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Building Wealth Like Warren Buffett & Lessons Learned from Billionaires

The BiggerPockets Podcast
55 min read
Building Wealth Like Warren Buffett & Lessons Learned from Billionaires

Every investor has wondered how to invest like Warren Buffett. He’s arguably the best stock trader of all time—preaching the fundamentals of investing in equities, something that most modern-day investors seem to forget. We’re seeing the same thing in the real estate industry. With a runup of home prices and stock prices over the past two years, almost every investing strategy has worked. But, as prices begin to plummet, overconfident investors are starting to see the errors of their ways and that making money isn’t always easy. So in today’s risky environment, we have to ask: what would Warren (Buffett) do?

Someone who’s been asking that question for years is Trey Lockerbie. He’s co-host of We Study Billionaires, where he interviews some of the best and brightest investors on planet earth. Trey has lived an interesting life. He was a musician, went on the road for years, started a kombucha brand, and now reads everything he can on how to build billion-dollar businesses and billion-dollar wealth. With the aura of fear many of us are feeling in the investing space, Trey brings in some much-needed clarity on what investors should and shouldn’t be doing right now. And he got some of this advice directly from top stock investor himself, Warren Buffett.

While we do go deep into the coming opportunities for real estate investors, we also hear about how stock investing isn’t so different, and why the massive drop in cryptocurrency prices could be an opportunity for investors who are on the fence about blockchain. Regardless of what you invest in, how much you invest, or whether or not you’ve started investing, Trey can enlighten you on how to maximize the decision you’re about to make.

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Listen to the Podcast Here

Read the Transcript Here

David:
This is the BiggerPockets Podcast, show 646.

Trey:
If you look at building your own business, you’re building your own equity, that’s probably your fastest, best way to wealth, but it’s highly concentrated. All your time is in this one business. You’re putting all the sweat equity into it, you’re growing it, but the payoff could probably be worth more than anything else. Real estate, I think, is the next step down from that where it’s definitely effort, more so than stock market, and it’s definitely probably the second best way to grow well, but it just takes a little bit less effort than maybe running a day to day business yourself.

David:
What’s going on everyone, this is David Green, your host of the BiggerPockets Real Estate Podcast here today with my good buddy and co-host Rob Abasolo as we interview one of the hosts of the We Study Billionaires Podcast, Trey Lockerbie. In today’s show, we get into the good nitty gritty and big picture stuff about what the heck is going on in today’s economy. Rising interest rates, seller panic, people that aren’t sure if we’re going into a depression or if this is a great buying opportunity, stocks, crypto, real estate, we get into some really good stuff by someone who makes his living studying very successful investors. Rob, what are some of the highlights that stood out to you from today’s show?

Rob:
I mean, Trey is quite the impressive fellow. Well, first of all, we should call him Trey “Mr. Butter Voice” Lockerbie, because very soothing, so this is definitely a very, very easy listening one. But very impressive fellow. I mean, he is a songwriter, a relatively established, it seemed like, from what we could pry out of him, and used to tour with Lady A. Then he really got into the whole… He casually found himself at dinner with Warren Buffett, and he’s really made, I guess, a career you could say out of studying Warren Buffett’s investing principles broke, broke down the four pillars of how he invests, and by he I mean Warren Buffett, and really just a nice change of pace because we always talk about real estate. That’s what this podcast is all about.
But it was really refreshing to hear a new take as it pertains to the stock market, to crypto, and how they’re all interconnected by all these levers around the world and how they all play into each other. So this is a really, really nice little masterclass on economics that are at play at the moment, and I think the takeaway today is how to invest, how to invest consistently and how to diversify in all that goodness.

David:
Yeah, absolutely. We talked about properties I’m buying, cryptocurrency that I just bought. You talked a little bit about some of the factors that led into your decision to get into crypto and what happened and the mindset behind when we do well or when we don’t do well, how we stick with it. So I thought this was fascinating. I’m already thinking we should have Trey back. But here’s what I want to know. As you listen to this, did you like today’s episode with Trey? Let us know in the comments on YouTube. So if you’re listening to this there, tell us what you liked, what you didn’t like, what you disagree with, or what you wish we had asked, and we will read them. And before we bring Trey, today’s quick tip is brought to you by Rob Abasolo.

Rob:
So if you like today’s conversation and you’re interested in investing even outside of real estate and in wanting to diversify your knowledge on how to invest in stocks, I think their podcast is really great for just opening your mind to the world of investing as it pertains to stocks, crypto, everything in between. It’s a very, very, very interesting conversation to talk about how billionaires became billionaires and how they make their money. So be sure and give We Study Billionaires a download, even outside of the episode that we do with them.

David:
All right, great job on the quick tip there, Rob. Let’s get to Trey. Trey Lockerbie, welcome to the BiggerPockets Podcast, how are you today?

Trey:
I’m doing fantastic. Thanks for having me on.

David:
So for anyone who hasn’t heard of you, which there’s probably quite a bit of our audience that has.

Trey:
Most people.

David:
Well, I don’t know about that. Can you tell us a little bit about what your background is with business and investing and then what you do for a living?

Trey:
Quick origin story is I actually got started out in the entertainment business, specifically music. Really always thought I’d wanted to be a touring musician. I just thought people on the road looked free to me. They weren’t wearing suits, they weren’t in an office, they were playing music. It just looked the dream that I wanted for myself. So I set out to achieve that right after I graduated high school. Went to college, but started a booking agency out of my dorm room that got me my first gig with an artist going out on the road. That artist group I should say became Lady A, and I started doing some touring with them and some other songwriters. Ended up dropping out of school because it picked up so quickly and I got so busy. I dropped out, moved to Nashville with them.
Started to become more of a songwriter. I made some of my first big checks actually songwriting. And when I got my big checks, I thought, “What do I do with this money?” So I called my dad and I said, “Hey, what do I do with this money?” He’s like, “I don’t know.” I called my uncle. My uncle was like, “Put it in the S&P 500. And I was like, “What is that?” I was just so clueless on all of this stuff, and it really-

David:
It’s good advice, though.

