The Self Directed Life

7 Bulletproof Investing Tips for Times of War and Protest

Episode Summary

In volatile times, what's an investor to do? Prolific alternative strategy investors Jeff & Rachel Nabers share 7 tips. Learn about the importance of liquidity and illiquidity, reading Fed signals that the market misses, the non-human impact of software on asset prices, the anti-fragile cockroach that should be in every portfolio and more.

Episode Notes

In volatile times, what's an investor to do? Prolific alternative strategy investors Jeff & Rachel Nabers share 7 tips. Learn about the importance of liquidity and illiquidity, reading Fed signals that the market misses, the non-human impact of software on asset prices, the anti-fragile cockroach that should be in every portfolio and more.

Episode Transcription

SDL Ep#21 - 7 Ways To Adjust Your Portfolio For War & Protests

[00:00:00] Jeff: but we're back and we have guests lined up. We have new personalities that we think you're going to really like that are going to be regularly, appearing here on the show

[00:00:10] welcome to the self-directed life. This is the business and investing show focused on innovative wealth strategies for the digital era. Your hosts are Jeff and Rachel neighbors.

[00:00:24] Rachel: Welcome back everyone. Today, we're talking about the seven ways to adjust your portfolio for.

[00:00:30] And protest and Jeff right now

[00:00:34] Jeff: there's both. That's right? Yeah. We have Russia invaded Ukraine and Canada government invaded Canadian citizens bank accounts. So a lot of crazy things going on out there. We're going to talk about seven tips for adjusting your portfolio to the current.

[00:00:55] Rachel: Yeah, I guess a great place to start is, in the midst of the brink of potential [00:01:00] war protests, it can be really easy to feel, overwhelmed or down.

[00:01:05] And so one of our first tips is to be an optimist,

[00:01:10] Jeff: right? Yeah. So a lot of people overreact and they lose sight of the. Trend of humanity, right? So if you go back to September 11th, that was a real downtime. If you go back to the 2008 crisis that your soul was that if you go back to the depths of COVID, there's definitely just, those were low points for a society where we just felt like, oh, woe is me.

[00:01:36] And if you let that affect your investments, you can end up really being on the wrong side of history while all of those events were sad and terrible that they happened, they did happen and humanity always bounced back. Remember how strong new Yorkers felt after September 11th.

[00:01:56] That was the silver lining, and humanity always bounces back. I [00:02:00] think be an optimist as an investor, that means that you should be invested, don't just sell it. It's like withdraw.

[00:02:06] Rachel: Yeah. Withdraw and hide your cash under the mattress. And just completely like unplugged from society, from investing, still staying in the game, believing that things are going to get back on

[00:02:16] Jeff: track.

[00:02:17] No. Yeah, exactly. Because the worst things get the more important it is that you don't lose wealth. And if you just put all your money in cash, you're going to lose wealth to. So stay invested, right? Like humans are still going to make progress. That means that the overall level of wealth is still going to be increasing.

[00:02:35] And that means that you have an opportunity to be invested in assets that are going to grow in real value. They're going to outpace inflation. They're going to help you and your family reach your financial goals. Okay. And all of these setbacks, they're really an advantage to a smart investor because most other people.

[00:02:52] They don't know how to be an optimist when it counts now is when it counts as be an optimist stay invested. Another [00:03:00] element I would say about that is, is this kind of a way not of sticking your head in the sand, but having an insurance mindset?

[00:03:05] Rachel: Tell me what you mean about the insurance mindset.

[00:03:07] Jeff: When you have your car, there's the risk that you could get in a car wreck. So what do you do? You get insurance? You buy insurance? What do you do after you buy insurance?

[00:03:18] Rachel: You drive your car around like normal.

[00:03:20] Jeff: Yeah. You don't buy insurance and then act like you're constantly, every time you get in, they're going to be wrecking it and you'll go, oh no.

[00:03:28] Now it's time for me to go to, so I'll get in a wreck in the way. No, you say there is a risk. I have covered that risk now that the risk is covered. I'm going to drive my car and there's a 99% chance. I'm going to safely get to my destination. So some of our other tips will speak to that, like insuring and that hedge aspect of your portfolio.

[00:03:49] But once you have that, you do need to stay invested and continue to drive that car and let it safely do its job.

