3.30.23. AJO_AR_V1

Welcome everybody to the AJ Osborne show where we focus on our core tenets, impact, freedom, and progress. Join me and others as we grow through education and discussion. Welcome everybody to the AJ Osborne podcast. And today I want to hit on something that is very, very important. Context, a lot of people live in a micro chasm right now in the world, which we are going to talk about and go over what in general has happened in the last, let’s say two, three generations. Now guys, we seem to be overwhelmed by negative information. And when we look at investing overall, first of all, a long term perspective, and I think we talked about this on the last one, but a long term perspective, which in reality is not long term, we’re talking like 10 to 15 years. Now the reality of the situation is that is actually outrageously short term. And when we look at our perspective of the economy, countries, big trends that affect our investing and business decisions, this idea of a 10 year being a long time, which most people think five years a long time, this is problematic. And it’s problematic for a few reasons. The first and foremost is it completely warps our idea of how money economies work. And it creates massive blind spots in our overall investing strategy and where opportunities lie. You may be investing in something that has a lot of opportunity, but overall is dying. And unless you get the timing right, you’re dead, your money’s gone. And I want to start this off, we need to give some real context and perspective to this. Now I’m sure you hear all these fun facts on timeframes that would just blow your mind. Right. And in general, these are huge, like the fact that Cleopatra was closer to the making of the iPhone than she was her own pyramids. And you know, we hear some of those huge ones, but we don’t need that kind of time frame. We don’t need to look at, well, mankind’s been on the earth. We don’t. We need to just take that back down to even a long time, considering it’s a couple of generations. The world is not recognizable if you go back just a few generations. And a lot of people, as we look at the world we live in, we have huge negativity bias. Our brains have been trained for that. There’s a reason why. And the reason is simple. It is a risk and reward. Your brain being concerned on negatives as opposed to positives. Why would our brains be hardwired for this? It’s very simple. If you’re in a forest and you see berries and you’re eating berries and you’re not thinking about anything else ever, you get to eat, maybe get to eat a lot of berries. But if there’s a bear eating berries with you, he’s going to kill you and eat you. And then your life’s over. So the reward is you get berries that moment you get something good. But the downside is game over. Your life is over. So you can see how our perspective and the way that our brain works. We are so overly shifted to negative biases. And that has a very, very bad impact on how in general things work. Now we have an opposite problem of hubris and groupthink, which is more conditioned by people saying things all the time. Think about if people were all swimming in the ocean and a shark was eating people and nobody said anything and they said, no, it’s OK, it’s OK, it’s OK. You wouldn’t know the danger was there. Right. So as individuals, when we look around the world with us individually, we can get scared, we can get anxious. We think that everything’s going to hell in a handbasket. Right. How many times have you heard that the country is going to be destroyed in the last three years? Well, once again, let’s look at this perspective. If you look back in just the last few generations, let’s start out a little wider. Eighteen hundreds. To give you any idea how much our world has changed in the eighteen hundreds. Out of one hundred and ninety four countries, one hundred and ninety three of them had legal slavery into the nineteen hundreds. That number was still well over a hundred. Of one hundred and ninety four had legal slavery. Today, that number is three. When we look at things like children dying, right. Eighteen hundreds into the nineteen hundreds, it was over 40 percent of children died before their fifth birthday. Today that number is less than four percent. When we look at things like even overall hunger, right, as early as 1970, 30 percent of the world were malnutritioned. They didn’t have food. They didn’t know where they were going to eat. Today that’s only 11 percent. When you look at things like diseases, right. OK, well, out of one hundred and ninety four countries, after the right about the nineteen hundreds, one hundred and forty of the one hundred and ninety four countries had smallpox. Today it’s zero. Right. Even nuclear arms just back to the nineteen forties. So out of thousands of nuclear warheads, right. We had six thousand four hundred. Today it’s like fifteen hundred. Unemployment, labor, once again, as early as literally the 1960s, it was like twenty five plus percent. Today it’s under 10 percent. Plane crashes. Right. Prior to 1950, we had in a five year average, there was over two thousand. Today there’s one in a five year period. Put that into perspective of how many more planes there are than there were back then. Everything from HIV infections to the list goes on and on and on and on. We talk about ozone depletion. Right. Nineteen seventy. We had as far as a thousand tons of ozone depletion, depleting substances that were being used. We had one thousand six hundred and sixty three thousand tons. In 2016, there was only twenty two. This number is not just on the bad things that we look at, but this number is also included in good things that are happening. All right. If we went back to the 80s in a five year period of cancer, 55 percent would survive. Today it’s over 80 percent. Girls in schools just in the 1970s. That number was like 60 percent. It’s over 90 percent now. And currently today, more girls graduate from college. It’s we’ve so shifted some of these amazing things. Harvests. Right. When you look at scholarly article literature, 1980s, less than 10 percent of the population today, it’s like 90, 90 percent plus immunizations. 