Trey:
It was. Looking back, it was perfect. I didn’t know how to do it. I didn’t know what it was. This is around the time right after the global financial crisis, so I was like, “The stock market? Get out of here. That’s insane.” But just my personality, I was like, “This whole global market that just exists in the background of my life is so prominent for so many other people. It’s something I should probably have some literacy on. I should probably know the basics of this.” So I started going down the rabbit hole and I also thought, “Hey, wouldn’t it be fun to be on the tour bus sitting at a venue, there’s so much downtime when you’re touring, I could just be trading or making extra money or generating stuff like that.” And along the way, I had this opportunity to…
Well, I’ll actually pivot there. Basically at a certain point I realized that music itself, that lifestyle, the touring element of it wasn’t sustainable for me. I was missing people’s weddings. I was missing events. I’d get home. And I just felt a whole year had passed and I wasn’t really moving or progressing in my personal life. So I ended up wanting to pivot and find a different career. And it was around that time I met my now wife who was also a touring artist. She was a background singer for Rihanna. She did that for about four years. And she and I’d both come to the same conclusion, which was, “Hey, that was fun. We’re in our early 20s. We got to see the world, get paid for it, what an amazing experience, but how do we move forward with something else?”
And my sister was diagnosed with breast cancer and through that I actually got introduced to kombucha tea, and that’s a living tea, it’s a probiotic tea, and it’s popular in the cancer community for multiple reasons, these health benefits that it provides. So she told me that I should go start drinking this stuff because it was making her feel so great. And I went out there to the store and I bought some, and I basically spit it out. I always like, “Get out of here. This is ridiculous. It tasted like vinegar.” And I swore off of it for about a year. But she was so adamant that I drink it, that after a while, I was like, “Well, I grew up in the south a little bit. I love peach tea, maybe I could brew this at home. Maybe I could make it taste good.”
And I brew up some peach tea kombucha. And I remember the first time I tried it, this light bulb went off for me, because it was so delicious that I was like, “Oh my God, everyone would drink this if they just knew it’s actually supposed to taste good.” And there’s a lot of reasons why it’s manufactured in different ways and produces a vinegar taste for most brands. But my now wife and I, Ashley, she and I decided, “Well, this could be fun. We’ll set out at farmer’s markets. We’ll sell some tea. What an idyllic lifestyle.” And that’s how it started, and much like anything else, it just snowballed. So we started at farmer’s market, sold out quickly. Then it was like, “Okay, we got to show up next week, I guess. So it just kept going from there. Trader Joe’s came along, different retailers came along and we had to keep being like, “Okay, are we doing this or not?” And scaling.
And then around that time I was starting the business, I had this really strange opportunity to have dinner with Warren Buffett. And at the time I was trading, I was actually doing options and all kinds of crazy stuff like that, starting this tea business, and had this three hour dinner through a family friend with Warren Buffett, and he really changed my life. I mean, he made me look at everything differently. And after that dinner, I was just determined to read everything I could about him. I mean, I realized the people I was looking up to who were trading, who were doing X, Y, Z, he made more money in those three hours sitting with me than had in their entire career. I mean, I would just put everything in perspective to say, “He’s doing something right.”
So that got me thinking and I got into… I became a Buffettologist, I say, I started studying everything about him. I found the show called We Study Billionaires and they were heavily focused on Buffett style investing and got to know the host of that show over the number of years I was listening through events they put on and Berkshire Hathaway meetings and stuff that. And then they offered me a job to be the host of We Study Billionaires. So it’s a really winding path. So I apologize for the long intro, but music, tea, now an investing podcast.

Rob:
That’s great. No, this is perfect because David and I probably have 17 questions to ask and we’re like, “Well, where do we even start?” There’s a lot of good stuff there, but I am curious, I got to know. You casually are like, “Yeah, and then I found myself at dinner with Warren Buffett, one of the most famous people in the world of investing.” How did that happen? Because that’s nuts. I mean, a guy like that, I’ve always heard of these really big people, they’re like $40,000 an hour just to hang out with some of them. I got to imagine Warren Buffett, he’s probably a very, very difficult person to get time on his calendar. So how did that happen?

Trey:
So it probably also makes me seem I grew up in some wealthy family, which is not correct. It really just came through this really amazing opportunity through a family friend, where they were hosting him for this book launch he was doing, and I invited myself, quite frankly. I mean, as soon as I found out about it, I just called and was like, “I’m coming to this dinner and I’m going to be there.” So I just peer pressured them to let me sit in on it. So it was a six degree opportunity that I just capitalized on. I mean, looking back what an opportunity. I just heard that he auctions off a dinner for charity and this year it went for $12 million. It was at least a 12 million opportunity that I took advantage of there and it didn’t disappoint.

Rob:
So you met with him and then was there actually any insider words of wisdom that came out of that conversation where something changed in your life or was that just the spark where you then went to go on and effectively deep dive and study his investment style?

Trey:
A little bit of both. So upon having dinner with him or prior to that, I definitely did a little bit of research, and I came to this conclusion that this value investing thing that a lot of people call it, that used to work maybe in the ’50s and ’60s when you didn’t have the internet, but now everyone’s got all the same information. There’s really no arbitrage left in the market. Everyone’s got real time data. The market is fairly efficient. I mean, that’s how I was operating, especially trading options. It’s all built around the efficient market theory. So that’s where I was coming from, and I wanted to quiz him on this, and looking back, it wasn’t the worst question I could go off from, but I have heard other people ask him this over the year. So it wasn’t a new question for him by any means.
And he was very gracious and he basically said, I’m paraphrasing, but something to the degree of, if the market was efficient, I wouldn’t be where I am. And he went on to explain, there’s a couple chapters in the Intelligent Investor, one of his favorite books. I brought it with me, actually. I had him sign my copy. And I think it’s chapters 8 and 13 that are really about how the market is just backed by human behavior. So I like this quote by Jim O’Shaughnessy, it says the last arbitrage is human behavior. Because that’s what’s happening. Things either get overbought in the market or oversold, and the way you avoid that trap is doing what Warren Buffett does, which is looking at these numbers on a screen that are green and red and flashing and telling you to do something actually as businesses.
And that’s where people get tripped up a lot. Stocks are so intangible. They’re just numbers on a screen and everyone gets caught up in the performance element of it. But if you realize that that stock is a small fraction of ownership in an actual business, and you actually look at the stock and what it represents for how the whole entire company is currently valued, you look at it quite differently. So for example Tesla, it was at $1,200, now it’s at $700. That’s a good buy. What is the market cap of Tesla at $1,200 versus $700? At $700 is it still worth more than the entire energy sector combined? Probably close. So you have to compare market caps, look at these things like businesses, and realize that human nature is not going to change. People will get either greedy or fearful and the market will swing to your advantage just because of that.

Rob:
So this is actually a very common quote by Warren Buffett, and he talks about… It’s is going to be very awkward if it wasn’t him, but I’m 99.99% sure he says, “When people are being greedy, you should be fearful, and when everyone’s fearful, you should be greedy.” And we’re sort of at this paradigm shift right now in the economy, seemingly just based on all the clickbait and alarmist headlines and a lot of people coming in with their hot takes and everything like that. Right now, what is your read on that? Are we at the point where people are being fearful and we should be greedy or vice versa? Because I feel we’re in the middle at the moment. There’s a lot of investors that are saying, “Oh yeah, I’m jumping in right now.” There are other investors that are saying, “Well, probably not.” I think David and I are still investing pretty heavily, but I’m curious on your take here.

Trey:
It definitely depends on who you ask. I will give you my opinion. I looked at a recent Bank of America research paper and they were showing this graph of… Imagine a speedometer in a car where on the far left it’s fear, on the far right it’s greed, and the arrow goes either way. It was flat line to fear. So it was hitting zero, basically saying this could not be any more… People cannot be any more fearful than they are today. And I definitely feel that, which is really interesting, because I can walk you through a bunch of macro reasons why I think the market’s actually going to go lower, but it’s rare that you get this sentiment where everyone is so bearish that they’re actually right about it. Usually when the sentiment is what it is, it’s the opposite that’s really happening.
I will say that the market corrected. It went down to past 10% to about 14, 15%. When I say the market, I mean the S&P 500, which is basically 500 of the biggest stocks in the US, and the 14 to 15%, that’s the 100 year average for a correction. So when it was sitting right there, that was a really hard thing to manage, because you’re like, “Okay, at one point, this could go a lot lower. If you look at it this way, though, it’s hitting the average, so it could maybe bump up from here.” It’s now gone down about 22%. So that’s bear market territory. And I’m of the opinion it’s actually going to get worse before it gets better, even though the sentiment is what it is and it’s as bearish as it is. But that would mean that this time is different and usually it’s not.

Rob:
What about you, David? Would you consider yourself bullish or bearish at the moment?

David:
I would agree. Well, we’re talking about the real estate market right now, or did you guys want to stick to the stock market?

Rob:
We were in the stock market, but I mean, I guess just personal investment strategy.