[00:03:58] Rachel: So be an optimist [00:04:00] number one. And I think I can probably already anticipate there's going to be some people that are like, yeah but, so that brings us to number two, which is still have some cash on hand.

[00:04:08] Keep some of that dry

[00:04:09] Jeff: powder. Yes. Yes. Take some cash, put it on the sidelines. This is volatile times while you could probably guess that five years from now 10 years from now, there's very high probability that there will be more wealth in the world than there is. And that a well-diversified portfolio would capture that for yourself, who knows what's going to happen in the next five days or five weeks.

[00:04:32] What could happen in the next five days or five weeks is asset prices could slide down further, which presents a buying opportunity. You want to buy dips in assets that you have longterm belief in. Yeah. But you can't buy the dip if you don't have the money to do it. So in order to buy the dip and take advantage of distressed prices and assets, you have to have some cash ready to buy, set dip.

[00:04:57] It's not like we know that this is the [00:05:00] absolute bottom of what's happening. So you probably want to always still have some more cash in case things get even bloody or out there to buy it at.

[00:05:10] Rachel: Yeah, that makes a lot of sense. Our next tip is to hold some illiquid assets. So you can't panic sell.

[00:05:20] Tell me a little bit more

[00:05:21] Jeff: about, so we we all we all like to think that we are, really great at managing our emotions as investors, but even the best investors, we let our emotions get the best of us, in a dip, it seems oh gosh, maybe I should be selling right now because you're panicking.

[00:05:36] If you've got really thick skin, then maybe you're just sipping your coffee and buying assets as they go down by 20% a week. And John, uneventful just for another day. Yeah. For the rest of us, if you recognize that you don't have that super thick skin, then set yourself up to.[00:06:00]

[00:06:00] By taking some of your money and investing it in assets that you can't pull out of easily or quickly. So we're talking about illiquid assets,

[00:06:09] Rachel: Okay. Illiquid assets. I'm thinking things like real estate. I'm guessing not obviously not public equities, like stocks and bonds, which are highly liquid, you can buy and sell them anytime you feel like it is that what you're referring

[00:06:21] Jeff: to is more like real estate.

[00:06:24] Even more. So crypto look, that's, 24, 7, 365, you can buy or sell crypto. So then people think because you can, maybe I should write things, things are moving. What does this mean? I should trade it. Yeah, probably not if you're an investor, if you're an investor and you're not a trader, just because something can be traded doesn't mean you should.

[00:06:43] So if you're having trouble with fat, that's where, yeah. The illiquid assets like a property, you could only own a property directly, whether just in your name or an LLC, or even a retirement plan can hold a property. You can hold an interest in a private [00:07:00] placement, like a real estate syndication, or you could invest in a startup.

[00:07:04] So a lot of these illiquid assets for the average investor, for the typical investor, even the sophisticated investor that illiquidity can really provide a benefit. Your numbers don't lie. The interesting fact that most people don't realize the vast majority of household wealth in the United States is in two places.

[00:07:24] And both of them are hard to pull money out of. One is home. And the other is retirement plans. So home equity, retirement plans is essentially the vast majority of American household wealth. Why is that? Because it's inconvenient and difficult and takes time to pull the money out of them. You can use that to your favor by also holding assets themselves that have that friction to selling almost kind of

[00:07:52] like

[00:07:52] Rachel: protecting you a little bit from yourself.

[00:07:55] Jeff: Exactly.

[00:07:56] Rachel: Yeah. So as far as we're talking about these [00:08:00] different ways to adjust your portfolio in times of war and protest, let's talk about protest and holding an asset like.

[00:08:10] Jeff: Yeah. So it was really two things to say about Bitcoin in Canada. Number one, you have these truckers who are protesting and then you have people that want to donate money to them to support them, to say Hey, I like what you're standing up for.

[00:08:23] I believe in that. So happens all the time. Controversies lead to protest protests, lead to some people are on this side. Some people are on that side and you're protesting. Through the, kind of the rules of society, right? Then the Canadian government went, Hey, we're changing the rules.

[00:08:37] Protesting is not allowed. And if you try to donate to these people, we're gonna block your money. We're going to reroute your money. You maybe even we're going to steal your money, but we're not going to give it to the truckers. So that's what it's called censorship. And. Everyone's familiar with censorship.

