I mean, even in my small town where I grew up in Northern Michigan, I saw a bill. Advertising a job at Culver's for 1850 an hour. I mean, that's, that's pretty, that's pretty high for a fast food job. Yeah. And I'm not, I'm not, you know, I'm not trying to knock fast food workers.

I'm appreciative every time I go get a big Mac, but for 1850, I mean that we've never seen that before. Right. So, um, there is something to be said for that. However, I, I. Almost as a, it sounded like maybe you were thinking that that's a good correction thing. Uh, that's a good, a good thing for the, the labor side.

The way I see it as that could be a. A catalyst for a negative feedback loop where salaries rise precipitously, not in a healthy, measured manner, uh, but salaries keep rising precipitously just to fill the jobs that are needed. But then again, as margins, get crunched more. On the, on the production side of things, you know, companies are gonna have to be charging more to justify the increase in salaries.

And then of course, people are going to be willing to buy at those increased prices. And then you get this cycle of inflation. So I could see it playing out that way. Um, I think. Far more time to really tell how that is going to play in how the labor data is going to play into the inflation data. What I thought was interesting in this recent report here, the one that came up today for August, uh, August CPI, um, data was that.

Inflation minus food and energy actually, um, decreased a bit over the last two months over July and August, there was actually a downtrend from June, um, in, in that part of the index. So it looks like. Food and energy, which are to that that's pretty inelastic essential. You're going to need a food and you're going to need energy to heat your home and drive right.

And commute and all that. So those things are, are increasing. Um, they inflation and inflation rate seems to be pretty steady on those but other, um, consumer discretionary items or. Non staples and food and energy seem to be decreasing a bit, which again, maybe that has to do with concerns over the Delta variant or, or maybe it just is, you know, kind of as a cyclical thing as summer was winding down.

But I mean, that was both July and August. So we can't read too much into that. It's not, this is backwards looking data. It's not forward looking data. So yeah, it's um, that, that was really what stood out to me. I guess the, the estimate definitely. Um, I think everyone was expecting a higher number, a higher headline number for inflation.

Um, but it, it seems to me that whether it was a higher number or stayed the same like this, I think at least for the short term, meaning six to 12 months, we're going to see inflation, um, B play a role and, and. Main, uh, reason underpinning that opinion is that we haven't seen the fed start tapering yet. Um, which for just a quick definition of tapering, essentially, the fed is buying.

Large amounts of treasury securities and mortgage backed securities, um, in their open market operations, which in turn puts more money into the system. They're buying about $120 billion worth of securities every month. Um, and they have been since, uh, mid last year, actually, since. Let's see here July, or excuse me, June of last year, they've been buying, um, 120 billion a month.

So that's not a small number, obviously, and that's adding a lot of liquidity and therefore more dollars chasing the same amount of goods. At this point, we're seeing an uptick in, in production, obviously post, post pandemic and into 2022. Hopefully post pandemic here. Um, so, but with the fed, not tapering in September, which is clear at this point, My, my assumption is that until we see the fed start to taper off their, their purchases of $120 billion worth of securities, we're going to see inflation, uh, continue, uh, until, until that time.

And probably after that, I mean, I don't know. What do you think the lever is that there that we're, we're going to need to see for inflation to, to, uh, be transitory? Yes. Sure. I think it's a, it's a really funky conundrum that they're in, because I think on the one hand, the fed was really hoping that, um, I think every, I mean, everyone was hoping that the Delta variant wouldn't be as, as according to the numbers as prevalent as it is.

Um, I think a lot of people are expecting a much bigger, broader overall recovery at about this time. So I think that the fed is very, very cautious of. Pulling back that tapering. I honestly, it seems almost that they're more cautious of pulling back the tapering to prevent investors and traders and the whole financial sector from freaking out than what the actual effect of tapering would be.

I think that the, the perception of tapering is more scary to the fed in the financial sector, then the actual tapering itself. Right. Because it's single signals, but the interesting thing. Will I be interested to hear your, your opinion on this as well. And I, to be honest, I forgot what the question in the beginning, but, um, but I think that it'll be interesting to, to think, you know, do, do you think that the reaction is going to be as bad as.

