Fact or Fiction: Inflation, Taxes and That $4 Cup of Coffee

[00:00:00] Welcome to Two Quants and a Financial Planner, where we bridge the worlds of investing in financial planning to help investors achieve their long-term goals.

[00:00:05] Join Matt Zeigler, Jack Forehand and me, Justin Carbonneau, as we cover a wide range of investing and planning topics that impact all of us and discuss how we can apply them in the real world to achieve the best outcomes in our financial lives.

[00:00:15] Justin Carbonneau and Jack Forehand are principals at the Lydia Capital Management.

[00:00:19] Matt Zeigler is managing director at Sunpoint Investments.

[00:00:21] The opinions expressed in this podcast do not necessarily reflect the opinions of the Lydia Capital or Sunpoint Investments.

[00:00:25] No information on this podcast should be construed as investment advice.

[00:00:28] Securities discussed in the podcast may be holdings of clients of Lydia Capital or Sunpoint Investments.

[00:00:32] All right, guys.

[00:00:33] What we thought we'd do today is sort of another fact or fiction type of episode.

[00:00:40] We did one a few episodes back and I think it was received pretty well by our listeners and the audience.

[00:00:46] But what we thought we would do is just kind of take some of the issues that might be on investors' minds today

[00:00:53] or other things that we think are interesting and discuss sort of the merits of them,

[00:01:01] whether or not these things can be predicted, how investors should be thinking about these things

[00:01:06] and how they may influence one's view on the markets and some one's investment strategy.

[00:01:14] And so it's a pretty diverse list that we're going to go through

[00:01:17] and there's not any rhyme or reason to the order, but we'll sort of just start with one of the things

[00:01:25] that I think is on a lot of investors' minds and has been for the last few years is this idea of whether or not inflation can be predicted or not.

[00:01:36] And if you think about kind of how we came into this year, maybe this is a good setup for kicking it over to you guys

[00:01:44] because a lot of people were predicting the Fed was going to inflation was done,

[00:01:51] the Fed was going to be lowering rates at least a few times throughout 2024

[00:01:55] and here we are with inflation remaining pretty higher than the Fed wants it

[00:02:02] and the Fed not looking like they're going to be easing as aggressively as a lot of people thought.

[00:02:08] So maybe I'm answering my own question here about whether inflation can be predicted or not,

[00:02:12] I don't know what do you guys think?

[00:02:14] Yeah, well I think this is fiction. The idea that inflation can be predicted, although I have a little bit of a nuanced answer,

[00:02:18] but first I want to tell you guys that inflation is over.

[00:02:21] Basically you can stick a fork in it, it's done because yesterday I learned I went to a financial planning conference yesterday

[00:02:28] and I had to go get my CE so I had to endure some presentations which just it's fair to say

[00:02:33] that the people making the presentations had paid to be there to make the presentations

[00:02:37] and the first half of every one of those presentations was higher for longer.

[00:02:41] High inflation is with us to stay, it's not going anywhere, so whenever you see that there's no better contrarian indicator

[00:02:47] than when everybody at these financial conferences is presenting this idea of inflation and higher for longer,

[00:02:53] it is over but before I let you guys comment on that can you guess what the second half of their presentation was about?

[00:03:00] So rates are higher for longer and or inflation is higher for longer?

[00:03:05] Yeah, basically the whole theme was tied into rates are going to be higher for longer because inflation is here to stay.

[00:03:11] So those types of organizations if they're going to make a presentation where they make that case in the first half

[00:03:15] what might they be doing in the second half you think?

[00:03:18] Well assuming it wasn't Costco and gold bars, I'm going to have to go with private equity, private credit

[00:03:26] and I mean nobody's so daring at one of these conferences to be short corporate real estate but do tell.

[00:03:31] What were they selling?

[00:03:32] You did get that right. My general answer was they were going to talk about a product they offer

[00:03:37] that happens to be perfectly suited for the high inflation environment and so that's what we got in the second half.

[00:03:42] We got a bunch of products that are perfectly suited for a high inflation environment including private equity by the way

[00:03:48] which I'm told reduces the volatility of my portfolio substantially I learned in the conference.

[00:03:53] So that's also good to know for me in the future because I didn't know if that actually was the case

[00:03:57] but it turns out if I just add that private equity the volatility goes way way down.

[00:04:01] So anyway, I've probably gone off in too much of a tangent here

[00:04:05] but in general the idea that inflation can be predicted.

[00:04:08] I think there are elite people and we might talk to some of them on Tuesday for our P&L for a purpose thing.

[00:04:14] There are some individuals who absolutely I think can do a decent job of predicting inflation.

[00:04:18] I think they're in the small, small minority so for your average person to be out there trying to figure out

[00:04:24] can I predict inflation? Can I pick the right person who knows how to predict inflation?

[00:04:29] I think that's very, very hard to do.

[00:04:31] I think your average person should assume that this is fiction and inflation cannot be predicted.

[00:04:35] I want to add to it that inflation itself, let's pause it for a second, even if it could be predicted

[00:04:45] why does it matter?

[00:04:47] Like you have to have something tied to it.

[00:04:49] So tied to the people who might be able to say I think inflation is going to be higher for longer.

[00:04:54] I think inflation is going to be coming down.

[00:04:56] What are you going to do about it?

[00:04:58] If I want to give speeches at conferences and I want to say inflation is higher for longer

[00:05:02] and I really think there's upward wage pressure and oh by the way, I'm going to sign this contract for next year

[00:05:07] and I'd really like to pay less if I have to pay to play and present at this conference

[00:05:11] but I'd also really like you to pay me more if I have to present at this conference.

[00:05:15] Like what's the variable next to inflation that you're actually going to put your trade on?

[00:05:20] That you're going to put your money where your mouth is?

[00:05:22] That you're going to profit from this knowledge?

[00:05:24] Because it doesn't matter.

[00:05:26] We can sit here and rattle off where we think 4 PCE or headline CPI is going to be in a week or three months or a year.

[00:05:34] It doesn't matter unless we're positioning something else around it

[00:05:37] and even that it only matters how it changes versus the perception of where we are now.

[00:05:42] So no, I don't think it can be predicted and B, I think these other things

[00:05:46] you can have stated views where inflation as a variable influences how you put the position on

[00:05:52] or make the stated view and what you're doing.

[00:05:54] Yeah, I agree with you guys but I do think with the benefit of hindsight

[00:06:02] when you think back to the drivers of inflation over the past few years

[00:06:08] it's now pretty obvious what those were.

[00:06:12] I mean you had massive fiscal stimulus combined with the supply chain issues and disruption.

[00:06:21] And I remember like the one person that I think got to largely write more on the fiscal stimulus side was Jeremy Siegel

[00:06:28] looking at M2 money supply and pounding the table on those wisdom tree advisor calls

[00:06:35] where he was months in advance of when inflation started raging

[00:06:39] he was like inflation's coming.

[00:06:42] Now he's like an exception, not very many other people were on his bandwagon as early as he was

[00:06:49] but all I'm saying is and it's never the same right?