1980, it was less than it was. Twenty two percent. Today it’s over 89 percent. When we look at our world, even when we’re talking about numbers that I I lived in some of these periods of times that we just mentioned, I saw these changes in my lifetime. The world went from 22 percent immunized to 90 percent democracy. In the 1900s was less than 10 percent. Today it’s 60. It’s closer to 60 percent. These numbers are staggering. Once again, schools, things like that. Most of these numbers are represented within my lifetime and my father’s lifetime. Then you go just to my grandparents lifetime. And our world has been so massively changed for the good. OK. When we see these negative things and we’re overwhelmed by them, most of the time we forget about the overarching trends. We’re seeing this microscopic point in a trend. And at that point, that trend looks like it’s horrible. Like this. We just had a drop in whatever it may be. Maybe we use more fossil fuels this year than we did three years ago. But it’s insignificant in the long term trends because it’s all going in the right direction. Our world is incomprehensibly better in the last 150 years in ways that never occurred prior to that. So the rapid change, embeddement of life, civilization, equity, as far as everything goes, slavery, I mean, you name it. The last, frankly, 50 years, we saw more improvements than the previous thousands. And we need to keep this in mind. It’s good to have a negativity bias to be looking out for risk. That’s a good thing. Whenever I look at an asset, whenever I look at an investment, I look at the downsides. I’m ultra concerned about the downsides. I don’t want to make myself believe that something will work. That’s just not smart. But on a whole, you have to remember that recessions, depressions, contractions in the economy make up a fraction of the overall market. It’s the vast majority of the market is a complete bull run over hundreds of years. Those contractions are just a fraction of markets, economies, wealth, income, distributions of services, health care, you name it. The major change in this system was obviously capitalism. Capitalism has been around for quite a while. By quite a while, I’m talking about not in human history. I mean, we’re talking about the last couple of hundred years. But the countries that did it, it was not capitalism, I think, like most people think today. And it was very, very few countries. So if you go before the 1800s, that just personal rights, personal capital, meaning you could own things and have things, that may have been around very small, but the government and things could just take it whenever they wanted. So even our first moments into capitalist societies with a few countries, they were capitalist, not like we know and understand it, but only in the form that for the first time in history, right, people could own capital. Like that was a thing. They could invest in something, they could have ownership of something. Well, this idea of individual independence and individuality that we can make our lives of what we want to it is the cornerstone of this capitalistic process. It is this idea that you can own, you have legal rights, you can invest, you can own property, you can own business and contracts, right? You have the ability, not just the government, not just the entity that’s in control, right? Not your Lord or your King or your whoever, that you can and your destiny is more of yours. That is a very, very new phenomenon in the world that we live in. And to hear so many people talk negatively about the world today, as if it’s horrible, right? It’s crazy to hear people say that today trans people are worse off than they were. Like they’re, they’re, they’re facing some existential crisis as opposed to what time in history and in what place. First of all, the vast majority of the world, not only is that not true, it’s horrific circumstances and things that we would, it would blow our minds, the kind of treatment. And even in the United States, the leaps and bounds that we have made in the last two, three decades, we over exaggerate these negatives. It may be negative from year to year or how you perceive things that are going on. And this reality and this taking a step back to look at your life, to look at your current situation actually has a big, big effect on your investing, how you invest, what you’re investing in. And if you make good decisions or bad decisions, why this is why overall the crowd and society is generally wrong in the short term, they tend to be right in the long term. What does that mean? That means when we’re in a recession, we usually don’t know we’re in a recession, right? By the time we realize that we’re in a recession, the recession’s already over. Then everybody’s freaking out that we’re in a recession. So group think can skew things and we can perceive things that maybe aren’t a danger at all, or maybe are so grossly over exaggerated that we make all the wrong moves at the wrong time. It is only when you pull yourself out of that situation that we can see clearer and a longer term picture. This is especially harder to do today with social media because social media can literally create the world in which you want. You can look at trends within social media and see negativity and positivity as it flows as through a year, let’s say. And we know that during winter months, it’s vastly more negative, right? We also know that one person, what they see and perceive is completely opposite of another person. We’re creating our own realities that we live in because we’re immersing ourselves in that group think. We’re not having any outside challenges because we’re simply getting fed our biases. And that leads us to explode the negatives and the