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welcome to the best interest podcast
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where we believe Benjamin Franklin's
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advice that an investment in knowledge
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pays the best interest both in finances
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and in your life every episode teaches
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you personal finance and investing in
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simple terms now here's your host Jesse
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[Music]
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Kramer hello and welcome to episode 44
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of the best interest podcast my name is
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Jesse Kramer got a good one for you
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today we're going to talk a little bit
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about FTX if you're not familiar with
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what that is I'm sure many of you are by
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now but I'm going to give my own little
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Spin and then I'll share some updates
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from a couple recent articles that I
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wrote first okay a lot of ink has been
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spilled and a lot of words have been
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spoken about FTX I'm sure many of you
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have seen headlines you know something
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bad is happening but maybe you want to
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hear what happened in simple terms so a
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quick what happened right f TX is a
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cryptocurrency exchange recently went
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bankrupt very very suddenly it's all
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over the news but to start my
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description of it we're going to start
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talking about custodians who custodians
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are you might have heard of a custodian
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before someone like Vanguard or Fidelity
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or maybe we could even talk about
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something like your bank these are
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places that have a duty to be
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responsible with your money now
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depending on the institution that Duty
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can look different it might mean that
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they can't use your money to trade
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stocks without your permission it might
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mean that they have to keep a certain
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percentage of your money in a safe Vault
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with the remainder of your money being
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covered by some sort of federal
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insurance but either way a custodian a
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bank these organizations they have a
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responsibility to you as their clients
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to keep your money safe makes sense
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right so now let's go to FTX a crypto
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exchange similar to a Stock Exchange in
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a way an exchange is a place where
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buyers and sellers can trade
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now many of the buyers and sellers with
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FTX they kept their assets on the FTX
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platform So Not only was FTX acting as
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an exchange it was also acting as some
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sort of custodian now that's very
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similar to how things might work on say
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Fidelity Schwab Vanguard now I use
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Fidelity as my custodian but that's also
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where I'm able to buy or sell my assets
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right it's it's one and the same to me
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it's both a custodian and an exchange
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but without their clients permission FTX
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used traded moved lended client money in
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unprotected ways so when those trades
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performed poorly I know it wasn't ftxs
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intention but when the trades did
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perform poorly when the asset value
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dropped or basically when some of the
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money that they lended out lost value in
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bad trades that was clients money in
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fact it was about two billion dollars
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worth of clients money and that client
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money was risked and lost without client
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permission so this is about as bad of a
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crime as can occur in the financial
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system some of you might know this I
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work for a fiduciary wealth management
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firm here in Rochester New York and that
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word fiduciary it means I have a legal
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and ethical obligation to work in my
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clients best interests these acts by FTX
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over the past few weeks months years
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however long was going on that's the
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polar opposite of what a fiduciary
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should do it's really it's really really