[00:06:53] Like the next time inflation really is high

[00:06:59] it's probably going to be a result of a different set of factors and circumstances

[00:07:03] but I think like at least for me in looking back we can learn from what those drivers were.

[00:07:11] No, I think that's fair and also I think the more you try to, if you're going to try to predict it

[00:07:16] the more you look at it as a long regime type thing versus inside of every year I'm trying to figure out

[00:07:21] is it low, is it going back up, is it going down?

[00:07:23] I mean because we've talked to some pretty thoughtful people who think

[00:07:26] we're in for like five plus years of above average inflation and they're going to put like a five plus year

[00:07:32] investment strategy together with that.

[00:07:34] That to me makes more sense than oh higher for longer and now it's recession and now it's whatever

[00:07:39] I think the GDP number was really, really low today

[00:07:42] so if you're bouncing around with that if you're like oh inflation was above

[00:07:46] and now GDP is low and that's where you're going to get yourself in a lot of trouble I think.

[00:07:50] That's where you're going to get yourself in trouble and that's where also you're going to find

[00:07:55] you'll get in trouble because you'll misread the opportunity

[00:07:58] but if you look at inflation as an input in the broader context of things

[00:08:03] so and credit to the Jeremy Segal's and some of the other people who had been calling for this

[00:08:08] and got kind of the turning on it right?

[00:08:10] Because there were lots of people calling for inflation when it was all fiscal

[00:08:15] well it was all monetary and no fiscal before, right?

[00:08:19] The inflation is going to come roaring back arguments like post financial crisis

[00:08:23] credit to the people who held off until we had fiscal and COVID

[00:08:27] but inside of that if you're a long only stock person

[00:08:31] I'm not speaking for Jeremy Segal but I'm just saying from that perspective

[00:08:34] then you would go okay this variable and my otherwise thoughtful calculus

[00:08:38] of all these different variables here's how it responds when I increase the

[00:08:42] inflation number and that could have been done to say

[00:08:45] maybe this is where I'm avoiding duration in bonds in one sense

[00:08:48] that could be done in a way where you're going great

[00:08:50] this is going to increase revenue but increase costs for companies

[00:08:54] at disparaging ways across as long on the equity portfolio

[00:08:58] those are useful ways to use what you think inflation is doing

[00:09:02] and Jack to your point I love this over the regime

[00:09:05] and Justin I agree with you if you can have you can piece that stuff together

[00:09:09] and you have a sensible thing you can follow

[00:09:11] so long as you don't let yourself get too wrong for too long

[00:09:15] that's useful

[00:09:17] even though inflation might not be predictable it just be like these guys

[00:09:20] this conference I do have a QR code available so if you scan this QR code

[00:09:24] you'll code with a website that has products I can offer to help protect you from an inflationary environment

[00:09:29] there were a lot of QR codes yesterday there were a lot of QR codes

[00:09:33] did you guys happen to read Kai Wu's latest piece on international intangible value

[00:09:41] you know what I'm referring to here

[00:09:43] okay so yeah I have not please okay so it's yeah no it's really I mean Kai's stuff is always so good

[00:09:49] but he basically starts out with and this kind of plays into this next point

[00:09:55] he sort of starts out with how much better US stocks have done versus international stocks

[00:10:01] over the past I don't know 10 or 15 years whatever it is

[00:10:04] and then he basically kind of goes through and talks about how much our US

[00:10:12] our market market cap driven weighted indices are you know a lot of the value there is like intangible value

[00:10:20] so companies that are investing in intangible assets and the way that he gets at that

[00:10:25] and then he sort of is like making the case that you know even in international markets if you look at

[00:10:30] those stocks that have a high degree of intangibles those international stocks

[00:10:36] actually outperform like the broader international you know markets in general

[00:10:41] so he's making the case for he's making the case for you know investing in companies that have

[00:10:47] a high amount of intangible value basically and he gets at that through looking at patents

[00:10:52] and intellectual and all that kind of stuff that he looks at when trying to derive

[00:10:58] intangible value but the point where I was kind of going here is you know this idea that investors should

[00:11:07] use different strategies in different regimes and you know I've long thought and it's kind of like

[00:11:14] Ned Weber has been in this camp too that you know international stocks given their relative valuation

[00:11:18] given their cheapness you know look attractive from you know your traditional value investor standpoint

[00:11:25] and you know there are times in history where you have these regimes I mean think back to 2000 to 2000

[00:11:30] maybe I don't know five it was the bricks or whatever those markets that were doing great

[00:11:36] and so I don't know this idea of investing you know following various strategies based on market regimes

[00:11:43] and I was trying to back into it you know kind of highlighting sort of the

[00:11:47] saw the point I guess that Kai was I was making

[00:11:50] yeah first before before we get into this like if I was like a young basketball player there's probably nothing I would want more than like Michael Jordan tweeting and being like this kids got game

[00:11:58] if I was writing a paper like I writes there's probably nothing I would want more than Michael Mobus in tweeting and saying I've been sharing this liberally which is what he did with this paper with Kai so it must be really cool like to think about that like it's obviously an incredible

[00:12:10] incredible paper when Michael Mobus and sharing it liberally with everybody

[00:12:14] but on this idea of regime dependent strategies I mean I think in general this is fiction and I don't think you should be I think you really need most people need to have a strategy that works over the long term

[00:12:25] and be able to stick with it over the long term I think when you start even over long for long regimes when you start trying to change it you run into this trap of when do I change it back how much do I change it

[00:12:36] so I don't think in general that that's a good idea but the other thing you could argue is is the 6040 portfolio a regime dependent strategy well to some degree it is it's a regime dependent strategy on inflation not being high so if I'm going to have a regime

[00:12:51] independent strategy you could argue that maybe stocks and just stocks and bonds is not enough for that if I want that strategy that works in all regimes I probably need something else in there so I think you know I think people who invest in 6040 portfolio are going to be perfectly fine over time

[00:13:05] although we went just went through a bad period you know if they just if you stick with it for really really long periods of time there's no reason not to believe stocks and bonds won't produce a risk premium and you won't get a good return

[00:13:15] but I think if you're going to have whether you're gonna have the 6040 or whether you're gonna have something else I think the key is you've got to have it all the time I think when you even if it's over long periods when you get in this trap of trying to change it back and forth

[00:13:26] I think it becomes too problematic I think like the inflation point you can have you can have regime based views that you put inside your stuff you can take like the paper that you cited you can have things where you go I

[00:13:41] believe inflation will be higher for longer and I'm going to express it in this part of my portfolio not necessarily with the whole portfolio with this part those types of tilts can serve two purposes one

[00:13:53] it can serve the purpose of you being right to that's nice when you have what happens to it can serve the purpose of helping you stick to the course on the broader investment strategy and we see this all the time with with financial planning where it's like

[00:14:09] you could express just having exposure to tech stocks or maybe having an overweight to tech stocks in the last 10 years you could express this in thinking there's inflation and making sure you have energy or other things that are pro inflation benefiting asset classes in your portfolio with a little bit more than they are in the indices

[00:14:27] or a little bit more in your 6040 mix or whatever else so fiction that you if you think you can just time regimes all over the place that's dangerous better approach would be just have one thing that works in multiple regimes all the time and sometimes the behaviorally best

[00:14:47] approach is if you must fiddle is it cliff as this who's the who's sin a little I think it's close as it is yes yeah like that's a really great thing to keep in your mind for most people because we like talking about this stuff it's like people who like to talk about sports or like to talk about music

[00:15:04] or like to talk about whatever it's OK to send a little have a little sidecar money or a way to put these tilts on that's not going to blow up the whole strategy and turn you into the guy who's like I'm all gold all the time or all Bitcoin all the time or only stocks for the long haul and nothing else and yeah

[00:15:22] I don't know if you intended to make a rhyme there Matt but you actually did like if you must fiddle send a little you might be so good at this that you're doing it without even thinking about it.