[00:08:53] When someone says a curse word, it goes beep on TV or when something's blocked out like nudity or whatever. But for [00:09:00] most of most Americans, at least, censorship and money is something we've never had to deal with. Now we're looking up at Canada and we're seeing that money can be censored to.

[00:09:09] It's not just naughty words that can be censored, innocent, peaceful payments between non-criminals can be censored. So if you have a

[00:09:17] Rachel: political opinion, have an idea, there's an idea that you disagree with and you're trying to support that idea. Monetarily, that can be censored.

[00:09:25] Jeff: Yeah.

[00:09:25] Essentially if somebody else disagrees with you. Happens, about a billion times a second right now. If someone disagrees with you, currently the old financial system can be used to freeze your bank account. And a lot of people didn't really realize that until the Canadian government did that.

[00:09:45] And now some people in Canada are having their bank accounts frozen, and some people who've even just donated like $20 are ending up on lists. That's scary. Things are getting a little bit weird there. But guess what? The moment that those payments were interrupted and are censored the truckers [00:10:00] just went, Hey, send us Bitcoin.

[00:10:02] And they got like $5 million a Bitcoin, like in a matter of hours. What is happening is the world is seeing what's happening in Canada and they're learning. Bitcoin has a real use case. It solves a problem that is now there's a problem that is happening now in Bitcoin. Solves it in a way that nothing else can,

[00:10:24] Rachel: I've heard you talk about before Jeff, that Bitcoin is an anti-fragile cockroach.

[00:10:29] Is that what you mean by this? Like they can't squash it. They can't send that.

[00:10:34] Jeff: I have two points to buy Bitcoin. One way. It was what I was just talking about. I'll summarize is basically that Bitcoin is a payment system where the payments can't be stopped. And the pessimist says then you can't stop criminals.

[00:10:46] We need to stop criminals. But the optimist acknowledges that 99% of people are not criminals. Sociopath's are like less than 1% of the population. If you are not allowing things to happen in [00:11:00] general, you're mostly blocking peaceful law, abiding citizens, not criminals. You can go after criminals, once a crime has happened, but sending money, isn't a crime.

[00:11:08] But if you don't let people send money, then now you're really just like strangling the economy and you're effecting regular people who aren't doing anything bad or wrong. I think one of the big points here is historically when things get really hairy people look to gold as something that is harder to manipulate and Bitcoin is known as gold 2.0, a lot of people didn't understand that or believe that they just saw that's just hype.

[00:11:36] Bitcoin's not really better than gold, but guess what? Nobody's sent gold to the Canadian truckers because gold is even easier to sensor. And gold has a really great property, which is that it it has a limited supply, so it's not going to be diluted away by inflation. But that's only useful if you can move it around and pay each other and gold doesn't have payment rails.

[00:11:58] Bitcoin does. So [00:12:00] Bitcoin is better than gold in my view. More and more people agree with me every day. And you can send Bitcoin somewhere for a few dollars of a fee and it will send in 10 minutes and we'll totally settle. And about one hour. Whereas gold would take days or weeks and cost thousands of dollars in logistics fees, and even just using the banking system.

[00:12:18] If it didn't get censored, it would still cost more than Bitcoin take longer than Bitcoin and potentially not go through or get frozen. Okay. So that's thing, one thing two about Bitcoin. What did you say. And anti-fragile cockroach. Yeah. So a lot of people treat Bitcoin like a tech stock, but it's not a tech stock.

[00:12:40] A tech stock is something that people buy up and send the price high when they're excited about things and they sell it low. When they're scared about things right now, people are scared about things. The Bitcoin price is going down because investors treating it the same as if it were a text. Why is that?

[00:12:59] [00:13:00] If things start to look bleak, then what's the tech company going to do. It's going to have to deal with regulations and crack down and just maybe lower economic activity or, maybe the CEO is not going to be able to do a good job or the other executives aren't going to do a good job.

[00:13:15] There are all these operational risks with with a business there's 99 ways of business can go south. Bitcoin doesn't have any of those 99 ways. There's not a board of directors. There's not a CEO. In fact, there's no human in the world that can control Bitcoin. This is a new paradigm.

