Navigating Economic Uncertainty

Prep time.

Welcome to Wabi Sabi, the art of imperfection. And we got a great podcast. Actually, I'm excited about this podcast. I'm always excited to have a conversation with you, Jim, but you know, we couldn't think of a great topic to talk about, but you know what? And we found, I think a doozy one. I think it's important. I wanted to talk about something around this range for quite some time, mostly because we are everywhere I went. was in, you know, I, I've been speaking to a lot of different people from all around the world, like different, just, just people from.

Yeah.

from different settings, whether it be parents or my coaching clients or whatever, just meeting different people. And the keep on conversation right now, hot topic right now, okay, I don't want to date this, but it's really about, know, just new, you know, we kind of mentioned this in a couple of podcasts, episodes, you know, this new administration in the US and government, but it's not just that, it's actually how the ripple effect of, you know, being in Europe, being Australian, being Canadian, all of these things has this rippling effect around globally. And I think it's really important because what the what the understanding we need to kind of think about is that one aspect change in the world. Most people are like, I'm not U.S. citizen, so I don't need to care. But it has a massive ripple effect, think, financially across borders. And to me, what the consensus is that it's very uncertain times. Like no one knows what is going to happen and no one knows how it's going to affect us. And I think that's really important. And if you're running a business, you might say, well, I'm just a whatever blank, you know, practice or small business in, you know, in where be like, how does this impact me? Well, you have customers, you have supply chains, you have products and services that you need, which may have a trickle, it may take a little while, it take six months, maybe 12 months, it might not be instantaneous, but I think it has a massive impact. And I think this uncertainty, financial uncertainty, which I feel like we're always in one somehow. And I think it impacts a certain decision. I'd love to kind of talk through like maybe just as a discussion, not necessarily financial advice, because we're not giving financial advice at all. It's more just a discussion like how we see it and how we are navigating through those uncertain times.

Yeah, I think that's a great point you raised Lawrence. And you're right. You know, I do have to be very careful in terms of the line I tread here because I'm licensed to provide financial support in certain jurisdictions, particularly in Australia. So anything that gets to the point where I can, you know, I can't actually be seen to be human advice. I'll actually declare that, but I just from the bat, I just wanted to do that. But what I wanted to... to say is that there's so many topics around all of what you said that we can talk about that we enter within the realm of our consultancy and our coaching. And I could definitely feel comfortable around that and also help qualify certain things. just wanted to disclose that just from the outset.

Yeah, no, I think it's important. The reality is that we wanna have a discussion, because these are topics that people are thinking about, but not really have either one. Actually, let's talk about this, right? I feel like a lot of people have this under toe, sorry, this underlying feeling that's economically, it's so uncertain, there's a bit of worry. But at the same time, if you're sort of like me, I know enough, but I don't. know a lot, like I know a little bit, feel, comparatively to a lot of people that I know. And so I kind of feel stupid in a room sometimes to kind of bring up any these discussions. And because I feel like I'm not sophisticated enough and I don't want to feel like an idiot. However, at the same time, if we don't discuss these and I don't ask these questions, I'm not going to have the answers, which then makes me more of an idiot. And I think that's important to kind of, you know, put it out there is to recognize like, Hey, we're all on a different journey, you know? Uh, and, and I think having an open discussion between me and you, hopefully someone can learn some things and then maybe explore deeper and to also recognize that, you I don't know everything, you don't know everything, but at the same time, it doesn't mean that we shouldn't have a discussion. And we're not, again, we're not giving financial advice or any of these things, but it's also, well, how do you navigate the human psychology around this? And also what are some of the things we need to kind of think about? Cause if we don't, we can't just put our head in the sand. I think that's the worst thing that we can do, especially these times because putting your head in the sand and just hoping for, and something better will happen, but at the same time, you don't, certain decisions can really impact your life financially, personally, and also in your business.

So let's start that off, right? So as you mentioned, we live in interesting times and times of change. And at the time of recording today in Australia, the first time since 2020, the Reserve Bank of Australia has actually decreased interest rates by 0.25%. So effectively decreased it. After 13 consecutive increases, this is the first time. They're not sure whether that will lead to a succession of them. lot of economic analysts and commentators suspecting there might be two further interest rate decreases later on this year, maybe in August and September. But why that's important is because you and I both, Lawrence, work with clients throughout the world. And certainly cost of living has been a really big factor, a really hot topic for a lot of people. We're not sure whether this is the, know, normally when interest rates are decreasing, it's usually an indication the economy's suffering. So that's a response to lower the supply, you know, the costs so that the supply of money is easier to stimulate the economy. So the general thing is that you see property prices increase, share markets generally increase as the cost of money gets lower. So that's generally the effect, but it's usually as a compensation. And the reason why rates have to be uh, you know, economic policy, monetary policy has to be monitored because sometimes if the, if the economy is running too hot, then you get high levels of inflation, which we certainly had after COVID. And when it's basically at historical lower levels, which they were around 2020, that's really where you had massive uncertainty in economy, in the economy. So effectively it's used by governments to stimulate. So that's generally the levers that they pull. And as a result of that, usually there are effects. you know, both in a family, in a business and general broader society. So I thought I'd introduce that as a starting point.