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bad guys so this problem it might have
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stayed a secret forever with FTX we
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might not know about it except except
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that much of cryptocurrency maybe even
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all of cryptocurrency but at the very
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least much of it is built upon a house
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of cards and so what do I mean by that
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to explain that FTX they had their own
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crypto token that they created they
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created out of thin air they called it
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ftt okay so FTX is the firm their token
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is
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ftt so why did ftt have any value at all
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in the first place well there's a simple
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reason it's because FTX said that they
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would pay a certain amount of actual US
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dollars in exchange for ftt tokens FTX
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created the value of Ft out of thin air
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really what happened was FTX created
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confidence in ftt so remember that word
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confidence FTX made it so that investors
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really could exchange their dollars for
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ftt and then later exchange ftt back
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into Dollars okay that was confidence in
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ftt hey it's actually worth something I
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believe it's worth something because FTX
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will actually pay me for it that's the
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confidence that FTX created
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so let's go to early November of this
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year
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2022 some crypto experts I believe it
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was at coindesk which was a news
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organization that's dedicated to crypto
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they pointed out that a lot of FTX and
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its sister firm which is called Alam
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research that a lot of FTX and alam's
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assets or their balance sheet now this
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is from a company point of view their
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company assets were in Ft
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tokens and that presents a small problem
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because if I say that I'm holding $10
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million worth of client assets and I
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have 10 billion US in the bank then
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everyone's going to be cool and calm and
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collected they're going to be confident
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that I can cover all of my client
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obligations right I have $10 billion
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sitting there in the bank which is
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enough to cover everything I owe to all
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my clients just in case for some reason
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they decide to all request their money
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back at the same time confidence is
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maintained in that scenario but what if
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instead of holding billion
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US I'm holding $10 billion worth of ftt
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in the bank well some people might get
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worried about that because the question
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they would ask is can I actually convert
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those ft tokens into US dollars here I
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am speaking about the situation I'm I'm
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acting as the custodian in this case
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what if I am FTX and what if I am the
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organization who gave ftt tokens any
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semblance of value in the first place
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it's pretty easy to see that there might
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be some weird crack in the system right
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so this company FTX they're the ones who
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say ftt has any value and once they said
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that ftt has value now they're saying
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that they have $10 billion worth of it
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listen just because I say that
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something's worth 10 billion billion do
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doesn't mean that it actually is worth1
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billion right that confidence is shaken
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and so cracks formed in the confidence
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of ftt and rightfully so and when those
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initial cracks form a few people maybe
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the most worried of people they sell
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their ftt they're like something's wrong
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here I Smell Smoke I'm out and what
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happens when selling pressure what does
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selling pressure do to a price the
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answer is it goes down
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selling pressure pushes a price down
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when the price drops the cracks feel
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Justified so the cracks grow bigger more
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people sell and the price drops even