positives. All of a sudden, my group is always better, right? And the other group is Nazis, right? You have these extreme polar opposites. You also do this in financing. You do this in investing. You can see this, this is the essential mechanism for bubbles. Group think is overly optimistic about something. Houses will never lose value, will never fail. Then what happened two years later, real estate is dead. No one should touch it. How could you invest in real estate? It’s terrible. That was actually the best time to invest in it. It was the worst time when people said that the impossible could never happen. So you have to be able to make decisions, not in this vacuum, especially not in a vacuum that we seem to all live in today, which is manufactured by guess who? Us. Of course, you can blame it on social media companies, blame it on whoever you want. But at the end of the day, it is us that is making those decisions. You’re consuming certain types of content. You are actively participating, right? And you are reinforcing. Now I am, I believe, a man of values, foundations. I believe strongly in my set of core values that I live my life. I am not someone that says, oh, I don’t believe that there’s any substance to anything and that we should change all the time. Not at all. That’s not how I live my life. I also do not live my life that I reject all information. I’m happy to be challenged on everything and I’m happy to think through. But it does take me a lot to really interpret, analyze and make decisions. I’m very fearful of making decisions off of fear, right? I’m very scared to make decisions off of emotion. I want counterparts. I want balancing acts because for those that have been in this game for a long time, they’ve been burned by it. And once you’ve been burned by it, you do not want to make those kinds of mistakes again. Now this can be really hard for individuals. It was really hard for me. Why? Because I didn’t know where to look. I hear one thing and then I hear another and I don’t know, I don’t understand who’s right and who’s wrong. So there’s a simple way that we can try to approach this. First of all is we’re literally getting out the biases by understanding source of content and understanding content purpose. I mean this and everything, what you’re reading, right? I don’t mean social media when I say content. I mean what you’re reading, what you’re consuming. So first of all, the source of the content that you are listening to, watching, reading doesn’t matter, right? What is the purpose of this? Why am I listening to this? What is my goal set from it? Where is this content coming from? Does that person or is this research back, right? And the more deep down you get, especially when you’re investing and you’re creating strategies around it, you really need to understand without biases, without anything, trends, data, and really formulating an opinion that takes in both the pros and the cons, that merges these things together. This can be a thin line to walk and lots of times people are wrong and that’s okay. That’s why we also need to be cognizant that we could be wrong. This takes your decisions in saying, I understand I could be wrong. That doesn’t mean I don’t move forward. If I do an analysis and I believe that this investing strategy is from everything we can take in and everything that we can challenge, a good strategy that will be profitable and fruitful within a variance, meaning that we look at variances from high, low performance, how, what the ranges may be and the probabilities of certain outcomes, not driven by external factors, but internal factors, meaning lines of revenue and measurable things. Spreads on costs, spreads on rates that we don’t get out into la la land and that we also don’t get, you know, we’re not overly optimistic and we’re not overly pessimistic. When you get into those ranges, you, you, you get into the range of emotion. You stop making logical decisions. We also understand that things that we haven’t put into our analysis can occur. We may invest in a city that we think is this amazing city, is this great, you know, place to live, everything. And all of a sudden a factory blows up and spews toxic sewage. And then that entire 10 mile radius has to be evicted and that city dies. How there’s no way that we can input these kinds of risks. A lot of people say, you know, I’m worried about investing because I, we may go into a depression. I always have to ask, okay, if we go into a depression then, or they’re like, I’m trying to figure out my investment. Do you have any control of that? And what are the odds or likelihoods of that happening? First of all, if you look over history, outrageously small, it doesn’t mean though it can’t happen. I understand it can, but I do not construct my entire financial decisions predicated on the one in 500, right? Or the one in a hundred. If that happens, I want to be prepared so we can make it through it at best. But still these large, large macro, we go into a great war or something, they’re completely out of my control. The best thing you could do is bet in the system, meaning the United States, that you know the laws, you know, the system, that they respect markets, they respect contracts, they respect capital and that it will get through those things. This is why the United States tends to always keep succeeding. Why? Because if you’re investing in China, you don’t know that that country is going, what they’re going to do. Nobody knows. Nobody knows. And they have all control. You have no real rights. Even places like Canada, you have far fewer rights over your capital, your property. How does the system work? Right? At the end of the day, Canada is still one of the top best places to invest in. I would invest in Canada. I’m not saying that by any means. I absolutely would. There’s very few, though, in the world that I would, would, that I’d even feel comfortable with that. And the United States is the biggest and it’s the most