[00:13:32] It's hard to understand people get very confused about it. Bitcoin, the network runs itself, it secures itself and nobody can stop it. So the Harrier things out there get the more valuable. Bitcoin is in the eyes of someone who understands the implications. So when things get nasty and the Bitcoin price goes down, that means that the [00:14:00] difference between Bitcoin's expected value in its trading price is even greater.

[00:14:05] It means just creating a buying opportunity when there's war. That means the long-term expected value of Bitcoin is probably going home. So if the price is going lower, that just means it's an even bigger opportunity for you to buy. I like buying Bitcoin at today's 38,000 way more than I liked buying Bitcoin at 65,000 a few months ago, this Canadian bank account freezing thing.

[00:14:28] It's like a big commercial for Bitcoin in my mind. The expected future value of Bitcoin is now a higher, not lower. If the market understood this Bitcoin would have gone from 60,000 to 90,000, the fact that it went from 60,000 to 35,000, just means people are confused and not confusion is your profit.

[00:14:48] If you know what your.

[00:14:50] Rachel: And I want to zoom out a little bit, and this actually takes us to our next our next tip or our next way that you can adjust your portfolio in times of war and protests, [00:15:00] which is ignore the. So piggybacking on this incredible amount of compute confusion out there, there's tons of inflation.

[00:15:09] We've seen that go up every single month, year over year. Since about October of last year, hovering it around seven, 8%, seven and a half percent. The fed keeps threatening to raise interest rates. They haven't yet you think that they will promising do you? Yeah. Do you think that they will raise interest rates?

[00:15:28] If so, how much do you think they're going to raise them? No, I think it's a bluff.

[00:15:34] Jeff: I think it's a bluff. I think the fed can't raise interest rates. Look, everyone pays attention to what the fed is going to do. The fed has been talking about substantially raising interest rates off and on for 12 years, and they haven't substantially raised interest rates at all.

[00:15:48] And by substantial, you have to understand. That in a free market of interest rates, you typically see interest rates at about 8%. While it has affected the economy of whether it's zero or 1%, neither [00:16:00] is substantial. And that the vast majority of the Delta, the difference between actual interest rates and free market interest rates, where they would be it's enormous.

[00:16:11] So normal interest rates want to be like 800. The fed can't let that happen. The fed gets its existence from the treasury. The treasury gets its existence from Congress and Congress has $30 trillion in debt. Interest rates are low. If the fed raises the interest rates, Congress can't afford to pay the interest on its debt, or if it does pay the interest on it, just that it can't afford to operate the government at all.

[00:16:41] In other words, if the factory mattress. Cut it. So government would close its doors. The government would essentially financially collapse if the federal reserve raised interest rates. So when the fed comes out and says, we're going to raise and raise and raise they're bluffing, could they technically raise them by a tiny fraction?

[00:16:59] Yeah. [00:17:00] But are they gonna raise and raise and raise to the point where we're no longer in an inflationary low-interest paradigm? No, they are painted into a corner. We are stuck in a low interest rate inflationary paradigm, and it would require politicians to commit political suicide to end that voluntarily.

[00:17:21] I don't think they're going to do it. So when the fed Bluffs about raising interest rate and that spooks the market and prices go down again, I think as a long-term investor, We can continue to expect inflation and low interest rates. That means that the name of the game, particularly in public markets is that monetary policy is driving all assets.

[00:17:44] Now you have to answer the question, which assets are going to inflate and price more than others. And then that's how you should put together your portfolio. So if the

[00:17:55] Rachel: fed isn't going to raise interest rates, or if they can't

[00:17:59] Jeff: [00:18:00] essentially, they could meaning they could trivially

[00:18:02] Rachel: quarter. Okay. So do you think that banks would then raise interest rates or would that then be shooting themselves in the foot?

[00:18:10] Because people will just go to another bank that has lower interest rates.

[00:18:14] Jeff: I don't see how they could, we haven't seen a decoupling of banks, interest rates and the federal reserve overnight funds rate. So the fed the fed doesn't have the power to raise interest rates, but the fed has power to keep interest rates the same.

[00:18:29] Keeps interest rates low across the board because it's all interconnected throughout the financial system and bond markets.

