← The Diary Of A CEO with Steven Bartlett
The Diary Of A CEO with Steven Bartlett
No.1 Money Saving Experts: Do Not Buy A House! Putting Money In A Bank Makes You Poorer!
01:25:36
Loading summary
Transcript351 lines
- [00:01]
Jaspreet Singh
This episode is brought to you by LifeLock.
- [00:04]
Raoul Pal
Between two factor authentication, strong passwords and a VPN, you try to be in.
- [00:09]
Jaspreet Singh
Control of how your info is protected. But many other places also have it.
- [00:13]
Raoul Pal
And they might not be as careful.
- [00:15]
Jaspreet Singh
That's why LifeLock monitors hundreds of millions of data points a second for threats.
- [00:19]
Raoul Pal
If your identity is stolen, they'll fix it, guaranteed or your money back.
- [00:24]
Jaspreet Singh
Save up to 40% your first year make visit lifelock.com podcast for 40% off terms apply.
- [00:30]
Stephen Dubner
When I grew up, everyone said to me that to generate wealth, get a job, get money, then get a mortgage.
- [00:35]
Jaspreet Singh
That's one of the worst pieces of advice you can give somebody.
- [00:37]
Raoul Pal
And your future self is going to be poorer because of it.
- [00:40]
Stephen Dubner
But that's what everyone's doing because we're.
- [00:42]
Raoul Pal
Not taught this stuff.
- [00:43]
Stephen Dubner
What do you think the biggest money mistake the average person makes is?
- [00:45]
Raoul Pal
Being a saver.
- [00:46]
Stephen Dubner
So just having your money sat in.
- [00:47]
Jaspreet Singh
A bank account, yeah, it's a guaranteed loss. You're becoming poorer every single day.
- [00:51]
Humphrey Yang
But there are plenty of ways to retire early and be financially independent, and.
- [00:55]
Raoul Pal
That'S including secret hack that makes makes people fortunes.
- [00:59]
Humphrey Yang
So let's talk about making more money. This is the ultimate money making masterclass.
- [01:03]
Jaspreet Singh
As we are joined by three financial.
- [01:05]
Stephen Dubner
Gurus with very different opinions and methods to build future wealth. So I want to talk about pensions, credit cards, renting, bad money habits, debt, passive income, spending money to look rich. But first, what is it that rich people know that the average person doesn't know?
- [01:20]
Humphrey Yang
Rich people are more disciplined and they're doing little things that compound into huge results like investing.
- [01:25]
Jaspreet Singh
But for example, the average American spends more money on Netflix than they do on their investments. And if, if I invest $1,000 a month for 30 years in something like the S&P 500, I will have about $1.9 million.
- [01:35]
Raoul Pal
Or there's no asset in all human history that's ever generated as much wealth in a short spirit of time than Bitcoin.
- [01:40]
Jaspreet Singh
There's one problem. Bitcoin is high risk. And if any of those risks happen. Let me, let me finish. Do you want to have hope that you have the bitcoin, or would you rather have more security?
- [01:50]
Raoul Pal
You can reduce risk. It's our job to educate them.
- [01:52]
Stephen Dubner
So if someone is $1,000, what would you suggest they did?
- [01:55]
Humphrey Yang
I have a different take on this. If you're trying to make more money, I would.
- [01:58]
Stephen Dubner
And what about bad money habits? Because when you look at the stats, money number one source of stress for Americans, topping work, family, and health.
- [02:05]
Jaspreet Singh
There's a three step framework, so I want to get into that. Number one.
- [02:11]
Stephen Dubner
Just give me 30 seconds of your time. Two things I wanted to say. The first thing is a huge thank you for listening. And tuning into the show week after week means the world to all of us. And this really is a dream that we absolutely never had and couldn't have imagined getting to this place. But secondly, it's a dream where we feel like we're only just getting started. And if you enjoy what we do here, Please join the 24% of people that listen to this podcast regularly and follow us on this app. Here's a promise I'm going to make to you. I'm going to do everything in my power to make this show as good as I can now and into the future. We're going to deliver the guests that you want me to speak to, and we're going to continue to keep doing all of the things you love about this show. Thank you. I think the first place to start is people want to know how they can make more money. Because if you don't feel like you have money, saving and investing in these kinds of things appear to be pointless. I also understand that that's not necessarily true. I think you can start investing and saving with very small amounts of money. But for those people that are asking that question, if they're listening to this now and going, how does one make money? Like, you know, I've got this job, I'm working a nine to five, it's paying me £30,000 a year or $40,000 a year, whatever it might be. Is the right question to be asking, how do I make more money? And if so, how do I do that?
- [03:31]
Humphrey Yang
I always think it's a combination of making more money and also saving more money. But let's talk about the making more money piece. I think that everyone is unique in their own way. Right. You've probably spent more hours doing some sort of hobby that I have no idea about. You play paddle, for example. I've never played paddle in my life. So let's say you were Steve Stephen from age 20 and you're a really good paddle player. You can start to monetize this typ skill, which you have that I don't. But perhaps you know more than me. I could take lessons from you. Even if you're not, let's say, the pro paddle player that you are, I might still be willing to pay you 20, 25 pounds an hour for a lesson. Right. Just because you're naturally better than I am. And so I would encourage people to kind of lean into what makes them unique and where, where they've spent a lot of their time. I think everyone has something that they're good at inherently figuring out what skills you have internally and how you can kind of monetize those.
- [04:25]
Stephen Dubner
What you think, Raul?
- [04:27]
Raoul Pal
I think one of the hidden things to do is you really are a function of who you're surrounded by. Invest in your network. And I don't mean that in a kind of cold hearted I want to network with these people, but just surround yourself by people who are also trying to push themselves, to push their income, push their opportunity set. And it makes it so much easier if you're the only one doing it and you're around a group of friends, you're the odd one out and you're castigated for it. Find other people who want to do the same thing and you kind of help each other in that journey. So at an early stage, that's just one of the key things, is to find people who also want the same journey as you. That really helps. Then it's still about the best leverage of your skill set and being honest with what your skill set is. Just because you're a doctor doesn't mean you should be a doctor just because you've graduated, because you can do other things and it's figuring that out. That's not an easy bit. But you figure it out over time by trying stuff. We've all done multiple jobs and we know what we're terrible at and what we've been good at. And you kind of over index on the things you're better at and that works. So if you're early, it's the time to make bets in yourself and your network and that gives you the foundational tools to then earn more income and then invest more.
- [05:43]
Stephen Dubner
Was there a pointless, seemingly pointless job you did that ended up, in hindsight, making you the most money? And what I mean by that is I think about my experience doing telesales between the age of 16 and 19 as probably the most important thing I ever did. Like not only do I spend a lot of time talking now, but sales is a transferable skill across raising investment, persuading employees to come and join you. And I think there's nothing I did that was more important than telesales.
- [06:04]
Raoul Pal
The single best skill you can acquire in life is to learn how to sell. To be comfortable around people and to be able to get a message across is the single most powerful tool you can have in Life, everything you do, finding a partner in life, doing anything you do is basically sales and it's all people. It's all people.
- [06:22]
Jaspreet Singh
So if I'm this 24 year old, a 25 year old, and I'm ambitious, I want something big. You gotta find more income, you gotta have more income to do it. If I'm a 25 year old and I just want to be okay, I don't mind my job, I just want to invest, you know, whatever. You got to find the right investments, you got to have a system for your money and then you got to create a plan. Anytime you get paid, you know how much money you're going to save, you know how much money you're going to invest, and then you spend what's left. Because the difference, difference between the person that becomes wealthy and everybody else is wealthy people save and invest their money first. Everybody else, especially in America, I spend all my money, I wonder where all my money went. And then if there's anything left, I'll try to save and maybe invest and hopefully I'll get rich.
- [07:07]
Raoul Pal
For me, it's all based around what is your vision of your future self? How do you see yourself living? Because that is what we do. One of the sources of unhappiness is if your current state is not moving on the path of where your future self wants to be. How you imagine yourself so practically and.
- [07:24]
Stephen Dubner
Tactically, how do they do that? How do they create this financial vision board? Do they need to know certain numbers? Should they get clear on if they want to be on a private jet or easyjet?
- [07:34]
Jaspreet Singh
Oh, man. I think, you know, if you have to ask yourself, hmm, do I wanna fly in Spirit Airlines or do I wanna fly in a private jet? I think you already know that question.
- [07:43]
Stephen Dubner
But is it important to be explicitly clear with yourself? Because actually, if I think of most of my life, I wasn't entirely clear. And so you either end up chasing just more and more and more because.
- [07:54]
Raoul Pal
It'S generally not a materialistic outcome, it's generally an emotional outcome.
- [07:58]
Stephen Dubner
Yeah.
- [07:58]
Raoul Pal
And that's why it's hard to pinpoint exactly what it is. But you need to position yourself in that future self and say, what does it feel like? Do I feel secure? Do I feel this? Do I feel that? So it's an emotional thing and not a material thing.
- [08:14]
Stephen Dubner
Is that central to a lot of this? You talked about emotional elements is being okay with what other people think of you.
- [08:23]
Raoul Pal
Yeah, that's the other thing is social pressure. Right. So you may have the vision of yourself and you just say, I want the three bed house, you know, with a little strip of lawn and the barbecue and that's great. And around you, people are like, you should try harder.
- [08:37]
Stephen Dubner
Yeah.
- [08:37]
Raoul Pal
So they're questioning your own sense of happiness. And society does that at scale. And then even the whole media complex is about kind of how unhappy and how miserable you are and should be. Doesn't make it an easy place.
- [08:51]
Stephen Dubner
We're talking about emotional and psychological barriers here. How do we get over people not just being scared of what other people think, but so many people are scared of their own money. When you look at the stats around avoidance, 82% of Americans admit they avoid thinking about their own finances. And one in four Americans have avoided medical care because they're afraid of the bill and thinking about how much it might cost. For Gen Zs, 67% of Gen Z and 58% of millennials say they avoid checking their own bank account because it's too stressful, which is compared to only 30% of boomers. And in terms of mental health, money is the number one source of stress for Americans, topping work, family and health. 36% of people with debt experience clinical anxiety, 23.3percent depression. So people avoid their own money.