Yeah, and getting the basis right is really important. Why this matters. So from my understanding, like again, I'm coming from a very let's go elementary primary school level understanding. So let me just kind of say this out loud and maybe can stand to correct me or not if I'm wrong with this. But the reason why interest rates when when we're lowering interest rates and why that's actually has a healthier kickstart to the markets in terms of stocks, real estate and that response is a positive one typically. It's usually because I feel, I think is that is because when the interest rates lower, which means the borrowing of money is lower. So which means that people with large capitals, okay, usually typically larger firms or even just individuals can, are more willing to borrow because it's just cheaper. And so therefore the hope is, has a detrimental effect, which is hoping that we're lowering interest rates. That means borrowing capacity is higher, which means because we can borrow more for less money, and which means that hopefully, incentively, that more people are going to go into the markets, which then stimulate some sales, say buying real estate or buying stocks, and so which then creates the growth of the economy. That's the hope, right? Whether that happens, of course, like that's obviously not necessary, but the probability is what happens. So am I correct in saying that that's usually a triggering effect?

Yep, that's exactly right. So the central banks, their policy is to adjust interest rates and they usually want to work around this level of inflation around that 2 to 3%. So that's kind of like an acceptable level, just very much like the level, the unemployment level is at a certain, you know, you'll never have a hundred percent employment. And so there's usually an acceptable range and an acceptable range of inflation, particularly in Australia and most Western countries is around that 2 to 3 % range. And so the central banks will adjust policies and interest rates around that to stay within that range.

Right, and the opposite effect, the reason why has been increasing, like especially in Australia, say like 13 consecutive months, 13 consecutive increases, sorry, yeah, 13, and the reason why that was, and people are like, well, why are they increasing interest rates? Well, because it's trying to slow down the spending, right, because it's trying to decrease the amount of capital going into markets, which in effect, are they hoping to slow down

increases basically.

inflationary pressure, right? Because the more people spend, the more people are buying the same product, which means then people can charge more. So which means it causes everything to be more expensive, which is what's been happening over last four or five years. And the reason why COVID happened, or sorry, the reason why everything happened after COVID, from my understanding is because governments all around the world started printing money, right? They just created this false economy by adding more money, then start giving it out to people and try to stimulate the economy.

Correct. Yep. Yep.

But by doing so, yes, it tried to cement the economy, but the down work effect on that is inflation of what we're feeling now two to three years down the road. And now we're feeling the pressure of highly increased prices. But now they're trying to, things are getting better, guess, or sorry, things are not going that well because people are not spending as much. when it's slowing down, so they're trying to do the opposite, which is decreasing the interest rate. So I think that's helpful because, yeah, yeah.

Yeah, that's exactly right. Because if you think of the central bank, if you think of finance as a living system, and if it's overgrowing, if you're not eating enough, you start losing weight. If you start eating too much, you start gaining weight. If you think of the central bank as the enforcer that tries to regulate an acceptable level of metabolism or acceptable level of, okay, yeah, we accept that that's the range. consuming too much or too little, then you'll adjust accordingly. If you think of it as a living system and basically think of monetary policy in that regard, then that will make a lot of sense and it'll help you with your assessment.

Yeah, I love that example. That's great analogy. how does that impact, let's take a business for example first and then we go to individual. How does that impact this interest rate, say going up and down, inflation going up and down, how has that impacted small businesses and businesses in general, positively or negatively in the last year and how is it impacting in the future?

Okay. So look, if there's a couple of things, right? There's sometimes there's surveys that are put out, which are like customer sentiment. So they measure the level of sentiment in the public. And so what they're finding is if interest rates generally go up, understandably, people start getting a little bit more protective. They start being less adventurous. They may not spend as much. They might hold onto their money a little bit more. So that basically means that there's less money circulating around in the economy. And a lot of businesses may not have particularly discretionary spending, for example. So the staples of things that you have to buy, people will keep buying up until a point. And then they'll start looking and rationalizing and finding lower cost equivalents of that same thing. That's kind of like the rationalization. But discretionary spending is generally one of the first things that goes. So generally what you find is in times of expansion and contraction, expansion, you know, people are buying the holiday homes, for example, the more the overseas international visit, holidays, etc, etc. But as there's less money being made, and businesses aren't making as much, they're not going to employ as many people. So consequently, there's less money circulating, then the ripple effect will be that discretionary spending is decreased as well. So they're generally some of the first areas that tighten and you see send it, you know, particularly in the stock market, discretionary stocks, you know, people tend to cycle in and out based on what the economy is doing. The ones that are bulletproof are the ones that generally sustain their levels of earnings, irrespective of those kinds of things.

Yeah, and I think this impacts on a lot of businesses, like people who are listening to this podcast or watching this podcast, the realities is that most of the people would have either run a business or own a business, let's say a practice, and that's gonna affect your clientele. We might not think about it from ourselves specifically, but it actually affects the clientele that you may have, the people who are purchasing your product or services. And so if you are providing a product or services that is discretionary, they're going to spend less when the interest rates are high and going up. They're going to be very discerning about whether or not they're gonna choose to buy your product or services versus about buying food on the table. And so that's where this impacts. I think also too, what you mentioned secondary effects also too is unemployment. When people are losing jobs because companies are laying off people or having created redundancies, what ends up happening is those families now can no. they really have to tighten their budget and they're really gonna have to really watch where they spend. So which could be the exact people that you're serving for your clientele. And I think that's important to kind of think about. In addition, I think the other effect is that not just your business, but every other business is feeling that same pressure. So which means every other business is actually increasing their marketing spend possibly or increasing pressure to try to draw people to buy their product or services. Now you might not even be competing markets, meaning you're not the same as healthcare or you might not be in the gym, but the same thing is that each family only has X number of discretionary funds to be able to dispose of, and if $100 goes to the gym, that's $100 not spent on your product. And if everybody's competing against that same pie, you can see that if we don't increase our ability to be better marketers and be better communicators in terms of value, then you're going to lose out, you know, in the short run end of the long run. So it's something to really kind of, that's how the trickle down effect. think I wanted to explain all that because it's important because people mostly like, well, interest rate goes up and down. It doesn't really affect me. I think it does. I think it actually has a long-term effect on a medium term effect on you. And if you don't pay attention, then you're not going to adapt fast enough. And by the time you, hits you, you don't even realize what happened to you. And it's already too late because all the other companies or other businesses, again, not within your competitive market are already stealing shares, market shares from the same people that you're trying to serve.