[00:18:37] Rachel: If we're talking about. Inputs, right? What ma what inputs we should allow in to how we're making decisions to the media that we're consuming every day saying potentially ignore the fed or don't worry about what the fed is doing.

[00:18:50] What are your thoughts on, TV, mainstream news, social media, as far as who to pay attention to there and who to to.

[00:18:58] Jeff: Tip number six is to [00:19:00] fade the traders. Okay. Fade. This is an old bedding term. This means that if there's somebody who always loses money on their bets, you're going to fade them by making the opposite bet.

[00:19:11] I used to have a friend like this back in South Carolina, he was addicted to gambling and he lost more than he won. So if he had some bet that he said is a lock, he's sure of it. If you want to make money, you could go bet the. In times like this, you have essentially you have to recognize that in today's times when you see a chart and you turn on TV, let's say, or watch it internet video on YouTube, whatever the people are going to talk about the price movements.

[00:19:44] And you're going to be looking at people. You're going to be led to assume that the price movements are caused by what people are doing. But in reality, most price action. Most [00:20:00] transactions in the public markets are done by bots, not people. So this is like artificial intelligence algorithms. These are bots.

[00:20:10] These are software programs that. Maybe hedge funds or other traders are running and the bots are in control of these transactions largely. So you've got bots that will scrape sentiment, right? So some of these bots will pay attention to Twitter and Facebook. And they'll pick up on the emotion behind

[00:20:33] Rachel: tons of that fodder right now.

[00:20:34] War protests, but huge signals for sentiment.

[00:20:39] Jeff: Greed or fear, right? The bots are like, do I smell greed or fear right now they're overloaded with fear signals. So they're going to buy or sell. They're going to sell, they're going to sell. Maybe they're even going to short and use leverage at bedding things that are going to go down.

[00:20:53] And and so there's a sense that all these smart investors out there are selling when smart investors are [00:21:00] not necessarily selling, it's the bots that are. The other thing that bots do is they do technical analysis where they have algorithms to just identify patterns and momentum and they might go, okay, the momentum is downward now, so I'm going to sell or I'm going to short sell.

[00:21:16] But all of this is Trey. If you call that investing and what Warren buffet is doing as investing, we've got a word problem. You can't use the same word for both. So my, my rule is I think of investing as a long-term thing as a multi-time multi-year time horizon. Does what happened in Canada, changed my belief about why I'm holding these investments, because I think they're going to be worth more in five.

[00:21:47] Not really same thing with Russia. Did did what happened in Russia? Changed my view? Not really in my particular portfolio. I don't ha I don't hold investments that require everything just to be [00:22:00] staying the same, because I know it's not going to happen. Things are gonna change. My portfolio that is already made for the world that we live in, including war and protests.

[00:22:09] So that's that investor mindset. So I think of it, let's fade these traders, right? So if I have assets that the traders are pushing down in price doesn't mean they're going down in value means what do I think it's really worth price just means what are the bots do today? If the bots push it.

[00:22:29] I like that. If anything, I'm going to use some of that cash I have on the sidelines from tip number two. And I'm going to fade those traders now, not randomly. I'm not just going to fight the market with everything it's doing, but if it looks like bots are just selling something off, just because of sentiment or just because of momentum.

[00:22:47] If I still think good, a good of them on a five-year time horizon. I want to buy more, fade those bots.

[00:22:55] Rachel: So if we are and we're going to come to our last tip here. [00:23:00] So if we start to put these pieces together, we're talking about being an optimist, stay invested, have some cash on the sidelines, hold some dry powder, hold onto some illiquid assets that you can't panic, sell, hold onto some Bitcoins.

[00:23:16] Ignore, selectively allow your inputs, right? Ignore the fed. They're probably bluffing about meaningfully raising interest rates, fade the traders, the bots think about investing long-term and then our last tip here is to get exposure to alternative assets for diversification. This can help to I don't know if Bulletproof is the right word, especially in award protests time period, but to strengthen right. Or create some armor around your positions, around your portfolio. Have you not all having your eggs in one day?

[00:23:48] Jeff: Yeah, it's diversification. One-on-one, there's not a billionaire in the world that has a 60, 40 portfolio of stocks and bonds.

[00:23:54] They invest in alternative assets. So does this sophisticated, smart smart money in terms of [00:24:00] endowments, like the famous Yale endowment, they're, very significantly into alternative investments. Why is that? Because they're uncorrelated to the stock market, right? So if you have.