[00:15:31] Okay.

[00:15:35] Matt you may know more about this but I do know that like these big wire houses and brokerage firms you know oftentimes there's like a CIO like office and there's views that bear that they give to their financial advisors like I'm thinking you know

[00:15:53] 2024 was supposed to be a year of quality you know stocks and I'm just wondering as someone that sat in that seat at Merrill Lynch for all those years and you know maybe research was coming from Richard Bernstein whoever whoever these strategists were how did you sort of balance that because I could see the appeal to some extent of sitting down and talking to a client like these are the views of the firm

[00:16:18] and here's how I'm implementing those for you because it gives you something to talk about gives you something to sit down with the client but maybe to your point it's just these little sort of tweaks on the edges that kind of make it so your it looks like you know maybe you're doing more than I don't know so how did you deal

[00:16:39] with that.

[00:16:40] So first and foremost any CIO of any large firms or any small firm for that matter like what you're really doing is its marketing strategy.

[00:16:48] Now behind that there has to be some actual strategy you want people who can actually do the math and like do the things to put a portfolio together and take stuff into consideration like correlations and stuff like that even if you can't prove it all it helps if you have a couple of CFA is hiding behind the scenes who can crunch these numbers.

[00:17:09] The real way you should look at it when we talk about and you know whether we're picking on whatever the CIO out of Black Rock is saying this week or the CIO out of Vanguard or the CIO at a Wells Fargo or Morgan Stanley or Merrill Lynch or whoever.

[00:17:23] They're basically telling you what vanilla ice cream tastes like at the end of the day.

[00:17:27] And it's one of those things it's it's not terribly interesting they're trying to get something that doesn't get anybody in into trouble.

[00:17:34] And it's a huge compliance layer to all this stuff and give them a story to sell it with so that it's not just grocery store generic brand vanilla ice cream.

[00:17:44] It's Oh, this is the super fancy only from some sweet cream distillery in like Northern Oregon.

[00:17:52] Here is the most specialist of vanilla ice cream ever and you're like oh that's fascinating but it's just frigging vanilla ice cream at the end of the day.

[00:17:59] The greater purpose that all CIOs at the big shops do is they do basically what Starbucks did to gas station coffee.

[00:18:08] And the idea is when Starbucks shows up this is a Rory Sutherlandism when Starbucks shows up on the scene, all of a sudden there's drive-thrus everywhere and there's places to walk in and get an albeit perhaps overpriced but a pretty good cup of coffee.

[00:18:23] Same thing happens is like Dunkin Donuts expands into everywhere and before they were America runs on Dunkin when there was still Dunkin Donuts.

[00:18:31] What this does is it raises the threshold of crappiness.

[00:18:36] And this is a really important concept.

[00:18:37] So instead of having Tom the broker and it's always a guy Tom the broker who's out there putting together these, you know portfolios of A shares and random stocks where he has no rhyme or reason or idea of how to do portfolio construction.

[00:18:51] But he's throwing together.

[00:18:53] Sometimes he's going to be right but other times he's going to build a really crappy portfolio.

[00:18:57] I can't tell you how many I know it's a broker of a certain age from a place if it's a 60 port 40 portfolio where the entire bond portion of the 40 is basically like overpriced high yield mutual funds.

[00:19:11] It's like this high yield really bonds mixed in this thing.

[00:19:15] I was pretty sure of the correlation.

[00:19:17] You can always tell those people.

[00:19:18] So what the CIOs at the big firms do is just like when Starbucks shows up and now the Valero down the street that pot of coffee that used to be a joke as sludge in like the 80s and the 90s.

[00:19:31] All of a sudden they're like Starbucks is right there.

[00:19:34] Nobody's buying coffee anymore.

[00:19:36] We can't move an extra candy bar when somebody fills up their tank.

[00:19:39] Starbucks raises the threshold of crappiness when the CIO says we like quality this year.

[00:19:45] Who gets fired for liking quality this year.

[00:19:48] I'm still going to give you the same old pot of like mediocre coffee.

[00:19:53] But the bottom line is way lower odds you're going to get a really trash horrible crap cup of coffee because stuff like this just helps bring up everybody's awareness.

[00:20:03] That's a net positive by the way.

[00:20:05] I was thinking when you were saying that I was thinking I used to work in this high end wine store in high school and like they would always sell these $50 bottles of wine and then like the wine guy when people would come in and they'd ask for his description.

[00:20:15] Of it or whatever he'd be like oh that is subtle yet complex.

[00:20:19] And like what is he even talking about so I would ask him like after people left I'm like what the hell are you talking about like do you even know what that is.

[00:20:24] He's like I have no idea what that mean.

[00:20:26] I'm just I just got to sell it first to $50 wine so yeah I think this whole high end thing is a yeah it's been going on for a long time but it's Starbucks and stuff is definitely brought to a new level.

[00:20:35] So a few weeks like a month ago my wife and I took a weekend to get out of town and we went to a really nice restaurant in Westerly Rhode Island and we did like the fine dining thing and food in Westerly.

[00:20:51] There's some good spots.

[00:20:52] Yeah so right next to Taylor Swiss house actually interestingly enough but so the butter when they brought the rolls in the butter.

[00:21:03] We were told that the butter came from a farm with only eight cows.

[00:21:10] I had nine cow butter at my farm the other day and I was just like nice too much.

[00:21:16] It's like the old eating abs versus like the seven minute abs or everything.

[00:21:21] Yeah that's something about Mary a verse right now.

[00:21:24] Hey let me ask you guys this if you got to exclude Buffett here.

[00:21:30] Okay but if I were to ask you to name one really great investment manager that's currently running a fund.

[00:21:43] Is there who would come to mind for you.

[00:21:46] You know I do have to stay away from the quant guys I can't name Ken Griffin.

[00:21:49] Can I just like scalping a little bit off the top of everything.

[00:21:51] Yeah I mean those big hedge fund guys but I mean yeah I mean like an actual guy who's been personally picking stocks.

[00:21:59] Yeah it's very hard.

[00:22:03] I don't know anyway off the top of my head.

[00:22:06] I could think of like Cuppey and some people like that would put up like wild returns in the last few years but it's a short list of people like this.

[00:22:14] Especially like household name type guys like somebody who would be a household name like because most people won't know.

[00:22:18] I mean you're right he's put out crazy returns but most people won't know him like is there like a household name person who was consistently put up outperforming returns.