secure out of all of them. So I have to have belief in the system, because if not, that’s futile. There’s no reason to even like, then there’s nowhere to invest. There’s nothing to do ever. That is the biggest failure. Is you sit on the sidelines because of perceived events that 100% may occur. The likelihood of them occurring, though, is crazy low. Now, this is how this is when I really started thinking about I learned from this. In 2008, when we were in the middle of it, by every single, there was not a piece of evidence out there that would show that we were not collapsing 100%. And what people forget about is that in these times of struggle, we see all the bad things that come out. The future, we have a question of what bad things will continue to happen. But we’re not inputting humans ability to solve problems. And the reason why is you can’t measure that you can’t see it, you don’t know. And the problem with it is that is faith. You have to have faith that people will figure out solutions to problems. And that the outcome may not be that even though you don’t know the solution. That’s literally how the economy works. How many people have ever said, this doesn’t even make sense. Ray Dalio learned this the hard way when he bet completely against the United States, because every single indication that he could measure and look at was going to show that the dollar was going to fall, that the United States was going to crumble. This is the same that countless authors, the author of the big short talks about this all the time. I’ve thought that the banking system and the whole system was going to collapse for the last 60 years. The problem is people figure out solutions. We are creative and we recognize problems and we want to fix them. Now we may say we don’t recognize them quickly, but once again, pull it back. When we say that we didn’t recognize the problems of 2008 quickly, that we all ignored it and went away, we’re talking about a few years timeframe. Give it even five years. Now, for the most part, that is not long. It was not good. It was painful. It was a horrible time. It was absolutely the worst, but we also got our country out of it. We did that in relatively quickly in comparison to what had been lost and what had happened. When we look at this negativity and have a bias for negativity that’s all encompassing, we always forget the other side and that’s the side that we can’t see. That’s the side that everybody’s working to fix problems. We’re thrashing it out. There are solutions. We’re going to figure them out. Will there be pain in the short run? Yeah, but you also have to have faith that, guess what? We’re all working here to figure these out. We want to make things better. Everybody’s moving in the right direction. This is that part of investing where I don’t rely on faith for my individual strategy, but I have to rely on the system as a whole. If not, once again, you’re just a futile doomsdayer that can never grow. You can never do anything. I need to preface this again. I am not gambling. I am not saying that I do not care about downsides. In fact, I am too much conservative. The amount of money that I could have made over the last 10 years is mind boggling to me, but I’m too conservative and I’m not changing that because that has protected me. That’s been a great way that I work. It’s within my comfort zone. It’s within my risk level. I’m not saying that I gamble on a property. No, I care the most about the downside, the protection of my capital. The upside I want to know and be able to measure. And then if it goes up beyond that, if markets go up and I leave faith up to the market to just go, that’s my cherry on top, but I underwrite for knowns. I have faith that outside the knowns, things will still get better. But that’s a cherry on top to my investing strategy. Once again, hold back, look at the whole landscape, cut out the noise, go down to the brass tacks. Understand what you’re consuming and how what you’re consuming is changing your outlook, which then change your day to day lives, the moves that you make and what you do. It changes your emotional state of being. It changes your anxiety and it changes all your individual decisions. This is absolutely horrible when it comes to investing. You need to be in control in order to take advantage of the upside, but also not fall to the downside. Why? Because if you are easily fall into the trap of doomsday, you’re also going to be the person that easily falls into the trap of Bitcoin’s going to a billion. So I’m going to leverage my house or whatever it may be. You just hope, right? You just gamble. Why? Because that’s emotion driven on both sides. When you do nothing because of fear, it’s the same thing of doing something because of pure emotion and greed. Don’t do either one of those things. That’s the message. And that’s how you move forward in faith. But do not invest on faith, right? On practical, measured, good inputs in the long run. Are you going to miss great money making opportunities? Yeah. I had somebody that told me, AJ, I can’t believe you’re not investing in this. This is going to be the best investment ever. You’re going to look back on this in 10 years and wish you had done it. Yeah, that’s I could name that with countless things. That doesn’t mean I should do it. Just because you’re going to something is going to be radically successful in 10 years is not a reason that I should do it because I don’t know what the 10 years is. It’s out of my core competencies. I don’t understand. Right. So I miss lots of opportunities every day. Because it’s not about the it’s not about the opportunity itself. It’s about how well I understand it, what I can measure, and how I can implement and take action on it, not gambling. So move forward, especially in this noisy, noisy time we’re in everybody. Because when everybody’s distracted, and when the sky is falling, that’s usually when the best opportunities are out there. Thanks, everybody.