David:
I would say we just interviewed Ed Mylet, I was trying to find the episode number, but I couldn’t find it. Someone can look that up. We’ll say it in a minute. And he referred to the collective psychology. It’s this idea that, like you were saying, Trey, everyone in general, they kind of function… I call it flock of birds. It’s the same thing. But they all move in the same direction. Bitcoin’s going up real. Estate’s going up. I should go buy. I’m hearing all these success stories of people that bought. And then they run in there. Real estate’s going down, Bitcoin’s going down, I should flee right now, cut my losses. And I think most people make decisions based off what they see other people doing and the emotions that that gives them.
What I love about your advice that you were talking about, which comes from Warren Buffett, is try to be objective, try to think, what would that property be worth? What would that asset be worth? What would that company be worth independent of the emotions that you get when you watch the stock price trending up or trending down, if you can separate yourself from that, you get a much clearer understanding of what the thing is worth. And that’s very important. When we were talking with Ed, he was saying those are the people that make good money, because when you can detach yourself from the frenzy of what you hear in the news constantly, and understand the impact that has on you, you just make smarter decisions. So Warren Buffet’s really good at seeing, “Hey, this stock is really low. That company is really good. That stock got pulled down for a bunch of other reasons. I want to buy a bunch of it.” And vice versa. That is not worth what people are paying for it objectively speaking.
So when I’m buying real estate, there’s a part of it that says it doesn’t really matter what everyone else is doing. It’s going to cash flow this much, it’s going to make me a return. I’m going to hold it for a long time. So right off the bat, I have a foundation that’s very safe. And then I add onto that where I’m monitoring everyone else’s psychology, not throwing mine in with it. So I put 10 properties under contract in the last two or three weeks. A lot of it was because the sellers, I think, are panicking. They’re watching Jerome Powell saying, “Don’t buy a house.” They’re hearing news interest rates are going up. They’re thinking, “It’s going to be a blood bath. We have a depression type event on the way. I got to get out right now.” And I’m looking at it like, “This house is in an amazing location. It’s a very good property. It’s going to make me money, regardless of what the value of the house is.”
I’ll give you an example. I had one property I just bought was listed at 1.5. They were too high. Sat for a long time. They steadily dropped it 50 grand at a time, which is not the way to do it, so now they’re chasing the market down. When I saw it was at 1.2, it had been on the market for 70 days or so, so I know as a real estate agent that the psychology of the seller is getting into a panic mode. They’re thinking, “Terrible. No one’s ever going to buy my house. I’m stuck with it. I’m bleeding on the mortgage because I don’t have tenants in there and I got to get this thing sold.” So I wrote an offer at 1,050,000, with 35,000 in closing cost credit, so just over a million, and they countered me and said, “We’ll take your price, but not the closing cost.” And I thought, “There’s no way that he’s going to blow this deal over 30 grand.” So I just held firm. Next day he accepted where I was.
There’s no reason I should have got that house for a million dollars. It’s it’s 1.2 to 1.25 in a normal market. That seller was watching too much news. Just to rebuild that house would cost way, way more. And you can’t build in that area because they’ve shut down a lot of the building. So when we’re talking about what I’m buying, it’s not real estate in general. I’m not just by any house because they’re all the same. It’s more that I’m trying to tap into the human beings that are overly worried because they’re paying attention to what everyone else is thinking. And I don’t know if I made a good call or not, but I just bought my very first crypto ever two days ago.
I watched Bitcoin and of all the cryptos I see so far, and I’m not an expert, I just want to come out right now, I’ve listened to a lot of Michael sailor, I thought that sounds a smart dude, I like what he’s saying. So he swayed me on Bitcoin in general and it was about $65,000 a coin, and it dropped to 20, and I bought my first Bitcoin. So I was like, “Okay, so now I’ll go in.” Is it going to drop more? Yes, it dropped to 19 the day after I bought it, but I just don’t really care. Is it going to stay at that point? Well, if it’s a good asset, no.
So I’ve learned to detach myself from the immediate results of what I’m seeing and just shut down those emotions. I don’t give myself credit for a win when it does good, and I don’t kick myself when it does bad. Now I’m going to turn it to you Trey, because I don’t actually know if the way I’m going about it in your mind, because I think you study this stuff more than me, is wise, so I’d love to hear what your take is on that.

Trey:
I have a lot of thoughts on that. So first and foremost, to your point earlier, you’re absolutely right. It deserves more nuance, this conversation. Sweeping generalizations like real estate, yeah, you should get in, it’s prospect specific, to your point. And there’s this thing happening. I was talking with my buddy who’s in commercial real estate yesterday, and he’s having the hardest time with investors and he’s presenting them with this opportunity that I think is easily yielding, let’s say, 25%. Whereas a week ago or two weeks ago it was at, I don’t know, 40%. It was something kind of… Whatever it was, his estimation was much bigger.
And to me what I’m seeing, there’s this analogy about being a monkey with two bananas. I don’t know if you guys have heard this before, but it’s basically you give him monkey one banana, very happy. Give him monkey two bananas.,He’s stoked. And then you take one of those bananas way, and furious. He still has the one banana. And I think that’s what’s happening in the market a little bit, especially maybe with real estate. People are so used to these amazing opportunities with these low interest rates, but you can still find opportunities that are good and maybe even exceptional in some areas of the market, depending on where it is. And to your point about Bitcoin, I would just say, I look at Bitcoin personally like it is property. I very much look at it like that. I always have.

David:
That’s literally what bought me into it, yes.

Trey:
Yes, that’s exactly right. And the problem with it is so many people have different perspectives on it. Is it your new currency? Is it your new store of value? Is it your new X, Y, Z? The thing that made the most sense to me and what got me in was thinking of it… I think someone described it as New York, and the property’s on New York, and there’s only X amount and that’s all there’s ever going to be. And that’s what Bitcoin is in the digital space. So I dollar cost averaged into Bitcoin. I bought a big chunk a few years ago and then I just have a set it and forget it weekly thing, it’s almost like a savings account for me, and I don’t even watch the price quite frankly, because in my mind, all I’m thinking about is how many SATs I’m accruing. So at the end of, say, 10 years from now,
I think all that’s going to matter is how many actual Bitcoins do you own, because there’s only X amount, and you can corner the market for lack of a better way to say it. I mean, that’s what’s happening. If you look at some charts, the beautiful thing about Bitcoin is that it’s an open ledger and you can see actually all these wallets that are holding Bitcoin and you can analyze them. You can see how long they’ve held the Bitcoin. And if you study those, what’s called on chain analytics, you can actually see that the people who have never really sold their Bitcoin are accumulating more, and that number is only going up. So that’s really interesting. You see these big institutions who may be bought in saying, “Okay, this thing seems hot. We need to stay relevant. We’re going to buy a little bit of it.” And maybe they panic sell because they don’t really understand it. Or maybe it’s just directly correlated with the NASDAQ because Wall Street doesn’t really understand it. But the people who understand it, understand it very well and they’re not selling.

Rob:
It’s, It so much more relaxing when you aren’t watching the Bitcoin counter all the time? I mean, I bought Bitcoin, honestly… The majority of my Bitcoin was purchased in the all time high, I’ll admit. And then I bought some Bitcoin when it was at the 45 and the 40 mark. So I’m averaging down a little bit in that capacity, and I was just checking every single day, and then I was like, “Oh, I’m rich. Oh, I’m richer. Oh, I’m poor, I’m poor, I’m rich, I’m rich, I’m poor.” And I played that game for three, four months. And then I just finally was like, “You know what? I think I’m just going to stop doing that.” And then I stopped looking for… I mean, I haven’t really looked in the past three or four months and it’s just nice to know that I have it.
I don’t really care about the price that it’s at, because I never intended on selling it anyway. So whether it’s worth $100,000 or $20,000, I don’t care because it’s not something that I plan to sell right now, because my investment strategy was to buy and hold onto it for a very, very long time. So right now a lot of people are freaking out because they’re like, “Oh, my crypto portfolio is wiped.” And mine is a little bit, but it doesn’t really matter because I think what matters is to look at it from the the bigger perspective of the bird’s eye view, and now I sleep a lot better not looking at the Zillow home appreciation prices and my 401k and everything that, because that’s not… Investing should never be short term that.

