Well we recently had the chance to cash in on our Trump bet with Sam from Financial Samurai. He’s a much nicer guy than any of us and we provide some highlights although there wasn’t much to talk about when things are going good across the board. Maybe we’ll find another item to bet on since we still disagree that people are “rational creatures” when we largely view humans as driven 99% by emotion (only 1% figure out how to be rational, hence the disparity in wealth).
Dinner with Sam
Wall Street is in Secular Decline: There is no doubt that Wall Street for now is in secular decline (unless something changes). Billions of dollars (around half of fund flows) are going into passive ETFs with extremely low fees (around 0.09%) and trading is becoming more automated by the second. Since Sam exited the industry total compensation is down around 15-20% give or take since we’ve now witnessed two years in a row of declines. Layoffs occurred across Wall Street last year (unless you’ve been living under a rock you’ve seen the press releases!)
We don’t think this will change since we’re going to roll with what we think the future looks like. Unless you’re in a client facing role where your value is based on relationships (very difficult to automate in the future) then you’re going to see a squeeze. Robotics and computer systems are going to be able to make trades and do basic find replace or data entry type items in the near future. In addition, these systems will be able to process much more information rapidly when new data is presented making maintenance type Wall Street work largely worthless. The value will be in the relationships, strategic thought and naturally a balance sheet for raising funds.
The Game of Lying Down Continues: As we’ve said in the past always lie *down*. This means if you’re making $X or have $X in recurring income always give a number materially below that. There is no point in telling anyone what you make and Sam has a good example of this in an older post of his.
Generally speaking, everyone believes they are worth more than you are, some sort of competitive pre-programming, best to just talk about median industry pay since this is easier to confirm as there are many third parties that disclose income ranges (hint hint practically every head hunting firm will give you a range).
We Still Hate San Francisco: The place is a dump and every straight male should avoid the place unless they need to be there for money (temporarily). Sam loves the area but he’s also married and ready to have his first kid. We won’t convince him on this second topic either (first being people are generally irrational). The place looks like a complete dump with needles on the street next to homeless people, actual human feces and absurd rental prices to hang out with guys who have sex with ugly, fat, old, sea donkeys.
The negatives aside it could be a good place to invest given potential for major technology IPOs in the future (Uber and AirBnB for example). Luckily or unluckily, we hate the place so much we’ll never own a piece of that nasty place. Finally, we think there are many places to own property that have similar rental markets to San Francisco, this includes New York and Los Angeles and many other places outside of the USA. We’ll never have to pay for a piece of that trash city.
The Market Rally Post Trump: Predicting the economy is largely a waste of time. But. Two things are clear: 1) people believe trump will help the economy and 2) if the corporate tax rate is lowered business owners will benefit. With that backdrop the answer is clear, we’re still better off investing time and energy building an actual company instead of trying to time the market. If you believe the market is overdone just keep dollar cost averaging but put in *less* on a monthly basis as you spend more on your actual company. A corporate tax rate reduction from the 30s to even 20% will impact you much more over the long-term.
So we are clear, we’re still dollar cost averaging we’re just going to do less since we believe he will likely make some positive US tax reforms.
Interest Rates are Going Up: Rates are going to go up based on commentary from the Fed. This means bond prices are going to come down and it may be smart to review bonds after the next couple of interest rate increases. If you have a large amount of money in the bank that you’ve spent 10+ years to accumulate it may be smarter to decrease the volatility in your portfolio. In addition, if the tax rate were to come down, the value of municipal bonds will decrease materially as well (tax free benefits no longer as meaningful). We think that would also be an interesting opportunity. If we see a decline in the tax rate that isn’t sustainable or believe a new establishment will raise taxes once the Trump term is over… may be time to buy those as well.