[00:22:27] I mean it's hard to come up with one at least new era I mean you know you have Buffett from like a very long era but like in terms of like newer guys like yeah I don't know I can't come up with one really.

[00:22:38] Yeah so that was the next thing here is like the great era will where will will there ever be another Peter Lynch.

[00:22:46] You know once Buffett is gone will there be another Buffett.

[00:22:51] Probably not Buffett and that's exceptional his long term track record.

[00:22:55] 20% over 65 years but yeah it's a good question.

[00:23:00] Yeah I mean I think this idea that the error of the great investment managers over is a fact.

[00:23:04] You know I think maybe you'll see a one off guy here and there but I mean we also have to take into account I mean computers are taking over AI is coming like an actual individual who's sitting there picking stocks outperforming the market for 30 years.

[00:23:16] I mean that type of person I mean it's going to be very very hard to do that and yeah I just don't know that I mean I don't think that's going to happen again.

[00:23:24] I think I think it's interesting and this is going to be a half form thought because I was just thinking about this today but it's I think it's relevant here so we just had you mentioned being next to Taylor Swiss house where you're getting your eight cow butter.

[00:23:37] She just released a new album and it's like fast this album to I think it was a billion streams on Spotify something completely insane like in the numbers.

[00:23:46] And there was an argument it was a I think it was priceonomics priceonomics Harvey say it a few years ago and there's basically like why there's no more one hit wonders anymore.

[00:23:56] And the idea was basically like whether it's information or how we share this stuff for how we stream and consume this stuff that there's just like the room to have like a chumble one but or a Dexys midnight runners or whatever is just like they've been crowded out.

[00:24:12] It's all Taylor Swift all the time.

[00:24:16] It's really hard to have like a runaway thing and then if you do have a runaway thing you end up with red bottom shoes and like Cardi B you end up with people like that who like they punch up into that thing but then they're able to like hold in that status for a hot second or at least for a you know a couple albums.

[00:24:36] And I feel like with like the best managers it's kind of just like I don't know vanguards the Taylor Swift at this point or if Buffett's the Taylor Swift.

[00:24:45] I'm going to go with Buffett and Taylor Swift have more in common on this but I think we've like crowded out that ability none of us talk about the active managers anymore.

[00:24:53] So I can turn around and say like copy and Praetorian put up like insane numbers through the pandemic and the period following doing event driven stuff.

[00:24:59] But like that's like me talking about some obscure punk band like I might as well be talking about like idols or something like that right now.

[00:25:07] And I think that's really interesting our cultural awareness and care of a manager even if they have great numbers we're not going to talk about it unless it's Buffett or Vanguard.

[00:25:17] It's got to be Taylor Swift or Drake or Beyonce right now to even appear on society's radar.

[00:25:23] I love that.

[00:25:25] I think that's a great.

[00:25:27] I mean the crowding out it's like it's gotten so much you know the flow to passives the long term record of active managers you know not outperforming the broader market.

[00:25:37] And so you know even if you get someone that has shown the ability over time it's it's you know the first question a lot of investors ask is like well you know what does it cost?

[00:25:52] If it's not the cheapest thing out there you know I don't want it.

[00:25:56] You know that's part of the huge aspect too.

[00:25:59] And because everybody's aware of it because we say how much does it cost and then we make the comparison to like Vanguard.

[00:26:06] And there's nothing worse than taking like a highly active private strategy that might you can go out and do like venture capital and pay your two and twenty and be a GP or an LP or whatever you're going to be.

[00:26:16] But like you can't compare that.

[00:26:19] Like that's not an apples and apples comparison to like a Vanguard you know large cap fund or something.

[00:26:25] Yeah. And all this is a good point because there really are two parts to this whole famous you know legendary manager thing.

[00:26:30] One is the actual performance and two is the famous.

[00:26:33] Right. And there are people fulfilling the first one right now.

[00:26:36] I probably missed a little bit of my answer.

[00:26:38] There are guys behind the scenes that are putting up ridiculously good numbers but the fame part is not coming with it.

[00:26:42] I mean to some degree maybe they don't want it.

[00:26:44] Good but also like the way the world is like they're not getting it.

[00:26:47] So I think that's why this is fiction is like you the ability to put both of those together is probably going to be very very hard.

[00:26:53] Yeah. And then look at like I'm sure you guys have seen the all the charts going around for like Kathy Wood again lately.

[00:27:02] Or it's just like if she's missing one of the equates she's got the fame part but she doesn't have the returns part.

[00:27:08] And it's just it's savage when you look at the numbers.

[00:27:11] I found it there is so it's price and obnox the death of the one hit wonder it's a 2015 post.

[00:27:17] And like this is just and I think it applies to be really interesting to look at this.

[00:27:21] If you guys have a good data set on like rockstar managers over the years or something.

[00:27:27] Who knows maybe I just go all the way back to like the the Graham and Doddsville old Buffett letter thing.

[00:27:32] But like this. This is just wild. The the 60s into the 70s distinct charting songs there was 6800 distinct charting songs.

[00:27:42] So 6826 songs 1961 and 1970 the average weeks on the chart for any one of those songs was just shy of eight weeks 7.7 weeks flash forward to 2001 to 2010.

[00:27:55] There was basically half the amount of distinct charting songs and the average weeks on the chart had basically doubled to almost 14.

[00:28:03] The more information we have the more the way that we talk about this stuff happens that fame part to your point Jack becomes almost impossible.

[00:28:12] You have to play a different game to get famous then just put up the numbers than just write the catchy jingle or string together a good year calendar returns.

[00:28:19] I'm wondering if I look at the chart right now is it basically like all 26 songs on Taylor Swift's double album or something.

[00:28:25] It's very likely we can pull it up and check that could be a surprise.

[00:28:30] But yeah it's very likely because you don't put up a billion streams on Spotify in that amount of time without knowing how to play the fame card right.

[00:28:38] And there's a handful of people that do it about I bet she's handily torching whatever Beyonce is doing on the country album not in a disparaging way.

[00:28:46] It's just like the ways you approach the fame on this stuff actually.

[00:28:50] I wonder if I put money maybe I'm going off going off subject or off the rhythm is here but I wonder if like the consumption mechanism plays into that meaning that you know back in the 50s and 60s it was probably mostly radio.

[00:29:05] It's not all radio right you had one medium where now it's radio internet streaming which is Internet but you know and you to I don't know you know it's just like so I mean I guess I guess it's really a function of probably competition.

[00:29:24] Maybe things are more competitive so breaking through is harder now I don't know but it's that's a very interesting stat I think.

[00:29:32] And it gets interesting too because at least on the music side you go through who the great writers and composers and producers are of each era and you might have 10 artists from like the Motown stable.

[00:29:45] So you have the same people basically like writing and recording the songs with a different figurehead on the front.

[00:29:50] You go through all these phases and that's like that's a regime thing to there's regimes the fame and popularity you got to know how to play what you're playing.

[00:29:58] And that's what the best artists do.

[00:30:01] It's a really interesting analog.

[00:30:03] Okay.

