Scott’s Investment Portfolio — a Breakdown | Prof G Markets

Summary

In this engaging discussion, the speaker shares insights into their personal investment strategy, highlighting a significant allocation to real estate and private investments. They emphasize the importance of diversification and long-term holding, while also acknowledging the role of privilege and access in their investment success. The conversation touches on the unpredictability of the market, the value of liquidity, and the impact of the tax code on wealth management. The speaker candidly discusses their wins and losses, offering a realistic perspective on the risks and rewards of investing.

Takeaways

• 🏠 Real estate constitutes a significant portion of the investor's portfolio, around 40%, due to its tax advantages and potential for long-term holding.
• 💼 The investor has a diverse asset allocation with 40% in private investments and only 15-20% in publicly traded stocks, reflecting a belief in the potential of private markets and a more hands-on investment approach.
• 📈 A focus on demographic trends and supply-demand imbalances in the housing market informs the investor's real estate strategy, leading to investment in rental units and a belief in their long-term value.
• 🌐 The investor's real estate holdings are concentrated in areas he terms '0.1% neighborhoods', based on the belief that income inequality will continue to drive up property values in these areas.
• 💡 Private investments are disproportionately high due to the investor's access and relationships in the tech and business world, allowing for unique opportunities that others do not have.
• 💸 The investor has a hands-on approach to managing his investments, spending significant time on understanding and advising the companies he invests in, rather than delegating this task to others.
• 📉 The investor acknowledges the emotional toll of daily market fluctuations and prefers investments that do not require constant monitoring, such as real estate and private equity.
• 🔄 The investor's strategy involves regular liquidity events, where he cashes out of certain investments and redeploys the capital into other opportunities, maintaining a balance of risk and reward.
• 🚫 The investor has experienced significant losses, including a $15 million loss from shorting the market and marking down private company investments, underscoring the risks of an active investment strategy.
• 🎯 Going forward, the investor is looking to diversify into the credit markets and take advantage of the anticipated boom in the IPO market, while also focusing on philanthropy and tax advantages.
• 🌟 Despite his success, the investor attributes much of it to luck and timing, emphasizing the unpredictable nature of investments and the importance of diversification to manage risk.

Q & A

What was the total revenue earned by the Caribbean island of Anguilla from web domain registrations last year?

The total revenue earned by Anguilla from web domain registrations last year was $32 million.

What does the interviewee's current asset allocation consist of?

The interviewee's current asset allocation is approximately 40% in real estate, 40% in private investments, and 15-20% in publicly traded stocks.

How has the interviewee's asset allocation changed over the years?

When the interviewee was younger, they had more money in real estate due to leverage from buying a home. As they accumulated more wealth, they increased their exposure to public stocks. Over time, they reduced their public market exposure and increased their allocation to private market investments and real estate.

Why does the interviewee own a significant amount of real estate?

The interviewee owns a lot of real estate because they view it as a tax-advantaged asset class that can be held indefinitely without leveraging it too much. They also believe that real estate, especially rental units, can be a good asset to pass on to children and that there is a long-term demand-supply imbalance due to a shortage of homes being built.

What is the interviewee's strategy with their real estate holdings?

The interviewee follows a 0.1% strategy with their real estate holdings, focusing on owning properties in areas that are expected to increase in value faster than inflation due to income inequality and the concentration of wealth among the ultra-rich. They own homes in London, New York, Palm Beach, and Aspen, aiming to have places where their children will want to visit and where they can enjoy beautiful locations.

How does the interviewee manage liquidity in their investment portfolio?

The interviewee manages liquidity by borrowing against their stocks, selling assets during liquidity events, and maintaining a line of credit. They also generate income from their day jobs, such as writing books, podcasts, and speaking engagements, to ensure they live within their means and have dry powder for investment opportunities.

What was the interviewee's biggest loss in the past 12 months?

The interviewee's biggest loss was $15 million from shorting the market as a hedge against their exposure to tech stocks and individual stocks. They also experienced losses from marking down the value of some private companies.

How does the interviewee approach investing in private companies?

The interviewee invests in private companies based on their access and relationships, often being invited to invest alongside tier one private equity and VC firms at negative fees. They also focus on diversification and invest in a wide range of sectors, from aircraft leasing to software companies and supply chain benchmarking.

What is the interviewee's view on public market investments?

The interviewee has reduced their exposure to public market investments, believing that it is a rigged market and that nobody can reliably pick stocks. They typically invest in stocks when they have access to IPOs due to their connections or when they can get allocation through their involvement with the company.

How does the interviewee's investment strategy align with their advice to others?

While the interviewee advises others on diversification, low-cost ETFs, and letting time take over, their own portfolio is heavily weighted towards private investments and real estate due to their unique access and ability to take more risk. They acknowledge that their strategy may not be suitable for everyone and that they have the luxury to take more risk due to their financial security.

What is the interviewee's outlook on the IPO market for the year ahead?

The interviewee expects the IPO market to boom in the next six months and is actively seeking ways to invest in great companies that are about to go public. They aim to leverage their communication skills and access to high-level corporate contacts to secure investment opportunities.