[00:24:11] Ownership in an apartment, building in an area that people are moving to. And so rents are increasing and the profitability of owning that apartment building is getting higher. And the value of that apartment building is getting higher. The cashflow profit is getting high. Russia invaded Ukraine is unfortunate, but it probably doesn't affect your apartment building.

[00:24:30] Similarly, if you own a share and like a software as a service FinTech startup, right? One of the fastest growing areas of the global economy would be SAS and fintechs. If you own a piece of the next square or the next Robin hood or whatnot then Russia, Ukraine, maybe doesn't really, it doesn't really affect it.

[00:24:51] It at least doesn't affect it as much, but it's really that the holy grail to sophisticated investors is uncorrelated assets. The [00:25:00] reason it's so important is because it's hard to find. Uncorrelated assets are really difficult to find. Now, decades ago, you used to be able to go into the stock market and get into different sectors and they would all be on quarterly.

[00:25:15] And so a smart investor would go, I need these be uncorrelated check. They could just do it all from within their brokerage account. You can't really do that anymore because now the monetary policy with the federal reserve is doing with its interest rates and other central banks around the world that is affecting all sectors.

[00:25:33] It's affecting all of the assets that people can place bets on in the stock market. And so that's correlating the assets together. When the fed says, I'm going to raise interest rates. All the sectors tend to move, or many of the sectors tend to move in the same direction. That's that correlation.

[00:25:50] So you want to be able to have a portfolio where one piece of your portfolio goes down in value, another stays the same, or maybe even goes up that's when you know you really, [00:26:00] truly diverse. My belief. And I think the facts can really support this at this point is that you have to have alternative assets for diversification.

[00:26:11] So we're starting to see this inclusion of alternative assets. It used to just be for the billion. Then it was for the Senta millionaires. People worth a hundred million dollars or more than it was for the high net worth. And now it's for everybody. Now we can all do that. There's platforms we've talked about before we started talking about them in 2013, I think like fund rise or yield street or Republic or seed invest, and the laws have even changed in the favor of the everyday person to get better access to alternative investments.

[00:26:47] And one thing that all add in here and finish up tip number seven with is to remember your kind of public service announcement. You can do all of these things and retirement [00:27:00] accounts. Okay. I was, I recently saw a tweet. Someone was posting about investing and they they talked about a 401k as an asset class.

[00:27:10] They said and then you've got your 401k and the assumption was it stuck and stocks and bonds, and that's not true. You can definitely buy alternative investments in retirement accounts that you just need to use. What's called a self-directed IRA or a solo 401k. We'll have other episodes on that, but just remember all of these things you can do with that retirement money.

[00:27:31] That is probably the majority. It might be the majority of your investible.

[00:27:38] Rachel: Yeah, these are incredibly helpful tips for ways to adjust your portfolio in tumultuous times. We're certainly experiencing those now. Anything final to share before we wrap up today, Jeff?

[00:27:50] Jeff: Yeah, we're coming back from a hiatus.

[00:27:51] We started the podcast in the early parts of COVID. We were all stuck from home. We wanted to do something to get some positive information out there that we [00:28:00] thought could help. And then we got really busy. And so we apologize, but we're back and we have guests lined up. We have new personalities that we think you're going to really like that are going to be regularly appearing here on the show.

[00:28:13] So what we want you to do is subscribe. You can go to self directed life.com. You can look up the self-directed life podcast on the apple podcast app or Spotify or the Google app. And if you are getting value from what you've heard and you want to help us spread the word, give us a five star rating that would really help us a lot.

[00:28:32] You can also contact us through self directed life.com and you could suggest guests. You could suggest topics. We are very open to both of those things and we want to help you get the most valuable information there. So please get the feedback. We will listen to it. We will answer questions and we look forward to being back at it.

[00:28:52] Rachel: Let's do it. It's good to be back. And thanks so much for tuning in today and we'll see you next time. [00:29:00]

[00:29:05]

[00:29:05] All content is provided for informational purposes only, and is not professional advice. The views expressed on this podcast are personal opinions and do not necessarily reflect the views of the companies associated with the hosts and guests. We hope you enjoyed the show.