- [09:38]
Raoul Pal
A lot of people avoid it because the financial world's full of jargon. You need to go to a professional for advice. That's what people think. It's intimidating. You don't feel like you've got enough money. You're gonna let them down, yourself down, your family down. So there's this whole kind of thing around it. It's the confidence that you can learn. Because a lot of people say, no, no. Unless you're from an investment bank or you're an RIA or something, you can't do this, right? But just a little bit of confidence to say, yeah, you can do this.
- [10:08]
Humphrey Yang
A simple tip that I think people can do is just kind of figure out how much they spend on a monthly basis. Track your expenses for 30 days, 60 days or 90 days, and you're going to learn so much more about just your personal habits of what you do. Because sometimes I'll forget that I DoorDash something for $30 or I'll forget that $15 or $20 Uber charge. And I'll just kind of file it away because I'm swiping my credit card. I don't really. I'm not aware of it. It's like if you're going to the gym and you're not aware of your weight, how are you going to where's your starting point? So I like to give people a starting point because then they can kind of have that small step to kind of start working towards their finances in that sort of way.
- [10:45]
Stephen Dubner
65% of Americans have no idea what they spent in the last month according to the US bank, and 60% underestimate their monthly spending by a significant margin.
- [10:54]
Humphrey Yang
Right. And that's exactly what I found. I tracked my expenses for a month in 2014. I thought I was spending 1500 bucks a month. Guess what? I was spending $2800 and I wasn't making that much. And I was like, how am I off by an order of magnitude of I don't know, 60, 70%? And I find that even, like all my friends, I issue this challenge to most of them don't make it to the three months. But I think as long as you have an approximation of what you're spending, that can help because that means then you're going to have a little bit of a difference of what you make and what you spend and then you can save that money. And I think that's one of the bad money habits of Americans as they don't save. Right.
- [11:27]
Stephen Dubner
So it's a really good point, which is a practical step to just heighten one's awareness because you need to have sort of informational awareness of where you're at to even understand what you need to do to get to where you want to go.
- [11:37]
Jaspreet Singh
So, yeah, I think you need to start with the mindset. You have to build the basics. You got to get rid of the credit card debt, you got to save a little bit of money. Like you got to have some breathing room. Because investing is all about taking the extra money that you have, throwing it somewhere to grow that money. And this is where there's a three step framework that I'll talk about. Because there's a lot of ways to invest at the very simplest is I can be completely hands off. I can work with a financial advisor, I can give them my money and they can do everything for me. If you don't have a lot of money, you're not going to get a very good advisor. But there's a con and a cost to a financial advisor, which is the amount of money you have to pay because they're going to charge a fee. So if I invest my money $1,000 a month with a financial advisor, I get a good financial advisor who beats the market. They get 11% a year, but I have to pay 1.5% a year after 30 years, I'm going to have $1,800,000 after paying $600,000 to my advisor. Stage number two is I can be a completely passive investor. It's a little bit more involved than an advisor, but I can just put my money into the stock market. Something like the S&P 500, which is a group of the 500 largest companies in the stock market. It's kind of like investing your money into the United States economy. This has historically averaged 10% a year, which means if I invest $1,000 a month for 30 years, I will have about $1.9 million. A little bit more work than completely hands off, but still pretty passive. Then we have the people that want to be more involved. What we call is a active investor. And an active investor is somebody who now wants to invest their money themselves. And I don't mean trading, I mean actually investing their money. And now I'm going to be doing the research to find which investments I want to own. Maybe it's real estate that I want to own, maybe I want to invest in individual companies. So it's more risk for more potential return. A small edge can give you outsized return. Because if now I don't get a 10% return, I can get a 13% return, which we're not talking about 200 or 50% returns. A 13% annual return means that my $1,000 a month over 30 years is now going to grow to $3,500,000. So about $1,600,000 more than before, just with a slight edge. And you've got to figure out how involved you want to be on this.
- [14:02]
Stephen Dubner
Point of being an active investor and picking stocks yourself versus being a passive one. The data shows that passive investors who invest in The S&P 500, like you said, consistently outperform most stock pickers. Over a 20 year period. More than 90% of actively managed investors. So talking about funds, there underperformed the S&P 500 after fees. So should people be actively investing or should they just put the money in AN S&P 500 and be patient?
- [14:28]
Jaspreet Singh
I say most people should not be active investors. In fact, I say 98% of America should not be active investors. Just be a passive investor. Because if you don't want to put in the work, if you're not willing to put in the time and the effort to research, you're probably going to lose. And many people do.
- [14:45]
Stephen Dubner
So why do people want to be active investors if the probability is stacked against them?
- [14:50]
Jaspreet Singh
Well, if you get a little Bit better returns. If you're willing to put in the work, you can get better returns. And it is possible. We do see people that are doing it consistently.
- [14:58]
Stephen Dubner
Is there an element of fun and entertainment?
- [15:01]
Jaspreet Singh
Absolutely.
- [15:02]
Stephen Dubner
People like sports betting and that's the.
- [15:04]
Jaspreet Singh
Problem because the fun is I like researching versus oh, I want to see my money go up tomorrow. If I buy a house tomorrow morning, am I going to go into Zillow in the afternoon and check what is my house price? Am I checking in the evening, what's my house price? No, because you know that this is something I want to own for the long term. Well, when I go into the stock market, because it's so liquid, I buy a stock in the morning, I'm checking it 15 minutes later, I'm checking at lunch, I'm checking it in the bathroom, I'm checking it in the evening. And now I'm getting anxiety because if it's going up or down, I'm very emotional. And that's that emotional control as an investor, which is just as important as the research that you're putting in.
- [15:41]
Raoul Pal
See, I fundamentally different. All of this stuff is people are so screwed. They are coming out of university with massive debts. We looked at the stat earlier off camera when we were talking about the fact that the percentage of 30 year olds who have a mortgage and are married has gone from 52% in 1950 to 12%. Nobody can afford anything. So if you look at the average millennial in the US and a Gen Z, they generally have a 401. If they've got a job, they have some sort of savings, but they're taking massive amounts of risk. A lot of us would look at them and say this is ridiculous.
- [16:22]
Stephen Dubner
Why are they taking risk for anyone that does that?
- [16:23]
Raoul Pal
Because there is no way of closing the gap between buying, getting the deposit on the house, getting into a house, realizing that future vision of themselves, however reasonable. That is why it's so far away. Because the cost of assets has gone up so much versus their incomes don't go up.
- [16:39]
Stephen Dubner
You mean the cost of buying a house, for example? Yes.
- [16:41]
Raoul Pal
Or even however much percentage share of the stock market, the average salary does. You know, stuff like that, you're getting less for your money, so your future self is automatically going to be poorer because of it, because you could buy less of a house, et cetera.
- [16:56]
Stephen Dubner
Explain that to me like I'm an idiot. Like I'm like I'm 10 years old. And maybe in the context of this mug here, in terms of the how, why is that worth Less. Now, based on what you said, the.
- [17:10]
Raoul Pal
Way of explaining it is money is the medium of exchange, the thing that you buy something with. If we all have a lot of money, we've all got a stack of cash on this table, and you want to sell that mug. We can pay anything for that mug because we've got a stack of cash. So that mug suddenly is worth not the $10 it's supposed to be worth. It's suddenly we're paying $150 for the mug. Why? Because that money has no value to us, because we've got excess money. So when you create excess money in the system, it's this debasement of currency. It's an optical illusion that the value of assets are actually going up. They're not. It's the value of your money's going down. And this is this pain point, because your earnings only grow with economic growth generally, plus your progression of your career or whatever it may be. But those things, the scarce assets, are going up optically by the amounts they're lowering the thing. So what you find is salaries go up at about 2% or 3% a year, and the cost of the S and p is about 12%, 13% up every year. And a house price is about the same. Gold is about the same.
- [18:23]
Stephen Dubner
And that's because they're printing more and more money.
- [18:25]
Raoul Pal
Correct.
- [18:26]
Stephen Dubner
Okay, that makes perfect sense to me. So I'm imagining you will have a big stack of paper in front of you, which you're using to take some notes on. And if I was saying I'm gonna sell you guys this mug for some of the paper you have there. But then my team said, you guys can have unlimited paper. This mug loses value. Because you can all just offer a gazillion sheets of paper for this mug.
- [18:46]
Raoul Pal
Well, it doesn't lose value. It optically will give you a gazillion for it, as opposed to, you know, three sheets of paper, because we've got so much paper, it matters not.
- [18:56]
Stephen Dubner
So I'll be thinking, wow, like, this mug is worth a gazillion sheets of paper. But actually, because each sheet of paper is now worth nothing.
- [19:03]
Raoul Pal
Correct.
- [19:03]
Stephen Dubner
Okay, got you.
- [19:04]
Raoul Pal
And this is the problem that people are finding is they put money in a 401k, you compound it at 10%. For my generation, yeah. That was how the world worked. And it was great, and it worked, and now it doesn't work. So they need assets that go up 50% a year, 100% a year, which is ridiculous. But luckily, we've been Gifted a few. And so that's helped.
- [19:23]
Stephen Dubner
Go on, say it.
- [19:24]
Raoul Pal
Well, it's crypto simplistically. It just outperforms all other assets, even with the excess volatility. So bitcoin, for example, produces about. Since 2012, it's produced about 145% a year returns. So that's 10x the stock market, and that's including three 70% drawdowns in the middle of it.
- [19:47]
Stephen Dubner
A drawdown being a drop.
- [19:48]
Raoul Pal
Yeah. Well, you feel like you're an idiot. You're losing money. It's all going to go. You've made the biggest mistake in your life and it recovers and it keeps going because it's a technological network adoption model that's happening. So it's just sucking in more and more people. So there's now 650 million crypto brokerage accounts in the world, which is more than all the stock market brokerage accounts added together in the world. And we're seeing it all around the world because everybody can buy a share of something. So as opposed to being able to buy, Nobody can buy a Fifth Avenue apartment here, everybody can buy a fraction of a share of bitcoin, which is, in theory, $100,000 asset. But we can all put in 10 bucks, 5 bucks, 1,000 bucks, $10 billion.
- [20:33]
Stephen Dubner
Let me challenge it then. Bitcoin isn't based on anything, though. Okay, I'm being a fudder here. That's my job. Bitcoin isn't based on anything. It is a database in the sky that isn't backed by gold or it doesn't produce any sort of valuable asset as its byproduct. So why, how can we have faith in bitcoin? It's essentially in its essence. Before someone clips me, this is. I'm playing devil's advocate because I know they're just going to clip this part out. It is essentially, many would say, a Ponzi scheme, which is it only goes up if other people take part in it. And if everybody decides that it's not worth anything, then it's going to go to zero.