Outlines

00:00

📈 Diverse Investments and Real Estate Strategy

The speaker discusses their personal investment strategy, highlighting a significant allocation to real estate and private investments. They explain the tax advantages of real estate and their belief in a supply-demand imbalance due to insufficient home construction. The speaker also mentions their focus on owning properties in .1% neighborhoods as a hedge against income inequality and their reduced exposure to public markets.

05:00

💡 Privilege in Private Investments

The speaker acknowledges the privilege and access they have in the private investment space, which allows them to invest alongside top-tier firms with negative fees. They express a lack of confidence in the stock market's predictability and a preference for less frequent valuations of their assets, which leads to less emotional stress. Despite their unconventional portfolio, they maintain that they are diversified and follow a long-term investment approach.

10:01

📉 Learning from Losses and Market Irrationality

The speaker reflects on their biggest losses in the past year, including a significant sum from shorting the market and writing naked calls against high-flyer stocks. They discuss the importance of not overestimating one's investment abilities and the painful lesson learned from the market's prolonged irrationality. They also mention markdowns on private company investments that have not met expectations.

15:01

💰 Managing Liquidity and Leveraging Assets

The speaker shares their approach to managing liquidity, which includes borrowing against stocks and having regular liquidity events from investments. They discuss the importance of tracking spending and investment values to avoid surprises. The speaker also talks about their successful investments, such as claims against a bankrupt company, and their strategy for staying liquid and leveraging their assets.

20:02

🚀 Success Stories and Diversification

The speaker recounts their successful investments, including a substantial return from a company acquisition and their strategy of diversifying across various sectors. They emphasize the importance of diversification and investing in good people and opportunities. The speaker also discusses their approach to giving away a portion of their investments, combining philanthropy with tax advantages.

25:02

🔄 Active Portfolio Management and Future Strategy

The speaker talks about their hands-on approach to managing their investments, their involvement in several company boards, and their plans for the year ahead. They express an interest in gaining exposure to the credit markets and investing in companies that are about to go public. The speaker also reflects on their strengths as a communicator and their ability to attract talented people, which has contributed to their investment success.

30:03

🌟 Acknowledging Luck and Unfair Advantage

The speaker humbly attributes their investment success to factors beyond their control, such as being born with certain advantages and experiencing the bull market during their prime income-earning years. They emphasize that their wealth is a result of luck and societal advantages rather than solely their investment skills. The speaker concludes by reiterating the importance of diversification and leveraging one's strengths in investments.

Keywords

💡Asset Allocation

Asset allocation refers to the process of dividing investment funds among different asset classes, such as real estate, private investments, and publicly traded stocks, to optimize returns and manage risk. In the video, the speaker's asset allocation is heavily weighted towards real estate and private investments, with a smaller portion in public stocks, reflecting a strategy to leverage tax advantages and exploit income inequality trends.

💡Real Estate

Real estate represents a significant portion of the speaker's investment portfolio, which includes both consumption properties and rental units. The speaker views real estate as a tax-advantaged asset class that can be held for a long time and appreciates the ability to depreciate rental units despite their increasing value.

💡Private Investments

Private investments refer to the speaker's allocation in non-publicly traded companies or assets, which is a significant part of their portfolio. The speaker has access to these investments due to their network and experience in the tech and business sectors, allowing them to invest alongside top-tier private equity and venture capital firms.

💡Tax Advantage

A tax advantage in the context of the video refers to the benefits provided by certain asset classes, like real estate, that can reduce an individual's tax liability. The speaker considers real estate to be a tax advantage asset class due to its depreciation benefits, which allow for tax write-offs despite the property's increasing value.

💡Income Inequality

Income inequality refers to the unequal distribution of income among different groups of people. The speaker discusses how massive income inequality has led to the growth of the ultra-rich, who continue to amass more wealth and influence. This trend is a key factor in their real estate investment strategy, focusing on areas where the wealthy are concentrated.

💡Market Volatility

Market volatility describes the frequent and significant changes in the prices of securities, typically caused by economic, financial, or political events. The speaker discusses their aversion to public market stocks due to the emotional stress caused by daily market fluctuations, preferring the less volatile nature of real estate and private investments.

💡Diversification

Diversification is an investment strategy that involves spreading investments across various financial instruments, industries, and other categories to minimize the risk of loss. The speaker emphasizes the importance of diversification, although their portfolio is heavily weighted towards real estate and private investments due to their unique access and risk tolerance.

💡IPO

An Initial Public Offering (IPO) is the first sale of a company's stock to the public. The speaker discusses their strategy of investing in companies before they go public, often leveraging personal connections to gain access to IPOs and potentially high returns.

💡Leverage

Leverage, in finance, refers to the use of borrowed money to increase the potential return of an investment. The speaker discusses borrowing against their stock investments to diversify into other assets, but also cautions about the risks of high leverage, especially during market downturns.

💡Philanthropy

Philanthropy involves donating time, money, or resources to charitable causes or organizations. The speaker mentions incorporating philanthropy into their investment strategy by giving away a portion of their investments, which also provides tax advantages.