Exactly. you know, Laurence says people, the flip to that, right, which defies logic is there are clients that you and I both have that right now, while they were going through really high, you know, economic times in society, they had record weeks, their practices and businesses are booming. So how is that possible? Right. And a lot of them have done that because they've been able to follow and fulfill and satisfy the values of their clients, but also shift the perception of their product or service as a discretionary one to a necessity. Right. And that's a really important factor in consideration. So, you know, there were people, particularly in the years when we were practicing who valued what they had so much. So, so importantly that they would basically cut out on certain things to continue on with the service that we provided. And by, the same token, some of them chose that, okay, the service that I gained from you is important, but it's not as important as the other thing. And so it's, what's important is to understand, um, biopsychology and, understand patterns and, and rhythms and cycles. I think it's really important that you understand those things because, know, generally, you know, back in 2020, when interest rates were at the absolute lowest that ever been historically. You know, there were people who bought real estate and property and, and regional areas had exponential growth. You know, when people needed bigger homes, we'll basically looking at lockdowns. They were looking at properties that could have the home office and extra rooms and they were out of the city and all these commercial real estate got hammered because people realized I don't actually need to go into the CBD and pay overs for rent when I can work from home. So there were the ripple effects that happened, but the people that really got affected were the self-funded retirees who probably had money for their retirement who were then getting, you know, absolutely nothing for their money because there was no, there was no risk premium basically in that. So effectively they were the ones who they're going to be the people that are going to suffer from this 0.25 % decrease because suddenly they're getting 0.25 % less return if their money's predominantly in cash.

Mm-hmm. Yeah, exactly. There's so many things to kind of dive off there and trying to figure out which angle you said quite a bit there that, that, you know, we can kind of go off on, on so many different tangents. Um, I'll choose one lane and then we can kind of dive into some of those one other ones. The one thing I kind of want to talk about is, is what you sort of said about, um, you know, choosing the right things, but sometimes as the trend changes, like you might be on, on the

Yeah.

on the negative side of things and for that period of time. But if you hold it long enough, usually things will kind of even out. But the problem with that though is that you might be in a cycle of your life in terms of years and retirement that you can't wait that long. And I think that's something for us to kind of think about as when we discuss that from a personal side of things too as well. And you're absolutely right where people are, I have said this so many times or repeated especially from my personal clients because that's who I really serve. I said this like, maybe three years ago, you when I can see the interest rates gonna go up, like money printing was affecting, I just see like this is it was going. And one of the things I said, like you need to learn to develop the skills to transform your value proposition from a luxury item, like being specifically in chiropractic, that your service is no longer luxury, you need to trade it to a necessity. And if you fail to do that, you're gonna suffer in the next couple of years. And I think the second point I also wanna make too, as well here is that, I think for people who started businesses and say in the last, we'll call it five to 10 years, right? You've actually, well, maybe not the last three years, but prior to that, right? Say now 2015 to like 2020, right? And maybe 2021 or so, like before COVID, let's call it those five years before that. You never lived through any hard times in a sense, because you were thinking like, wow, this is easy. So what happens when it's easy? So again, It's obviously luck that you depended on when you actually started your business, right? If you were starting your business during the, you know, 2015 to 2020, we'll call it those years when things are pretty good, when the economy is booming and everybody's spending and it didn't really matter, you're not going to go out of your way to learn all these skills because you don't see it as a necessity. So he's just like, Oh, I'm just that good. And things because everybody's spending, spending, and all of a sudden, like when things turn the corner, then you start to realize, I'm like, Oh, I actually don't have these skills. I didn't realize I needed the skills, because things were so good, right? It's almost like you growing up in a really well-to-do family and everything's been paid for, everything's been good, and then you go to university and realize, oh my God, you can't live in five-star hotels anymore, you gotta go to the three-star motel and share it with a roommate. And you start to realize, oh, I didn't realize how good I had it. What is this shared accommodation thing? Or what is this one bathroom, one tap kind of thing? You know, like you don't realize what you're missing because you had it so good for so long. And that's sort of how I think a lot of people in, you know, who started a business around that thing felt as easy, but then it came really hard to really adapt because they didn't really learn the necessary marketing skills, communication skills that is necessary to thrive in a successful business. surprising stat before you, the surprising stat is that I think the most successful companies in the world, like Google and all those other companies actually started during a downturn, not.

You're right.

during the upturn. So, I mean, this is the funny stuff.