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further suddenly what was $10 billion
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worth of ftt is now only worth 5 billion
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and then 2 billion and then zero so at
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that point FTX no longer had the assets
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to repay their customers and clients
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because too many of their assets were
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held in crypto tokens rather than in
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actual US Dollars too many of their
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assets were used in trades without their
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client permission too many of their
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assets were lent out to other places
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like the sister firm Alam and Alam lost
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the Assets in bad traits that's what
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happened to FTX so now the scary
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question or one of the scary questions
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there are many scary questions involved
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probably the biggest one is how such I'm
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not sure I can call it fraudulent
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Behavior but just
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just wrong Behavior right the idea of
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gambling and betting trading lending
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client assets without their permission I
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mean maybe it is fraud maybe I need to
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know exactly what the definition of
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Fraud is but either way it's just
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immoral unethical and obviously has lost
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clients billions of dollars that's
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probably the worst behavior or the
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scariest part of this but there is
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another scary question at least for
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crypto
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maximalists and the question is why
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won't similar problems occur across the
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entire cryptocurrency space the root of
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this problem was hey you say ftt is
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worth money but what if it's not worth
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any money and then the confidence in ftt
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eroded to zero can't the same question
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be asked for all crypto that's what's on
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my mind and that's what has me curious
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thinking concerned for crypto people
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some of you especially the more astute
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or dedicated listeners and readers might
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say like well hey Jesse don't you own a
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little bit of cryptocurrency and the
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answer is I do right about 1% of my
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portfolios in Bitcoin and about 1% of my
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portfolio is in ethereum those two
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assets could very well go to zero but
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the reason the very intentional reason
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why those Holdings are such small
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percentages in my portfolio is because
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when I bought them I had a feeling that
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maybe maybe these things could take over
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the world and my 1% or 2% at the time
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will grow to 20% of my portfolio 10x my
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money but it might go to zero and if
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something does go to zero then I want it
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to be a very very small portion of my
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portfolio and throughout these past
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couple years I'm fully willing to admit
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that my optimism and pessimism over
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cryptocurrency has flip-flopped I've
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never felt like a dedicated maximalist
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I've also never felt like a complete
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hater I will say that my optimism or
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pessimism it's not constant it
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definitely es and flows and it's
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definitely affected by what's going on
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in the marketplace which is just a
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terrific investing lesson in and of
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itself right the idea that what you see
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in the market can affect how you feel it
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shouldn't right we we should maintain a
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steady rational view over all our
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investments every day we we don't buy
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certain things we shouldn't buy certain
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things just because of whether the price
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is up or down and yet we do it's hard to
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combat that feeling that's a feeling I
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have for
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cryptocurrency okay well there's some
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lessons we can learn from this and and
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one of the big lessons is that stories
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can seduce us so Sam bankman freed or
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SBF right he was the CEO of FTX he's
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this 30-year-old guy he's kind of had