💡Risk Management

Risk management is the process of identifying, assessing, and prioritizing risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events. The speaker's investment strategy involves managing risk through diversification and not investing more than 3% of their net worth in any single opportunity.

Highlights

The Caribbean island of Anguilla earned $32 million from web domain registrations last year.

The guest, Ed, has an asset allocation with 40% in real estate, 40% in private investments, and only 15-20% in publicly traded stocks.

Ed believes real estate is a tax advantage asset class and can be held indefinitely without leveraging too much.

There is a supply-demand imbalance for homes, with 1.5 million fewer homes being built annually than needed.

Ed's real estate strategy involves owning properties in .1% neighborhoods in cities like London, New York, Palm Beach, and Aspen.

Ed's private investments are disproportionately high due to his access from working in tech, consulting, and academia.

Ed invests alongside tier one private equity and VC firms at negative fees, a privilege not available to most.

Ed has reduced his public market exposure, finding it emotionally trying to constantly check stock scores.

Ed's biggest loss was $15 million from shorting the market and writing covered calls against tech stocks that skyrocketed.

Ed has marked down several private companies substantially in value, including a Twitter competitor and a text messaging app for healthcare.

Ed manages liquidity by borrowing against stocks and having regular liquidity events from investments.

Ed's biggest win was a $2.5 million investment in a bankrupt consumer company that returned $75 million.

Ed plans to diversify his portfolio with exposure to the credit markets and invest in companies about to go public.

Ed attributes his investment success to diversification, great communication skills, and attracting talented people.

Ed emphasizes the importance of not spending more than one makes and living within one's means.

Ed admits that he doesn't believe he is a good investor, but rather has had access and luck on his side.

Ed's strategy moving forward is to continue diversifying his investments and focusing on long-term holds.

Transcripts

this week's number $32 million that's

how much revenue the Caribbean island of

anguila earned last year from a web

domain registrations true story yet last

night I was at a urinal in a bathroom at

a famous restaurant the guy next to me

said oh you're circumcised and I said

nope that's just the wear and

[Music]