Trey:
I absolutely agree. And if you look at property, if you look at it like that, you can compare it to some billionaires we’ve studied like Bill Gates. He’s been buying a hundred million plus dollars worth of farmland. I mean that produces a yield and we can say how Bitcoin actually produces a yield because it can, but that’s where people are going and moving to right now as hard assets, real estate. Bitcoin I consider to be a hard asset. I think it’s a really good way to hedge the inflation situation that we’re all getting ourselves into.

David:
And I’m a little nervous that I just mentioned I bought it, because what I don’t want is either everyone on BiggerPockets to go say, “David’s buying Bitcoin, I’m going to go buy it.” Or, “I can’t believe he said Bitcoin. That’s heresy.” So just to clarify, the reason that I… Just like you said, Trey, it was explained by Michael sailor as not a currency, but more of a property. And what, in my opinion, has led to a lot of us crushing it in real estate for the last 5, 10 years is quantitative easing and over printing of money. So when they print a lot more money and that money has to find a home, it tends to find itself in different assets like the stock market, like cryptocurrencies, especially real estate, and it gives you the impression that you’re making more money than you actually are, because money’s just becoming worth less.
And that’s what I don’t like about keeping cash in the bank. My normal personality is to be super conservative, save, keep my money the Warren Buffett style. He doesn’t pull the trigger very often, but when he does, he takes down the big prize. You can’t play the game that way when they’re just ripping money off left and right. It forces you to be a little more aggressive or at least proactive might be another way to put it than I would prefer to be naturally. Well, with Bitcoin there’s a limited number of what they’re able to make, so when I stop looking at it a currency, and like you said, I started seeing it as a property. That’s where I felt better about buying it.
Now, do I know it’s going to go back up? Could it be replaced by Schmidtcoin? I literally don’t know. I’m not planning on using this to become wealthy. I do however think that it’s very likely that wealthy people will start moving Bitcoin around to buy things, to trade in, and as the dollar becomes worth less, Bitcoin becomes more valuable because it’s set in place. So I just wanted to give my rationale behind why I bought it, and then I want to open it up to you. Is there any holes that you want to poke in that or a misunderstanding that I might have about it?

Trey:
Well, I want to touch on what you said at the top there, which was don’t just go buy it because we said. So you have to really understand it. I can provide a backdrop, maybe a framework that could help some of your listeners. So I’m borrowing this from my co-host Preston Pitch, who is so brilliant when it comes to these macro themes that are happening right now, the way he describes our current economy is imagine you have two monopoly boards, two groups playing monopoly, and the only difference is they can buy property on each other’s boards. And every time they go around the board, they collect $200. So maybe that’s your 2% annual inflation that we’re all used to. But let’s say the global financial crisis happens and we don’t want to go bankrupt, so we printed a lot of money, we printed around $800 billion back then, 2008.
So that’s kind of like one of those tables, instead of someone going around the market, instead of someone going around the board collecting $200, say they go around, they collected $700, because that money just was injected into the game. So the people with that money start buying properties on the other board. So all the people on the other board, let’s call it a different country, they start being like, “Well, where’s all this currency coming from. And the other board just keeps doing it. They keep injecting more and more money. That was our quantitative easing that we all went through. More injecting into the money. But the problem with that, there’s this thing called the Cantillion Effect, where the people who are getting the money, they’re usually holding these billion dollar bond tranches. They don’t really need the money.
So the fed was buying bonds from these very wealthy people, and what do the wealthy people do? They go buy assets, to your point. They buy stocks, they buy real estate, they buy X, Y, Z. But there’s not that kind of trickle down element happening so that the values of… And by the way, because they’re buying all these bonds, the interest rates stays down. So those low interest rates versus all these people buying assets, it creates this huge discrepancy where asset prices are going to the moon, interest rates have been staying low, and it’s priced out the normal person. And I think that’s where people… Everyone feels this, they know it’s… They maybe can’t articulate it, but they know it’s happening and they’re getting antsy about it. They’re getting maybe disgruntled about it, and you’re seeing the social unrest that can bubble up here and there because of it, in my opinion.
So that’s where things UBI start becoming a conversation, “Hey, let’s forgive student debt. How do we take care of the little guy who’s the patsy at the game here?” So that’s where people really, I feel like, discover Bitcoin, because Bitcoin is an off-ramp to the currency we currently have. You can’t just keep printing more and more and more of it. And the reason I said earlier that I think it’ll get worse before it gets better, usually what’s happening globally on a currency basis is that we’re printing, say, the amount of money we’re doing for quantitative easing. Well, every other country is also on a fiat standard and they have to debase their own currency just to stay competitive.
But what’s happening now is we’re actually tightening, we’re actually taking money off the table. We are raising interest rates. We are selling those bonds that the Fed bought. We are basically taking money off of the table, extinguishing some of that money that was created. Meanwhile, places like Japan and other parts of the world are still loosening. That’s why you’re seeing the yen just dropping precipitously versus the US dollar. That’s why you’re seeing the us dollar climb higher and higher and higher. If you look at the DXY index, which is the USD versus all other currencies, it’s almost as high as it’s ever been. I mean, it’s at a 20 year high. So that’s what’s happening in the background. That’s what’s leading to people to find, I think, a store of value like Bitcoin, that in my opinion is an off ramp to that currency debasement.

Rob:
A couple things here. David mentioned earlier about the met Ed Mylet episode, that’s episode 620. That’s very relevant to what we’re talking about. So if you haven’t listened to that, go listen to it. That is one of the more popular ones that has come out in the last month, I’d say, month or two. A lot of views on that one, because I think it just resonated a lot. He talked about the little guy and making sure how the little guy is going to be able to make their foray, their entry into the market because the playing field is evening a bit. So you mentioned UBI. So I wanted to dive into that just a little bit, and can you just define what that is and that concept just so we can unpack that a little bit and how it relates to the whole real estate market and the correlations there.

Trey:
Most people will probably understand it the way that Andrew Yang was pitching it at the last presidential election, which everyone gets a thousand dollars a month. The government’s just going to print you money. There’s actually some interesting ideas around this, but if you look at America a business, think of it like a dividend. You operate in and exist in the most successful country of all time. Therefore as a shareholder, if you will, you get a little dividend. It’s an interesting idea. The problem now versus back then is we didn’t have inflation back then. And actually why that was a good idea is we couldn’t really figure out how to get inflation, and the only way to raise interest rates off of zero is to get some inflation going. So at the time it kind of made a little bit of sense.
Now it’s unfeasible to, in my opinion, because we have inflation now, and the inflation came mostly from the COVID policies that went into effect where they printed $3 trillion, they did PPP loans, they did EIDL loans for businesses. They actually literally sent checks to citizens to say, “Here’s what we’re going to do.” And once that faucet is turned on, it’s really hard to turn it off. So I think what you’re going to start seeing now is UBI, but it’s not how you think of it. For example, I highlighted earlier, let’s say debt forgiveness for colleges. I mean, that’s a form of UBI. That’s putting more cash in your pocket, but they’re not actually sending you cash. But I think, and you’re seeing this in Europe, in other places as well, they will be getting more and more creative, I think, in finding ways that will help keep people playing the game, keep them in the game, because otherwise we’re all going to fall too far behind.