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this fun quirky story he's a super nerd
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and tons of ostensibly smart people were
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seduced by sf's story right because if
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there's anybody who's supposed to fit
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the mold of a super nerd who's going to
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make billions of dollars and change the
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world it's someone who looks talks acts
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dresses like this guy Sam bankman freed
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this year 2022 some of the biggest
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investment firms in the world valued FTX
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at $32
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billion and invested their money at that
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valuation that was this year that was
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earlier this year and now the firm is
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worth zero they were seduced by the
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story so that's a really important
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lesson to remember you know when you
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invest in a brick company you are not
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going to be seduced by the story of
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bricks you'll be seduced by the revenues
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and the profits and the assets of the
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company but not by the story of bricks
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but when you invest in futuristic
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technology you're investing in a story
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about that future
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profits well there aren't any profits
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yet right the profits of a futuristic
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company are going to come some number of
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years down the line they're going to say
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to you you know just wait a decade until
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we're running everything on Earth and
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then you'll get your profits it's a
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great story but it's also easy to lie
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bend the truth be seduced within these
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stories and that's what happened here
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and another important lesson is just
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that we have to be careful with our
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words and specifically here I'm not
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thinking about SBF I mean obviously he
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should have been more careful with his
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words I'm thinking about these celebrity
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endorsers who now I mean they've
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tarnished their reputations to some
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extent people like Tom Brady Steph Curry
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Kevin o Larry David Jazelle bunin
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Shaquille O'Neal they were encouraging
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people through celebrity endorsement to
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invest in
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FTX all of those Investments are now
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worth zero many clients lost all their
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money in FTX
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it's almost like these celebrities were
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endorsing rat poison they didn't know it
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at the time right it's not like they
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were intentionally endorsing rat poison
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I have a feeling that none of these
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celebrities were intentionally steering
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people towards frauds but obviously they
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were endorsing a product that they
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didn't fully understand not many people
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did fully understand the fact that FTX
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had this future it's not like endorsing
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a brick company when you endorse a brick
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company you can feel pretty good that
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bricks are going to do their thing thing
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when you endorse futuristic technology
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like FTX who knows what'll
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[Music]
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happen okay Switching gears now
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Switching gears we are going to do the
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usual thing where I'm going to take a
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couple articles that I've written
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recently on the best interest blog and
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talk about them because I know some of
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you would rather hear you'd rather
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listen than read I get it I get it it's
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easier to listen to a podcast than it is
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to sit down and distract your eyes with
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an article so this first one it's called
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six investing lessons from our
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honeymoon's terrible start yes this is a
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true story we did have a terrible start
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to our honeymoon combination of bad luck
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and some human incompetence it torpedoed
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our first travel day but naturally I
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took it as an investing lesson so our
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itinerary was Rochester to Boston to