tear I like that I like that get it Ed

get it I get it okay welcome to prop G

markets Ed what are we discussing today

we're doing something a little different

today Scott we're going to take a look

at your own personal Investments over

the past year we'll talk about what went

well what went poorly and perhaps what

surprised you and at the end we'll

discuss your investment strategy for the

year ahead sound good sounds good so

let's start with a pretty general

question between stocks bonds real

estate private Investments what does

your overall asset allocation look like

right now my asset allocation is about

40% real estate which is um a lot and

then about 40% private Investments and

only about 15 or 20% publicly traded

stocks has that balance changed

significantly from previous years or is

that pretty standard for you when I was

younger obviously I a lot of money in

real estate cuz I kind of levered up to

buy a home um and then as I got more

money it was more public stocks and I

have reduced my public markets exposure

increased my private Market exposure and

increased my real estate so the reason

why I own so much real

estate is uh one I really think it's a

tax advantage asset class and it's the

kind of asset you can if you don't lever

it up too much you can hold forever and

then might make a good asset to give to

your kids but essentially I have two

types I have kind of consumption real

estate and then rental units and the

rental units are great because you can

depreciate them 2 or 3% of year real

estate's most a tax advantage asset

class in the world so even though these

rental units that I have have gone up in

value every year every year I can

depreciate them I think it's 3% a year

there's no other asset that as it's

going up in value you can take a write-

off against it despite the fact it's

increasing in value then I look at

demographics and we are building one and

a half million fewer homes than we need

every year which just says to me that

there was going to be a demand Supply

imbalance for a long long time so I just

love rental units and I think it makes

sense where I have the bulk of my real

estate holdings is in what I call a 0.1%

strategy that I've adopted over the last

five years and that is I used to own one

home now I own four my belief again

based on economic Trends is that what's

happened in the US is happening around

the world and that is massive income

inequality and that is the 1% continues

to Garner more and more they weaponize

government they keep their taxes low

they have invested they invest in

monopolies they get they massively

weaponize the tax code and uh there

seems to be in my opinion just

unbelievable explosion and the ultra

Rich so in the US for example the last

10 years the number of billionaires has

gone from 500 people to 2500 and so what

I've done is I've bought for homes in

what I call .1% neighborhoods so I have

homes in London New York Palm Beach and

in Aspen and there's some consumption in

there in the sense that as I get older

uh my priorities are the following I

want homes where my kids when they leave

for college will come visit me and so I

want to have homes where they think oh

you know we'll go see we'll go see Dad

and two as I get older I primarily just

want to you know like as I always say I

want to be in beautiful places just wait

for the ass cancer and so there's some

consumption here and generally speaking

I think that I think that as income in

equality continues to get out of

control that these areas are going to

increase in value faster than inflation

and then privates is disproportionately

high because I have access I know a lot

of after working in Tech and business

for 30 odd years in Consulting where you

speak to a lot of CEOs and in Academia

where what I do I meet with a lot of

CEOs and a lot of venture capital firms

based on starting companies I have a lot

of access that other people don't have

and if it's a story of privilege trust

your instincts but I get invited to

invest in companies alongside of kind of

tier one private equity and VC firms at

sort of negative fees they will let me

invest if I put in say a million bucks

they'll give me you know 1.2 or

sometimes up to two million in equity to

go on the board or be an adviser so I

get to invest most people have to invest

uh

with fees I get to invest with negative

fees and so I disproportionately

allocate money to privates I have less

money in the stock market because I've

come to the conclusion that nobody can

pick stocks the only time I invest

typically in a stock is when I have

access to the IPO because I either have

advised the CEO or uh the Investment

Bank running the book for whatever

reason I can get allocation it's a Rigg

Market most of the pop for the first

couple years is usually on the first

trade so unless I can get allocation in

the IPO I don't do it

again if that sounds like privilege and

access it is I worked hard to get it but

it's still a rigged Market but I don't

invest that much in public market stocks

anymore because I find it a bit

emotionally trying I you know today I

checked my stocks probably six times and

I hate having a scorecard every day one

of the reasons I've never purchased

crypto is I know my personality the fact

that it trades 24 by7 would just be bad

for me so one of the things I like about

owning real estate and owning privates

which is 80% of my assets is that you

don't have to mark your book every every

day and I find that is emotionally

comforting or just less kind of

emotional stress if you will yeah I

think the thing that jumps out to me is

this unusually low public markets

exposure and you're sort of over

indexing on private Investments and real

estate your advice to listeners is

generally speaking

diversification lowcost ETFs let time

take over but when I look at this

portfolio just from the bird's eye

perspective you just laid out it doesn't

totally reflect that is there a reason

why you're not following your say

standard advice right now so some things

I'm following some things I'm not so a

couple things one this is not it's like

don't do this at home kids and here's

the reality if I

lost 90% of my

wealth I'd still be fine I'd be bummed

out I probably couldn't maintain this

lifestyle but I'd still have enough

money to live really well and my kids

would be fine I just I can take more

risk than most people in addition I have

access that other people don't have I

mean that's the reality and I'm trying

to lean in you know when I do that I

lean into my access I'm very

self-conscious saying it but that's the

reality I am following diversification I

have everything from a investment in a

company that buys old aircraft engines

fixes them up and then leases them out

to cargo planes to real estate to

investments in software companies to

investments in supply chain benchmarking

companies I have to claims against a

bankrupt FDX I do have

decent diversification I'm not

Diversified geographically most of my

companies are in the US I have a little

bit of exposure to Europe but I do have

pretty good

diversification and I do let time take

over in the sense that I usually don't

invest in anything I'm not a Trader I

usually don't invest in anything that I

don't plan to hold for several years and

a lot of the stuff I buy I mean for

example the real estate I don't plan to

ever sell it none of it I I mean until

my kids needed or wanted or you know or

or what have you so the other thing I

don't do I don't try to time the market

I'm I realize that it's very difficult

to do I find a good company or a good

opportunity I lean into it and I plan on

holding it for a long time so let's go

through your wins and losses and we'll

we'll start with the losses what have

been your biggest failures in investing

in the past 12 months well I don't think

it is failures my my biggest loss is

because if you do what I do and you

invest I mean I think I have 30 or 40

different Investments if you if you

looked at every investment over I don't

know a million dollars in value I have

at least 30 or 40 of them and and that

goes to diversification I don't like to

have any more

[Music]

than you know I have one asset that's

probably almost 15 or 20% of my net

worth one of my home

but that's it nothing else is more than

kind of 5% and most is two or three the

biggest loss I lost uh$ 15 million

shorting the market last year I do it as

a means of hedging I had a lot of

exposure to tech stocks I had a lot of

exposure to individual stocks I got in

the IPO so I would short some High

Flyers by selling calls against them and

some of them just skyrocketed and I got

just hammered now the year before i'