- [21:11]
Raoul Pal
So all money is social consensus, everything. Gold has no real value.
- [21:18]
Stephen Dubner
I can build a table with gold, though. I could rest some things on it. And it's good, it doesn't rust.
- [21:24]
Raoul Pal
If you're building a table of gold, then the value is going to be much less. If everybody's building gold tables, Trump has. We do. That's true. And so really, it's just social consensus. What do we as humans ascribe value to?
- [21:38]
Jaspreet Singh
But the problem with the 145%. Like you mentioned, Bitcoin has fallen by 70 plus percent on multiple occasions. Let's go back to the s and P500. A lot of people invest in the spy the s and P500 and still lose money.
- [21:54]
Humphrey Yang
Why?
- [21:55]
Jaspreet Singh
Because when we go through any downturn, people panic and they sell. And if we look at, I mean bitcoin, I think Bitcoin's 2009 when it started, if I'm not mistaken. If we look at the crashes from recent history, 2020 stocks fell by 30%. Bitcoin fell by 50%. 2022 stocks fell by 20. The S&P fell by about 20%. Bitcoin fell by 60%. So in those times, people who are in the S and P are freaking out, selling.
- [22:31]
Raoul Pal
Yeah, but here's the thing. This is the risk reward that people don't understand. If you've got a time horizon, let's say the average drawdown in the S and P during a bear market is 25%.
- [22:43]
Stephen Dubner
A drawdown being a drop a lot.
- [22:45]
Raoul Pal
Yeah, a drop. A drop in prices. You're getting compensated 15% a year returns for that. At best, in bitcoin, the average drawdown over the same period will be about 70%. But you're getting 150% return.
- [23:00]
Jaspreet Singh
If you're on the winning side though, if I buy it and I can sell it for a higher price, just hold it. That's the key.
- [23:07]
Raoul Pal
All of these are in a nice trend channel. They go up. So anybody can buy something and hold it long enough, it'll go up.
- [23:14]
Jaspreet Singh
Well, what about. Let's look at housing. We can say the same thing about housing. 2008, housing crashed. Just hold it. I have too much debt. I'm underwater. My bank's taking it from me. People are buying bitcoin with debt.
- [23:25]
Raoul Pal
Yeah, I mean that would not recommend that. But housing's different because you can endlessly create more housing. And we have a demographic problem in housing that makes it more complicated. Demographic problem is A, everyone's leaving the cities now, B, the generational gap. Nobody can afford the boomer houses. We don't have enough cheap housing for young people. People are relocating, moving around. So we've got a very interesting mismatch in real estate now that makes it more complicated than it used to be.
- [23:53]
Jaspreet Singh
Absolutely. And I do want to say, I think the part that we fundamentally differ is not that there's value in crypto. I own crypto. But the difference between you and I is you are all in crypto. For me, it's a speculative piece of my portfolio. So I invest in my own business, I have real estate stocks, my speculative assets, and then a little bit of gold.
- [24:15]
Raoul Pal
Imagine how difficult to replicate what you've achieved in your amazing career is for the average person listening to this versus buying one thing in your Coinbase account, your Robinhood account, and doing nothing. It's so there's no cost. It's not like buying a house, like servicing all the stuff. There's no debt involved.
- [24:33]
Jaspreet Singh
There's nothing in theory. But theory isn't reality. How many people end up losing money when things go down? How many people panic, especially with bitcoin? Because if we look at, especially the early adopters of bitcoin, who are those people? These are the people that, well, a lot of the average person is I want to get rich, I want to get rich quick. It's, I want to make money fast versus the average person who's buying the S&P 500. This is somebody who is, I want to invest and build wealth for the long term. It's a very different mindset.
- [25:03]
Raoul Pal
The average investor of this is 32 years old and we said, no, you need to invest for the long run. They're never going to have a house. So their whole vision of their future selves is utterly destroyed. But look, you said so it becomes a logical thing to actually take more risk. It's logical for them because they've got nothing to lose.
- [25:21]
Jaspreet Singh
So bitcoin, you're saying is 145% a year?
- [25:24]
Raoul Pal
Yeah. And in recent years, as the trend rate of adoption grows, it's probably down to about 100% a year. Let's call it that for easy maths.
- [25:32]
Jaspreet Singh
But now let's think about this just from a practical long term perspective. Warren Buffett is arguably the best investor in the history of time. He has averaged about 19% a year over the course of his decades, making him a multi, multi, multi billionaire. And so when we compare a 20% return from one of the top investors in the world versus, hey, Bitcoin is going to give you 100% a year. There's some sense of something could be wrong.
- [26:02]
Raoul Pal
So even if I'm wrong by 50%, you still outperform Buffett. To put it in perspective, Bitcoin since 2010 has done, I think it's about 90 million percent returns. There's no asset in all human history that's ever generated as much wealth in the shortest period of time. And because it's not a random thing, it's Actually a technology and it's a network model of technology. As more people use the network and we see with bitcoin, governments buying it and asset management firms buying and everybody else, you have this network adoption model. And so what it creates is the same chart as Google or Amazon, all of these. It just goes up in a log trend over time with some volatility. So you've got a secular bull market, which means that over time prices go up for measurable, understandable reasons. And it happens to be the highest performing asset of all time. There's one problem and it's volatile. The psychological thing you're dead right about it's very hard when it falls 70%. I've gone through three of those. They're hard.
- [27:02]
Jaspreet Singh
The problem is just like with real estate, everyone has said real estate only goes up. Well, how do you make money on that real estate? You make money when you sell or you lose money if you sell. Ultimately it comes down to that you make or lose money only if you sell. Well, what about everything along the way? And what if I need to sell during that 70% crash? Because what happens during those crashes? A lot of times people lose jobs, A lot of times people lose their income. A lot of times people need that money during that time. And so now I'm desperate or I'm panicking. There's two things happening. And now maybe it's the end and I go in and now I lose money thinking that I'm going to make all this money.
- [27:43]
Humphrey Yang
I think I can appreciate your love for cryptocurrency and your 100% concentration in cryptocurrency.
- [27:48]
Raoul Pal
And I'm not saying you're in it suitable for everybody. Right?
- [27:51]
Humphrey Yang
Right.
- [27:51]
Raoul Pal
I've got my bottom of Maslow hierarchical needs taken care of. I've got houses, I don't have debt. It's easy for me. I've got multiple sources of income that I can take that back. I'm not saying that for everybody, but I can also understand why a 25 year old can do that too, because they've got nothing to lose.
- [28:08]
Humphrey Yang
But do you think that if a 25 year old puts their entire salary and savings into bitcoin and they lose it, let's say they run through a 70% drawdown. Are they just putting themselves in a bigger hole for their future as well? Like maybe before there was a glimmer of a chance that they could, that they buy a house, now they can't.
- [28:26]
Raoul Pal
The most important part of financial markets is the least understood is time. It's not just price, it's time. So if you're 25 years old and you get wiped out, we've all done it. We've all kind of screwed up and, you know, had to move home to our parents. We've all done it. You can do that several times when you're young and it's okay. You just don't want to do it at age 50. At age 50, sure. You really, really don't. You become more risk averse, generally speaking.
- [28:55]
Stephen Dubner
Okay.
- [28:56]
Raoul Pal
It just depends where you are and how much time you've got to take that risk.
- [29:00]
Jaspreet Singh
But now if I'm investing my money in bitcoin or really anything, a lot of the value is what some people refer to as like equity. It's I bought it for like, I started buying bitcoin when it was $3,000. That other stuff is equity. It's invisible money, which in my view is theory. It's not actual money in my bank account. It's sitting there waiting for me to sell, hoping that when I go to sell, it's going to be a profit versus cash flow. If I buy a dividend paying stock.
- [29:30]
Stephen Dubner
What'S a dividend paying stock?
- [29:32]
Jaspreet Singh
Some companies have big profits. For example, McDonald's has billions of dollars of profits. There's three things that they can do with their cash. They can save that money for an emergency. They can take some of that money and reinvest it and open more stores and create better burgers. Or the third thing that they can do, which some companies do not all, is they can just give this money away to their investors, the shareholders. It's called a dividend. So it's a cash payment for doing nothing except owning that investment. So if I buy something, whether it's ETF stock or whatever that's paying a dividend, or a rental property that's putting money in my bank account every single month or year. That's money I can use to buy food, go on a vacation, do something. Here's what let me tell you.
- [30:12]
Raoul Pal
I'm getting paid 4%.
- [30:14]
Jaspreet Singh
Listen. So I, I started buying Bitcoin at $3,000 a coin. When I was at, I went through multiple crashes. I remember when $20,000 of Bitcoin was the. Oh my God, we did it. And once I hit around 70,000, I looked at this and I said, wow, I have my real estate, my stocks, my speculative, which is crypto and startups, and the 2% gold, which is now looking extremely inflated. I need to lower this. That way I can have some more income. So what Did I do? I sold some bitcoin, I bought rental properties that now rental property is putting money in my bank account every single month. The bitcoin, it's a big number on paper, but it doesn't actually mean anything unless I do something with it.
- [31:00]
Stephen Dubner
Could you have staked it? Which means you can stake the cryptocurrency and make a monthly yield from it.
- [31:06]
Raoul Pal
Get a loan against it.
- [31:08]
Jaspreet Singh
Now that's adding risk. Well, what happened if I take a 80% loan, 70% loan, 50% loan.
- [31:15]
Raoul Pal
Yeah, it's very volatile.
- [31:17]
Jaspreet Singh
So let's take a 50% loan and Bitcoin falls by 70%, which it has now I'm underwater. Now what? Now the bank comes knocking on the door? Margin call. You're forced to sell and it's a foreclosure on my bitcoin.
- [31:31]
Raoul Pal
I don't disagree. And really speaking, people should have the ability to have cash flow or cash for if things go wrong. That's really a super important thing. To be able to have a long term view, to be comfortable with drawdowns, to be able to invest in startups or to invest in crypto or technology and all of this stuff. That makes sense, but I just don't think a dividend at 4% makes any difference to anybody.
- [31:56]
Jaspreet Singh
Well, it does if you do it consistently, month after month, year after year.