David:
The point you’re making about how, if you forgive debt, that is the same as giving someone money, is very… It’s noteworthy because that’s the same way… I say things like we printed a bunch of money. That’s not accurate. We didn’t actually print money. We bought bad debt from people. They use fancy accounting principles to take debt out of the economy and push money into it that they can then lend. And the result is the same as if they had printed more money. And that’s often how this stuff plays itself out. You combine that principle with, if you want to get voted in as a politician and people are scared, the collective psychology is worry, fear, what’s going to happen, and you’re the person that comes and says, “Well, I’ll give…” That’s why we did that during COVID. We’re shutting down the economy and everyone says, “What am I going to do for money?” “Don’t worry. We’ll give it to you.”
That principle, at least this is just my personal opinion, is probably not likely to change. I don’t think we’re going to see the entire country of America turn around and say, “No, no more of that. We want everybody to just eat beans out of a can and go through hard times when this happens.” But what’s very interesting to me is how those policies or the impact of them affects real estate investing, building wealth in general. The way that I tend to look at this is that we’re probably headed down that road. I’ve said before. I think at some point we’ll see an expansion of the section eight program and the government that people will be complaining about the price of housing, because as inflation goes up, landlords charge more for rent, but many people are not in a career or have a job where their wages are keeping up with that. Especially if it’s something that isn’t cutting edge improving.
So if you’re the person renting a house, you may very well find yourself, gas is more expensive, food is more expensive, rent is more expensive, but my wages are the same. When those cries rise themselves up, you’ll see, “Okay, this person’s eligible for section eight. We need to put more money towards the section eight program. Oh, we need to create more money to be able to fund that.” And I see a world where less people are able to own homes. And that’s one of the reasons why I’ve been at a bit of a sense of urgency with don’t go out and buy stupid properties, but be more intentional about finding good deals because they may not be there forever.
The same would be true of Bitcoin. If it takes off, there’s a limited amount of it. There’s only so much to buy at a certain point. It’s incredibly expensive to get it because it’s a finite resource. Really that understanding of what we’re investing in are finite resources, and the US dollar is clearly not that, because they can manipulate it, is why we’re wanting to exchange the dollars into the finite resources. Is that similar to how you’re seeing stuff outside of just the real estate market?

Trey:
Absolutely. And what I was highlighting there earlier about the dollar going higher, my simple framework, and I think why it plays into what you’re saying, is it has an impact on the rest of the world. It’s hard to wrap your head around the global… I mean, I it’s over my head for sure, but my simple framework is as the dollar goes higher, everyone’s debt around the world gets more expensive. If you’re operating in a different currency and that currency is losing value to the dollar, because we have a world reserve currency, most of this debt out there is in US dollars because, say they have to buy oil or something, a lot of oil is priced in US dollars. So all this debt is getting more and more expensive.
So the way you do that is you either debase your currency to come up with more of your own currency to buy more dollars or you liquidate your assets. So a lot of people may have… Say they live in China or elsewhere, they probably have some us assets. So that’s why I think you’re seeing a lot of liquidation right now. The dollar is going higher, the stock market is selling off, a lot of real estate is selling off. People are liquidating. They need to come up with capital to extinguish some of this US dollar denominated debt around the world. And once you turn on the spigot, as I was saying with this printing money, it’s really hard to turn it off. So that’s where the Bitcoin, to your point, comes in.
Because if your thesis is that at some point we just won’t need to print more US dollars, then that’s a different scenario. But if you’re, if your thesis is that this trend is going to continue and we can only operate in this world where everyone’s going to keep debasing their monetary currency, then Bitcoin stays the same and it becomes a store of value. It’s going to be very volatile, for probably many more years. And I want that to be clear as well. But say over 10 years, it’s a piece of property that you’re going to own and it’s part of only 21 million.

David:
I was just having a conversation with someone yesterday and they were asking me, “Why are you buying if we’re heading into a depression, we’re going to go over the cliff, the whole thing’s going to fall apart?” And it was the first time that I had to articulate how my gut feels or what thoughts are going on in the back of my head and turn it into an actual conscious conversation, which is why I think it’s good that we talk about these things, because sometimes through the process of talking about it, you get more clarity than what you had before. And the way I’m seeing it is that the market, whether it’s a stock market, the real estate market, the crypto market, whatever it is, is sort of like a big basin in a field, and as money gets pumped into it, the ground can absorb so much of that water at a time.
And if you pump in more water than what the market can actually absorb from supply and demand, then the tide will start to go up, the amount of water goes up, which creates people thinking, “I’m making a ton of money. Bitcoin is skyrocketing. Real estate is going up a ton.” There wasn’t enough supply for the demand that was created when we just created all this money. Well what we’ve seen when interest rates went up, talks of the war with Ukraine and Russia, overall bad news, quantitative tightening, like we said, the big players have pulled their money out of that pool. They are like, “Okay, we’re selling off the Bitcoin. We’re letting the prices go down.” I see a lot of people putting real estate on the market and selling it. Quite frankly, people that bought real estate in the last two years that they didn’t do it very wisely, they’re probably going to lose their properties or have to sell at a loss.
But in my mind, I see there’s still water out there. It’s just been pulled out of that basin. It didn’t disappear. We haven’t lost that actual money or that wealth. And it has to come back in at a certain point. And I’m not saying to just… It’s not like you’re buying an index fund, just buy it all, sell it all. Like you mentioned, it is individual pieces, but that’s how my mind is working. I’m looking at… There’s so much money that has to find a home in some place. They’re not going to hold it in cash, especially with this inflation forever. And it feels like more of a temporary correction that we’re having that frankly we’re long due for. What’s your thoughts on that perspective?

Trey:
My perspective is that they can only raise interest rates so much before something breaks, and the thing that breaks, as I mentioned earlier, is how all this dollar liquidity needs to get out into the market and where other third parties are going to struggle to come up with the capital they need, and it’s just going to get worse before it gets better. This has been a 40 plus year trend. So if you go back to the ’80s, interest rates have just gone down more and more. And every time they inch them up, they can’t get as high as they did before.
So the last time we did a… I think it was 2018, we raised interest rates, we got to about 2.5%. So I’m of the I’m of the belief as of this moment that 2 to 2.5% is going to be the high end of what we see before things start to get really ugly, and then the Fed is going to seemingly reverse course and lower interest rates again. And there’s going to be this period, hopefully where things have sold off, things have gotten really cheap, and then they lower interest rates again. And that is going to be-

David:
And then what are we going to see when that happens?

Trey:
Well I think that’s the time to buy, and not that you can time that stuff. So to your point, if you find opportunities along the way, you got to take them, but that I think is going to be a very big buying point for pretty much any asset.

Rob:
So I guess we’ve covered a little bit here on crypto, we’ve covered a little bit on the stock market, we’ve covered a little bit on real estate. I want to bring the conversation back to our good friend WB, Mr. Buffet. Just kidding, Mr. Warren Buffett. Sorry, Warren, if you’re listening. And I know that you’re an expert in all things Warren Buffett. So I’m curious, based on what you’re seeing right now, how is he investing? Because I think that’s the big question right now. Is he diverging a lot from his philosophies and his POVs or is he right on brand for how he’s enacting his investment strategies?