[00:30:05] Next topic is these two sort of I guess are related in terms of the primary drivers of an investment strategy so let me ask you do you think taxes should be a primary driver of someone's investment strategy.

[00:30:23] Yeah I mean these are going to be gray area questions and it shouldn't be the primary driver no definitely not.

[00:30:28] Should it be a primary driver.

[00:30:30] Yeah for some people it should be if you're if you're in California and you're in the top tax bracket.

[00:30:35] You know when you're doing something that's very tax inefficient.

[00:30:38] Yeah I mean the taxes are the biggest cost by far more than fees of an investment portfolio at least a taxable portfolio is taxes for everybody.

[00:30:45] So you know if you can do things to do things more tax efficiently you should where people get into trouble is where they make it the number one driver where they don't even care what the investment strategy is they invest in these like like for instance I could just do this.

[00:30:58] You know you could just buy for horrific stocks over and over and over again and lose money and realize tax losses but eventually I will be out of money.

[00:31:06] You're describing my investment strategy every time I pick individual securities.

[00:31:10] Call up Matt if you want to.

[00:31:12] I'm an extreme tax loss harvester.

[00:31:14] Exactly.

[00:31:16] But yeah I mean that's obviously an extreme example but it gets at the idea so I don't think it should ever be the primary driver of an investment strategy but I think for a lot of people you know and obviously our friend Wes Gray would agree with this you know for a lot of people it has to be a driver of your investment strategy.

[00:31:28] Because it is your biggest cost.

[00:31:30] In financial planning I feel like this is.

[00:31:34] I mean this is at least 50% it might be 80% of the financial planning job is not taxes per se so that shouldn't be your only variable but for many people that's that's one of the biggest bills they're going to pay in a given year.

[00:31:48] So we get the tax returns we run the multi year forecasts out on cash flow analysis with tax heavily included in the thing because especially around transition points I have three more meetings to go recording this on a Thursday.

[00:32:03] I have two meetings tonight and at least at least two of not three tomorrow where basically we're working through around a couple around retirement and a couple around like some career transition type stuff with Iraq and kids in college and another one where it's just like you have to understand the tax liability in each one of these years

[00:32:24] and how it impacts everything else.

[00:32:27] And for certain people that can determine things like oh you like when they kicked back the RMD age we talked about this on a prior podcast to they pushed back the RMD age that opened the conversation for a lot of people who had been expecting to take RMDs but didn't need the money for consumption to consider the tax liability and do Roth conversions.

[00:32:45] There's all these examples where understanding taxes because it's such a large bill like you would think about if you're buying a new car how much money you need out of pocket to buy the car.

[00:32:56] You should think about many people pay more than a new car is worth of money to our good friends at the IRS like this is a part of the consideration can't be the only one if you're in a high tax state maybe it factors in more into your portfolio than you would think but from a planning perspective.

[00:33:15] Taxes are just such a friggin big cost.

[00:33:19] Uncle Sam is not there to help you on this side of things.

[00:33:23] Yes so you can flush your toilet you should pay taxes but plan around it.

[00:33:28] There's a rule and a playbook for you to plan around.

[00:33:32] You're foolish not to.

[00:33:34] I don't know if we ever told you the story map but a few years ago when we had our ETS we had an investor on the private client side who let's just put it this way.

[00:33:45] He was one of the first 30 employees of one of the most valuable companies in the world today.

[00:33:52] It was Warren Buffett wasn't it.

[00:33:54] It was.

[00:33:56] Confidentiality now.

[00:33:58] Yeah.

[00:34:00] But anyway so he was investing with us and then we launched the ETS and he moved his money entirely into the ETS which as we know ETS are extremely tax efficient.

[00:34:14] And that was very important to him and you know then when we ended up shutting the ETS down even though I still think he believed in.

[00:34:23] The systematic approach or investment strategies you know he decided to basically move that money because we want to shut the ETS down we either had to move the clients money back into our individual stock strategies or give them the ability to take it and he decided to take the money and do something more tax efficient with it but.

[00:34:40] You know when you're writing checks for on a tax basis for a couple hundred thousand dollars when you have.

[00:34:47] That level of wealth and you know gains in a given year that are being realized it becomes pretty substantial especially when you compound it over and I think this guy had like a.

[00:34:57] You know generational type of or decades long time for us like this money wasn't.

[00:35:03] Going to ever be used probably in his lifetime so so that is an example where I can just you know I'm not saying that that's the only thing but it's a one example I have in my mind if someone that.

[00:35:14] And I don't think he he ended up I think looking at other similar type of strategies that were in an ETF wrapper effectively.

[00:35:24] An adjacent to the investment strategy is also this is why it is too quants and a planner these things fold together you can't talk about investments without talking about your plan for what you do with it none of this exists in a vacuum.

[00:35:37] And just like with this guy had to make these decisions in the broader context avoid he's trying to accomplish like take it back to Taylor Swift for a second like Taylor Swift knows what she's doing when she goes you know what I'm not going to fly coach I'm going to jump on the private jet or whatever right.

[00:35:53] Like these are just decisions that we make with a fuller cost benefit analysis around them to understand both what we want to do and what we want to accomplish over our time horizons.

[00:36:04] It's similar Matt when I make the decision I'm not going to pay $15 for the seat and so I'm going to end up like by the bathroom in the middle seat.

[00:36:10] A little bit different than Taylor's but I'd say same idea.

[00:36:13] I mean yeah you and Taylor have a lot in common and they were tortured poets of airline booking in your case I guess yeah.

[00:36:21] You know over the years I've had different friends and family reach out to me and ask me to look at their like 401k accounts not on a formal basis not being compensated or anything just like hey Justin can you take a look at this and give me some.

[00:36:36] I appreciate you you got compliance out of the way.

[00:36:39] Exactly.

[00:36:40] There's a lot of disclaimer in there.

[00:36:42] So but you know it's it's and this plays into fees like I always because these 401k plans you know you have a limited set of funds.

[00:36:51] You might have I don't know a couple in the large cap couple in the mid caps there's maybe a real estate one there's sometimes isn't like anything it's in the small cap there's obviously bonds and then whatever it's pretty pretty plain but now there might be like in the plans that I've looked at it might be anywhere between.

[00:37:06] I don't know 20 to maybe 30 different options something like that and I always like find myself just because I know that the fees are extremely important I like go down the list and I'm like what one's the cheapest like check check check and that's kind of how you know I'm not even almost looking

[00:37:25] like for me when I'm looking at those plans now I'm not saying this is right I'm not saying this is the way to do it it's just because this question of you know should fees be the primary driver of your investment strategy like I found myself.

[00:37:36] When giving like just some thoughts to people that I do use fees a lot I'm like you want to be in the chief sub now that tends to be like broad based.

[00:37:45] You know like index based funds in there they're not like the more actively managed ones because those are going to be more expensive and and and I'm not going to spend the time doing like.

[00:37:55] This is like kind of a quick hit thing I'm not diving into each fund and looking at the manager and looking at the strategy and looking at the holdings.

[00:38:04] I'm just kind of leaning on the fees and then giving perspective on that but I mean I don't know you know the question we want to get at here was you know should fees be the primary driver of investment strategy and you guys can give your thoughts but it's just interesting that I find myself doing that with like the 401 K stuff I looked at.