- [31:59]
Raoul Pal
You need huge capital to start with to be worthwhile.
- [32:02]
Jaspreet Singh
No, if you start investing for dividend income, I call it a decade of sacrifice. And this is why it's so hard.
- [32:11]
Raoul Pal
But if you're 33 years old now you're sacrificing until you're 43, you're going.
- [32:16]
Jaspreet Singh
To become 43 at some point. And imagine if you're 43 and now you have the income to pay for that car, to pay for the house. You don't have to worry about it. Well, do you want to have hope that you have the bitcoin or would you rather have more security? Again, Bitcoin, in my perspective, high risk, high potential return. And I'm not saying don't buy it, I'm saying allocate it in your portfolio in a way where you understand you are arguably one of the top crypto experts in the world. I'm not. I also am not the stock expert in the world. I'm also not the real estate expert in the world. What I don't, I'm probably going to be wrong. If my stocks crash, I have my real estate. If real estate crashes, I got my stocks. Crypto crashes. Well, that's part of my speculative portfolio. I really don't care. And if everything crashes, I got some gold. So for me, I have to diversify against myself, because I know stocks crash, I know crypto crashes, I know real estate crashes.
- [33:17]
Raoul Pal
But if you're not starting with a lot of money, your strategy is the strategy of a rich person. Oh, I've got houses and I've got dividends and I've got some gold, and I've got a bit of this. That's the strategy of being.
- [33:30]
Jaspreet Singh
But I didn't start with all those. I didn't start with all those at all. I started with one.
- [33:34]
Raoul Pal
Where did you make most of your money? Being an entrepreneur. What were you doing taking obscene risk?
- [33:38]
Jaspreet Singh
I did. That was me.
- [33:40]
Raoul Pal
I was taking obscene risk.
- [33:41]
Jaspreet Singh
But If I'm making $50,000 a year, the first step, let's assume Now I'm putting $5,000 aside, $7,000 aside a year. I can take high risk, high potential return, or I can be conservative or a hybrid. And not everybody should be taking all the risk because bitcoin has risks. And again, I'm telling you that somebody who owns it, the government could come in and change policies on bitcoin. Quantum could change bitcoin. People could stop caring about bitcoin. And if any of those things happen and all my money is in this very speculative asset, I'm the one that's carrying all the risk.
- [34:27]
Stephen Dubner
So if someone is $1,000 in disposable income to invest, what would you suggest they did?
- [34:34]
Humphrey Yang
Humphrey, my take on $1,000 has changed over the years. I used to say you could invest $1,000, but as Raoul probably mentioned, 10% on $1,000 is not that much. Right. So, like, you know, if you invest 1,000 bucks in the S&P 500, you get 10%. Next year you'll have $1,100. That $100 is not going to change your life dramatically. So if I had $1,000, I'm investing in myself, so trying to improve my skills to make more money at some point.
- [34:59]
Stephen Dubner
How exactly would you do that?
- [35:01]
Humphrey Yang
When I was still coming up, I was trying to take a lot of courses online, so I'd try to figure out different types of skills that I could use in the marketplace. So I took a AdWords course back in the day for like 150 bucks that taught me how to do Google AdWords. And I would try to consult for businesses out there to try to make more of an hourly income on the side.
- [35:20]
Stephen Dubner
And Google AdWords for anyone that doesn't know is Google's advertising platform. Yeah.
- [35:24]
Humphrey Yang
And now there's TikTok ads and Facebook ads. But anywhere where I could be more of value to another business, I knew that, economically speaking, that I could command more in the marketplace. So something like that would be great.
- [35:36]
Stephen Dubner
So right now, clearly that is AI, because what you saw there is like a knowledge arbitrage with a new technology where most people didn't understand AdWords and you could be the young guy bridging the gap for people's ignorance. So most businesses now would be dramatically more efficient and effective if they understood even the basics of AI. So a kid could take a course in AI. And do you know what's crazy? If you read the top 10 books on AI, you'd be in the top 1% in the world in terms of knowledge.
- [36:03]
Humphrey Yang
Yeah. I mean, if you just read the instruction manual of how ChatGPT or Quad works, you could probably be in the top 1% of prompt engineers. Right. And that could be a value to a business or service. Right.
- [36:15]
Stephen Dubner
That's probably where my career came from was we were the kids, 18, 19, 20 years old that knew social media because we'd messed around with it. So we sold it to companies and that started my first business. And then there was soon hundreds of us.
- [36:28]
Humphrey Yang
And there's a lot of these apps right now coming out from 18, 19, 20 year olds. Have you seen that one profile of that guy who created Calai? Calai is this app where you take a photo of your food and then it sends it to AI and it tells you how many calories are in it. Well, the guy's making 50 million bucks a year or whatever it is.
- [36:45]
Stephen Dubner
Yeah, I saw that this morning. Funnily enough, $4 million a month he's making from a.
- [36:49]
Humphrey Yang
Like Chad. Basically, it's an AI rapper. Obviously, I think he has some secret sauce that he puts into it, but a lot of kids these days are using AI to try to leverage that and try to turn them into businesses. I do want to say, though, I think with $1,000 and with what Jesprit said, I think you can still make a decent. If you can make a decent income, you can start to slowly save and invest your way to some sort of semblance of retirement. I think you can still be able to retire and be financially independent without having to, let's say, bet your life savings on crypto. I know that I personally bought Bitcoin at $100, but I've sold it many times. I bought and resold it so many Times, because when it's up 10x, you're like, oh, if you had given me a 10x return when I first bought it, I'd be like, yeah, I'm taking that any day of the week. Right. And so I think that's why it's so hard. It's like Bitcoin does produce 145% return since 2012, but in 2012, no one knew how to buy it. I bought it on some random sketchy website. I got this string of characters for my wallet, and I tried to buy a coffee at a cafe in Palo Alto. And I didn't know that bitcoin transactions took 30 minutes to go through. So I sent bitcoin twice for a $5 coffee. Now, keep in mind, this is 0.1 bitcoins, right?
- [38:05]
Jaspreet Singh
This is 10k worth of bitcoin.
- [38:07]
Raoul Pal
It's an expensive coffee.
- [38:08]
Humphrey Yang
I sent it twice and then didn't get it. And guess what? I still had to pay for the coffee of my debit card. So where do my bitcoin go?
- [38:14]
Stephen Dubner
Spent what, 20k on.
- [38:15]
Jaspreet Singh
I spent 20k on coffee.
- [38:16]
Humphrey Yang
Yeah, that could be the title of this video. Spent 20k in coffee.
- [38:21]
Raoul Pal
Yeah.
- [38:21]
Jaspreet Singh
I literally.
- [38:22]
Humphrey Yang
I sent it to Koopa Cafe in Palo Alto. If anyone wants to go there. I think the average person, psychologically speaking, it's hard. It's really hard when it goes down 80%. And if Jaspreet says you need money, like, at that moment, you're going to sell it.
- [38:34]
Raoul Pal
But your point about. I mean, the primarily important thing is income.
- [38:40]
Humphrey Yang
Yes.
- [38:42]
Raoul Pal
And we talked about last time I was on the podcast. It's like, how do you just leverage the same skills in different ways that you can earn more money from it? The story I was told when I left university was speaking to a friend of my dad's. He was like, well, what are you gonna do? And my father was in marketing, and I liked marketing, but it was like late 80s Wall street thing was going on. And I'm like, well, I'm thinking about either going to work for somebody like Mars, do marketing, you know, great company, or go and work in the city in London. And the guy looked at me and said, it's really simple, Raoul. It's the same job. You're a salesman in both. One you get three Mars bars, and the other you get free money. And you realize, oh, there's actually arbitrage in what you can do with the same skill set.
- [39:27]
Jaspreet Singh
Well, I would say there is a point. So I agree. If it was me with $1,000, I'm going to go out and invest in my income, read some books, get whatever I got to do, go start something, because that's enough. But if we look at time, $1,000 compounded is decent. If I. If you go back 1971, how do.
- [39:46]
Raoul Pal
I pay for my college loan and my house deposit and I want to get married and have kids. Well, you're telling me I can't do that for another 20 years.
- [39:55]
Jaspreet Singh
If I took $1,000 in 1971, I invested that into the S&P 500 and I did nothing else. I keep doing whatever, I'm doing my job, and I only invest $1,000 and I never invested another penny again. Today that would be worth, if I reinvested my dividends, about $330,000. And I never invested another penny after the first $1,000 investment. Why? Because the S&P 500 has grown by a little bit over 10% a year from 1971 to now. It's something. Now imagine if I invested $1,000 a year, $1,000 a month. Now, I can't say that about bitcoin because bitcoin didn't exist 50 years ago. I can't say that about bitcoin because bitcoin didn't exist 25 years ago.
- [40:41]
Raoul Pal
How about Amazon? What about Amazon that started trading in 2000? Or even better, Facebook 2012?
- [40:49]
Jaspreet Singh
How do I know?
- [40:49]
Raoul Pal
Do we not invest in it because it wasn't around? It hasn't been around as long as gold. I mean, Facebook has been around less than bitcoin has.
- [40:56]
Jaspreet Singh
Amazon, short of time, creates a profit. It has a tangible value that you can see and feel. Because I can go onto Amazon and order myself a brand new guacamole set. It'll be there in two hours, make.
- [41:08]
Raoul Pal
A single profit until what, 2018?
- [41:11]
Jaspreet Singh
But that wasn't because they weren't producing a value. It's because they were growing so aggressively.
- [41:16]
Stephen Dubner
So you think if you had $1,000, you should invest it in the S&P 500?
- [41:20]
Jaspreet Singh
Well, I'm not saying you should. I think personal finance is personal. I think if it was me, If I have $1,000 extra and I'm just trying to figure things out, I'm going to go buy some books, I'm going to buy a class. I'm going to do something about how do I increase my income going back to what you said. But if I'm saying I just want to work my job, I don't want to go out and do all that I would do half into the s and P500. And I would go half into individual companies. So more risk than The S&P 500, not as much risk as the Bitcoin. And the reason why I would do this is because this is something I enjoy. I like that research side of things. And I understand this is something that I could see returns with. Like you talked about Amazon, like you talked about Microsoft and whoever, there's potential.
- [41:58]
Stephen Dubner
And what about you, Humphrey? If $10,000, does your strategy change?