Trey:
No, so Buffett at 92 years old keeps surprising everybody. For many, many years, for example, he was saying that he didn’t understand technology. His best friend is Bill Gates, he owns Microsoft, but yet Warren Buffett never bought Microsoft. I mean, how do you explain that? But he claimed that he didn’t understand technology. And then a few years ago he buys Apple. He surprises everybody, buys Apple, he puts 30 billion or so into it. It’s now the best performing investment, I think of all time. I think maybe before the correction had gotten up to something around 130, 150 billion. So just an incredible return dollar for dollar. So lately he’s also, over the years, gone back and forth on things oil and he’s actually taken a very big position in Occidental, and that’s really interesting to me as well.
It’s always the same old Buffett flavor, but sometimes he pivots on exactly what he says he’s a specialist in or not. What’s in what he would call his circle of competence. So him buying oil companies, he’s actually to be quite honest, never had much success with in the past, I think he’s broken even at best, but he’s taking a big position there. My theory on that is because when we did all the EIDLs and the PPP loans and all those things, the 3 trillion or so dollars that we printed during COVID, a lot of businesses took those, rightfully so. But unfortunately you saw a lot of businesses just turn around and buy their shares back off the market. They didn’t take the money. They probably still let some people go. They bought their shares back and they didn’t invest in infrastructure. The thing that’s needed to continue to create supply.
And that’s, I think, what you’re seeing in oil and the thesis behind it why oil will probably continue to go higher because as of right now, the supply is not meeting the demand and it’s been volatile, don’t get me wrong. It’s down today. It could go either way. But my thesis is that over the long term, say the next couple years, it’ll probably continue to go higher. Which, by the way, is one of the biggest factors in the CPI inflation number, which means that if oil continues to go higher, inflation will theoretically be higher, quote unquote, whatever you define inflation, which could also create lots of its own different issues we can get into. So I digress. Buffett is I think doing what you would expect him to do. He’s been more active this year, surprisingly, than he was even when the COVID drop happened, where we went down 20% in 2020.
I thought back then, “Okay, this is his magnum opus. This is his opportunity to sail off into the sunset. He’s going to eat up all this cheap equity and that’s going to be his huge return for years to come.” And he really didn’t do that, which was very surprising. So more interestingly, he’s been more active this year. He’s been buying more companies. He bought Allegheny, he’s buying Occidental. So in some ways Buffet’s the same old Buffett, in some ways he’s not.

Rob:
If he’s the greatest investor of all time, it would make sense that evolves a little bit, but you said, he is on brand. Couple things I wanted to call out here. You said CPI earlier, can you just define what that is? I know what it is, but just for David’s sake, just in case he doesn’t know.

Trey:
CPI is the consumer price index. It’s the shorthand… I mean, it’s what a lot of people look at or define how they define inflation because it’s made up of all these different parts. It’s the way our government has… It’s their best ability to capture all these price increases across multiple products and industries, and it all rolls up into this CPI number. And you can just Google it. You can actually see how it breaks down. You can see how much of oil and energy in general is contributing to the overall number. But when you see something inflation is at 8.6%, that’s the CPI number.
And it’s really important, I think on that note to understand that the biggest asset in the entire world is the bond market, and that’s a hundred plus trillion dollar market. And the way bonds are supposed to be priced is at a premium to inflation historically. So right now that’s not happening, hasn’t been happening for a long time, but as interest rates climb higher, the value of the bonds goes down and that can create its own issues. So lots of macro things here to potentially have things get worse before they get better, as I said.

Rob:
A lot of levers being pulled in a lot of directions, I’m sure. So I guess, understanding Warren Buffett’s investment strategy a little bit, talking about how he is in changing it up and he’s investing in more oil and gas, Occidental and all that stuff. Can we talk about maybe a few actionable tips for people that are wanting to invest in stocks and how, if we were wanting to diversify a bit, and if now is really a good time to buy because of the dip… I know obviously it’ll be even less at some point, but can we talk about some actionable ways that you can evaluate a company and if a stock is worth putting your money into at this time?

Trey:
Let’s just take the Warren Buffett way. It’s important to understand how Buffett got started. He basically was under the tutelage of Ben Graham, and the whole idea with Ben Graham’s method was that back then you could find businesses that were trading below the value of if you bought the entire company and liquidated all the assets. So let’s say you had a factory worth a million dollars, and the stock was representing the price of the whole company at $500,000. That would be what they would be looking for. That’s very rare these days. So to your point about Buffett evolving, he definitely did. So he’s gotten away a little bit from that. Now he says instead of buying a fair company at a wonderful price, he wants to buy a wonderful company at a fair price. So Apple might be a really good example of that. Something that’s going to continue to compound, and may be overpriced, but you know it’s going to compound into the future.
So those opportunities are happening right now in my opinion. If you look at a lot of the tech companies, for example, tech has just gotten absolutely crushed, and I think these are companies that have been compounding at 20 plus percent a year and continue to do so over decades. They’re total unicorns. I think that’s a really interesting area right now. Like I said, could go lower, but as it stands right now, fundamentally speaking, they’re priced very cheaply by almost any metric you can come across. A lot of people look at things price to earnings. That’s one of the most common ways to look at a business and see how it’s cheap, how cheap it is. So basically you’re looking at the stock price over the amount of earnings that the company is making, and right now they’re at near historic lows. So that’s creating incredible opportunities.
If you’re Warren in Buffett, though, you have to make sure it’s in your circle of competence, meaning you understand what the business does, how it actually makes money. You’d be so surprised if you ask people about a certain business, maybe they own or not how it makes money, and they don’t know. So it’s important to understand the business, find something you can get behind. So for me, example, I own actually a lot of food and beverage companies, food distribution companies, grocery stores. That’s an industry that I really understand because I operate in it on a daily basis. So it’s a really good place to start somewhere like that, that you can actually understand. You can look at things like the PE ratio and there’s other metrics you can check out to see if it’s at a fair price historically or not.
And there are other metrics to see if there’s good quality of management, so you could Google something the interest coverage ratio. That will basically tell you how much debt the company has, how they’ve been managing that level of debt, if they can afford the debt. That’s a big indicator for me about how the management of the business performs. So those are basically… If I want to break it down and simplify it, the four pillars of Warren Buffett are basically great management, something that compounds over time, something that is stable and understandable, and at a cheap price. Those are the four pillars. And price probably should come last, in my opinion. I think you want to start with what you understand, make sure it’s a good team, make sure it’s something that’s compounding and growing, and then check the price.
And a good way to do this, how you can be proactive right now is you can just start there with that universe of stuff you understand, start doing your own valuation of it, and create a watch list. And there’s so many stocks out there that I’ve been looking at and you say, “This is an amazing company, but it’s just too expensive.” But the stock market does it does a favor for you and shows up and offers it on sale, then you can step in and buy it, and you’re prepared… You’re not irrational. You’re not reacting emotionally to what the market’s doing. You’ve done this very stable research ahead of time when you’re more calm. So I think that’s something people could be doing right now.

Rob:
That’s great. David, do you invest in any stocks, by the way, or are you mostly… Are you just a crypto bro now?