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Tokyo to Hanoi Vietnam then after a few
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days in Hanoi we'd go onward to changai
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Bangkok and other parts of Thailand but
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things went poorly from the start so
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first our plane in Rochester had a
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mechanical issue there was like a
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90-minute delay while they tried to fix
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it they couldn't fix it so then a
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replacement plane got called up from
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Philadelphia but it ran late and that
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accounted for another like 60 Minutes of
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delay and then once we were on board the
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replacement this is probably the most
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frustrating part we just sat there on
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the tarmac and I'm still not sure why
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but we were probably in the plane on the
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ground for 45 minutes maybe an hour you
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know normally you're sitting there in
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the plane for like 15 minutes while they
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taxi and give the announcements maybe 30
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minutes we were there for at least an
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hour and the entire time the ground crew
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the staff they assured us that our
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connection in Boston was safe they said
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we're watching carefully you have plenty
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of time we've got an eye on it don't
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worry we'll make up time in the air but
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Kelly and I were nervous because we're
00:16:00
looking at the clocks and the clocks
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don't lie and so as our connecting
00:16:05
flight to Japan pushed back from its
00:16:07
Boston gate our inbound flight from
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Rochester was descending through
00:16:11
Boston's clouds we had a three-hour
00:16:14
schedule layover in Boston but that time
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all got consumed in Rochester before
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ever taking off and we missed our
00:16:20
connection so Boston to Tokyo it's a
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once per day 14-hour flight and we had
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no recourse we had no options but to
00:16:28
wait 24 hours for the next day's flight
00:16:32
we actually got lucky we learned we got
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lucky to even get seats on that second
00:16:37
flight it was already full but they
00:16:39
always keep four seats in reserve
00:16:41
specifically for mothers with infants so
00:16:44
that they could put a little bassinet in
00:16:46
front of them and we got two of those
00:16:48
seats so our carefully constructed
00:16:50
honeymoon plans I mean listen they were
00:16:52
far from ruined but they were definitely
00:16:54
shaken up we lost the first full day in
00:16:57
Vietnam we we had to cancel our trip to
00:16:59
a place called nin bin which is a
00:17:02
beautiful area of Vietnam we were
00:17:03
looking forward to but you investors can
00:17:06
learn some valuable lessons from our
00:17:08
frustrations so the first lesson some
00:17:10
things are out of your control I've
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quoted Annie Duke before here on the
00:17:15
best interest and her quote that I
00:17:17
really love is two things determine how
00:17:20
your life will turn out luck and the
00:17:23
quality of your
00:17:25
decisions okay we didn't choose to have
00:17:27
our plane break down right that wasn't a
00:17:29
choice that wasn't a quality of our
00:17:31
decision we had no say in the
00:17:33
replacement plan's tardiness really
00:17:35
that's just bad luck and bad luck
00:17:37
happens so similarly we never choose to
00:17:40
watch our portfolios drop in value
00:17:43
completely out of our control all we can
00:17:46
control are our decisions like what
00:17:49
asset allocation to invest with ideally
00:17:52
we have an asset allocation that
00:17:54
captures enough upside reward to achieve
00:17:56
our financial goals but with the low
00:17:58
enough risk profile to stomach the
00:18:00
inevitable bad luck of temporary
00:18:03
losses lesson number two build in margin
00:18:07
but sometimes margin fails so because
00:18:10
bad luck happens guys it's imperative to
00:18:12
build margin into our systems so Kelly
00:18:16
and I we had a three-hour layover in
00:18:18
Boston built into our itinerary that
00:18:20
seems like more than enough margin right
00:18:23
well apparently not because well because
00:18:25
we missed our flight personally I don't
00:18:28
think the lesson here is that we should
00:18:30
have built more margin in 3 hours should
00:18:33
have been fine and I think 95% of the
00:18:36
time we would have wasted that margin
00:18:38
really by just sitting waiting idly in
00:18:41
the Boston airport just like most of the
00:18:43
time you actually waste your insurance
00:18:46
premiums by never using the insurance
00:18:48
itself so instead I think the lesson is
00:18:52
there's always a scenario that could
00:18:54
possibly test the limits of your margin
00:18:56
right margin's a good thing but there's
00:18:58
always a scenario that might test the
00:19:00
limits of your margin so the question
00:19:03
for you for me for all of us to ponder
00:19:06
is how do we balance the wasted margin
00:19:09
against the possibility for disaster
00:19:12
right zero margin is a bad option
00:19:14
because we're just setting ourselves up
00:19:15
for disaster but too much margin is
00:19:18
wasteful right it's just wasted time
00:19:20
right if you have a one- day layover for
00:19:22
every flight you're just going to be
00:19:24
wasting days of time in the airport we
00:19:26
need to balance wasted margin against
00:19:29
the possibility for disaster it's
00:19:30
challenge but it's something we need to
00:19:32
try to do lesson number three try to
00:19:35
keep your cool because it's pretty hard
00:19:38
so right now some of my clients are
00:19:39
nervous their portfolios are down six or
00:19:42
seven figures here in
00:19:44
20122 and so they're thinking to
00:19:46
themselves don't just stand there do
00:19:48
something now their thoughts are
00:19:51
completely Justified completely human
00:19:53
but part of investment education is to
00:19:55
teach and remind them well first I hear
00:19:58
you I understand you I get it you're not
00:20:01
alone let me offer some ideas to ponder
00:20:03
and then let me know what you think we
00:20:06
also remind them that hey we chose an
00:20:07
asset allocation based on your goals
00:20:09
your risk tolerance your timelines have