- [42:02]
Humphrey Yang
My strategy is a little. Probably more conservative or traditional. It's probably 90% index funds. So tracking the S&P 500 and then 10% speculative. And my whole goal for that 25 year old would probably be to get to $100,000 as quickly as possible. Because at that point I think they have more options, flexibility and they're able to kind of use that capital to maybe take more risk after that's still.
- [42:23]
Raoul Pal
10 years with the S&P. Well, eight years of the S&P.
- [42:25]
Humphrey Yang
About 7.84 years. Yeah, but that also assumes that they're only doing the 10,000 bucks a year. Maybe they can save and invest a little bit more. That'd be nice. But I think for a lot of people in America, if they can get a guaranteed $100,000 in 7.84 years, I think a lot of people might opt for that.
- [42:42]
Raoul Pal
So I agree. But I'd remove the S and P.
- [42:44]
Humphrey Yang
You do all crypto?
- [42:45]
Raoul Pal
No, I just do NASDAQ.
- [42:47]
Humphrey Yang
Oh yeah, you do NASDAQ.
- [42:47]
Raoul Pal
So NASDAQ compounds at 18% a year.
- [42:50]
Stephen Dubner
What is Nasdaq?
- [42:51]
Raoul Pal
The Nasdaq is the NASDAQ 100, which is the top technology stocks in the United States. We live in a world that tomorrow will be more digital than today guaranteed. And so therefore these stocks tend to generate the most performance. And we've talked about many of these names. That is all in the Nasdaq. So a little arbitrage is if you want to shorten your 7.8 years to five and a half years, six years, buy the NASDAQ 100. It's an ETF, zero cost, easy. And then I would say and then do 70% that 30% crypto, and you don't have to care about anything, you're fine. Now if you have a different risk tolerance, you can tweak those dials. Or if you are more risk averse, then you up your cash style or some other more stable flow, whether it's gold, although gold is still driven by debasement of currency, they're all the same thing, they're all driven by the same macro factors. So yeah, similar kind of idea.
- [43:47]
Jaspreet Singh
And the NASDAQ is great. Just say one thing, but just like with bitcoin, the difficult part with the 18% is you got to be willing to go through the downturns. And I want to make sure that that's clear because the big drop 2000, the NASDAQ fell by 70%, 8% from its peak during that time, the S&P 500 fell by 40%. So it's a bigger drop. Not to mention the Nasdaq didn't get to its level until 2015. Fifteen years later of no money, it.
- [44:19]
Raoul Pal
Has still compounded more returns than the.
- [44:20]
Jaspreet Singh
S and P. Absolutely. If you held on, you can't live your life. Fear of the drop 100%.
- [44:26]
Raoul Pal
It's got to be in the risk adjusted returns versus the gains.
- [44:29]
Jaspreet Singh
But how many people can hold on for 15 years and say year one, no big deal, year okay, year three, year five, it's going to go up, year 10, it's going to go up. And by the way, year 10 was also another crash because all you have.
- [44:43]
Raoul Pal
To do is dollar cost average.
- [44:44]
Stephen Dubner
What's that?
- [44:45]
Raoul Pal
So dollar cost averaging is if you're young and you've got a bit of excess cash now, you know you've sold your income a little bit as opposed to just chucking everything in or you do you put your large sum in, you've saved up your 10 grand, but now you've got maybe $500 a month of, of free capital you want to put into your savings. So when you have these drawdowns, you're actually keep buying and what happens is it lowers your average cost over time and you get to new all time highs in your portfolio much before the market does. So for example, in the last crypto down cycle, in 22, in 22, all I did was add as much as I could to my crypto. So I was at new all time highs in my portfolio of well before the market was because I'd lowered my average entry. That compounds your profits over time, incredibly.
- [45:36]
Stephen Dubner
And is there something psychological there where if you commit to the habit of just putting $500 in, regardless of what happens, you remove emotion, you remove a bit of emotion from it.
- [45:46]
Raoul Pal
And the emotion is the thing that people struggle with. If you're investing in things that are more volatile, you firstly understand that you will see larger drawdowns when markets go down. Usually they're all correlated, all go down the same time, all up at the same time. So you're going to do that. But if you tell yourself that's an advantage for me because I can buy more, that's a secret hack that makes people fortunes. Compounding. This is Warren Buffett's thing.
- [46:14]
Jaspreet Singh
I agree with that.
- [46:15]
Raoul Pal
More companies in a bear market than in a bull market.
- [46:19]
Jaspreet Singh
Because yeah, I 100% agree with that part. I call it poop. Panic leads to overselling, leads to opportunity, leads to profit. So I am on board with that. But that requires a specific level of financial sophistication.
- [46:37]
Raoul Pal
No, even your Coinbase app can just.
- [46:40]
Jaspreet Singh
You can see, it can dollar cost average. But how many people can dollar cost average down 70% for 15 years waiting.
- [46:48]
Raoul Pal
To see that it wasn't 70% in 15 years. It was, it was 70% in one year and then rallied ever since. Every single year after year after year it went up.
- [46:56]
Jaspreet Singh
And to see that down. Well, no. After the 2008 crash, the NASDAQ also again crashed more than the s and P500.
- [47:05]
Raoul Pal
And then step back and look at the returns of the NASDAQ versus I agree.
- [47:08]
Jaspreet Singh
Over the long term, it's a great investment. But volatility is hard for the average person who doesn't have the emotional IQ and the financial sophistication to understand.
- [47:17]
Raoul Pal
That's our job, to educate them.
- [47:19]
Jaspreet Singh
Yes.
- [47:20]
Raoul Pal
Our job is to help people in this journey and not get them to make decisions that compromise their future. We have to help them.
- [47:30]
Jaspreet Singh
I agree.
- [47:30]
Raoul Pal
And risk adjusted returns and time horizon are two of the single most important things.
- [47:34]
Stephen Dubner
And so what I hear, I mean, through history, contrarians have made the most money. And also I think the other thing that I've really pulled out from what you both were just saying, there is, you need to set up a system that removes emotion and requires you to not make decisions. Because it's in making decisions that your amygdala, the emotional center of your brain, is gonna make a bad one. And it's that I think that self awareness emerges from what you're both saying, which is, okay, my brain is going to panic, it's gonna poop, or whatever you were talking about there. And I need a system which is panic proof.
- [48:07]
Raoul Pal
So you know that the best performing brokerage accounts in the United States are dead people. It's true. It's a known fact. Because they don't do anything. So they have these accounts that haven't been closed and they're inactive. They outperform all the active people.
- [48:23]
Stephen Dubner
You are 100% in crypto in terms of your investment portfolio.
- [48:27]
Raoul Pal
Yeah.
- [48:29]
Stephen Dubner
So you must be Sat here thinking that. Actually, when I ask that $10,000 question, what should someone do with $10,000? You must be thinking that the right answer is to put it into crypto.
- [48:41]
Raoul Pal
The right answer for me is that to his point, Look, I actually would say. But it's an audience of people and people misinterpret things. Yes. The answer is we've been given the gift of the greatest performing asset the world has ever been given. That's not just bitcoin, it's the crypto complex. If you're very careful in investing in top projects, you can even have a mortar, a broader diversified portfolio of that. You've had Ethereum, Bitcoin, Solana, Sui, all of these things. Great. They will definitely outperform for a period of time. And that's based on macroeconomic factors, which is the debasement of currency, which we've talked about. That means all of these assets go up by a certain amount and some outperform it. The only two assets that outperform the debasement of currency is the NASDAQ and crypto. This has been a persistent trend that is observable and measurable. So this is not a speculative asset. What it is is a Metcalfe Law adoption model. Bitcoin is the adoption of, let's say, a money or collateral layer, like digital gold, we'll call it, while the rest of crypto is the new Rails for the Internet. So it's a technological investment. It is growing at twice the speed of the Internet in terms of adoption and has been since the first 5 million IP addresses for the Internet and the first 5 million wallets. Twice the speed of the Internet makes it the fastest adoption of any technology the world has ever seen. Aside from AI now, which is now outpacing it.
- [50:07]
Stephen Dubner
If we sit here in 20 years time and you were wrong, what happened, do you think?
- [50:15]
Raoul Pal
Well, firstly, in terms of investments, you have to always. Once you have a high conviction bet, your entire job is to question yourself, not to keep reaffirming yourself. Sure. You end up reaffirming by questioning. And then you figure it out for it not to have been true. What would have happened? The AI would have had a new system of money that it created. There has to be a competitor to this because we're now in the game of nation. Nations are acquiring this, the Middle east nations, nations in Asia. The US wants to acquire it. So we've got South American nations. So it's now the game of nations. Geopolitics, this is a real thing. But what changes in 20 years time. Well, in 20 years time, we're in a very different world. The economic engine is driven by robots and infinite intelligence. We don't know how the economic machine works. We don't even know what the value of money is when we go into that world. So I've talked about this before. The economic singularity. Past 2030, the economic model breaks down. So the economy generally grows by a measure of population growth. How many people are in the economy or coming into the economy or being born. Productivity, how much output they create. And then debt growth is the other lever. What's happened here is the population of the entire western world, plus Japan, plus China has been aging. So the rate of change of population growth is shrinking. They tried immigration, but that became politically unacceptable. So that stopped. So you've got this slowing economy. GDP growth has been slowing over time. Productivity, old people make less things, so it makes less economic output. So we've got this mess and then we got this debt and we stopped that whole engine in 2008, and we need to service this debt. So, okay, so that's the system we're in. And this is why we're printing money to service this debt, because we're not generating enough output in the economy. But after 2030, this population part changes. We've got infinite artificial humans.
- [52:27]
Stephen Dubner
You're talking about AI agents and robotics.
- [52:29]
Raoul Pal
Yeah, infinite. So what does that do for the multiplier of that formula? Population growth plus productivity growth plus debt growth. It breaks because you're going to have 20% GDP growth because you've had a huge rise in the number of AI agents creating economic activity in robots.
- [52:49]
Stephen Dubner
And so what does that mean for me as the average person?
- [52:52]
Raoul Pal
For me, it's like the economic system starts changing. We get to this world of abundance. We don't know what has value, what we as humans do. We change and retool to become more humans, because AI and robots can't be humans. So we have to figure all of this stuff out. Investing we were talking about this earlier is like, well, does the AGI, is that going to be a better investor than any of us? Yes.
- [53:15]
Stephen Dubner
Artificial general intelligence, that's the next stage.