Blend Into the Crowd: For day to day living, standing out as being rich doesn’t make any sense. Unless you’re trying to make a good first impression you can simply dress modestly to avoid being harassed by regular people. We have a more lax stance on luxury goods and believe there is a time and place for them (specific occasions). Dressing sharp on days when you’re not meeting anyone new doesn’t make much sense because your buddies shouldn’t care if you’re wearing that bling bling on a day to day basis. Related: The Rise Of Stealth Wealth
Who Do You Owe? While the topic didn’t come up much, we thought about it after Sam recently disclosed he will be starting a family. We think this is a good time to ask “who should you pay back?” and the first answer is *typically* your family. Remember, we encourage you to cut contact with family members who are holding you down/getting in your way. But, if there is someone who helped you then you should throw some money their way as a thank you. We’ve started a personal list of people who helped us get to where we are and will start helping them in order. Most of these people will be influential when you were young, some won’t even want the money (or ness it) but we’re going to start a tally for the excess money.
No we’re not going to start some charity to try and save the world, we’ll go first to people who were influential or helpful before the success started rolling in. Finally, if you’re not financially independent these types of bigger moves can wait. If you’re growing your income rapidly then you will add the most value to those around you by investing in yourself.
Focusing On The Heartland: We discussed being bullish on the heartland of America due to the huge valuation spreads compared to the coastal cities. Technology and demographic trends will help narrow these spreads and boost returns. Real estate crowdfunding platforms will help facilitate capital towards higher yielding real estate regions and Trump will focus on bringing more foreign and domestic investment in the states where people supported him.
*In short, Sam is a great guy and is much nicer than any of us ever will be. We still disagree on two things 1) that people are rational (we don’t think so) and 2) that San Francisco is a great city (we hate the place more than we hate fat people… that’s a lot of hate).*
What Trump Will and Won’t Do:
Hard to put this into discussion topics so we’ll put it in bullets (Wall Street Playboys opinion not Sam):
– America First: He will prioritize American companies in a big way particularly with a potential import or border tax. This is clear based on the announcements from major car manufacturers who have talked to the future president. We go with actions and signs are pointing to bringing manufacturing back to the United States.
– Taxes: Personal income taxes and business taxes will be adjusted. We really doubt we see a 15% corporate tax rate and also doubt the current tax plan which raises taxes on the middle class will go through. Instead we think there will be a smaller adjustment to personal income taxes where the brackets are moved to give breaks to middle class earners and we think a tax rate in the 20s makes more logical sense for corporations.
– Media Decline: He will continue to damage the media. We think this is becoming clearer and clearer as well given that he seems to prefer social media and tweets over interviews. This is unlikely to change. Expect material negative changes to media add buying patterns and the future of marketing in general. Long-story short, media will continue to be in pain for the foreseeable future.
– Immigration: Illegal immigration reform will happen. We again do not know exactly how this will be done, either a tax on Mexico to cripple their economy until something is done with the illegal immigration problem. He will likely build the wall, we put a high probability on that given it would psychologically lock in a second term for him. While we already made a killing off of Mexico and the decline is likely already priced in now, we don’t see Mexico as a good investment at this time (best to avoid instead of shorting now that it has come down some 20% since the day before the election)
– Energy: It is hard to see how he’ll adjust the system to take away from clean energy type companies so we’d suggesting looking into oil and gas companies exposed to the USA. Meaning, we wouldn’t try to play this idea (move away from clean energy) by investing in offshore companies given the potential taxes foreign companies will pay. We have a basic overview of the Oil and Gas sector and would look at American Based companies that fit into where you believe oil prices will go.
– Health Care: This is another convoluted topic and we think this is much more complex than “repeal Obamacare” while it sounds nice to say it from a marketing perspective (gathering republican support who hate liberals) the actual action will be different. We think it will take some time to come up with a better solution or to find a way to outright repeal Obama Care. We’ll see what happens but think this one is the hardest to profit off of since we won’t know who really benefits in an outsized way.
Focusing on You: As always we suggest all readers focus on what they can control. This means we would first focus on building a business since this would benefit you the most long-term even if taxes don’t come down (taxes decreasing is just another reason to do so. After that we would review a financial portfolio and decide if you want to adjust your exposure based on his clear America First prioritization, recent auto manufacturing announcements and of course hatred of the Media.
We got a few requests asking us to outline our new year’s resolutions… These readers must be new here. We don’t think goals are good and don’t make resolutions. We only have one idea, every year become more efficient in every single aspect of our lives. Maybe that’ll be the resolution since we plan on releasing the product this year.
As usual no questions.