00:20:12
those changed you know your financial
00:20:14
plan dictates your investment choices
00:20:16
not the other way around we remind them
00:20:19
that changing asset allocation based on
00:20:21
recent performance is as history shows
00:20:24
it's challenging short-sighted usually
00:20:26
regrettable we remind them that their
00:20:28
portfolios worked really wonderfully
00:20:30
over the past 10 years that markets do
00:20:32
work in cycles and after a wonderful
00:20:35
10-year cycle it's not necessarily
00:20:38
surprising that we're having a bare
00:20:40
market right now that said yes 2022 is
00:20:44
uniquely bad right because of the
00:20:45
correlated performance of stocks and
00:20:47
bonds both being down but that said the
00:20:51
forward Outlook is good right when price
00:20:54
to earnings ratios are down like they
00:20:57
are right now that's a sign of strong
00:20:59
forward stock returns when interest
00:21:02
rates are up like they are right now
00:21:05
that's a strong sign of forward Bond
00:21:07
returns so right now is not the time to
00:21:09
abandon ship it's exactly the opposite
00:21:12
in fact the airplane parallel here isn't
00:21:15
perfect but there are similarities right
00:21:17
my wife and I were frustrated we saw our
00:21:19
problems growing worse before us it felt
00:21:22
like nobody cared as much as we did but
00:21:24
no matter our stress no matter our
00:21:26
frustration our apathy
00:21:28
we couldn't fix the plane in Rochester
00:21:30
we couldn't fly the replacement from
00:21:32
Philadelphia we couldn't ask the pilots
00:21:34
on the tarmac to just go right and we
00:21:37
couldn't ask the Tokyo bound plane to
00:21:39
wait for us our negative emotions while
00:21:43
understandable right they served no
00:21:44
productive purpose our feelings were
00:21:47
perfectly understandable perfectly human
00:21:49
but not helpful and there's this quote
00:21:51
from epic tetus you might be able to
00:21:53
guess he was a Roman guy this picture
00:21:56
with a quote on it it's not actually him
00:21:57
right it's a marble statue I'm not even
00:21:59
sure if he was a real person but epicus
00:22:01
said happiness and freedom begin with a
00:22:04
clear understanding of one principle
00:22:07
some things are within your control and
00:22:10
some things are not simple profound
00:22:14
thank you epic tetus the next lesson
00:22:16
from our missed flight bad things will
00:22:19
happen but they can get worse so there's
00:22:22
an old joke in investing circles
00:22:25
question how does a stock drop 90%
00:22:28
answer it drops 80% then it gets cut in
00:22:32
half in other words one bad thing
00:22:35
happening an 80% drop doesn't preclude
00:22:38
more bad things from happening like
00:22:40
another 50% drop previous bad luck
00:22:43
doesn't mean you're do for good luck and
00:22:45
vice versa it's the same logical fallacy
00:22:48
leading to results oriented thinking
00:22:50
recall what Annie Duke said earlier you
00:22:53
can't control your luck we Kelly and I
00:22:56
had three consecutive bad lucks eat away
00:22:59
our entire layover margin investing at
00:23:03
least in the short run looking at
00:23:05
individual assets can work similarly the
00:23:08
used car company carvana for example has
00:23:11
suffered setback after setback in the
00:23:13
past 12 months its stock has plummeted
00:23:16
and there's no Silver Lining waiting
00:23:18
behind all the bad news there's just
00:23:20
more bad news and then in the article I
00:23:23
show a chart of enron's stock price from
00:23:25
1994 to 2002 and when Enron started
00:23:29
going downhill there were 20 and 30%
00:23:32
drops and then small recoveries and then
00:23:35
another 30 or 40% drop and then a small
00:23:37
recovery then a 50% drop and a small
00:23:39
recovery and all along the time it
00:23:41
probably took a year for that to happen
00:23:44
there were investors out there thinking
00:23:45
oh well it dropped but it'll recover
00:23:47
from here oh it'll recover from here
00:23:49
though right and it dropped some more oh
00:23:51
it's going to recover from here right
00:23:53
and it went all the way down to zero so
00:23:56
just because bad things happen
00:23:58
doesn't mean that more bad things aren't
00:24:00
going to happen in the future okay it's
00:24:03
kind of a tough lesson to learn but an
00:24:05
important one for investors and then the
00:24:07
next lesson those bad things they don't
00:24:09
just add up they actually compound so
00:24:12
three minor setbacks for us right three
00:24:15
hourong setbacks compounded into a
00:24:18
24-hour delay and in investing those bad
00:24:21
results can similarly compound into
00:24:23
permanent and or complete loss of
00:24:25
capital the last lesson I think is the
00:24:28
last lesson it is the last lesson is
00:24:30
that incentives Drive Behavior something
00:24:32
I talk about a lot here on the best
00:24:34
interest I know that nobody in the
00:24:37
Airlines at the airports I know that
00:24:39
nobody acted maliciously against us now
00:24:42
that said I learned an important lesson
00:24:44
from the ground staff who assured us
00:24:46
that we'd make our connection because
00:24:48
here's this hypothetical question what's
00:24:50
the easiest way to make a problem go
00:24:53
away the answer is you convince those
00:24:56
concerned that the problem doesn't exist
00:24:58
at all so hindsight being 2020 I think
00:25:01
that the ground crew in Rochester should
00:25:03
have could have Woulda looked into
00:25:05
rerouting us a different way or if need
00:25:08
be telling us the cold hard truth we
00:25:10
weren't going to be able to make our
00:25:12
connection in Boston and our best bet
00:25:14
would be to go home in Rochester sleep
00:25:17
there overnight and try again the next
00:25:19
day instead the ground crew smiled and
00:25:22
nodded told us we would make our flight
00:25:25
they optimistically sent us onward to
00:25:27
Boston saying you'll be fine you've got
00:25:28
plenty of time I'm looking at it right
00:25:30
here on my terminal they made us believe
00:25:33
that the problem didn't exist why well
00:25:36
at least in part because that ground
00:25:39
crew in Rochester has no incentive of
00:25:41
accountability from us the passengers
00:25:44
once we're onto the next city once we're
00:25:46
on the ground in Boston we're no longer
00:25:48
their problem and so we became a pretty
00:25:51
big problem to the poor ground crew in
00:25:53
Boston they had to spend an hour with us
00:25:55
looking for the best easiest fastest way
00:25:58
to get us to Hanoi securing a hotel room
00:26:00
for us in Boston setting us up with food
00:26:03
vouchers I mean the Boston crew had to
00:26:05
clean up after the Rochester crew and
00:26:08
you better believe that some part of the
00:26:09
Boston crew their heads thought well we
00:26:12
didn't create this mess why do we need
00:26:14
to bend over backwards to help these two
00:26:16
passengers so anyway incentives Drive
00:26:20
Behavior just like Charlie Monger said
00:26:22
show me the incentive and I will show
00:26:24
you the outcome so ultimately listen I
00:26:27
get it our trouble this was a first
00:26:29
world problem our 18-day trip was now
00:26:32
only 17 days oh no I get it I get it now
00:26:36
that said the helplessness of air travel
00:26:38
is a great reminder for how investors
00:26:41
should act you make the best decisions
00:26:43
you can you use margin to Shield
00:26:45
yourself from bad luck and then you
00:26:47
cross your fingers and you hope for the
00:26:49
[Music]
00:26:56
best all right guys one more article
00:26:59
this one is not too personal finance and
00:27:02
investing related that said I have a
00:27:05