- [53:18]
Raoul Pal
Where it's smarter than any human that's ever existed. And we're very close to that. So in which case, well, how do markets work? And when businesses are agents selling stuff to other agents, where do we play a role? So all I'm saying is my job, my whole life has been to look into the future sort of 10 years out and try and probabilistically understand paths here I get to like 2030 and it's like a dark curtain.
- [53:48]
Stephen Dubner
Just to flip that for a second. How could AI actually positively influence your hypothesis?
- [53:55]
Raoul Pal
I'm very positive about AI. I think humanity will come out of this just fine. I think economic growth that explodes is we can work a way of accreting it to humans or society or whatever we want to do with it. So I'm not an A my doomer.
- [54:11]
Stephen Dubner
Specifically on Bitcoin's value and price. How could AI make it even more important?
- [54:17]
Raoul Pal
Well, in the end, an AI is a. It requires two inputs. It's Maslov's hierarchy of needs is basically two things. Computing energy and it needs to be paid. These agents can't. You can't build all these agents of billions of agents running around doing things without paying for them. And agents will use agents. So one agent will get another 10 agents to do all this task. They're all going to have to be paid. And the way of doing that is using crypto rails, stablecoins, whether it's stablecoins, whatever it is. But that whole crypto rail, all of this new infrastructure for the Internet, the blockchain. That's why it works.
- [54:57]
Stephen Dubner
Often the difference between a company succeeding or failing isn't down to its product or strategy. It's down to the people on the inside. After all, the definition of the word company is group of people. And some of the best companies in the world have been largely built by A players. Because I'll let you in on a little secret. When you hire an A player, they go on to hire more A players. And it perpetuates. The challenge is finding those first few A players. I found the majority of mine on LinkedIn who are a sponsor of this show. LinkedIn provides talent I could not find anywhere else. Talent with the necessary skills and culture fit that I'm looking for. Whenever I've paid to promote a role on LinkedIn, I've been able to hire faster and of course, better. The data supports this too. You'll actually get three times more qualified applicants than if you posted the same role for free. So if you're trying to build something truly great, you can get started by posting a job for free by visiting LinkedIn.com that's LinkedIn.com doac and you can post your role for free there. Terms and conditions, of course, apply. Do any of you remember a conversation I had on this podcast with anthropologist Daniel Lieberman? It was one of our most viewed conversations of all time. And the most replayed moment in that conversation was when I talked about this product. These are what I call barefoot shoes by vivobarefoot, which have significantly reduced support which gives my feet the opportunity that they desperately want and need to strengthen. If you've learned anything from this podcast, it might be that we're living in a comfort crisis and that at all times in our lives we're making this trade of whether to have more comfort now and therefore more discomfort in the future, or a little bit less comfort now, but to be stronger and healthier in the future. And for me, that is the choice to wear barefoot shoes. So if you want to start strengthening your feet and your body, visit vivobarefoot.com Stephen and you'll get 20% off when you use code STEPHENB20 at check that also comes with a 100 day money back guarantee. What have you got to lose? I wanted to ask you a question. The reason I went and got my phone is because I had someone contact me that I knew from my childhood. Used to be one of my old best friends. Frankly, not spoke to them in 10 years. Sent me a text message and the text message they sent me is I wanted to get your opinion on this cause I ended up saying to him, listen, I'm not the guy to ask about this. I think you've misunderstood who I am. Hi mate, I hope you're well. I got myself in a bit of trouble with some debt, about £40,000. So more than a bit of trouble, I'm after some advice and direction in terms of maybe passive income, an avenue to try and work my way out of it. Is there some material I should be reading watching that you might know of? And I asked him, I said what kind of debt is it? And he said personal loans and credit cards mate. And I said I need to ascertain how urgent those debts are and if it's causing any any immediate issues. And he said well they're not super urgent, but as a result of the high monthly outgoings, I'm a month behind my mortgage payment this month. So it like is, but it's not because I don't want to keep being in that position moving forward. It's costing me circa $1,000, 800 pounds a month in repayments at the moment and I can't get a consolidation loan. It's a perfect storm starting because I've just started a new job and my partner is on maternity leave and I have this debt mountain. It's starting to affect my family. If I can't pay the Mortgage, you know, so I've gotta change moving forward and figure out what to do. And you're the man to ask for advice. I was like, fuck me, I'm not. And then he messaged me again within an hour and said, hey, sorry man, if you're busy, just wanted to nudge this. Then messaged again an hour later. Cause I was on a flight and said, hey, I really need some help and direction, man. I'm quickly running out of places.
- [58:45]
Humphrey Yang
He's kind of in a hard spot because 40,000 pounds in debt with the interest payments of, let's say your interest rate is 15 to 20%, that starts to spiral out of control a little bit. Like if he was under £10,000 in debt, it's a little bit more manageable. But at 40,000, the interest starts to compound quite quickly. So you said he had a mortgage. He might even have to consider moving, selling the home to at least get the interest payments under control or reduce that amount of debt. But it's kind of one of those situations where you just need to reduce every single expense possible and start really pouring all your money into the highest interest rate debt that he owns. So you can rank your interest rates of all your debts from highest to lowest and start at the very top. If it has 22% interest rate, you want to get rid of that first because that's what's killing them. At those levels of debt, it's really tough because I think a lot of people consider bankruptcy at that point just to clear that amount of debt, depending on what his income is. I know, I've known, let's say a waitress or server that had $50,000 in credit card debt and just unable to get over it because the interest payments were as much as her salary. So in those cases, unless you can get a personal loan from, let's say, a family member and, you know, kind of clear that debt, you're in a really tough spot. Reduce your expenses as much as possible. Put any extra money you have towards that debt at the highest interest rate possible, the first, the highest interest rate thing. And then consider selling some assets, if he has assets.
- [60:12]
Stephen Dubner
Bankruptcy.
- [60:13]
Humphrey Yang
Bankruptcy.
- [60:14]
Stephen Dubner
When should someone consider bankruptcy? And what's the trade off?
- [60:18]
Humphrey Yang
The trade off is seven years. I believe your credit is shot in America, but I believe that actually, I think if you pull up a chart. Someone sent me a tweet the other day of bankruptcy lawyer searches in America on Google, and it's been going up into the right, which is not a great thing, bankruptcy. There's different types of bankruptcy. Bankruptcy that you can file for. But I do know that it usually clears some, if not all, your debt and you basically have to start over. But as a result, you lose a lot of your privileges, like, for example, no credit score.
- [60:52]
Stephen Dubner
I read some stat. You might know if this is true, but I read a stat that it said something to the effect that people avoid going into bankruptcy because of the stigma associated with it. But when they looked at the financial performance over 10 years of people that did go into bankruptcy, those that did typically were better off than those that tried to avoid it for the next 10 years. So, yeah, I don't know.
- [61:19]
Humphrey Yang
That could be anecdotal. I don't know. That's tough because if you have $50,000 in debt and you make $50,000 a year, it's.
- [61:26]
Raoul Pal
Yeah, bankruptcy in some ways is a good thing because it forces you to do crisis control. It's like your expenditure, what you're doing, everything becomes hyper focused. Like you led in the beginning with about how people should look at their expenditure.
- [61:44]
Jaspreet Singh
Right.
- [61:44]
Raoul Pal
When you have $40,000 in debt, you've not been doing that.
- [61:47]
Humphrey Yang
Correct.
- [61:48]
Raoul Pal
And bankruptcy actually forces you to actually discipline that for extended period of time where it becomes a habit. So, Stephen, that's why they outperform in the end, because you've created the habit that you talked about right in the beginning of this discussion.
- [62:02]
Stephen Dubner
Yeah, So I just found the stat here. It said, yeah, this is one of the uncomfortable truths in finance. And the answer is often, yes, those who file for bankruptcy end up in a better place long term than those who try for prolonged periods of time to avoid it. And the research shows that people who file for bankruptcy typically get their debt wiped out and cleaned. And they. Removing unpayable debt and bankruptcy can bring immediate mental relief, removing the crushing stress of unpayable debts. People who avoid it often live in chronic financial stress, which spills into their health, relationships and work. So in short, those who face bankruptcy head on often recover faster and end up in a stronger position than those who keep limping along trying to avoid it.
- [62:42]
Jaspreet Singh
And I think somebody who's listening who may be in a similar or the same situation, ultimately wants to know, how do I get relief? Bankruptcy is one option, but at the end of the day, there has to be change. And that change is difficult. And that's the part that I think a lot of people have hard time talking about or comprehending. There is relief, but it comes with severe, extreme and quick sacrifice. What do I mean? Number one, you got to cut Back your expenses as fast as possible. In that situation, you have to sell as much stuff as possible. I mean, bankruptcy obviously works, but you also lose your house. You also lose other things along with it. There's a lot of emotional toll with it. You have a family of a kid. I mean, it's also a big reason people end up getting a divorce. So it can also impact your life in many different ways. So you have to make extreme sacrifices. And I mean, get rid of the Netflix subscription, not because it's just costing you $15 a month, but because the average American is spending more than two hours a day watching Netflix. And if you're in that type of situation and you're spending two hours sitting there watching whatever the heck is on Netflix, how do you sleep at night? You shouldn't be sleeping eight hours a night. You better be getting up, going, try to get some more money. I don't care if it's Uber. I don't care if you're working at McDonald's. Find some extra money and learn how you can earn some more money. It sounds harsh, but the reality is, if you want extreme change, it's not going to happen without extreme change.
- [64:09]
Stephen Dubner
So could he sell his house? Do you think that assuming he's making the 50k, which I think is probably accurate, having a vague understanding of his job and where he lives, et cetera, sell his house and then move and rent an apartment, Would that free up capital?
- [64:21]
Humphrey Yang
I mean, that would alleviate his current problem immediately, sure.
- [64:25]
Stephen Dubner
He says here, after some advice, direction, in terms of maybe passive income. This word, passive income, I know, it drives me nuts. Why does it drive you nuts?