David:
No, it’s very, very little. I look at the Bitcoin purchase and the stock purchase was everybody is panicking, they’re all selling, the stock market is plummeting. That’s the only time I go in and buy. And it’s not a noteworthy position. It’s throw away money that I’ll buy. My theory with stocks and crypto, basically investments that you push a button on a computer to buy, part of their benefit is that they don’t take as much time or knowledge. You need knowledge to know what to buy. I’m not saying that. But you don’t have to have knowledge of how to run a company if you’re buying stock in the company, like Trey was saying. You’re looking at the management of the company. You’re buying real estate, there’s more elbow grease that goes into it. You have to have a plan in place and knowledge of how to manage a property or how to market a property. There’s specific information that makes real estate investing… I think you can make more money at it than other things, but that’s because you did more work upfront.
It’s not really a comparable investment to a stock or when I bought Bitcoin that took me 14 minutes to set up an account and now I can buy it in three seconds. So I tend to put much more focus on real estate. But the principles that Trey is saying here are exactly the same. People worry way too much about price. Location matters way more. They worry way more about ego, and like, “Hey, the seller told me they wouldn’t fix this thing,” and they get really upset about it versus looking at, “Is this area going to grow and do I have a management team in place that’s going to run this profitably?”
I think so many people get tied to the spreadsheet, what’s the ROI going to be, and they have no plan how to operate that asset, especially in the multifamily space or the short term rental space. The way that Rob runs a short term rental versus the way that Joe Blow runs it could be incredibly different and literally make that a great investment or a terrible one just by the management. Everything you said, Trey, it applies to real estate, absolutely. But the reason I don’t buy more of that other stuff is because I feel like that’s for people who don’t know how real estate works. That’s the way that I tend to look at it. If I knew nothing about real estate, I wouldn’t be looking to jump into it either. It’s very scary. You can get hurt really bad treating it like a stock.

Trey:
There’s a saying that I love where you stay concentrated to grow wealth and then diversify to maintain wealth. And I think that’s relevant here because as I look at it and I can speak a little bit from my experience, when I think about building wealth, which is probably what a lot of people are interested in listening to this show, I look at it, unfortunately-

Rob:
Theoretically, yeah.

Trey:
I really believe that it’s high effort, high return. So if you look at building your own business, you’re building your own equity. That’s probably your fastest, best way to wealth, but it’s highly concentrated. All your time is in this one business, you’re putting all the sweat equity into it, you’re growing it, but the payoff could probably be worth more than anything else. Real estate, I think is the next step down from that where it’s it’s definitely effort more so than stock market. And it’s definitely probably the second best way to grow wealth, but it just takes a little bit less effort than maybe running a day to day business yourself. And then you have the stock market. And unfortunately I think that of the three is the worst way to grow wealth, but I do think it’s the best way to diversify and maintain wealth once you have it.
So I was always operating with this philosophy of like… Even when I was poor, I was like, “Yeah, I don’t have money yet. But one day I’m going to have money and I’m going to want to know how to diversify and manage that money.” That’s why I started learning about the stock market, because I think it is. It’s great for that kind of thing.

Rob:
Well, we need to get you into real estate, man.

Trey:
Well, we’d love to. My wife and I just bought our first home. It was a great opportunity. It was a two bed, two bath. We made it a three bed, three bath pretty quickly. It’s gone up 50%. I mean I live in LA. This is a little bit ridiculous. We have three homes in our neighborhood that have recently gone a million dollars over asking. I mean, it’s really ridiculous here. Fortunately we got in 2019 and we rode this wave and who knows where it’ll go from here, but that’s my one real estate experience so far and we’d love to do more rental kind of stuff. But again, it’s that opportunity cost of I’m growing equity in a tea business right now and taking time away from that to put something in on a cash flowing business, it’s a different calculation.

David:
And that is a great point when it comes to why some people are better off investing in stocks or in cryptocurrency or in whatever asset that doesn’t take as much time and elbow grease and attention. You click a button and other people are doing the work, because if you’re really good at making money and other things, you can actually lose money in business by making money in real estate. And I think for those of us that are just hardcore in love with real estate, it’s easy to miss out on that. You’re just thinking about, “Oh, this duplex could get me another 500 bucks a month, and if I get 700 of them, I’ll finally be wealthy.”
But most people that are doing really well in real estate are making money in other areas, and that’s why they take the Buffett approach. They’re wanting to be in the best area, the best location, the best management. They’re not overly excited about getting the best price or the best deal when you’re new. And this is a great transition before we get out of here to ask you about your business. Can you share some advice at a general level to why you think that this business took off and you did well or what you’ve learned through it that you wish you knew in the beginning?

Trey:
It’s funny because what you just said there, that framework, I really do think it applies to everything, even your own business. So for example, you could argue that my tea business is in real estate, because the way my business operates is we’re fighting for shelf space, say it’s in a grocery store, what have you. A grocery buyer is looking at every single slot on their shelves as an investment. What am I going to put in that slot that’s going to give me the best return? And they look at it basically at dollars per linear square foot. So what I’m fighting for in my home business, even though it’s tea, is real estate, I’m buying for this real estate on that shelf. And I have to come up with a story too, and a way to acquire that real estate. So that’s something I wish I learned early on, to your point.
We were very naive when we started. And the best advice I like to give to people just starting out, if you’re going to start your own business, begin with the end in mind, which is such a cliche saying perhaps, but it’s so incredibly important. Because when we started, we just started to say, “Hey, we just want extra income.” But if you’re good at what you do that can snowball and get you into these situations where you’re like, “Well wait, hang on, now what? How deep are we going down this rabbit hole here?” So when you’re starting a business, it’s important to say, “Is this going to be a family owned business? Is this going to be something that we we want to be profitable, that we want to be stable and grow slowly and maybe hand off to our kids or whatever might have you? Or is this something we want to grow and sell?”
So one way to frame that is the speedboat versus the sailboat approach. If you’re taking the speedboat approach, you probably want to think through it and say, “Okay, who might acquire this business? What revenue do I need to get to in order for them to even consider buying the business, and how am I going to get to that revenue?” And oftentimes it requires a good amount of capital, whether you’re a startup software company or a tea business, or what have you, oftentimes it creates a lot of money to go fast. So that means you have to take on outside investment, you have to bring on partners, you have to raise money.
And we’ve done all of that. But over the years I’d say we were starting down the sailboat approach, and then when we saw the potential in our product for real and it became achievable in our minds of how far we could really take it, we shifted and said, “Okay, now we’re going to take outside capital and now we’re going to go the speedboat approach.” But you have to know that that was a big decision, it was a big transition to go from one to the other. And it’s simpler if you understand it, I think, from day one, and that will help frame your decisions a lot easier.

David:
So smart. In fact, I don’t know that I ever, when I started a business, had that conversation, and I’ve definitely had those thoughts. Once you get into it there’s this wolf by the ears phenomenon where the business is doing good and it’s making money, but that’s because you’re involved, and if you want to step out of it, it can then lose money, so you don’t want to step out of it, but then at the same time, this isn’t why you did it. You didn’t do it so you just have a job all the time, and it’s often a problem that you don’t realize is a problem until you’ve already got the wolf by the ears and you’re kind of stuck.

Trey:
I’m going to have to borrow that, wolf by the ears. I’ve never heard that. It’s great.

David:
The idea is if you let go of the wolf, it’s going to bite you, so as long as you’re holding it, you’re safe, but you also can’t get away. You’re stuck in this standoff. And many times I find myself with that same feeling when you’re in business, and that’s very sound advice. So as far as your personal skills, Trey, can you share how you’ve changed as you got into the entrepreneurial space and the business has done better?