[00:38:20] Yeah with both these the word A versus the is the whole thing like taxes should be the primary driver investment strategy absolutely not it should be a yes same thing here fees should be a primary driver investment strategy yes they should be the primary driver no.

[00:38:33] So like there's two different ways to look at this like let's let's just Jim Simons is a huge fan of this populace which I can only assume he is and I don't know how it couldn't be.

[00:38:41] Now let's invest in the ETF was a tiger local employees.

[00:38:45] Let's assume Jim you know call this up and he's like because I'm a huge fan I'm going to open up the medallion fund to Justin and Matt exclusively and that's it.

[00:38:51] Like are you going to invest in the medallion fund you're going to give him some money.

[00:38:54] I'm yes yeah at 60% gross returns I'll take it right so it is either five and 50 so that's one side of the argument is you could say even at the most outrageous level of these possible if the manager is actually backing them up then you should you know the fees should not be the only way to do that.

[00:39:10] So if you're a primary driver what's going on the primary driver should be the after fee return.

[00:39:14] Now having said that when you think about this collectively it's very hard for an individual investor to figure out in advance whether somebody is going to justify their fees and whenever you're different than the market and the fees are higher it becomes very challenging to do that

[00:39:28] so that's why on a collective basis it is pretty reasonable to try to invest you know try to use fees as a primary driver of what you're doing because most people who charge the higher fees don't deliver on the higher fees.

[00:39:40] Now we have things like we do with factors where you can argue you know well fasteners are tested over a long period of time and so therefore you know they can justify higher fee and you can you can certainly debate that and then I would argue they do but the reality is and so I think that's why there's both parts to the argument on an individual basis yes if I know with a high degree of certainty as I probably do with medallion

[00:39:58] that I'm going to get a better return in the fees and I should pay whatever fees there are it shouldn't matter.

[00:40:02] But collectively I think you have to consider fees because most people don't deliver on the value.

[00:40:07] Especially in the in the factor sense and this is a probably more nuanced although you guys can definitely weigh in on this

[00:40:15] in more depth than I can like when we think about things like beyond fees you think about things like tracking area think about things like this.

[00:40:23] Just and I can't tell you how many times I've looked at a plan for a family member or a friend and it's like oh you have an S&P 500 mutual fund in here and you're like oh my God it's one of these like 80 basis points or 50 basis points or 120 basis points S&P 500 fees and you're like I'd love to tell you to do that.

[00:40:43] But like this is shooting you in the foot more than I don't know whatever other possibly active version that has a lower fee.

[00:40:50] Is it just taxes that allows those things to persist like somebody in a one you know 1.2 percent S&P fund they've been in there for 30 years they don't want to pay the tax they can't get out of it like because it's amazing to me those things still exist.

[00:41:02] I would think too you don't know the revenue sharing deal on the back end like a lot of these places might have a rev share deal and those are like legacy legacy funds that I'm just saying why is the end client though get rid of that fund.

[00:41:15] Well I don't think they know do that number one have we done a 401k fees episode yet.

[00:41:20] No on this will make me angry.

[00:41:22] Yeah it'll be a private work that for the notes we should probably do a 401k fees episode and just talk about like all the layers of this.

[00:41:32] So in in those funds like when we see like the 1% S&P 500 funds you have a couple of things.

[00:41:39] So first off on the on the tax side the thing that sucks is a lot of people have gotten wise about these things they've gone oh wait I can get this at Vanguard for way cheaper.

[00:41:46] And if it's not in a 401k and it's fully fungible meaning they can just go do it.

[00:41:51] They're going to do it.

[00:41:53] Hey they just did what happens when a bunch of your fellow shareholders in your S&P 500 index mutual fund all start redeeming their shares of said fund who pays the taxes.

[00:42:05] Yeah the shareholders are guys holding the fund.

[00:42:08] The remaining shareholders as they liquidate to pay the people out now the people who sell theoretically pay their long term capital gains on whatever else.

[00:42:14] But a lot of your residual shareholders are are burned with the cost of those transactions and presumably and one of these funds there might be a bunch of embedded gains that liquidations trigger and distribute to shareholders.

[00:42:27] So that's one way it sucks so maybe you're ignorant of that.

[00:42:30] So now you're overpaying on the fund fee and you're getting these capital gain distributions because there's net liquidations on the fund that would suck that would be annoying.

[00:42:37] And then the other thing these things persist is because people just have to definitely be blind to all that stuff going on inside of a 401k where there aren't the capital gains distributions is probably where some of these things are allowed to exist.

[00:42:52] Because you don't see those capital gain distributions or whatever else you get out of a hemorrhaging fund that if it's primarily owned inside of retirement accounts or 401ks somebody goes like oh I own the S&P but maybe maybe you do maybe you don't.

[00:43:07] And that's that's an ugly wrinkle but it's very there.

[00:43:11] It's why having a fiduciary or somebody to look out for you can actually cost they can save you more money than they cost really quick by just helping you get around some of this this type of garbage.

[00:43:21] This next one is something that I'm curious what you guys think of and that is that your house should be considered part of your investment portfolio.

[00:43:34] And you know let me give you like the way I think about it for me personally.

[00:43:46] I think I do look at my house as well two things I do look at my house as part of my overall net worth.

[00:43:54] We've been living in this house for 20 years and so at you know at this point there's you know a decent amount of equity in the home so it's not like I you know have a 30 year mortgage and there's no.

[00:44:10] So I think about it that way and I also sort of think about it like when my wife and I retire we live in Connecticut it's kind of a pretty high tax state I don't know.

[00:44:21] A lot of older people are kind of getting out of here just because it's like expensive to live in the Northeast in general.

[00:44:27] I like Connecticut it's got a lot of good qualities but I don't know you know when we get older if we'll stay here and so I do view it as you know an asset that you know there will be some unlocking of value at some point now at some point I'll have to buy something else or whatever we decide to do.

[00:44:46] But that's how I kind of look at like my home I guess just for me also for the disclosure standpoint I do have some investments in real estate assets like hard assets so from an overall portfolio diversification standpoint.

[00:45:04] I get my real estate like exposure as an asset class from somewhere else like I don't I don't look at my house as like my real estate exposure in my portfolio.

[00:45:15] Although maybe if you make the argument given what I just said that you are looking at that way but I kind of just look at it as an asset at some point there'll be some value hopefully being able to be unlocked and yeah I don't know how do you guys think of this.

[00:45:29] This is a tough one because the house really is a consumption asset and it's also an investment at the same time.

[00:45:34] So it becomes challenging this question actually came from our interview we just did for show us your portfolio with Jared Dillion because he strongly feels it should you know you're the vast majority will see what Matt says but the vast majority of people in the planning community will kind of say no you take it out when you when you build your portfolio he thinks the other way he thinks your house is part of your portfolio.

[00:45:52] And I mean maybe the answer is like a hybrid in the middle I don't know like I'm one of these people who has a significant portion of my net worth in home equity.