Yeah, no, it's, true though, because you know, you're right. You don't know what you don't know. And gosh, every one of us who first moved out at home realizes that, you know, when you get your first power bill and you realize, do mean? I've got to pay a thousand dollars for a heater. You know, like what L or like that's a shock and you don't, you don't know it because it's never been in your reality. It was always taken care of. was out of your blind. It was in your blind spot. So I think that's definitely the case in there, but you're right there, Lawrence, you know, they say, and Warren Buffett always says, is the rising tide lifts all boats. And you only realize who's basically been swimming naked when the tide goes out. And so you don't anticipate it if you haven't seen it. And a lot of the times, you know, what experience teaches you is, is patented, you know, acknowledgement and you can go, I've seen this before, or this has happened before. And it gives you confidence in your own understanding. If you don't have that, You think that the party's always going to keep going and it's understandable. There's been times where you go back through history and you realize people think that always the good times will, you know, neither the good times or the bad times will last forever. And it's being able to develop strategies and processes to negotiate those times. know, Ray Dalio wrote a great book on principles and he's, got an all weather fund or I think it's called, and it's, it's the portfolio that's designed. to handle all of life cycles. And it's a combination of different asset classes without one, any specific one that says, well, this is tanking, that one's going okay. When this one's going good, this one will be average. So it's mitigating risk, but maximizing your returns, factoring in the uncertainty that is life, the imperfection that is life. So you can't go, you might be a crypto guy, you might be a share person or a property person, but you're gonna lose your nerve.

Yeah.

If you realize that your, your basically your portfolio is dropped by 60 % in one year, that takes a lot of courage to actually hold the line. And, and a lot of the times we know, great, if they're, if they're well chosen assets, okay, over time, they will correct themselves. But if you were relying on that to retire and your timing's right, that, that, that, creates stress.

Oh yeah, I felt that stress. Those 60%, you know, 80%, 100 % drawdowns are, yeah, it's a great experience. Let's call it that. Let's call it a great experience. Yeah, you know, okay, so let's talk about the All Weather portfolio by Ray Dalio. Do you follow that? And like, not follow it, but like, you, okay, I know you can't give it financial advice, so let's kind of maybe like,

Hahaha! Yeah. Yeah. Yeah, I started off with Hey Lawrence, you know.

Do you feel like some validity? I see the validity in that. Actually, I'll start. I'll start. So I remember starting, I didn't really, really focus too much on investing. did mostly real estate investing when I was younger. I think I lost a whole bunch of money. I think it was a quarter million dollars. And I just like, oh, just, I just like, start scared and just focus on my business. And that was my investing. I was fully invested in my business. And, and around 2020, I realized I'm like, okay, I'm getting this closer to 50 and I better start really thinking about, about my life. And, and so, you know, I read principles and I read about, you know, Tony Robbins book, you know, from the Ray Dalio stuff and, and it made total sense. And I remember actually doing a spreadsheet. I'm like, okay, you know, I can't remember where it was like certain percentage of bonds, certain percent of cash and sort of, and then I'm like, I was, I was such a rookie. I didn't know anything. Right. So I'm like, okay, well, so I remember trying to ask someone this. I still remember this. It was 2020. I'm like, started asking like, but how do you allocate that? Let's just call it like 5 % bonds. Again, by the way, do not take these numbers for facts. I'm just making this number up just for the, for the record. Okay. I'm making this up. So I said these 5 % bonds. 10 % in S &P 500 and 30 % cash or whatever. So let's just say that's the percentage. can't remember exactly what it So then I go, well, if I have $1,000, what do do? Do I buy like $5 of bonds? How do I do this? And I remember being so stuck. I'm like, this is ridiculous. I'm paying $10 a share of an S &P 500. I know it seems so principled. I'm sharing my own vulnerability of how stupid I was. Not stupid, but these are the things I was thinking about. I didn't even know where to start. And I was like, this is ridiculous. How am I supposed to really gain anything by doing a little bit at a time? And no one really would, because we all talk in percentages, right? No one really has the vulnerability to kind of share, well, this is how much about, I put $10,000 here, or if I put, no one really talks about it, because we don't talk like that. That's not social etiquette, right? Unless you're in something like Tiger 21.

Mm, mm, mm.

We know we're very open to, but very difficult to have these natural conversations with friends because we don't know, because I don't know your net worth, you don't know my net worth. like, know, thousand dollars might be a lot or not a lot to one of us. So it's not so much about the amount and I get that, but when you're starting, it's really difficult. And I want to share that with people. That was a frustration I had when I started in investing was that no one really talked about amounts. They always talked about percentages.

We took it.

And I get it now that I'm investing a little, get about percentages, but when you start, it's really difficult to go like, so, but do I put like a hundred dollars here and five, five dollars here? Like that's really, cause you're trading, like your trading fees is sometimes higher than that. So it doesn't make any rational sense. So, but I guess my point is, is I think the answer is, and I don't know if you can maybe correct me is you just got to choose one lane and then you put money there. And then over time, what you want to get to is an all weather portfolio. if that's what you choose as a strategy. I think that's how you get there. I still don't know the answer to that.

Yeah, so effectively people like Ray Dalio own basically a capital allocators. So effectively they raise money and they invest it in all those scenarios and they get a management fee for managing that money, which is traditionally what managed funds do. They pull your money and they'll allocate it accordingly. You're right, Lo. To do it on a micro level is very difficult and That's why I mean, Warren Buffett always says that the average investor is much better off investing in the S and P 500 and just letting their money run in an index fund or exchange trader fund, which is basically a parcel of funds just bought and just buy and hold. Cause they'll traditionally be shown in there. Cause there's, there's, as you said, the, the, the transaction fees are really high, particularly if you're buying stocks, getting in and out and you don't know when do I do this? When I do that. So his principal has been like, okay, You just invest and just keep buying and basically dollar cost average by this month. The price is high. You buy less, more and over time. So that's one, one component.

And just for clarification, S &P 500, for those people who don't know, I believe it's the top 500 companies rated by the S &P, yeah, in the US, yeah.

in the US standard and poor. Yep. Yep. Yep. So there's equivalent indexes or in every country, every major share market in the world. So you can buy your own.