made money the year before that I'd made

a lot of money so I started believing

that I was good at it and that's a

lesson to not trust your emotions I was

lucky I wasn't good and I started

believing I was good at it so I got more

aggressive with it which really hurt me

and also I write covered calls in all my

stock positions so if I own Airbnb at

100 bucks I'll write a week long I'll

write calls on the number of shares I

have so if I have 10,000 shares at 100

bucks I write calls on 10,000 say

expiring at 105 and I'd get a buck

premium that week and I'd make 10,000

bucks and it's all great as long as the

stock does go above 105 now technically

you're hedged because you just give up

the gains above 105 because the stocks

gone up but what happened to me a lot

last year is these stocks would

Skyrocket and if I wanted to hold on to

the stock I had to go buy the calls back

and it cost me a lot of money and then I

wrote calls nakedly against some

companies I thought were really high

flyers and just made no

sense and I learned the hard way the

market can stay irrational longer than

you can stay liquid and these some of

these companies a couple of them went up

30% in 3 days and I'd have to write it

you know write a check for two or three

million bucks anyways I've still made

money on this strategy over the last

three years but I lost $15 million on

that I've a lot of a couple of my

private companies I've marked down

substantially in value I was an investor

in post news I am an investor fantastic

Co fantastic idea uh competitor to

Twitter competitors to Twitter haven't

gotten any traction other than threads

so I made a substantial investment there

I marked that down I'm still

hopeful I made an investment in a text a

text messaging app focusing on the

healthcare industry everything made

sense smart people Health Care handhelds

I love it pushing out Health Care to

lower income people through corporations

you know Sam's or Walmart signs up and

for eight bucks a month per employee you

can contact a dermatologist or a doctor

and give them your symptoms over the

phone text message and they use AI to

connect with the right person great

business hasn't grown as fast as we'd

all hoped I invested at a really high

valuation um a vocational training

company here in Europe I have marked

down um really good company but I think

the valuation I invested at it was

extraordinarily rich and the company's

doing well but uh the markets

rationalized in the private market so

I've marked that down by two or three

million bucks um so of my losses last

year I mean they all add up to probably

about 25 million bucks when you say

you're marking these Investments down

are you

coming up with your own valuations when

you mark them down or you getting

reports from the team and learning based

on other investors valuations how are

you how does marking them down work for

you at a personal level so I find

generally speaking if you don't keep

track of how much money you're spending

and how much you're making and the value

of Investments you're due for an

unwelcome

surprise and so as a regular practice at

least once a year if not more I sit down

with the guys at Goldman and I go

through every investment actually I

probably do it twice a year and try and

mark the investment and an easy way to

mark it is if a company raises money in

the market follow on round at a you know

100 million and you own 1% of it then

you know your Stock's worth a million at

least if it's a legitimate Mark not just

insiders I try to be conservative on the

mark such that I don't get too crazy

with my spending and overestimate my net

worth and I always try and value it

probably maybe 10 or 20% realistically

than what I could get in the open market

and some these things are difficult to

mark because they're so a liquid but you

I try and go through everything and have

an honest sober assessment of what I

think it is worth at that

moment we'll be right

back we're back with profy markets just

a question on liquidity I think what's

also surprising about your portfolio is

just how insanely IL liquid the

portfolio is I mean you only have 15 20%

in public stocks how do you manage

liquidity like how did you manage

liquidity when you needed the cash to

say buy a house in Aspen this year what

do you do about liquidity well one you

can borrow against if you have say 30

million in stock you can borrow 20

million against it so I take I do what a

lot of wealthy people do and that is I

borrow money against my stocks I don't

do it to double down in the stock market

but I'll do it to invest in another

asset that's Diversified and you can

borrow very low rates and also I'll sell

stuff and I have liquidity events on a

regular basis you know I was investor in

a subscription based search engine

called Neva I wanted to invest in

companies where I thought provided a

solution to some of the systemic

problems of big Tac I hate the ad model

of Google I think it's led to really

terrible places and I met this guy

shadar ramas Swani who I just thought

was so incredibly bright he was a lead

engineer in Google and he was starting a

subscription based search engine I put

three million bucks in the company never

got traction but snowflake came in and I

think basically did an aqua hire because

they're like this team is so incredible

we'll pay all your investors back and

now of course trar is the CEO of

snowflake and I'm I'm actually thinking

about investing in Snowflake because I

just think so much of this guy so I got

my three million bucks back which is

like the best Venture investment in the

world because I got a lottery ticket and

when it didn't hit I got my dollar back

so I actually see that as a kind of a

win I have so many Investments That

typically two or three a year will have

a liquidity investment and then I deploy

that Capital also no matter what wealth

I have I always want to make money and