[00:45:59] So I feel like I do have to consider that like when I build a portfolio I have to consider do I want to invest in things with the same risk exposures that that equity would have do I want to invest in more liquid things on the other side because the house is not a liquid thing like I feel like I have to consider it as part of my portfolio on that side but then I also understand the arguments like I live in it it's a consumption asset like yeah it's a good deal.

[00:46:21] It's a very different thing than in my portfolio so Matt you're the expert financial planner we are the two quads.

[00:46:26] So you can tell us the answer to this one.

[00:46:28] So first and foremost when we talk about real estate that you own that you live in that you rent out in some cases too.

[00:46:38] We're talking about we're talking about a private asset this is not a market traded asset this is generally speaking an illiquid asset in the sense that you're not trying to you're not trying to day trade your house.

[00:46:50] So that's an important thing.

[00:46:52] Now from a snapshot perspective estate planning you have to include it you can't just ignore the house just because it's illiquid because you might live in a friendly state like Justin don't move to Massachusetts when you retire that's probably probably a good thing or at least don't pick up the house move the house and all of its equity to Massachusetts state that have lower thresholds on their estate tax for when you die.

[00:47:18] You got to be aware of this stuff your home equities going to factor into it.

[00:47:22] It's part of your estate one of the things you own even if you don't do it.

[00:47:25] I a few years ago like had a couple of clients that got bit by I pick on Massachusetts because they're one of them one million dollar thresholds so like you're probably going to have a trust you're probably going to have some stuff set up especially if you have real estate one of those areas because if you pass away and your assets are more than a million dollars there's a progressive attack tax at the state level.

[00:47:47] And that's coming for some of your stuff things like real estate can tip that scale on the pure planning side.

[00:47:54] And we've talked a lot about this on prior episodes of the show so I'll just summarize it quickly.

[00:47:58] We tend to think about on the balance sheet primarily three buckets for most people these three buckets are going to cover how they think about their assets broken out over time and liquidity needs.

[00:48:10] Your first bucket is basically money you need liquid. That's your checking in your savings account. That's what you're doing to pay your general expenses and things like that.

[00:48:19] Your second bucket is things that you know is coming up down the pike. You don't exactly know when but you're pre planning or you're marking the outflow.

[00:48:28] You have a kid who's going to college in 10 years. You have five to nine money that might be in bucket number two because you know the kids going to go to school you know there's going to be an outflow but they haven't picked the school yet.

[00:48:39] They haven't picked those details. Bucket number three is when we get into our long term assets. These are things that don't necessarily have something specific tied to them or they're too big to tie one specific thing to so it might be retirement.

[00:48:53] My 401k is a 40 something is a bucket three asset. I don't need liquidity today. I can take more risk in that thing but I'm not touching it for a while and someday eventually theoretically I will back to the gift consumption point that you brought up.

[00:49:07] Everything's one of those two things for your real estate or your home equity. This is the case where we start to introduce a fourth bucket. This is especially prevalent for people who have privates or illiquid investments in their portfolio.

[00:49:21] If you have a multimillion dollar house if you have a series of real estate if you have a bunch of private equity holdings if you have private credit if you have venture capital or something like that.

[00:49:33] This is stuff that we usually segment away from the liquid assets in the first three buckets and we put in this fourth illiquid bucket. And that's because at any point in time you might sell something you might have an event.

[00:49:46] But now you have cash or you have a distribution of stock from that angel fund because you got you wrote the first check to something that went public whatever the dream is that now gets converted into one of the other buckets.

[00:49:58] So the snapshot in time when we're planning the house is on a liquid asset. So get it away from the other liquid assets the way you're planning around it.

[00:50:07] But when an event happens when it converts be ready to think about it in an annuit different way.

[00:50:12] I'm curious to hear how Jared Dillion says that I was asking you about how that one went before so I'm going to listen to this episode.

[00:50:19] Yeah. I think it's important that like he took liquid assets to build this illiquid house and at some point yeah don't lose sight of it but that illiquid asset might become liquid again if you ever ask to sell that calculation and that separation is really important.

[00:50:35] I think the question is is the personal residence in bucket four because you could think about it if I have two different things I have a rental property and then I have a personal residence they both are illiquid private real estate investments.

[00:50:46] What a lot of people I think will say is well the house is a consumption asset get it out of here is not part of the portfolio and then other people will say well it's a lot most people I think this stat is the majority of Americans have more than 50% of their net worth in their house.

[00:51:00] So it's a huge asset for everybody so even though it is a consumption asset like we got to consider in the portfolio we got to put it in bucket four and I think that's the debate and that's that's the hard part about it.

[00:51:10] And I think there's a huge working with people well across the wealth spectrum. This is one of those things to where it would be dangerous to suggest to somebody with a couple hundred thousand dollars in assets that's retiring and primarily living on social security to basically say like yeah think about your house as part of your asset allocation and therefore be more risky.

[00:51:32] That could be a dangerous proposition for them because the house really isn't liquid they really need it to live in and that shouldn't change their risk spectrum with their other liquid investments.

[00:51:42] Versus if we're working with the family office and they have a billion dollars and they have multiple pieces of real estate in multiple places then we want to go like OK you're never going to want for a place to live with this other money let's really think about how this gets gifted passed on or distributed elsewhere.

[00:51:58] There's a lot of air between those two scenarios and a lot of nuance to your point Jack that I think that's what there's a reason people hire us to help us think through this type of stuff.

[00:52:09] Yeah his awesome portfolio has 20% in real estate and I think what he was saying is basically if I have a lot of equity in the house I have to consider that in my 20% that's in real estate because this isn't even although it is a consumption asset it is an asset it is something that's going to go up and down with the value of real estate.

[00:52:24] And so I think that was his argument for it and I tend to agree to some degree you know for if you have a huge portion of your net worth like or even a large portion of your net worth in a house like it's got to be considered at the various steps and you know I might want to change the rest of my portfolio to have less real estate exposure.

[00:52:41] Or you know I might want to change my portfolio to be more liquid like I think that's perfectly reasonable but you also have to understand what it is it is different than a standard investment is something you need to live in.

[00:52:49] Obviously I go blow my money day trading stocks tomorrow you know I I'm still have a roof over my head if I go get that tax losses you know it then I've got nowhere to go so it is has to be treated differently but I do think it's important at least consider it as part of your allocation.

[00:53:04] It's such a fascinating and nuanced conversation it's so important and yeah you have to think about it and like for most of our clients we are allocating to liquid stuff we own REITs as far as the allocation we own infrastructure as far as the allocation.

[00:53:18] You can do both things at once but you definitely have to size them it's just as true with if somebody has all of their money tied up in like pre tax traditional IRAs or 401ks.

[00:53:29] If your portfolio is getting lopsided into one of these things you need to have the exercise of taking the bigger snapshot to understand oh oh look I'm lopsided I have all of my money in the equity in the house that I need to live in and like oh by the way I also have a lot of money.

[00:53:47] I also have all this REIT exposure or something in my portfolio.

[00:53:51] You should be aware of those things you got to have some exercise to check it all out.