There's a lot of people are saying a lot of people thinking as I think the fed thinks it will be. Uh, it'd be interesting to hear that, but on tapering. Yeah. But what was your question? Well, I mean, my question was I'll, I'll answer that really quick. I don't think the reaction to tapering is going to be that bad only because honestly the financial news has.

Very dismissive of tapering. So every, every thing I've heard and watched and read on tapering, everyone, this time around is very dismissive and has said, oh, it's not going to, it doesn't matter. We're going to be fine. We're not going to see a taper tantrum like we did in 2013. Um, because. That we know what the Fed's doing this time.

The fed is going to signal it far, far in advance. So it's been very dismissive. I don't think that's going to be a, um, uh, an issue like the fed actually might be assuming it will be, um, which is an odd conundrum in and of itself. But, uh, what, what will. Show investors and the whole financial sector that the fed is tightening its monetary policy is when we see rates rise, which is kind of, I was leading you almost to that, that, uh, that point of my question, because.

Um, w what I asked was originally, what do you think the, the lever is going to be for us to see, and this increase in inflation, you know, kind of, kind of stabilize or reduce, um, and obviously rates rising is the answer. But before that, what's going to be an indicator that we'll see. That's a good question.

I mean, obviously they're going to have to tape her out the whole 120 billion and bond purchasing before the rates. Right. So that'll be, uh, but I'm sure that'll be a long road. Like you're saying that the fed is definitely taking a very strategic approach, very slow approach, which not, not, not necessarily a bad thing.

Um, yeah, I think, well, once, once we see a very clear action plan to taper out all those bond purchases, I think that'll be a signal. You know, at some point, uh, time horizon after that, you know, maybe one to three years, I don't know. It could be, it could be a long time before we see rate increases or, I mean, here's the thing too, is I think a lot of how the fed is reacting to things right now is very focused on, um, COVID and I think if, you know, if we have some, some sort of breakthroughs or, you know, this signif.

Um, reduction in cases in the United States and around the globe. I think, I think the fed is watching world cases a lot more than people think they are. I think that's something that they're keeping a close eye on. Interesting. Okay. Um, I think, you know, if you see, if we see that kind of improvement around the globe, I think that would be a good indicator of just general financial health and not the entire world.

And I think that would probably signal a faster move towards, um, a range. I think that that's probably at least that's my opinion. I think, I think that if we see global, global case numbers and global, um, infections and deaths going down, I think that would be a solid indicator of just global financial health.

I think the fed is watching that, um, closer than it seems. Right. That makes sense. And, and they do seem to be, well, they obviously have to. Do some, some coordination with the EU and the European block with the, the, uh, ECB. Um, so that, that makes sense that, that they would need to take a more international approach.

Um, it is interesting, you know, I, I did say we brought up the 120 billion of purchases that they're making every single month. Um, Have though Ben using their reverse repurchase market, uh, or reverse repos to actually take some cash out of the system. And that has been, I think, severely under reported.

This, you know, it kind of goes against my argument that while we're not going to see much change in this inflation, um, until we see tapering, it goes against my argument a little bit because the tapering might've already started right underneath our noses. Um, just because they're taking they're, they're taking a lot of money out of the system at this point, they've taken away.

Uh, trillion dollars. Um, well, yeah, out of the system, just using reverse repos, which is there, um, overnight operation with, with banks where they will sell, uh, secured treasury securities to a bank, the bank will purchase. And deposit the money at the fed to make sure that they get an overnight interest rate on that money.

So essentially it's a, it's a way for the fed to take money out of the system, um, in just, you know, gives them another, another lever to do, to do so, but they've taken out quite a bit of money, um, from, from, you know, what they've put in, which is quite a, quite a large sum over the last 12 months. Um, so that, that might.

Put a little bit of a damper on, on inflation, um, as we keep moving forward, because it seems that they've committed to this a large amount of reverse repo activity. They actually set up a permanent facility in July of this year, July of 2021. Um, to facilitate that the, all of, all of these, um, agreements and, and re repos, or excuse me, reverse repos and repose happen at the New York fed.