And every quarter, I think every quarter, that top 500 companies changes and shifted. Yeah, and then so therefore what you're buying when you're buying an index on ETF of S &P 500, you're basically buying those 500 companies. And then if you buy that fund, that fund has to buy the equivalent amount of what the S &P 500 stands for at that time. So just so that people understand when we talk about this.

They review those. Yeah, yeah, they review a couple. Yeah. Correct. Yep. Yep. That's exactly right. So they're governed by basically the capitalization rates of the company. So they've got to actually, if you drop, if your value of the company drops, they're compelled to sell out. And so effectively it's just the holding of a hundred biggest companies in America. But then you, but then like one element. that a lot of people have been going into Lawrence, particularly if they, if I decide they want to follow that do and they want to do it by themselves, they might buy a parcel, a percentage of money. Let's say they have $50,000. I'm just using a hundred because that's an even number. And you say 40%, 40 % has to be in shares. Well, you might go 40 % of that a hundred thousand dollars goes into buying the S and P, right? They may need 20 % in cash. they keep 20 % in cash. They may need. Um, different kinds of, they might put in bonds so they can set their specific exchange traded funds that are specifically that invest just in bonds. And if they could be exchange rate of funds that invest in other alternative investments, could be crypto. It could be, um, gold, could be other assets. So effectively you've got that mix, but it's done through the lens of pulling a whole lot of people's money together. And that significantly decreases your transaction costs. And then you just, you basically. Uh, either keep contributing to it as per that ratio, as you, that's how you can, that's how people do it by themselves. That's not me saying that's what they should do. Um, but generally why it's, what's important that that's happened is because traditional financial planning. Advice has gotten very expensive in Australia and a lot of other countries. And so what's happening is you walk in and the number of financial advisors, uh, the compliance to become a commercial advisor has, has been.

Yeah.

really made a lot harder in the last two, three years. So that was an area that I was looking at expanding into. When I looked at the compliance requirements in addition to, just went, look, that's just, no one to leave it alone. And the costs, so if you go, you can't walk out without paying a minimum of $5,000 basically fee for a plan. So unless it's worth your while, unless you've got money over and above, unless you've got multiple hundreds of thousands of dollars, It's not worth people's while to get a financial plan and so consequently they're avoiding it and then most of them aren't doing anything That's where they get Yeah

Well, that that that's the problem, right? So they're not doing anything with it, but you're right. They're like, I mean, if you look across the board, most financial planners or most investor, like, you know, these funds don't do better than the S and P 500 are very rarely do they do. It doesn't mean there isn't any, like there are definitely funds, but those are also expensive to get in. Plus they also take a percentage of fee. So like those are those, you 1 % or half percent, like you might think, oh, that's not too bad, but it actually does add up significantly over time.

Yep. Yep.

And the challenge is, I want to go back to this all weather portfolio. think the reason why are all weather portfolios talked a lot about is because it protects a lot of your downside, right? It basically means that when things, when the tide change, if you keep the rebalancing of that allocation or those specific percentages, you're going to be overall going to be doing okay because it's spread enough to different investments. that allows you to weather any particular storm, know, in a given, you know, period of time, say one to five years or whatever it is. The problem though is that most people never really get that. That's great for people who don't want to have risk, right? But the problem with that though, you're not going to get the gains that you would also want to, right? Because you can't be on defense and play offense at the same time. You might get lucky, but chances are you're not going to. So if you need to play defensive, this is a great, you know, weather.

You don't. Yep. Exactly.

For me, know, at that time, I'm like thinking, man, I gotta be a little bit aggressive here because I haven't invested for a long time and I had to change strategies. I started there and I'm like, this is just too complicated, number one, trying to do this myself. And it was like, I don't even know where to begin. And you know, as I was investigating and got into investing, I started realizing, you know what, I am so much better off. I can only focus on so many different companies, right? Either you put in an index that has to be 500, right? Or you really just believe in one or two companies, you know? and just go like, this is what I believe in. then, you know, once you have enough conviction, you just want to buy more and more and more. And for me at the time was Tesla, I was just like, you know, this is what I could understand. I was reading so much on Tesla stock every day and the company and that, and it was just something I can go, okay, I believe in the vision. I can see where this is going. And that's where put them all to my allocation. Same thing for Bitcoin and everything else. And so I could only do so many things. So I went and complete again, not financial wise, definitely not the person who you should be listening to. But I just kind of went all in. on a couple things because those are the things that I believed in. But I also knew that I don't have a lot of time horizon, but I do have a bit of time horizon. I wasn't retiring next week or whatever, next month or next five years. I've got enough time horizon that I'm not 18 years old. However, I'm not 18 years old, but I'm not like 70 years old that I need that money, you know, in the next five years. And so it's something to kind of consider. it really, depending on who you are and who you're listening to, got to, like, the point is, is that whoever you're listening to, again,

Yep.

Don't take our advice, whoever you're listening to, whether it be YouTube or other podcasts is that I think you need to understand is their advice is general, either one general or two, they're specific to their case, right? And I think it's really important when it comes to listening to people's advice is that you have to take your position in life, your, um, how much money you have, how much money you have to invest or how much, how much further you have to be and what your goals are, what your risk profile, all those things has to be in play. And you got to apply. that advice to that filter and then go, are they giving advice for someone like me? Or is it completely different? Right? And I think that's really important to kind of consider, especially when you're trying to navigate through these uncertain times.