[00:53:57] So Justin before you ask this next one I'm hoping Matt gives the right answer here because we've got a 12 hour live stream coming up next Tuesday and my coffee is going to be a huge part of this so I'm hoping Matt does not tell me that I can't have my $4 coffee anymore.

[00:54:09] This is something you see all the time this also came out of our Jared Dillion episode which is this idea that you see all the people that do the you know they take the $4 every day they put it in the time value of money calculation they compounded out for 40 years.

[00:54:23] I've got 150 grand at the end of 40 years.

[00:54:26] I mean I'm probably dead but I've got 150 grand like how could I possibly have the $4 cup of coffee so I think the factor of fiction here was avoiding the $4 cup of coffee as significant long term investment implications.

[00:54:37] So this is probably one for you more than us.

[00:54:40] I mean it's one of those things you can put anything into a spreadsheet.

[00:54:45] I'm gonna I'm gonna follow it.

[00:54:46] I believe Bill Perkins and Diowazero attacks on this stuff too like money is for experiences.

[00:54:52] Ultimately it's a gift or it's consumed if buying the $4 cup of coffee helps you out for the rest of your day and it's good and you've checked the numbers.

[00:55:01] You can spend money on stupid stuff and you cannot have enough money to live the rest of your life on.

[00:55:07] This is a very achievable goal.

[00:55:09] There's a lot of people making disastrous money decisions that if they just did things the tiny bit smarter they would get further ahead in life.

[00:55:19] I watched a person get like Uber Eats like while they were more or less waiting in like a glorified line a couple of months ago and it was like they ordered Uber Eats from Dunkin Donuts and I was like that must be a $15 coffee.

[00:55:33] Shame on all the $4 coffee people.

[00:55:35] This woman is showing you how to do it while she waits at a line and orders Uber Eats because somebody made her wait.

[00:55:43] So I don't know if it makes you happy and you can fit it into the budget you should be okay with it.

[00:55:50] And I think this comes down to a related point.

[00:55:53] The bone parts and the book that they're working on together that I can't wait for.

[00:55:58] They had a whole thing about like don't give your budget or don't give your spouse a budget.

[00:56:03] You should have like a household global view of what you're doing and you should just not use these things to shame people.

[00:56:09] The $4 coffee when it's used to shame people you lose track of the financial results.

[00:56:15] I mean, I don't know.

[00:56:16] I don't spend I hate spending money on coffee like I will if I'm away from home or whatever but that's one of the things that bothers me.

[00:56:22] Where do you guys come down on this?

[00:56:24] So wait, $4 is going to change your life.

[00:56:25] The $4 is okay, but the $8 Uber Eats coffee that I paid the additional for to have delivered is not okay.

[00:56:30] I mean if you can afford it and it makes you happy great.

[00:56:34] I'm going to venture to guess the person I saw doing this does not have the money to afford it.

[00:56:39] And it was one of those real head scratch for every decisions where it's like even if you're not a financial planner,

[00:56:44] you know this is probably a regrettable purchase or a regret worthy purchase.

[00:56:48] I agree with you. I hate the Uber Eats stuff.

[00:56:50] But Justin, what do you think?

[00:56:51] Well, I mean I you know every day I get my daughter off to high school get my other one on the bus goes to elementary school and then around 828 30 I hop in the car.

[00:57:02] I go to Dunkin Donuts and I actually almost every day have a call with one of my good friends.

[00:57:07] So I end up for me.

[00:57:09] The coffee is part of like a ritual that has been happening over a few years now where me and my buddy kind of chat about life and family.

[00:57:21] And friends and business and the economy and Trump and Biden.

[00:57:25] Let me tell you all the problems with that though.

[00:57:28] So first off, you're bucking the loneliness, loneliness epidemic by having a friend.

[00:57:32] So the idea that you're going to have a friend means you're going to friggin live longer, which means you need more money,

[00:57:37] which means you're spending that money at Dunkin Donuts and and you're going to live longer.

[00:57:41] And now your whole retirement is messed up because you chose friendship.

[00:57:45] What's wrong with you?

[00:57:47] I mean that the ultimate investment strategy would be like lock yourself in a or like long term strategy.

[00:57:51] Make your portfolio last as long as possible.

[00:57:53] At least relative to your life would just be lock yourself in a room, right?

[00:57:56] I mean your life will be shorter, but the money will make it to the end.

[00:57:58] You won't spend anything.

[00:58:00] This is one of the genius like tangential points to like the die with zero crowd and these people is yeah.

[00:58:08] So take all these things to extreme turn them up to 11 to use the spinal tap language for this stuff.

[00:58:13] And think really think about this if I'm not going to spend the four dollars from college

[00:58:16] and I'm going to put that into the retirement account or whatever.

[00:58:19] So now I theoretically have millions like well, why stop there?

[00:58:22] Why stop there? Why not live in a room?

[00:58:25] Let's starve yourself.

[00:58:27] You know let's go be Gandhi about it for Christ's sake.

[00:58:30] Like what do you want to do? Where do you draw the line?

[00:58:33] And again it's consumption or a gift.

[00:58:36] You're either going to spend it or you're going to give it away when you die.

[00:58:40] And think about it like this just in the idea that you have a friend

[00:58:44] that you have a ritual with my God I will buy coffee for both of you.

[00:58:50] Once that's a limited time offer sweet.

[00:58:53] But in encouragement because I think that's that is a truly fantastic thing.

[00:58:58] You should have excuses and hopefully put yourself in a position where you have discretionary budget

[00:59:03] to make little stuff like this because you're making your life better.

[00:59:06] You're making a friend's life better.

[00:59:08] You're probably in a better mood with your kids when you drop them off for school

[00:59:11] because you're looking forward to this thing.

[00:59:12] That's a compounding effect I can get behind.

[00:59:16] Nice love it.

[00:59:18] Thank you guys this has been good.

[00:59:20] I think you know wide range of topics, wide range of opinions but you know there's no right or wrong answer to a lot of this stuff.

[00:59:30] And you know some of it's a little bit more gray shades of gray than others.

[00:59:35] But yeah we appreciate everyone listening and make sure you check the PNL for a purpose live stream.

[00:59:42] And on April 30th 12 hours of interviews with 24 guests is going to be great.

[00:59:48] And thank you guys for watching we'll see you next time.

[00:59:50] We're going to drink a lot of coffee to go with those 12 hours straight right guys.

[00:59:54] You might even shift the drinking to a happy hour towards the end too.

[00:59:57] So you might cover the entire game.

[00:59:59] Four dollar coffees all day long.

[01:00:03] Hi guys this is Justin again.

[01:00:06] Thanks so much for tuning into this episode.

[01:00:08] You can follow Jack on Twitter at at practical quant.

[01:00:12] You can follow me on Twitter at JJ carbon and follow Matt on Twitter at at cultish creative.

[01:00:17] If you found this discussion interesting and valuable please subscribe in either iTunes or on YouTube or leave a review or a comment.

[01:00:25] Also if you have any ideas for topics you'd like us to cover in the future please email us at accessreturnspod at gmail.com.

[01:00:32] We would like this to be a listener driven podcast and would appreciate any suggestions.

[01:00:35] Thank you.