Um, Mm, branch of the federal reserve. And so they set up a permanent facility, which is interesting because in 2015, they said reverse repos were a temporary solution to decrease the money, supply a transitory reverse repost situation. I didn't wrap your head around that one. Um, so they've already started a little bit of that.

So that might be an indication as well, that they. We might be running a little hot with, uh, with inflation already. Interesting. Um, it, it's kind of an underhanded way to do it and maybe they like it not being publicized that much, but it is something to keep an eye on, um, as, as we move forward, because if, if they continue to kick the can down the road, when it comes to officially tapering, they may continue to use this as a, as a way to offset those, those purchases.

Here's a question for it. Could they just increase the reverse repos? To the same amount there to just do a net zero and kind of, I, I, I don't believe that they, I don't believe that they could do that. At least not with. Completely shifting the paradigm because the, the, what happens with reverse repos is the, um, bank that they have, the, the reverse repo agreement with who's depositing the money, or essentially buying the securities.

The fed is paying them a very small interest rate on that money. So what you would do is if you were to put, um, to put. $120 billion of reverse repos, um, each month into the fed or through the, through that, uh, New York fed facility, um, it would very much, um, disrupt the short-term money market, uh, part of the financial system.

So I think if they were to do that, it would be. Almost too much of a good thing. And they would ruin the short term, um, debt system that's already in place, uh, in the financial sector. So that wouldn't be a wise thing to do. It would be like, you know, trying to run a race on sugar. Um, it it's, it might work for a little bit, but it's not the long-term solution and not the responsible thing to do.

Um, yeah. Obviously, they're trying to be the responsible one in the room, um, as always, but it is interesting to see them Rob Peter to pay Paul essentially with this whole tapering and repurchasing. Very funny. Yeah. And is that been, has that been increasing over time or is that kind of been very much okay.

Yeah, we, we were, we were, I've got the data in front of me here. Um, April of this year. Um, they only had 35, uh, yeah, around around 35 billion of repurchase agreements. And by, um, August of this year, we were at a trillion, so, wow. It's very, very much increased just over the last. Wow. Five months. Uh, so it's, it's definitely something.

I think that's been underreported, Forbes reported a little bit on Briggs, been reporting it a small amount, but again, something that you would want to keep an eye on and might be a good leading indicator as to what their stance on inflation, what the fed stance on inflation. That's interesting. Now, do you think it could be even a leading indicator if they start pulling back on that, that they're going to do.

It could be, I, I would not want to read too much into that just because I don't, again, I, my, my view is that tapering is not going to matter that much. I think really rate hikes are what's going to matter, which, like you said, it's not going to be for a while. That's going to be in a few years. So that the reading too much into when they might taper, I think could be.

A little bit of a misnomer. I might give you a, you might be reading into it too much and trying to make, uh, make something out of nothing at that point. So it's always important to it to make sure you're, you're not reading into it too much. Um, but with both of us seeming to think that inflation. Here to stay, at least in the short term, what do you think, uh, what are, what are you going to be doing, you know, for your own own portfolio, if you want to share, um, to, to really hedge against that, is, is there a way you're positioning your own portfolio or how would someone, you know, who, who assumes or, or has the opinion and shares our opinion that if inflation is not going to be a month transitory, it might be a, maybe a year transitory.

What is the person doing that in that, uh, circumstance? Sure. Yeah. I mean, there's, there's a whole, uh, myriad of ways to hedge against inflation to be sure, but at least for myself, and I'm a pretty, pretty risk happy person. Uh, I'm very, very okay with taking high risk things, but geez, I'm, I'm, I'm in a gold ETFs at this point after, after the last couple of weeks, um, after kind of digging into the figures and everything, I was like, you know, It looks to be a pretty solid upside, um, for gold and other precious metals and commodities.

Um, especially, especially as a hedge, uh, it's not, it's not the majority of my portfolio, but at the same time, you know, you do want to be able to have those, those different kinds of levers, those different kinds of areas, um, that will hopefully counterbalance each other in different situations. So, yeah, uh, personally I'm in a gold and a gold mining ETF.