Yeah. It's interesting that, you know, in general financial circles, they talk about the power of diversification. Right. And there's a lot of esteemed investors who debunk that they call it diversification. Right. So, you know, like a lot of people go heavy in on industries, two or three areas and go all in. And a lot of them is their business. And for a lot of them that, you know, if you're making a considered decision, that's kind of you backing yourself. A lot of the times and more, a lot of people have become exceptionally successful when they've actually invested that equivalent because I don't know about you Lawrence, but the return a lot of times that most people will get is much greater if they invest in themselves and in their own business than if they actually seek it in some kind of passive investment outside. Right. And the only reason why you do that, the only reason why companies do what's called a, um, basically return funds to investors. Who invest is they can't actually work out a means of improving the results. So if they got this money and they go, we don't know what to do with it. We're better off giving it back to you because we don't know what to do with it. That happens. But a lot of the times, you know, so, so that's a consideration. That's when basically, um, uh, companies return funds to, people because they don't know that they can improve that that return. So for me, unless it's something that

Hmm.

I go this, you I've researched it. I'm prepared to do that. Where you grow, like you said, is the asymmetrical risk. So a lot of the people at the pointiest end of the founds management industry get the returns are the ones who get asymmetrical risk, basically manage asymmetrical risk. get returns that are not risky that yield a huge return. And that's what they're in of. They're in of that unicorn because most private equity companies, which are companies that invest in other companies, that's what they look for. They look for what are the chances that this can go to hit the sky knowing that six out or seven out of 10 won't even get out of first gear. And that's their scenario. they'll invest, they'll get one or two, the returns they get in one or two funds will surpass many, many times what the six or seven that didn't go anywhere you go.

Oh, I think it's more than that. think it's more like they're hoping that one in 20 hit and the other 19, you know, like, you know, I was, you know, listened to like a lot of private equity guys, uh, you know, lately anyways, because of what I do. And, and it's, it's that it's like, they're just basically spreading out these funds. I mean, still doing it, dude, dude, they're still doing their due diligence. Um, idea sounds great, but it's all about the execution of the founder and, know, but yeah, usually it's the one unicorn.

Yeah, well, that's it. But that's what it Yeah.

that they invest in that really kind of pays off for all the other investments that they missed and they missed on. I think that's it. But these are private equity. They have millions and billions of dollars to invest in and have that opportunity. Whereas most individual investors don't have an unlimited amount of funds. And it's just, you can't just go and bet 10 companies. you know, on random, you know, a little bit amounts, cause you wouldn't even get in the door with a hundred dollars or a thousand dollars. And so that, and that's where the problem kind of lies. And you know, you can't follow the same strategies, um, unless you are in the right game and in the right allocations and also right capital that you actually have. And so this is how, you know, unfortunately sometimes the, you know, the, rich does get richer because they are in, they have opportunities that, um, that most people are not. included that they don't actually have access to. And that kind of creates that scale. so, but you got to be smart with it. It is what it is. And I think it's really important to go is figure out it's like, what can you do with the money you have and be smart with it and in terms of investing and also being prepared for any economical downtime. I think it's important, especially in business, like knowing like if we got a little bit of uncertainty ahead of us, and we've been in a bit uncertain for the last two or three years is The thing is you got to ask yourself and no one has the answer. No one has a crystal ball. If we did, we were all kind of, it's already been caked in, right? And the thing is, that, yeah, yeah, back to the future. Yeah. Well, yeah, we wish we had that, but we don't. And so therefore what you can't do is what we can only do is you got to know enough and you got to predict. It goes, is it going to be a good few years or is it going to be a bad few years? And I think you need to adjust accordingly.

It'd like the sports almanac from Back to the Future. How great would that be?

I think you need to have both sides. mean, every time I go into business that is to, if I feel like it's going to be great couple of years, I always have a part of me going, yeah, but what if it's not? And how would I prepare for that? I think you need to prepare for both scenarios. I think it's important because if I get lucky and it is going to be a good couple of years, then great. I'm winning. But I also, if I don't protect my downside financially, personally, and also in my business, that could be a problem because then you could be really put into a hole. and over leveraged yourself financially that you might not be able to get out of and that could put you out of the game. you, the whole, the point of this game is to stay in the game. And I think that's the most important thing and lesson to be learned when it comes to finances.

Yeah, it's the, it's, you know, in, in financial, in the financial world, they go through stress testing. They actually create a scenario. So anytime you want to borrow money, for example, and let's say hypothetically, the interest rates at 6%, they will hypothetically analyze your application on, on two to 3 % higher than that. So eight to nine. So they play the what if, what if interest rates went to 9 % could you sustain this? Could you do this?

Hmm.

And if you can do that on a mathematical model, then you're more likely to get your application approved. Even though you can handle it, what they're doing is they're building in that marginal buffer. So if you look at that, and as frustrating as it is, because particularly in the last two years, two, three years, there have been a lot of what would be considered very strong applicants who have had applications denied because they didn't meet that serviceability buffer requirement. And so that's... a built-in requirement by the, by the opera, uh, which, you know, which is the regulation around, around lending to protect the greater economy, uh, in that, because effectively if everybody's going into, uh, distress selling, that doesn't help anybody. And so a lot of people lose their money. So it's kind of like, there's built-in systems that are designed to keep things safe. So if you can take the learning from that, you can go, okay, well, okay. I'm. I'm going all in in this particular direction. What are my what if scenarios? What if it doesn't happen here? What are my contingencies? Not as a, I've got plan A to plan B, plan C, but rather if I'm going in plan A, how do I ensure that plan A can follow through? Because there's no point buying something and using every last bit of your money and then have to make a distress sale because you need to mobilize it because you lose not only in the compounding over time, but you're selling it at the worst possible state. And anybody, like put my hand up, who's ever had to sell during a margin call, that's a crap time to have to sell stocks because you over leverage and you learn and, and you know, while everybody's running for the, for the door, you're one of them as well. So you have to take whatever price is given and you get squeezed and that's what happens in those scenarios. So to safeguard against that, you have to have a plan to add a contingency for that.