feeling you'll find it really
00:27:06
interesting because the title of this
00:27:08
article is why I'm quitting social media
00:27:11
I'm writing this well really I'm
00:27:13
speaking this so that people have met
00:27:15
through social media will get the answer
00:27:16
to the inevitable question of like hey
00:27:18
where' Jesse go but I'd love to know if
00:27:21
you've had similar thoughts to mine so
00:27:23
please feel free to stay in touch with
00:27:25
me via email at Jesse
00:27:28
at bestter interest. blog at its heart
00:27:31
in a small way this is a personal
00:27:33
finance article or speech because our
00:27:36
main resource in life is not money right
00:27:39
it's time part of me quitting social
00:27:41
media is that I want to reclaim my time
00:27:44
so let's dive in to my reasons for
00:27:46
quitting social media the first one
00:27:48
social media wastes too much time hey I
00:27:50
just said that so it's true it's true
00:27:53
for creators and consumers alike I've
00:27:56
sent 19,000 300 tweets from my blog's
00:28:00
Twitter account since social media
00:28:01
reared its head in the mid 2000s I'm
00:28:04
betting that I've spent thousands
00:28:07
thousands of hours on social media I
00:28:09
don't think that's too ridiculous I
00:28:10
think it's simple fact I bet you've
00:28:12
spent thousands of hours on it too and
00:28:14
to what end yes so there's been some
00:28:16
good I've met some fantastic people I've
00:28:19
shared with them I've learned from them
00:28:21
some of you have probably found this
00:28:23
podcast found my blog through social
00:28:25
media that's an amazing result and
00:28:26
that's what I wanted to happen that said
00:28:30
it's kind of like saying I've met some
00:28:32
golden Souls at the crack house great
00:28:35
folks with plenty of worldly wisdom I
00:28:37
mean yes I'm sure the people there are
00:28:39
good but that's not a good reason to
00:28:40
smoke crack right as good as the people
00:28:43
are who I have met through social media
00:28:46
unfortunately I think that the cons of
00:28:48
social media or of me using it at least
00:28:51
outweigh the pros of having met those
00:28:53
people according to statista which is a
00:28:57
statis ICS aggregation site the global
00:28:59
average usage of social media is 2.5
00:29:02
hours per person per day now usage at
00:29:07
that time I can't believe that's good
00:29:08
for Humanity and I no longer want to be
00:29:11
a part of it my next reason social media
00:29:14
is addictive by Design if you haven't
00:29:16
seen Netflix's the social dilemma it's a
00:29:19
documentary called the social dilemma I
00:29:21
think it's worth your time the
00:29:23
documentary shows how social media quote
00:29:26
nurtures addiction to maximize profit
00:29:29
unquote by quote manipulating people's
00:29:33
views emotions and behavior unquote
00:29:36
addiction hey that's another crack
00:29:38
analogy and manipulation that's the
00:29:40
underpinning of social media I don't
00:29:43
want to subject myself to it anymore and
00:29:45
there are some stats associated with
00:29:47
this movie a 5,000 person study found
00:29:50
that higher social media use correlated
00:29:53
with self-reported declines in mental
00:29:56
and physical health and life
00:29:59
satisfaction all right my next reason
00:30:01
social media hacks dopamine so this is
00:30:03
how social media addicts us guys it
00:30:05
hacks the dopamine system in our brain
00:30:08
to the point that not using social media
00:30:10
starts to seem too boring in other words
00:30:13
it changes our Humanity this is personal
00:30:16
right I can't sit silent and read a book
00:30:18
for 10 minutes without this thought
00:30:21
seeping into my head hey maybe you
00:30:23
should check your phone I'm ashamed of
00:30:26
that I feel like a kid who can't control
00:30:28
his compulsion to eat the marshmallows
00:30:30
you know that marshmallow study if
00:30:32
you're not familiar Google it I've got a
00:30:33
link on the blog but I feel like a kid
00:30:36
who has no sort of impulse control my
00:30:38
attention span is gone and I'm far from
00:30:41
alone another Link in the blog post that
00:30:43
shows the stats how the attention span
00:30:45
is changing so that hunt for dopamine
00:30:48
more likes more followers more
00:30:50
retweets it compels us to do dumb stuff
00:30:54
so I wrote this article when let me
00:30:55
think I was on the plane back from my
00:30:57
honeymoon in Vietnam and Thailand it was
00:31:00
fresh on my mind we witnessed an
00:31:03
appalling number of tourists in
00:31:05
Southeast Asia and these are tourists
00:31:07
these are Global tourists right it
00:31:08
wasn't just white Western people like
00:31:11
Kelly and I it was people from all over
00:31:13
the world we witnessed an appalling
00:31:16
number of them doing stupid shitty
00:31:18
things for social media photos sneaking
00:31:22
cameras into forbidden Buddhist temples
00:31:25
blocking long waiting lines to ensure
00:31:27
that they had the perfect photo
00:31:29
background recordings just contrived
00:31:32
videos that are made to look candid and
00:31:35
spontanous it's sometimes unethical it's
00:31:38
sometimes immoral it's usually just
00:31:40
plain stupid this is how we act because
00:31:43
we're addicted to magical internet
00:31:46
points and the dopamine that they
00:31:47
provide us so I can't make other people
00:31:50
stop but I can choose to not partake
00:31:53
myself next reason social media
00:31:56
interrupts deeper work okay we've
00:31:58
already established that social media
00:32:00
Wast time right in and of itself but
00:32:03
kind of like a train leaving the station
00:32:05
most of us including me we need time to
00:32:08
get up to speed into our Flow State or
00:32:11
into deep work and again studies show
00:32:14
that every social media visit it makes
00:32:16
it harder to do this deep work because
00:32:19
we get into our Flow State we're doing
00:32:20
good and then we interrupt ourselves
00:32:22
with social media we go back to work 5
00:32:25
minutes later and we're no longer in
00:32:27
that flow state it takes time to get up
00:32:30
to speed in Flow State okay next reason
00:32:33
social media is just a rat race I know
00:32:36
some creators I mean there are awesome
00:32:38
personal finance and investing creators
00:32:40
who spend eight plus hours a day on
00:32:43
social media mainly that spent
00:32:45
interacting with other accounts as a
00:32:47
means of getting noticed and some of
00:32:50
these people they even hire assistance
00:32:51
to help because the more your accounts
00:32:54
grow on social media the more
00:32:56
maintenance time time is required to
00:32:58
maintain that level but then also to
00:33:00
continue growing it's kind of like the
00:33:02
faster you spin your hamster wheel the
00:33:04
harder you have to work to maintain it
00:33:07
next reason the filters for expertise on
00:33:10
social media are far too noisy who
00:33:13
adjudicates expertise anyway social
00:33:16
media is making that question harder to
00:33:17
answer the main reason is because the
00:33:20
metric of Merit if you will on social
00:33:22
media is a follower count which can be
00:33:25
easily hacked and might as well go into
00:33:27
that I was apart for a while again kind
00:33:30
of a shame to say it but at the same
00:33:31
time it's not too shameful on its face
00:33:33
but the results can be shameful that I
00:33:35
was a part of a couple groups on Twitter
00:33:37
where the express point of those groups
00:33:40
was that we'd all share each other's
00:33:41
content in order to all grow each
00:33:44
other's accounts and some of the people
00:33:46
in those groups are putting out amazing
00:33:49