Just because it's funny on most of my stock purchases, I'm very technical, very research oriented person. Who's looking for innovation, kind of the value growth. Um, but this was, this was one sector. I was like, you know what, I'm just going to get the bundles. I'm not going to dive to Depot, concentrate energy on just trying to find, uh, innovative companies.

Cause I feel like gold mining is gold mining. Right? I mean, unless you're going after somebody is looking for new gold. Exactly. That's a good point. I mean, yeah. Jeez. If you can find the people who are digging and they haven't found the gold yet, if you can find them, you're going to have some pretty, pretty incredible returns, but that's, but again, it doesn't sound like you're using that as a, let's hit the ball out of the park here.

This is just a, let's preserve some value in the portfolio. Uh, yeah. And that's actually a really good point because I think that kind of boils to the ethos of what works. I think what we're trying to do with the long run show as a show here is. We're probably not going to give you the stock tip that makes you a hundred percent turn.

Definitely not. Mike Mike on accident, Mike, Mike, I'm going to drop a ticker and it might pop, but yeah, no, that's not. I don't think that's the, I mean, you have to, you have to transition at a certain point from making your gains to preserving your games. I mean, it's just as hard, I think, maybe even harder to preserve your game.

Over a long period of time, uh, then than it is to pick the next hundred X 200 X like muscles, muscle gains. Keep doing, you gotta keep lifting. I mean, you can shoot up the gains with some steroids, but that's not going to work long term, but fair point. But yeah, I mean, I, I think, um, having a portion of your portfolio allocated to something that's.

Preserve, what you've been building in another section is a really smart way to do it. Then, then you kind of, um, well obviously diversify, but you have your, your own, your own sleeves within your portfolio that have their own tasks and their own marching orders. Yeah. I think that's very smart. Yeah. For me personally, I, I have bought some of the, the gold mining ETFs, I think.

We're a little bit counterbalanced in, in our investing approach. I traditionally have been more of a ETF, give me the bundle and, uh, I'll, I'll be okay with that. Um, and I think that's maybe my downfall. So I have added, I have edited a few individual positions, but those are more of a, um, More like, like we just talked about kind of the let's hit the ball at the park.

Let's take a few swings. Sure. Um, what I'm using for, you know, an inflation hedge is an, uh, commodities ETF actually. Um, and I, I was actually kind of choosy and looking for an ETF with commodities. You can get, um, a few different, a few different types. You can get. And an ETF that is built on derivatives of commodities.

You get an ETF that actually is built on the commodities themselves. Um, so there's a few different, few different things you can do there. I tried to stick to the commodities themselves, or as much as possible, um, and less of the derivatives and derivatives because that market is full of it. So well, I wanted it to be as close as I could to, to the actual, you know, hard product, but Hmm.

That's a, that was one piece of the portfolio that I just added, um, was, was, uh, I was a commodity ETF along with the gold mining, uh, ETFs. I think those are two good pieces. Some things also to look at would be possibly real estate. I know it seems like we might be in a quote unquote bubble as far as real estate values, but, um, It's one thing that they're not going to make more of.

Yeah. There's no way you can produce more land. Yeah. That's all we got. So in a, I don't know, Elan's, we're going to Mars soon. Get some while it might be. Yeah. Yeah. You can be a land developer on Mars. Um, so, but, but you know, maybe, uh, maybe a REIT or fun dries, those are some good options. Um, again, not going to hit it out of the park, probably if you're going for a eat at a REIT.

But something with exposure to real estate is good. Again, commodities, hard goods, gold. Those are also great. Um, you had a, you had a thought on an uncorrelated asset as well, you know, uncorrelated kind of alternatives being a good hedge as well. Yeah. Yeah. And that's actually something that I've gotten into in the last.

She's only the last six months is a fine wine investing, which is something I'd never thought about investing in before. And just kind of heard about it from the grapevine. Oh boy. You're in for those folks. You're in for some bands around here and I let it ferment in my head for a little while. Yeah. Um, but I think the hunt for uncorrelated assets like real alternatives, uh, it just kind of led me in that direction because that was at the same time I was getting more and more into crypto.