between books podcasting speaking you

know the reality is I make a lot of

money so I try to still live within my

means I try to still live I try to make

as much as I spend and occasionally if I

don't have cash I have an investment

opportunity now and I've had I've ramped

up I've got I've got a line against one

of my homes so I try to always make sure

I try to always line up kind of dry

powder in case an opportunity comes

along but I do try to keep track of how

much leverage I have because Leverage is

kind of the smart person's way to get

poor fast and that is if the market has

a real Hiccup and you get caught with a

lot of Leverage if I have X worth of net

worth I try not to lever up more than

0.1 or

0.2x recognizing that you might have

enough money to pay it back but it's not

liquid and the problem is when you need

liquidity it's when no one wants to

provide it there's been sometimes I've

build in a little bit stretch but for

the most part like on all my homes I

have almost no

mortgages so if I really need money I

can borrow against them or you know

borrow against the stocks speaking of

liquidity events let's focus on your

wins what were your liquidity events

this year what went right where did you

cash in earlier in the year we purchased

a bunch of claims against a bankrupt

FTX I bought a bunch of those at 23

cents on the dollar

and just sold some at 95 cents so that

was like and it's better to be lucky

than good I had no idea that Bitcoin was

going to sky rocket so but in the matter

of less than a year that investment more

than

quadrupled my public stocks have done

really well this year Airbnb is up I

don't know 40 or 60% this year I'm a

holder on Amazon and apple they've had

really good years but my big win was

about 7 years

ago I invested

$2.5 million in a bankrupt consumer

company and the distress credit

investors a friend of mine he called

he's like I'm investing in this smoking

sensation company called enjoy and this

was seven eight years ago and the idea

was smoking is going away and two of my

friends use Androids to help to quit

smoking and I'm like oh I've heard of

this company I know it so he said do

this go on the board so I invested two

and a half million bucks and this compy

I went into because I thought it was

going to make a lot of money but I

thought it was going to get a twofer my

mom died of a smoking related illness

and I thought smoking sensation is great

and the UK the health Ministry at the

equipment of the FDA here sends you a

vape if you're smoking because they're

like this is just it's not good for you

but it's not nearly as bad as

combustibles anyways that company we

kind of went through the valley of death

if you will and a really strong CEO

really smart investor a guy named Jason

mudrick who I've been friends with for

about 20 years anyways long story short

alra bought it and that invest M paid

about 75 million off a $25 million

investment I gave a third of it away but

as you can imagine that's still a huge

liquidity event so that was my biggest

that was by far my biggest hit my

biggest hit ever other than maybe when I

sold L2 and just if you have any

questions about how the rich have

weaponized the tax code I was also able

to take advantage of 122 and because I'd

held the stock for longer

than 5 years and the company had net

asset value of less than a certain

amount the first 25 million were

taxfree so if if if you don't believe

that the tax code has been weaponized by

rich people it absolutely has but I try

to make myself feel better I give it

much of it away what did you do with

that with all that cash did you

immediately invest it yeah I deployed it

in different it's amazing uh how fast

you can spend money I deployed it across

a bunch of different investments in

private companies I paid off all the

debt on all my homes cuz I mortgages

mortgages exploded and I was dumb I I

bought I have fiveyear mortgages and now

looking back you know we all wish we'd

got 10 or 30e mortgages but I thought oh

interest rates are never going up so I

had kind of five-year mortgages they all

sort of seemed to come due last year and

I just paid them off because the cost to

refinance them what's going to or the

cost to take out a new mortgage is going

to be about

7% and I thought I'll just pay them off

cuz the 7% guaranteed return feels

pretty good so I paid off almost all the

mortgages on on my homes and properties

made some new private Investments but it

went it went pretty fast when we spoke

earlier you also mentioned this company

flight lease Capital that you invested

in which is like an aircraft Leasing

Company yeah that's a it's a great

company a friend of mine as Shad aimi a

super bright private Equity guy I found

this great group of guys in Florida and

they're total Gearheads and they go out

and they have just a look and a lock on

this strange Market where they buy used

aircraft engines from usually from

companies or Airlines all over the world

going out of business they buy the

engine essentially a plane if a plane is

worth 10 million 9 million is in the

engines they buy the engine they

refurbish it they're fantastic engineers

and then they lease it to usually a

cargo company and I'm an investor in

there and it's just been a great every

year it's been it's done really well so

that that one's returned like irss of

like I think almost close to 30% but the

reason I did that one I didn't get

Negative fees I actually pay fees on

that one is I love the idea of

diversifying I thought Air Cargo is

probably you know I want to I'm much

more inclined to make investments in

things that aren't Tech right now

because I'm so levered to Tech because

that's where I get opportunity that the

thing I loved about this company was it

wasn't really Tech it was like a lot of

these engines are leased out to

companies you know transporting you know