Trey:
This is where Warren Buffett, I think, ties into my tea business. So what I learned from Warren Buffett over the years is that he is the greatest capital allocator to ever live. And what I mean by that is he’s at the helm, he’s got this pool of money, he’s deciding where to put it and expecting the highest return, what’s going to give me the highest return. And I don’t think a lot of people, when they think about entrepreneurship and they think about, say, just even being the CEO of a company, I don’t know if it’s the first thing they think of at least, where that person’s role is being a capital allocator and it could be, “Hey, are we going to hire so and so?” Because they’re going to give us a return. You’re doing it for a reason. Is the marketing team proposing a $300,000 budget for this year to you? Well, you have to understand, I’m going to spend $300,000. What am I going to get out of that? What’s the return on that?
So almost every single decision, it could be small decisions, too, really, really small decisions. Every decision when you’re running your own business becomes capital allocation in my mind. That’s how I think of it. So the natural thing to do would be to study the best capital allocator whoever lived, in my opinion. And Buffet’s actually not only a great investor, he’s an amazing operator. Most people don’t give him enough credit for that as well. But that’s what I’ve learned over the years and how I’ve evolved from just winging it to gripping the wheel, getting, getting at the helm of the ship and being like, “Okay, this is… I’m controlling the controllables. What I can control are my decisions, how I’m going to lay out capital to get a bigger return.”
And that could be, again, do we expand into this region or that region? It’s really everything. So that’s the framework I operate from. And I really encourage people… I mean, it’s a very dry read, but Warren Buffett has left all these sprinkles of, what do they call it, crumbs to success. He’s written a letter every year for, I think, 50 years, and he basically talks about that last year, what he learned, how they’re changing, how they’re making different decisions, and you get to go back and read, it’s totally free. And the that’s probably better than a college degree in my opinion. So if you’re starting out, I highly recommend that.

Rob:
Well, before we close out, Trey, I mean, this has been a really… I mean, a very nice change of pace for us, because we’re always talking about houses and stuff. But I wanted to ask you one final question here, and it’s… If you could give some tangible advice to someone investing right now, do you think… If people are looking to get invested even outside of real estate, do we go all in now that we’re at this all time low for the past year or so? Do we just consistently invest? What’s your final thoughts here as far as… I like that I’m asking you a giant lofty question to close this out, but what do you think? Consistently invest here until we see this whole thing play out or should we just hop in and make some equitable stakes in the companies that we want to invest in?

Trey:
I mean, I think it goes back to that other quote about, “It’s not timing the market it’s time in the market,” and if there’s one regret I have it’s that it didn’t start sooner. I mean I’m in my mid 30s, but the difference of starting in your early 20s to your early to mid 30s is millions of dollars potentially in returns over that compounding. The magic of compounding is just something that isn’t taught enough, isn’t appreciated by most, and those years, that extra time you have in the market smooths out everything else, smooths out all the volatility. So depending on your time horizon, I definitely think, to your point earlier, is it’s not timing the market.
I mean, I think getting in a little bit of the time, whether it’s contributing to your 401k, whether it’s dollar cost averaging into something like Bitcoin, which in my mind is real estate. Is it finding an amazing real estate opportunity, even though the market could go either way? I mean, no one has this crystal ball and no one knows… Really no one knows nothing, and if there’s anything I’ve learned from hosting this show and I’ve experts from all over the world, talking about investing, they all are so confident and all have really different opinions. And they’re all highly intelligent. So it’s just that alphabet sou of sorts. You come to this conclusion while like, “Man, really no one knows.” I mean, they’re very smart. And I would just say I’m definitely not as smart as they are, so I certainly don’t know. So the best thing I can do is take the bird in the hand. If I see a good opportunity, I’m going to take it.

Rob:
I mean, arguably I would say if there is one thing we know it’s that time in the market beats timing the market, except for a very small minuscule set of people that got very, very lucky or are extremely smart, smarter than us. But I think that’s the big thing that I’ve been hearing over the past two, three years from just a lot of people on TikTok, on YouTube comments, my students. One thing that I always hear is, “Oh, are we at the top of the market? Should I just wait for the crash?” And at that time interest rates were 2, 3, 4%, really in the threes, and now, yeah, okay. Maybe there’s going to be a little bit of a dip in the price, but now our interest rates are going to be 5, 6, 7%.
So I honestly would’ve rather have just overpaid a little bit a couple months ago and lock into 3.5% versus some of the 7.5% loans that I’m closing right now, because over time, over the course of 30 years, the amount of time that I plan on holding these properties, I would’ve saved hundreds of thousands of dollars in interest. So it just really goes to show that if you just consistently invest, if that’s always your idea to just invest every single year, whether it’s stocks or real estate, doesn’t really matter, that’s ultimately what’s going to make you a wealthy person, not putting it all on the proverbial, I don’t know, roulette table. Black on roulette, and then hitting it big on one of these stocks or real estate investment. So with that, man, thank you so much. David, you got anything?

David:
I’m trying to drop my mic, but it is frozen in space. That was really a good line. Probably Rob’s best line as the co-host of the podcast here. Way to go with that.

Rob:
Probably.

David:
Probably the best line ever. Trey, I thought your advice was awesome too. When you were saying that, what it made me think about-

Trey:
I appreciate that.

David:
We’re often asking the wrong question. We’re asking what’s the market going to do because we think it’s so simple, that it’s going down, I’m going to buy, it’s going up, I’m going to wait or whatever. But it never works that simple. Like Rob just said, yeah, prices may have come down some but interest rates went up, so it might overall be more expensive, and we don’t think about that. So I thought, Trey, you did a really good job of highlighting what questions we should be asking as opposed to is it going up or is it going down? What are all the factors that play together, and then how do you use that information to make a decision that’s wise for you?

Trey:
I was going to say, can I end with one more question to that point, which is you should be asking yourself what is enough? Because to your point, Rob, about people asking me, “Hey, should I do X, Y, or Z?” They have to determine for themselves what enough is and enough might just be putting your money in the S&P 500 at 7% annually or whatever it is for over 30 years. Depending on your income and whatever else, that might be enough. So a lot of people don’t do that first step and I would just highly recommend starting there.

Rob:
I’m doing it backwards. I’ve never really done the whole stock thing. I did my 401k match when I worked at my nine to five about a year ago, and then I just went all in real estate, and now, honestly, I’m putting a lot in the S&P 500 and really nothing else. I just set up a retirement account, maxed it out with my S Corp, it’s all S&P 500, because I’m just like, “Oh, they figured it out. They’re smarter than me. I’ll just go with that.”

Trey:
Circle of competence, man. I get it.

David:
Trey, if anybody wants to follow you or get ahold of you, where do you recommend people do so?

Trey:
Yeah, if you want to find me, I’m on Twitter @TreyLockerbie. I’m the host or one of the hosts of We Study Billionaires, which is another podcast where we interview billionaires mostly, people who have made their money in investing. And you can check that out at theinvestorspodcast.com, or simply search any podcast resource or platform. And if you are curious about kombucha and/or just a refreshing tea, you can always check out betterbooch.com and there’s there’s every social handle behind that as well.

Rob:
And where can people listen to your music? One of your smash hits?

Trey:
I’ll never say.

David:
Is that a song writer thing, you let the artist take the credit?

Trey:
Exactly. Exactly.

David:
All right. Well, you’re a classy man, as well as an intelligent one. That’s awesome, trey. Yep, you can find me @DavidGreen24 online or David Green Real Estate on YouTube, and then Rob you’re Robuilt pretty much everywhere except for TikTok where it’s Robuilto.

Rob:
Yep. That’s right. You can find me at Robuilt.

David:
Well, thanks Trey. It was good to know you. I really appreciate you sharing your expertise. It’s not every day you get to talk to someone who studies billionaires and then puts that information out there for everyone else to hear. I’ll get us out of here. This is David Green for Rob “Dropping That Mic” Abasolo, signing off.

 

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In This Episode We Cover:

  • Secret investing lessons learned at a dinner with Warren Buffett
  • Understanding the “human” element behind why markets rise and fall
  • Fear vs. greed and whether or not to buy in an overly pessimistic investing environment
  • Why Bitcoin is becoming more attractive to real estate investors even as its price drops
  • Inflation, money printing, and how the world’s debt works
  • How high will interest rates go and what investors should prepare for
  • Starting a business that can sell for millions (or billions) and how to get there
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.