Yeah. And I've seen that firsthand. Like I, as I said, I, when I lost money in that real estate, you know, deal, there was a lot of us in that particular deal. And for some, was lucky. I was young, know, was 2008. So, you know, I was in my thirties and I knew that I had still a long way to, kind of make that back. But, know, for some of those people, they were in their retirement ages or come close to it. And they put everything in because it was, I mean, remember before 2008, that was booming, right? It was booming. Everything was like easy and everything's like, Oh man, I'm going to leverage this.

Yep.

And then when 2008 hit, bam, everything just kind of cycled downwards. then, yeah, so a lot of these people who were in retirement age, um, really got hit hard, you know, and they, they lost money that they couldn't lose. Um, and it was really hard and I felt really bad for them. I mean, I felt bad for myself at the same time. I felt really bad for them because it's just, you can just really see that they're, they now, um, psychologically now have to work that much harder if that to even try to get back to zero. And, um, But that's what happens. I think when you're over leveraged and you're putting money, investing money that you can't lose, you do risk the fact of you need to do see the other side and downside of this and what would happen if you do have a massive drawdown. I think that's really important to kind of consider, which is the risk profile again, the risk profile. And I think the best advice I ever got was like, you gotta be okay. If you invest in something that's gonna keep you up at night, it's probably not worth investing in. And the other thing too, as well, which I hear a lot, you know, I Warren Buffett said this, you know, you know, invest it when everybody's scared. Uh, and then, and then, you know, so when everybody's, um, when it's a camera exact same, you probably know it.

It's basically counterintuitive and countercyclical, so you're going against the trend of what everybody else is doing.

Yeah, if everybody's buying, then you should be selling. You should be buying whenever it's ever selling, right? Yeah, could probably be everybody's greedy. That's right. But you know what? That makes so much sense, right? That makes so much sense. Yeah. Yeah, sorry. Yeah, Yeah, so everybody's greedy. But it's almost the same thing. It's also recognizing that that to me is easy to comprehend, like someone's saying, but so hard to do.

Buy, buy, yeah, buy when everybody's greedy. And so, yeah. Yep. Sorry, I don't sell when everybody's greedy. You know, because that's counter-adjuvanted. Yeah, I muck it up.

It's like buying low and selling high. Sure. If you know when the low is and you know when the high is, right? Like when things are going up and when everything's going euphoria is not easy to sell. Like, cause your brain automatically goes to, but what if it just keeps on going, right? And you're never willing to sell. And you know, when it's yeah. And then, and when things are going and crushing down, you're like, I just gotta buy more. Like it takes a certain psychology to like, all right, I'm all in now. Right. But that takes practice, but

Yeah. Yeah, yeah. It's that game. It's that game in your head.

If you're a first time investor, I know when I first time like, this is impossible. Like this is impossible to do. Like psychologically it goes everything against your grain to buy something when no one's buying. Right. And where, then selling when everybody's like, you know, when, when you start seeing everything's going, that is so difficult to do. And that's the, I love the psychology of investing and the money and psychology of money, because that element is fascinating to me, you know, cause it's easy to know these, you know, these great quotes and stuff, but.

one and more.

in practice, it's almost impossible to do. And I think that's what makes the difference between, you know, successful investors and people who are not, because it takes a lot of courage to do exactly what everyone else is not doing.

Yeah, there's a totally difference if you ever, and I traded for a while and I didn't like who I became in that process. just came just so locked into it that I just didn't like the intensity about that. for me that, when you talk about risk profile, I've got a high risk profile, but I had to pick the right asset class. And so I feel very comfortable in certain asset classes and others I go, I don't feel as comfortable with that. So I'll only go into those.

Oh

Uh, with money that I go, right. I basically I'm comfortable with that. And interestingly, I'm comfortable in being a very daring in business. Very high risk profile with that. Uh, and real estate, I very comfortable. And yet in other, you know, now that I've especially gone through currency trading, which I've done, which I made a lot of money in, and I lost a lot of money in, um, it was more that it was 24 seven or 24 six. That wasn't, didn't suit my temperament. So

Mm-hmm.

That's what's really, really important. And you're right. There's a difference to be an absolute baller and going, hey, I'm paper trading. I'm up 79 % this last month. That's great. But the moment you put some of your own money in there, you watch your emotional roller coaster and you learn so much. I've got friends and clients who are Forex traders who say something, the biggest personal growth process you'll do is when you put your own money in the market and just watch it. and be able to just regulate your emotions in that. It's huge.

comment. Yeah. And I think there's a difference. The one thing I learned when I first put money in the market was understanding the difference between an investor and a trader. Right. So like a trader is someone who is like buying in and out of positions. Right. And they, they're skillful at that. And that's what they do. That's their job. And they tell you, okay, buy now or sell now or whatever. But if you're an investor, you're, you're meant to invest in long-term. It's not about like looking at the stock every day doesn't help you because you're not a trader, right? Investors should be like, I'm buying now because I believe in this company. And in five years time or 10 years time,

Yeah.

that this company is going to go through. Hard to do because most of us are short-term thinkers and very difficult to think long-term. And I've been really toeing that line in terms of like I've been very disciplined to, I still look obviously like what the numbers are going and how it's going, but I've been very disciplined to not tie my emotional state to try not to get in my emotional state. And whenever see red, I just don't look at it.