And crypto is a significant part of my portfolio as well, because I legitimately believe that there is a lot of innovation going on there. I'm actually not a big Bitcoin. I don't not a big digital gold guy. All right. I was going to ask you, I was going to ask you about that. I mean, the, the supplies locked, right?

So wouldn't that be a good inflation hedge? Sure. But I think at least for me, and this is just personal and this is personal opinion, none of this here's the disclosure, none of this constitutes official investment advice, your licensed advisor, um, and all that. But for me, I, what attracted me to cryptocurrency originally was.

The projects that have a legitimate, like real use cases. And sure we have, you know, the, the forks coming out for Bitcoin that are kind of adding onto it and creating more use cases. But I think at the end of the day, if, if the, if the blockchain itself is built to be used for, for. Um, you know, creative purposes, I think it's going to be able to do better in the long run than things that are kind of tacked on.

So for me, the things that got me into cryptocurrency were coins, like a theory from Al grand, uh, stellar lumens, like things that had a specific direction to them where they're using blockchain technology, not to just store value. Like it's great. Uh, it's a great way to use. And I mean, gosh, yeah. Bitcoin is incredible innovation.

It obviously works. It worked very well and continues to work. Yeah. Yeah. But I, I'm not, not as, as bullish on Bitcoin as I am on other coins and chains that have kind of more broad, innovative uses. Uh, I think if you're looking for just a value, if you're looking for just kind of keeping that. You know, I think that you're probably better off with a gold miner ETF or something like that, rather than investing in Bitcoin to try and lock in value.

If you really believe that Bitcoin is going to the moon, then you know? Sure. Um, but I think at least for me, and this is kind of a more, a broad statement as a whole, but as an investor, I look for things. Legitimately believe in, um, unless it's super short term, but we don't talk about that in the long-term.

This is the long run, the long run show, the long run. We talk about that. So, so yeah, so fine wine. You're getting back to the point, fine wine kind of came up and started getting more and more into it. And it's a really interesting, a really interesting hedge, especially against something like inflation, where it's this unique alternative asset that.

You know, it's physical. You can take shipment of it. If I want, I can actually get my huddles shipped to me and it's kind of oil and a drink. Um, if I really want to let me know when you're doing that, I'll come over. Yeah, yeah, yeah, definitely. Um, but it's, it's a unique kind of alternative asset that, you know, it's not, it's not.

It's not fine art, you know, I don't have to shell out 30 million to buy a Monet or something like that. You can buy a case of a case of like very high quality wine for a thousand dollars or something like that. And let that sit and let that mature and, uh, you know, collect returns on the, the, the value of the wine going up over time, which usually it seems like they trend upwards as they get better with age or whatever, but then you also, it's one of those products that is naturally.

Pretty decent hedge against inflation, at least from, from what I've seen, what I've experienced. So that's, that's something that is, I never would've thought I'd be investing in. And I don't think has been really accessible to invest in for, you know, not in a liquid way or an easy way for normal people.

Yeah. We're not Somalia, you know? Yeah. But yeah. And, and yeah, something less. Sexy than wine investing that just get just crossed my mind, I think is important to, to broach the topic here is just large mega cap stocks. Those may be one of the, one of the better, um, almost. Low risk. I, again, obviously they're an equity, right?

So you've got inherent risk there, but, um, those mega cap stocks in, in the, in the U S market are going to fare pretty well in an inflation, deflationary period. Um, they're, they're set up perfectly. They've got their war chest full of cash to do whatever they need to, um, to, to be nimble enough. You know, very good solid revenues coming in and they have most of them being tech companies obviously have room to grow margins even during inflationary time.

So I think those are also a good, a good thing to look at. Even owning an ETF, you know, me and my ETFs, even owning an ETF on the S and P 500, still bet on the, on the. Five or six companies. Right. So, yeah, that's a good point. That's, that's also not a bad, uh, inflation hedge either. And, and something that might be overlooked, um, when you're thinking about inflation, because obviously you're going to think gold commodities, hard assets.

That's true. Uh, but in, in these sort of crazy times, maybe the safest bet might be a few stocks. And that's a, that's a fun, a fun thought too, because it's, it's been interesting to watch the, the prices of Fang and the other kind of mega caps. Like you're talking about, um, go up quite a bit in the last year and.