materials between Mexico and you know

taxes to what wherever their their cargo

planes are flying but that I love that

investment do you have any income

generating Investments I mean other than

Ed

Elson well that counts yeah we make good

money here you know we make you know

millions of dollars doing books podcasts

speaking gigs so you know I try not to

spend more than I'm actually making in

terms of current income and then let the

asset base grow so I don't have kind of

cash my real estate my rental units

generate income but I usually reinvest

that back in other stuff but I don't I'm

not at the age yet where I need cash

flow for my investments I still manage

to live within my means from my current

income from my my day jobs if you will

and you have no interest in debt sounds

like I know you were considering private

credit at one point but we haven't

discussed bondes yeah I actually bought

my first Bond I put I bought a $10

million bond in ganette

because I know the guys at Apollo and I

like them and they they were investors

and they carved out a piece for me but I

sold that I think about two years ago

and I haven't been back in the credit

markets I would like whatever liquidity

events I get in the remainder of the

year in 2025 I would like to put into

the credit markets because interest

rates have come up and I think it would

be good diversification for me to have

some exposure to the credit markets but

probably some sort of tax deferred or

tax advantage VI vehicle that's a low

fee in the credit markets but you're

right to point that out that I have a a

dir it's a hole in my portfolio I should

have you know they say 6040 I'm I'm not

I'm whatever 40 4020 and none of it is

is in the credit markets I don't think

so the other thing that I find

interesting which I didn't totally

appreciate is that you basically manage

everything yourself and actively I know

you have a guy at Goldman but you're

making of the investment decisions it

sounds like it doesn't seem like

Goldman's actually doing that much my

question to you is what does Goldman

actually do for you well they do

execution when I do when I write covered

calls on stuff they help me figure out

asset allocation the real thought

Partners they're really good fiduciaries

they have all these funds I've invested

in several opportunity zones which is

also real estate through them but I'll

call them and say do VC approached me

and said I should invest in this and

they're going to give me additional

options or

rsus and meanwhile they have all their

own products which they get fees from

and they'll say oh no you should do that

they really are good fiduciaries they

put theel they put themselves in my

shoes they also handle my taxes which is

getting increasingly complicated they

will sit down with me and say what

investments are you planning to make

over the 3 6 12 months what is your burn

and they'll say this is where we need

liquidity and they'll manage all that

for me I'm going to try and Outsource

more of it uh like this credit vehicle

I'm just going to put money in there and

let it go away or just not think about

it because I spending too much time on

it I'm a bit of a I've talked myself

into thinking it's worth it and I it's

like do as I say not as I do or whatever

it is but I do have these opportunities

my investments are usually pretty

handson so if I get an opportunity to

invest in something especially if

they're going to give me additional

options I'm expected to work on that

company I'm expected to get involved so

I like to stay very involved in this

stuff and really understand where

everything is and having said that my

advice to people is to take all of the

time you're spending on your

Investments and give it to other people

low fees and then focus on your work to

make more money but I've talked myself

into believing that a lot of my

investments it makes sense for me to be

active in I probably should move to more

passive as I get older I probably spend

easy a third of my week

on money managing

Investments you know figuring out where

I can invest what opportunities I have

to invest advising the companies of my

investments stuff like that I spend a

lot of time I'm on several Boards of

companies I invest in so I do spend a

lot of time on it and I think as I get

older I'm going to start moving more

into passives I guess I'm surprised that

you you're still doing it yourself is

there a reason why you haven't made that

switch yet because of my business which

is I'm in the business of advising CEOs

and Advising investors I get I Get Crazy

access and if I really like a company

and I'm not above this if I really like

a company I'll call the CEO and say hi

I'm Scott Galloway I love your company

these are the I want to invest and these

are in my view let's set up lunch and

then I'll sit down at lunch and say I

think these are the three things I would

be thinking about if I were you and most

of the time I don't get a call

back when I get a call back most of the

time I don't get a launch but

occasionally I get a call back and lunch

and occasionally I get a call back at

lunch and they think okay let's this guy

would be a good person to have on the

cap table most even wealthy people don't

have that kind of access and that's the

reason that I'm so heavy in privates is

I you know I'm I'm I'm not above calling

someone that I think is doing a great

job or a company I really like in saying

you know I want in on this I think it's

I think there's a real opportunity here

this is what I would do to improve the

company this is why I like you guys and

you know this is why I want to invest I

mean it comes right down to this it

returns are a function of how kind of

hard you're willing to work in your

access and I right now at some point my

contacts will start to dry up I won't

have the profile I have now and I won't

just have this type of

access we'll be right

[Music]