Yeah. Yeah. that's important.

If I see green though, I'd look at it. And I think I'm training, yeah, because I'm training my brain, right, that things are good. I don't want to look at it when it's red, because I know, obviously that's not true, like that's not how life is, but I'm trying to train my brain to be like, just be happy in the market. Like when it's red, don't worry about it, don't look at it, right? So I'm trying to be happy and trying to be focusing on the growth that it's having so it's not having a negative impact. Because if I look at all the reds, man, like you said, know, those 60 % drawdowns, like when you're in crypto.

Happy Dives.

when you're, you know, it's, those are normal swings. I didn't know that at the beginning. I didn't understand that because it was all going up whenever I first bought. And then the first time it did, I'm like, oh, I sell. And I sold. And then as soon as I sold, boom, it went back up. like, God damn it. And I bought back in. I'm like, why did I just do? Like, what did I, I just literally sold and bought it back at the same time. Like, why did I do that? Right. I'm just like, I should just stop selling and just believe in the thing that I'm believing in and just keep buying.

Yeah. Yep. Yeah. Yeah. Yeah. Yeah.

and no matter what the price point is and just kept on accumulating. that was something that I had to go through. You had to go through it with real money to kind of understand and how it feels. I think paper trading, it's good, but there's no comparison when it comes to putting real money, even if it's $1,000. There's always something that you're learning. And I think mastering the emotions when it comes to investing, that's the hardest part. I remember buying my first home. It was like, man, this is crazy.

You do, you do.

Right. But Nate's the second home a lot easier. It doesn't say it's easy, but it just makes it easier in the third home.

And isn't it funny when you look back and you go, man, if I could have bought, I've just been buying them all day every day. If I could just keep doing that, you know, but, know, but, but but it talks about opportunity risks, but also the regrets, you know, and, and, and, and not taking an inflation and not taking action when you could, particularly, you know, in places that we've lived, Sydney, particularly in Sydney and Melbourne, um, you know, there's, there's just, you know, fortune favors the brave quite often.

Oh man. Oh God, Yeah, and inflation.

And sometimes you're going to feel like I'm terrified. I'm scared. I don't know what's going to happen. I'm, you know, bumbling my way through this, but I'm just going to see it through. then, you know, you follow a principle or path and you go, okay, that, actually worked. So it's.

Yeah. And I think that's what I mean. Like it is definitely, um, it really depends on the situation in your life and you got to start somewhere. I remember my first home purchase was, I don't know, we'll call it it. We like the last purchase, my home price, like where I live now compared to the first person in my home, the print, the purchase of what I bought now is 10 times more than I bought, you know, 20 years ago. Right now that's a combination of lifestyle, size of home location, but inflation too.

Yeah. Yeah.

Right. And affordability and everything else. So I'm not saying that just grew by 10, 10 times. No, it didn't. It's just like, it's just that your risk starts to be what I'm showing is like your risk starts increase. Sorry. Your, risk doesn't change much or maybe you take more risk. Who knows? But what I'm saying is that you, you become more confident, um, to purchase higher purchase values because you have to go through something, but you got to start somewhere and dreaming about it, thinking about it. think, um, it's hard when your money's actually not in the.

Yeah, yeah, yeah. Yeah, totally. And there's no point looking back and going, Hey, my grandmother bought this house for $16,000 because of grandma and grandpa used to earn $10 a week, you know? that's, it's just, that's the impact in compounding effect of, uh, of money over time. So really, guess the takeaway here is that, know what we don't, we don't have a crystal ball, right? That's exactly it. And it's about, there's something about being decisive and, deciding what is right for you. And following a path and a process and just sometimes getting yourself out of the way and just allowing that process to take effect is the biggest learning. That's certainly one that I've taken for myself over time.

Yeah. And I also end with this, which is I feel like, you know, no matter what economical times, there's always going to be good times. There's always going to be bad times. And it's really about how you manage your emotional state, how you manage your state of the actions that you take during these times is going to impact it in the future because whatever you learn in a downstate or an upstate, you're going to apply that in the other opposite state. And that's when you really see the rewards and you don't usually typically see the rewards immediately. You typically see the rewards after that cycle has kind of completed its cycle. And I think as you age and get, you know, wiser and older, you've gone through enough cycles that you start to see trends. But you know, when you're in twenties, you don't see enough trends because you've only lived so long. Right. Um, and so I think that's the power of people who are older. Um, you know, that's just something that I had lived through, but you will get there someday if you're young in your twenties right now, listening to this. So I think it's one is more like, we don't have an answer to how do you navigate, but I think the best thing we can, uh, advise you based on what we talked about today is understand your emotions, understand your risk. understand how to navigate is really about understanding how you can upskill and also navigate through these difficult times. That's the best suggestion we have for you, because we don't know what's coming up next. I wish we knew. Other than you should just buy Bitcoin, right, Jim? No, just joking.

Well, I cannot confirm or deny whether that's a great suggestion because if it is something you considered, you best organize and discuss this with your financial person to work out whether that's right for you and your personal financial situation. Sorry, I practiced that one once or twice.

You Oh, I'm glad I have no, I'm glad I have no, uh, have regulations that I have to live up to. I can, I get this. That was not financial advice. I was just joking. Or am I anyways, this is the Wabi Sabi podcast, the art of imperfection. Note the word imperfection. Uh, I hope that you enjoyed this particular podcast. If you want us to kind of talk more about these types of topics, please share this amongst your friends, but also more importantly, uh, send us an email and send us a message. And we will continue having these multiple discussion of various different topics on art of imperfection in.

You You

Wabi Sabi, take care.