You know, it's, it's interesting too. I mean, talk about parabolic, just look at alphabet. Yeah. Just look at their chart. Yeah. Yeah. Wish you'd bought it in 2019, but now here, here's the question that I, at least from what I've been seeing and reading and hearing about, it does seem like there's kind of this movement.

This seems more and more, um, Uh, leverage behind, I don't know, not leverage, but it seems to be a cascade momentum. That's a good word. Uh, more and more momentum around kind of government actions, both in the United States, in the Europe, especially in and around the world. I mean, have bigger and bigger fines.

Um, more kind of, you know, not quite antitrust yet, but we're edging in that direction. There's a lot of talks to those kinds of. And I don't know. What are your thoughts on that? Do you think that, and then we're getting, we're getting very far up the inflation that's okay. I mean, I, I think, um, I think that's definitely, I mean, you're talking about regulation risk there, right?

Yeah. And so that plays into it's a stock. So if you're using it as an inflation hedge, obviously there's more than just. Inflation that you need to think about when you're owning a stock. It's a business that operates in the real world deals with real people, real governments there, obviously with a mega cap stock, it's in the name, it's a giant.

So there's going to be, you know, antitrust. You know, opportunities for regulators to come in and apply antitrust law to it. Um, or even privacy restrictions with, with these tech companies. That's a huge, a huge concern in Europe as well. So yes, there's, there's regulation risk. Um, I think that's probably a healthy thing.

We don't want five companies buying up all the startups, uh, because the competition is what drives innovation. Right. And so you need to maintain that. Um, but I, at this at the same token, I think. From a valuation perspective, um, antitrust is not going to be, I'm not going to be the, the straw that breaks the camel's back when it comes to will, will their valuations will these big, you know, the Fang stocks will, will their valuation stick around.

I think they have so much. Uh, internal growth possible just because they have ample resources at their disposal. I don't believe that that antitrust is going to be the straw that breaks the camel's back there. And so that's what I that's, maybe my. Uh, to bullish perspective on them Roman and from a, from a longer-term view.

But I think that's why, um, I would look to them possibly, uh, as a piece of the portfolio to think about, you know, giving them the inflation, hedge, um, task, along with the other, the other things we talked about, the other vehicles we talked about, and that's actually a really good point, the valuation perspective.

I didn't realize this until recent. But the, the classic antitrust of standard oil and John Johnny Rockefeller, apparently he didn't really, I mean, he grew fabulously wealthy because of standard oil, but he actually became the wealthiest man in the world after it was broken up. And he had interests in all of the subsidiaries that were kind of shattered into and all of them started doing well.

And so as an aggregate, the pieces of standard oil actually did better and made him. That's standard oil as a, as a near monopoly. So maybe the best, uh, the best way to get rich in the long run. As soon as you see a company about to be broken up, go buy, get a little ownership, stakes and all the subsidies pull a Rockefeller.

That's going to be deemed pulling a rock. You heard it here first? Yeah. Yeah. Well, yeah, I think that's going to do it for us here today on the long run show. Um, it's been great talking about inflation. Like we, uh, like we mentioned, there's a few different ways you can hedge against it. Obviously there's a myriad of different indicators that you might want to look at.

Keep in mind that CPI and the data that comes out on a monthly basis. That's, that's backwards leaning. I mean, we're in, we're in September talking about August data. So you want to find your, your leading indicators, if you're trying to position yourself for the future. Um, and, and. You know, give, give different sections.

I think the theme here at the end was give different sections of your portfolio, different tasks, give them different marching orders. Yeah, that sounded good. And one thing that we didn't get to touch about, which I think would be a whole other episode is things like the infrastructure bill, you know, what happens if a three, three and a half trillion dollar bill gets passed?

That's, you know, that's, that's a whole other ball game. You're going to be watching that stuff as well. Just keep the eyes open across. Across the sectors of government and financial sector and everything. Yeah. There's a lot to keep your eyes on and you have to have them. Yeah. So true. Anyways, that's going to do it for us today, like subscribe and we'll see you next time on the long run show with Michael O'Connor and Austin.

See you next time. Bye.

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