back

we're back with propy markets has

anything happened this year that was

particularly unusual is there anything

that's surprised you anything that

caught you off guard perhaps maybe a

liquidity event or an unexpected loss

what's been strange this year

everything's been kind of strange like

everything is such a random walk at one

point I marked enjoy down to almost zero

you know every year I mark my

investments at one point I made I made a

$25 million invest I think at one point

I marked it down to half a million

dollars something like because you you

got the financials and they just went up

to scratch or no it was just um it was

just such an ugly space and we were

trying to get FDA approval where the the

key to this company was basically

regulatory play we got it the FDA it

cost us I think a hundred to $150

million to do all of the studies and

tests to show that this is a company and

a product that's not only that's not

only safe or reduces the harm on a net

basis of getting people off of

combustibles and nicotine but also the

youth studies to show that we were

unlike other players in the space that

youth weren't buying our

product to get FDA approval for a

company like that cost I think it cost

$10 or $150

million so that was a massive investment

and then when all hell broke loose a few

years ago it felt like none of these

things were ever going to get FDA

approval they were just all going to be

removed from all shelves

and it was very hard to raise money but

you know we got through that the FDA

decided that this is that smoking cation

or electronic nicknine Delivery Systems

are a net good and provided FDA approval

to like a handful of companies and we

were one of them and then once we had

that FDA

approval uh we were able to sell the

company for I think 2.8 billion or

anyway some crazy number it paid off

huge and then other

companies you know I'm an investor in

public.com great guys online trading

they don't do payment for order flow and

I'm like I like these guys they're not

praying on young men's gambling

addiction they don't they're trying to

be they're trying to promote responsible

investing so I invested there overnight

I marked that from 1 million to 10

million and then Robin Hood has crashed

and so now that that company I would

mark down substantially so and then

investing in a Twitter competitor from

the guy who ran who

Ed ways this guy's probably the best

product guy in the world literally in

the world he he took on Google Maps and

beat them he's amazing he's such a

talented guy you just meet him and

within three seconds you're like I'd

back this guy to do anything all of

those companies are down and what it all

comes down to is the following nobody

knows nobody knows I wrote enjoy almost

down to a zero I thought I was under the

next best best thing with text messaging

and Healthcare a subscription based

search engine run by the head of Google

engineering one of the brightest people

I've ever and here's the thing nobody

knows I mean you always want to look for

Concepts that you think work and most

importantly you want to find good people

because good people have a tendency to

to to at worst get you your money back

but no one has any idea and that's why I

never invest now other than a couple

homes I've never I don't invest more

than 3% of my net worth in anything if

you looked at my portfolio now and said

something's going to go to zero in the

next 3 months and something's going to

go up 20x I'd have almost no idea I I

would literally be throwing darts in my

portfolio I don't know so I spread it

around and a bunch of different stuff I

try to find good people and good

opportunities and more importantly

things where I get better economics if I

can invest in better economics than a

than a tier 1 VC firm over time if I do

enough of those I should I should be

fine but my my random walk through the

world of Investments is that nobody

knows so you want to diversify you want

to lean into your strengths and you

don't want especially when you get money

the key to being rich is to stay rich

and so I'm not looking to get rich I'm

looking to not get poor and you the way

you manage that is through

diversification now I can take a lot of

risk but I take risks in different

things that are somewhat sequestered

from each other but yeah every year it's

like I can't believe this company isn't

doing well I'm just shocked and then who

would have thought that claims against a

bankrupt FTX go up go from 23 cents to

95 cents and about 6 months who would

have thought that

so the key is the key is to make a bunch

of bets you don't know what numers going

to come up so you want a lot of chips on

the table and the way you do that if you

don't have access like I have access is

through index funds let's switch to the

year ahead are there any Investments

that you're looking at right now and how

is your overall strategy for 2024

shaping up so I'm I want some exposure

as you referenced before to the credit

markets also I think the thepo market is

going to Boom in the next six months so

I'm trying to find a way into great

companies that are about to go public

and that is try and find companies that

I think are great companies see where I

could add value and quite frankly call

the CEO and say I want to invest in your

company and I think that the IPO Market

in the back half of this year is going

to be really really strong and I think

we've seen that and we've talked about

it on this show with AA and

Reddit and and one of those companies

the COO reached out to me said can I do

an hour line call with you I said sure

and he asked me for advice they gave me

advice said anything I can do it for you

and I like yeah I want allocation in the

IPO and by the way I asked for x and he

only gave me 3x but it was still more

than most people got so I'm going to try

and do that a bunch um whether it

happens or not you know I don't know but

I'm aggressive like your your success in

life financially and personally is your

willingness to get out of spoon and eat

and what I mean by that is endure

rejection I don't I don't just wait for

people to call me and say oh you're

awesome when you're going on board I'll

call people and say I love your company

I'd like to invest you know that's how I

kind of try to have outsize returns but

be clear I get it wrong all the time

what I try to do is be so diverse or

diverse enough that it doesn't keep me

awake at night I assume I'm going to

lose everything and ask myself if I lost

everything would I not be able to sleep

if if that's true I don't make that size

of investment I reduce the size and also

I try to go for the long term and just

to manage my own mental health I've been

in privates a lot because I don't like

to have a scorecard every

day and like I said I'm just trying to

be really Diversified and yeah and now

I'm I'm trying to take a certain

percentage of every investment and give

it away because it's like force

philanthropy which is fun and also has

tax advantage

my takeaway here

is you have throughout your entire life

actively managed your portfolio I don't

know what your net worth is but you said

on this podcast that it's nine

figures I think it's safe to say that

you are a very good investor I just want

to end this by reflecting on what you

think you're actually good at um and

what you think your strengths are and

whether you believe personally that you

are a good investor too uh I'm not a

good investor Ed I'm a really good

communicator I have the ability to take

ideas and communicate them through

storytelling which has given me access

to the highest levels of corporate

America the CEOs of the biggest

companies in the world and the most

esteemed investors are willing to sit

down and let me tell them a story about

what I think they or their company

should be doing and as a result they've

given me access that any idiot

could make money on if they Diversified

and just weren't stupid and I was smart

enough to diversify uh such that no one

mistake of which I made a lot of it

might have hurt but I had Kevlar so I

didn't get the injury wasn't the injury

wasn't fatal and and also being a great

communicator isn't enough what what my

superpower has been my core competence

has been communicating but my my

superpower has been attracting and

retaining really talented people because

that scales what you're good at and

every company I talk about every piece

of access I've had it's because of a

firm or consulting firm or something

where I was working with great people

and we had credibility so I got you know

we established a good relationship with

these companies or these investment

firms you know at profit we were doing

brand strategy engagement for Kleiner

Perkins so I got to co-invest with

Kleiner Perkins by the way lost

everything investing with Kleiner

Perkins but the point is I got

access and so I am I a great investor I

don't think so I think I think if you

said manage a hedge fund I'm not sure

I'd be any good and also add let's be

honest I've just been really

lucky you know to come into my Prime

income earning years when the market was

about to have an unprecedented Bull Run

I mean to think about it I hit I kind of

hit 40 just as the market was starting

to scream so I'm finally making really

good money I have enough Capital to

deploy into the market and the market

just goes bat crazy up that's got

nothing to do with me so a smartest

decision I've ever made was being born

in California a white heterosexual male

in the 60s I had unfair

advantage and coming into my Prime

income earning years during the greatest

bull market in the greatest country in

the world so yeah my talented hands down

I you know I might be the best Merchant

in teron if I'd been more working there

making 30,000 bucks a year but I might

be the best hotel operator in Cape Town

making 80,000 bucks a year my

exceptional

wealth is a function of things that

aren't my fault thank you for watching

this version of propy markets check out

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Wednesday and we'll be back with a fresh

take on markets every

Monday