content and so you'd feel like their
00:33:51
follower growth was welld deserved but
00:33:54
some of the people in those groups are
00:33:56
putting out just boring simple bad
00:33:59
incorrect unethical content and you can
00:34:02
choose not to share their work which I
00:34:04
would do my best not to but they're
00:34:07
getting the results of those groups
00:34:08
they're getting the results of other
00:34:09
people sharing their work they're not
00:34:11
naturally sharing their work it's forced
00:34:14
and then they're getting these huge
00:34:15
follower accounts and what you end up
00:34:17
with are giant accounts on social media
00:34:20
that appear like they must be legitimate
00:34:23
I mean how else do you get 100,000
00:34:24
followers when in reality that growth
00:34:27
has just been hacked some of these
00:34:30
accounts so I've been asked questions
00:34:31
like what's the real difference between
00:34:33
a Roth and a traditional account I've
00:34:36
been asked that question by
00:34:37
self-proclaimed money experts with 50
00:34:40
100,000 followers how can an expert not
00:34:43
know the answer to that question I mean
00:34:46
real life demands that we show our
00:34:48
expertise but on social media all you
00:34:51
need to do is talk about it until others
00:34:53
believe you next reason social media is
00:34:55
low quality and competitive I found that
00:34:58
originality on social media is
00:35:00
shockingly rare but again that's by
00:35:02
Design because even slightly complex
00:35:05
messages they fail to provide that quick
00:35:07
hit of dopamine that keeps users coming
00:35:10
back the social media system rewards
00:35:13
Simplicity now my most liked tweet ever
00:35:17
reads 9% into a 401k every paycheck $500
00:35:22
in a Roth IRA every month extremely
00:35:25
simple EX extremely effective sure okay
00:35:29
that's a good message but it's been said
00:35:32
a billion different ways before kind of
00:35:34
like saying use the bathroom wash your
00:35:36
hands it's a good idea that's not
00:35:39
exactly Earth shattering in fact many
00:35:42
content creators deliberately repeat the
00:35:45
same simple messages over and over and
00:35:49
over they intentionally cow toow to the
00:35:52
dumbest common denominator again and
00:35:54
that's because that style of content it
00:35:57
captures the most eyeballs from the most
00:35:59
users saying anything that's remotely
00:36:02
complex even if it's extremely helpful
00:36:05
doesn't capture user dopamine so they
00:36:07
keep it simple and they keep it stupid
00:36:09
that's by Design next reason social
00:36:13
media promotes audience capture audience
00:36:17
capture is a self- enforcing feedback
00:36:19
loop where an audience rewards a creator
00:36:22
for a particular message thus
00:36:24
encouraging the Creator to repeat that
00:36:26
message
00:36:27
one of the more mundane and grotesque
00:36:29
examples is YouTuber Nick Perry AKA
00:36:33
nikado avocado Perry's first foray into
00:36:36
YouTube saw him sharing his two passions
00:36:39
playing the violin and promoting
00:36:41
veganism but there wasn't a very big
00:36:44
audience for vegan violinists so
00:36:47
desperate for more viewers Perry
00:36:49
betrayed his passions and he began
00:36:52
recording videos where he eats
00:36:54
disgusting amounts of food while
00:36:55
chatting into the camera I'm serious
00:36:58
that's it that's the content there's one
00:37:00
man his camera and gluttony Perry grew
00:37:05
popular and as he grew more popular his
00:37:08
audience requested more videos with
00:37:10
larger piles of Greaser food Perry now
00:37:13
has 3.4 million followers on YouTube
00:37:17
he's also gained over 200 lb and I can
00:37:21
attest I'm not going to make you go
00:37:22
Google it but before he was a pretty
00:37:24
much slim normally built human
00:37:27
and now he is morbidly obese and I would
00:37:30
have shared a picture of him doing his
00:37:32
thing on my blog but not only is the
00:37:35
food itself grotesque I mean so is the
00:37:37
fact that Perry changed his entire
00:37:41
personhood to pursue internet Fame so I
00:37:45
write and I talk on the best interest
00:37:47
for my enjoyment and I love the fact
00:37:49
that many thousands of you enjoy it too
00:37:52
right I think that's a win-win but no
00:37:54
offense and I really mean no offense you
00:37:56
guys I never want to be captured by you
00:38:00
and quitting social media helps that end
00:38:03
the next reason social media encourages
00:38:05
the worst of us social media platforms
00:38:08
and their algorithms have recognized
00:38:11
that anger is the most engaging emotion
00:38:14
nothing attracts eyeballs like a fight
00:38:17
and that itself that's the root of echo
00:38:20
Chambers and political divide and boy to
00:38:22
the advertising dollars follow but
00:38:25
sometimes even benign conversations
00:38:27
can turn sour thanks to social media's
00:38:30
tentacles so I was chatting with an
00:38:32
awesome personal finance Creator over
00:38:34
the summer I've got a ton of respect for
00:38:36
her work but when the conversation
00:38:38
turned towards working together you know
00:38:41
her working with the best interest in
00:38:43
some way she said and I quote you're a
00:38:46
great writer and I enjoy your podcast
00:38:48
appearances but I hope you understand I
00:38:51
don't think my audience wants to see
00:38:53
another straight white guy talking to
00:38:55
them about money
00:38:57
end quote I think that's a little bit
00:38:59
gross I think that maybe it's audience
00:39:02
capture or maybe her social media turned
00:39:05
her into some sort of a
00:39:07
bigot okay I'm not even citing the more
00:39:10
egregious problems with social media
00:39:12
like misinformation and propaganda Echo
00:39:15
chambers of hate and grift severe mental
00:39:18
health crises in teens and I'm sure I
00:39:20
missing a few more I do wonder will this
00:39:23
decision hurt the best interest I'm
00:39:25
worried about that
00:39:27
as anthropologists say social death is
00:39:30
worse than a physical death and in the
00:39:32
Modern Age leaving social media kind of
00:39:35
feels like a self-imposed Exile am I
00:39:37
choosing social death maybe but I think
00:39:41
the site will be okay and I'm very
00:39:44
excited about the positives of this
00:39:46
decision so stay happy stay healthy you
00:39:49
guys and again don't hesitate to stay in
00:39:51
touch via email Jesse bestin interest.
00:39:54
blog all right guys that has been long
00:39:57
enough for today I'll save some listener
00:39:59
questions for next time if you do have a
00:40:02
question that you want to ask me I'd
00:40:04
love to answer it here on the podcast
00:40:06
you can email that question to Jesse
00:40:09
bestin interest. blog and that's it
00:40:12
thank you for listening to episode 44 of
00:40:15
the best interest
00:40:17
[Music]
00:40:19
podcast thanks for tuning in to this
00:40:21
episode of the best interest podcast if
00:40:24
you have a question for Jesse to answer
00:40:25
on a future episode send him an email at
00:40:28
Jesse bestter interest. blog again
00:40:31
that's Jesse bestter interest. blog did
00:40:34
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00:40:37
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00:40:39
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00:40:41
invest in knowledge themselves and we
00:40:43
really appreciate it we'll catch you on
00:40:45
the next episode of the best interest
00:40:48
[Music]
00:40:50
podcast the best interest podcast is a
00:40:53
personal podcast met for education and
00:40:55
entertainment it should not be taken as
00:40:57
Financial advice and is not prescriptive
00:41:00
of your financial situation