- [64:35]
Raoul Pal
There's like a passive income industrialization complex that is. I mean, it is literally every millennial's dream is, I'm going to get passive income, and it doesn't exist. We talked about property. Property is the least passive income you can imagine. It is awful. Every time I've tried to rent out property, there are so many costs, Everything goes wrong. It's just endless. You're paying fees, and people think there's a magic passive income. Everything comes with effort. There is no such thing as returns without effort. Even robbery comes with effort. There's no way of making money without effort or risking something. And so when you're 40 grand in debt, how on earth do you think passive income is going to rescue you? But he's seen that on TikTok and on Instagram. Oh, we're millennials in our 30s and we're now living in Lisbon, and we've Got passive income from our house. It's like it's bullshit. It's social media dream that doesn't really exist and that's never going to save him from 40,000 pound debt.
- [65:42]
Jaspreet Singh
Passive income can exist. The perception of what it is is the problem. I am struggling with money. I have no money, I got bills to pay, I need passive income. That's not how it works.
- [65:55]
Humphrey Yang
It's not how it works.
- [65:56]
Jaspreet Singh
The way it works is you take extra money, I'm going to work and I'm saving and investing some money. I take the extra money that I want to put my two investments and I can put it into an asset, an investment that can pay me for owning it without actually working, without going to work to own it. Now let me ask you about your real estate because I got to keep coming back to you, man. Did you manage your real estate yourself or did you have a management agent?
- [66:21]
Raoul Pal
I've done both. I've had management agent and a management myself.
- [66:25]
Jaspreet Singh
Managing yourself is probably an absolute nightmare.
- [66:27]
Raoul Pal
That's horrific.
- [66:28]
Jaspreet Singh
And managing it with a manager was also probably a nightmare. Just in a different scene.
- [66:33]
Raoul Pal
Yeah. And because your yield is massively reduced as well.
- [66:36]
Jaspreet Singh
It is reduced.
- [66:36]
Raoul Pal
And then you take the trade off between whether you're going to do short term lets or longer term rentals and there's the volatility in the short term lets that you don't know what your yield's going to be long term different as well. Then you've got the tenants and how bad the tenants have been and the damage that they've done. By the end of it you walk away and think really it just wasn't worth the effort.
- [66:56]
Jaspreet Singh
Well, I would disagree with your part.
- [66:58]
Raoul Pal
Yeah, I mean obviously people can do really well at a property.
- [67:01]
Jaspreet Singh
The work in real estate investment is learning the process. When I first started investing in real estate it was a complete nightmare. And it was not passive, anything close to passive. It was a nightmare nightmare. What you don't know when you start is that there's a good property manager, there's also a bad property manager. How do I find good property managers? By going through a lot of bad property managers and learning that process. And that is a painful process, a very time consuming process. But when you do have the right team, it can be extremely passive. So I invest in real estate.
- [67:36]
Stephen Dubner
What kind of properties are we talking about?
- [67:38]
Jaspreet Singh
Single family houses and multi family apartments.
- [67:40]
Stephen Dubner
And do you have lots of them?
- [67:42]
Jaspreet Singh
Not lots, but I have a decent amount.
- [67:44]
Stephen Dubner
And how much of your portfolio is in buying properties and then renting Them out to families.
- [67:48]
Jaspreet Singh
50%.
- [67:49]
Stephen Dubner
And what are your returns? Been like over year over year for the last decade.
- [67:53]
Jaspreet Singh
So the way I look at returns when I look to acquire a property is I want 7% cash on cash on the money that I put in. So when I look at return, I don't care about equity. We talked about this kind of a lot. That if I buy a house for, let's just call it $100,000, and it goes up to $200,000, I don't care. My goal when I acquire real estate is not to sell it and flip it for a profit. My goal is to grow the cash flow that I'm generating month after month after month.
- [68:19]
Stephen Dubner
From rental payments.
- [68:20]
Jaspreet Singh
From rental payments.
- [68:21]
Stephen Dubner
It's really difficult though. Cause if I someone that hasn't done a lot of property rentals and stuff like that, the chance that I'm gonna fuck up absolutely is so high.
- [68:32]
Jaspreet Singh
And I'm one of those people that probably screwed up more than I can count. It does cost me a lot of sleep, cost me a lot of stress.
- [68:41]
Stephen Dubner
So you have to kind of be an expert.
- [68:43]
Jaspreet Singh
You don't have to be an expert, but you gotta be willing to give. In the beginning, right? For the first number of years, it was extremely painful. But today, when I go and acquire a property, I will look for the property. Just like I do research on a stock or whatever I want to do, I do the work to research a property. In today's economy, it's much harder, not impossible, to find those returns, acquire the property, hand over the keys to the property manager, give them the goals. And now I oversee the manager because I have a team now that is.
- [69:12]
Stephen Dubner
It's a business.
- [69:12]
Jaspreet Singh
It's a business.
- [69:13]
Stephen Dubner
It's like starting a startup, but it's.
- [69:15]
Jaspreet Singh
Not like starting a startup.
- [69:16]
Stephen Dubner
Why?
- [69:16]
Jaspreet Singh
Because starting a startup, when I work at my company, I am working in my company and I work a lot of hours. So I'm meeting with my employees, I'm leading the meetings, I'm coming up with ideas, I'm leading the vision. With this, I acquire, I hand over the keys. I've already set the framework and now you are doing the execution.
- [69:35]
Stephen Dubner
That's a mature business. With my company, there's hundreds of people in the UK running.
- [69:38]
Jaspreet Singh
But you're not the one that's starting that startup.
- [69:40]
Stephen Dubner
I was the founder.
- [69:41]
Jaspreet Singh
And now what have you done? You've acquired more employees to get there.
- [69:45]
Stephen Dubner
Which is what you did with your property manager.
- [69:46]
Jaspreet Singh
It's much harder to do it with a startup, though. How big does a Startup have to be in order to be able to displace you as a CEO, to pay for the staff, to make the money and then to hire a new CEO and to lead it the way.
- [69:57]
Stephen Dubner
Depends. My friend Ash, who was just with me last week in la, has four people in his startup. He's out in LA right now, in my house in LA with my girlfriend and my other best friend who's still there and I watched. He's in the hot tub right now. I know that because every day at the same time he goes in the hot tub and then they go for this hike and my girlfriend sends me photos. What he's done is he's set up his team of four people, they do personal branding on LinkedIn for people and they're running it back for him in the uk. He's up in bloody the mountain with my girlfriend right now.
- [70:23]
Jaspreet Singh
That's beautiful, but how many startups don't get there?
- [70:26]
Stephen Dubner
No, but I'm saying when you described it to me, I was like, oh, that's just. It's just a business.
- [70:30]
Jaspreet Singh
It is a business.
- [70:31]
Stephen Dubner
A steep learning curve to develop expertise and then you put systems in place.
- [70:35]
Jaspreet Singh
To make it sustainable, but the systems are kind of pre established where you need to rent it out, you need a good manager, it's going to find a good tenant, they got to pay the bills. And it's not like a startup where I have to innovate and create an idea. I don't have to go out and build the blueprint, I am going out. I'm acquiring an asset that people already need that's already existing and then I'm going to put used to it by having somebody live there or use it and then there's a team just maintaining it.
- [71:06]
Stephen Dubner
So what do you think then in terms of passive income and is it real? But specifically, let's do this point of housing. Do you advise people to buy rental properties and then generate rental fees from them as a source of income?
- [71:18]
Humphrey Yang
Well, you just heard Jasper, how much work it would take. So I generally don't advise people to get into that business just because of the steep learning curve. And not everyone is built for that and not everyone has capital for that. So if you were just trying to get started and actually make some money, I just think the stock market is the most liquid and easiest place to get started. I personally rent and I plan on renting and just instead investing the difference of what my mortgage payment might be and my rent. I think on the coast like San Francisco, New York, I think Miami that might actually be the more reasonable thing to do.
- [71:51]
Stephen Dubner
I was reading a New York Times article that just came out yesterday and it said more millionaires than ever are renting in the United States and that it's tripled between 2019 and 2023. So in just a couple of years, millionaires are choosing to rent more than ever before. What's going on?
- [72:11]
Humphrey Yang
My guess would be a lot of the millionaires are probably living on the coast because they invest a lot or they have higher paying jobs and maybe it's slightly unaffordable for them to buy a house in, say, San Francisco, Seattle, New York, Los Angeles.
- [72:24]
Stephen Dubner
In the New York Times article, it says they're choosing flexibility and liquidity over ownership and they don't want to be bothered with the inconveniences of home ownership, which includes paying a real estate tax and insurance, especially in markets like Florida and California where we're seeing a lot of natural catastrophes.
- [72:40]
Jaspreet Singh
Yeah.
- [72:40]
Raoul Pal
So the US Is a peculiar market because there's this high real estate tax in owning real estate. So all the time your returns are being reduced by that you pay. So whether it's like 1.5% or 2%, whatever the number is, there's that and then there's the other real estate taxes that come on top of it. Interest rates have been high. They've been high for a while now. So a lot of people have just been priced out of the market just in interest payments. But now because of mortgage payments are here. The difference is actually with the rental is a lot of rental people aren't trying to cover a mortgage cost because they own the property outright. So you get cheaper rates. So it's to do with price. The US Economy's not been super strong yet at Main street level. Wall Street's had a great period of time, but Main street hasn't. So people don't have excess earnings yet. So I think it's a function of that. But it's probably a larger trend as well.
- [73:35]
Jaspreet Singh
I think also it's understanding what the opportunities are. I mean, there's a lot of flexibility with renting. I mean, I finally bought a house in 2025. I've been renting before this.
- [73:44]
Stephen Dubner
So you bought your first property to live in with your family this year?
- [73:49]
Jaspreet Singh
Yes. Me to live in was 2025.
- [73:51]
Stephen Dubner
Why didn't you do it sooner?
- [73:53]
Jaspreet Singh
Well, because when I was renting, I could take the capital and buy other rental properties by other investments. So it made more sense for me to put that money to work somewhere else.
- [74:04]
Stephen Dubner
So is Buying a property as a means to generate wealth, a terrible idea.
- [74:09]
Jaspreet Singh
As a means to generate, to buy for yourself, to live in or to.
- [74:12]
Stephen Dubner
Well, but you know, when I grew up, everyone said to me that you get money, get a job, then you get a mortgage. And so like that's what you did.
- [74:19]
Jaspreet Singh
That's one of the worst pieces of advice you can give somebody.
- [74:22]
Stephen Dubner
But that's what everyone's doing. That's still what the vast majority of people are doing. And I know that because I look at my friends that don't have the same financial advice that I have from like my brother and my financial advisors, my accountants. And the first thing they do when they get a bit of money is they go and get a mortgage. And that's because that's what their parents did. And that's what everyone's always done. Is that a good idea?
- [74:46]
Raoul Pal
Yes and no. No. I think these days, with how the economy set up, don't forget When I was 24, 25, I was working in an investment bank. I wasn't the highest paid guy there. I was a 25 year old and to buy my first flat in London was three and a half times my income, that equivalent flat and the equivalent income is 12 times. So rent makes much more sense now. And you might as well invest, buy all the stuff that you think will drive returns. But a house, a primary house, is not an investment, never will be. Because once you buy it, you don't sell it. You don't realize that equity, maybe your kids do, if you've got kids. So it's not an investment, but it can be an investment in your future.
- [75:29]
Stephen Dubner
But there's like some optical illusion going on here. Because when I think about renting, I go, well, that money, I never see it again. But with buying a house, I'm paying into it. So it's like me depositing the money in a piggy bank. So logically, of course, renting is wasting money. It goes to someone else, I never see it again.
- [75:46]
Jaspreet Singh
But that's not exactly true. If you go out today, I buy a half a million dollar house, I put 20% down. So I put $100,000 down, I financed $400,000, I get a 6.5% mortgage, 30 years, my mortgage payment is $2,500 a month. Now what am I doing? I'm not renting, I'm not giving money to my landlord, I'm building equity in my property. But banks also understand the same game. They front load your mortgage. What does that mean? When I pay $2,500. It's not 1250 going to principle to build equity in my house and 1250 for interest. It's principle being buying your house back for yourself. It's not half and half, it's almost all interest. In fact, if you go on and buy the half a million dollar house today at a 6.5% mortgage, 20% down for the first 20 years of that mortgage, more than half of that payment is going to go directly to your banker's pocket with interest. It's not until year 21 that half of your $2,500 payment is going to go towards equity in your house. So it's all interest, zero equity. And then slowly it moves like this. It takes 20 years to get there. And then what happens along the way for a lot of people, not everybody, for a lot of people is along the way interest rates go down. I need some extra money. So what do I do? I refinance. As soon as I refinance, that amortization starts all over again. And so now I'm paying all this interest again and my real equity that I'm building is not there. This is why I say it's not bad to buy a house. I think it's great if you buy a house, but don't treat your house like you said, don't treat your house like an investment. Treat it like an expense. Buy. Buy it because you can afford it, because you want it, because you're ready, but not because you're going to build wealth.
- [77:43]
Stephen Dubner
What do you think?
- [77:44]
Humphrey Yang
I agree with both their takes. I think that, you know, a home is an asset that you can't sell very easily. So that's also a good thing. Like if you have $100,000 to put into stocks or $100,000 to put on a down payment and you know, you were just such an emotional person that the moment that the stock market goes down 2%, you're selling. Probably better to buy a house, right? You can't really sell your house in the top of two swipes. But in terms of an investment, it's like usually it's much more than an investment to people. They, they buy them for psychological reason or emotional reasons or the sense of security. So I just say like, if you're interested in buying a house and you, you can afford it and that's great. Yeah.
- [78:23]
Jaspreet Singh
And let's just actually go with the best case scenario. So like, I think you were mentioning this. I buy a house for, let's call it half a million dollars. It goes up in value to $1 million. Oh, my God, I'm rich, right? Well, it's invisible, but yeah, I could take the cash out, refinance, but now I had to pay all that. But here's the problem. You now own a million dollar house. What does that mean? You have to pay property taxes on a million dollar house. So you got to pay a lot more property taxes. You have to pay insurance on a million dollar house. And so now if you pass this house down to your kids, great, they got a million dollar house. But if they can't afford the property taxes or the insurance on a million dollar house, now they have to sell it.
- [78:59]
Raoul Pal
Because insurance is one of these really hidden costs that you don't realize, particularly if you're in a hurricane area like Texas or Oklahoma or something, suddenly your house insurance costs are prohibitive on top of the taxes you pay. People don't think about that.
- [79:15]
Stephen Dubner
So just what you're saying, buy Bitcoin, right?
- [79:18]
Jaspreet Singh
Go all in. You're one coin away from everything.
- [79:21]
Raoul Pal
Zero cost.
- [79:22]
Stephen Dubner
They've just clicked that. Click that. That's gone viral. But no one at this table would adopt buying a house as a wealth creation strategy. No. You would all do many things before then.
- [79:34]
Humphrey Yang
Yeah, correct.
- [79:35]
Stephen Dubner
Would that be almost at the bottom of the list of things?
- [79:39]
Raoul Pal
Part of its age cohort? Who are you talking about? If you're kind of like 38 years old, you've got a kid, you kind of cleared up some of your student debt payments. Okay, that security thing is fine, but it's not an investment. Anybody younger just.
- [79:55]
Jaspreet Singh
No.
- [79:56]
Humphrey Yang
If you're just talking pure dollar investment returns, I, I probably would rank it lower on the list for sure.
- [80:01]
Stephen Dubner
Is there any such thing as good debt? Because I remember at the start you said, clear up your debts. Is there a good debt?
- [80:06]
Raoul Pal
People make a lot of money on debt, but people lose a lot of money on debt.
- [80:11]
Humphrey Yang
I just try to stay away from debt altogether. Yeah, I think, yeah, there is such a thing as good debt if it's working for you and you're able to leverage that money to make more money. But a lot of people, with leverage comes a lot of risk. I know a lot of people got wiped out because they took on, quote, unquote, good debt. Right.
- [80:28]
Stephen Dubner
What's leverage?
- [80:29]
Humphrey Yang
Leverage is so, for example, in Jaspreet's example, you put 20% down on a house and you take an 80%, the rest of it as a mortgage. That's technically leveraging your money because you're taking the 100k that you have and now you are affording an asset that's worth $500,000. If your home goes from $500,000 to a million dollars, you have a $500,000 gain, but you only put in $100,000. So technically your profit or your return percentage is much higher. It was leveraged by that debt that you carried.
- [81:00]
Stephen Dubner
Well, I don't think most people know that they can leverage their crypto.
- [81:04]
Raoul Pal
That's right, you can borrow against it.
- [81:06]
Stephen Dubner
So anyone can. You don't need to go to a bank.
- [81:08]
Raoul Pal
No, you could do it instantaneously in what's known as decentralized finance. Or there's a whole bunch of companies that do this where you can borrow against your assets. You can even do it against digital art. I mean, I'm a huge digital art collector. Much like the art market, you can actually go and borrow against the value of the art. Maybe 40, 50% against the value.
- [81:27]
Stephen Dubner
Explain this to me. Super. Simply for someone that's never even bought a bitcoin before and is thinking about potentially buying one, but they would also like some way to have a little bit of cash.
- [81:38]
Raoul Pal
Look, I don't like it, okay? I understand why. But the issue is you've got an asset that does.
- [81:44]
Stephen Dubner
This is volatile.
- [81:46]
Raoul Pal
It's very volatile. And you're borrowing a certain amount against it and you don't know whether it falls below that value and you get liquidated, then you've lost all of your bitcoin. The whole game is if you're in a secular bull market, just don't lose control of your tokens. Own your bitcoin all the way through and you have a risk of screwing that up for the extra 5% income or 10% income in Ethereum, very different world because you're staking, so you're getting naturally rewarded in the network.
- [82:14]
Stephen Dubner
What does that mean, staking?
- [82:15]
Raoul Pal
What it means is in Bitcoin you actually get miners basically get rewarded for solving the algorithm, the computation. In Ethereum and Solana and Sui and the other big blockchains, you basically get rewarded for securing the network. So you stake your tokens to secure the network because the more people then have this network connectivity between them and you get paid for that. So in Ethereum, right now it's probably four.
- [82:43]
Stephen Dubner
Okay, so just I'll try and summarize this like a 10 year old, but.
- [82:47]
Raoul Pal
There'S no risk in that. You're not getting leverage in that.
- [82:50]
Stephen Dubner
So if I choose to buy Ethereum, which is a form of cryptocurrency, I can take my $100,000 of Ethereum. And on my phone in a couple of clicks I can move it, I can press a button and move it so that it is staked. And when it's staked, I am basically using my Ethereum to secure the network, to make the whole thing more secure so it can run properly. And in return they'll give me 4% of it as a payment every month.
- [83:20]
Raoul Pal
Well, not 4% a month, but monthly payments.
- [83:22]
Stephen Dubner
Monthly payments of 4% annualized, yeah. So you can get interest on your crypto.
- [83:28]
Raoul Pal
Yes, essentially. And then if you're a little more sophisticated, a little bit racier, there are then yield enhancements. So we talked about high yield bank accounts. There's high yield versions in crypto and you can get up to 20, 30%. But now you're taking risks.
- [83:42]
Stephen Dubner
And I can also loan against my Ethereum. So I actually did this at one point. I don't do it anymore, but I had a thousand Ethereum and I put it.
- [83:51]
Humphrey Yang
I took $1,000 or 1,000 Ethereum.
- [83:54]
Stephen Dubner
Yeah, fucking yeah, I know. I actually, I switched it into Bitcoin a little while ago, so a couple of months back, but probably bad timing. This is why Melanie, that was terrible timing.
- [84:02]
Raoul Pal
You should have called me first.
- [84:04]
Humphrey Yang
I know.
- [84:06]
Stephen Dubner
But you know this, people are emotional. I had a loan against it, so I borrowed a couple of million dollars at one point to buy some more other crypto assets against my Ethereum. And it was surprising to me that I didn't have to call anybody, I didn't have to ring a bank. I could just click a couple of simple buttons on my phone and this a thousand Ethereum I had, I managed to get a couple of million dollars paid straight away in cash, straight to me. But I chose not to do that because the markets are super volatile.
- [84:33]
Raoul Pal
But it is incredibly efficient, effective way of people. If you were to let's say you had $100,000 of Bitcoin, one Bitcoin, to borrow $20,000 against it, that's not very risky.
- [84:45]
Stephen Dubner
Or $5,000 against it, or 5,000, whatever.
- [84:47]
Raoul Pal
It is, it's not very risky. Or if you're in a different currency where you can stake it, very little risk. Very, very little risk. It's like lending to the US government, that is lending to the government of Ethereum, the Ethereum network. That's a pretty decent way of enhancing.
- [85:03]
Stephen Dubner
It's hard to do that with stocks. It's hard to get a loan against.