Avoiding Big Mistakes in the New Economy

Your average person is an expert in everything but doesn’t have results. This seems to upset a lot of people as they know it’s true based on their world view: dating, money, friends, fitness etc… Yet no results. As many of you know, the answer is to “smile, nod and agree”. That said, we can go ahead and look at some logical conclusions based on the new economy (tech, healthcare and your future working environment). This will act as a bit of a crib sheet for the next 10 years or so.

Follow the Results: Look around. The people who made good money were in tech and online businesses. Even people with small social media profiles were able to make six figures without a significant change to their production. People with consumer based tech companies were up 5-10x… People with mission critical software were through the roof (not just revenue but valuation expansion as well). So on and so forth. 

In fact, the numbers were so clear we didn’t even bother doing a post on Wall Street compensation (which was actually up, about 4-8% y/y). Even in a record year on Wall Street, people didn’t get paid much as the firms know that jobs are scarce “the Company eats first”. This is a secular declining industry so it’s losing its luster over time (except M&A which continues to be unscathed). 

Now take a step back and look at the bigger picture. Do not “invest in the dead cat”. This means? When things get back to normal some brick and mortar businesses will thrive. Popular bars and clubs will certainly do fine. The problem? Why would you fight the bigger picture, which is remote work and decentralization (the last one is worthy of a book and is more than just crypto). 

In conclusion, for the first section you should assume that people will work in a scattered fashion. There is no reason to start a high overhead business. Also. There is no reason to become educated on high-overhead activities since they won’t generate high returns. 

The New Education Process: Education needs to go through a transformational reform. Here is a big opportunity for someone with technical knowledge. Learning facts will not help you get ahead: google can do that for free. The new economy needs to learn how to operate in an entirely virtual manner. This means the following items are needed: 1) warehouses, 2) virtual assistants, 3) delivery services, 4) smaller private schools dedicated to skills, 5) copywriting copywriting copywriting, 6) graphic design, 7) software updates – living breathing code, 8) digital training schools – think esports camps similar to a regular sports camp and 9) individualized video education and entertainment 

We’ve talked about a few of these before so for fun we’ll go into more detail about a particular example: digital training schools.

This isn’t something that’s overly popular right now. There are a few out there such as esportscamps.com. That isn’t enough to satisfy the long-term demand. The current generation will view the esports industry as a legitimate competitive field (at least the ones that have been paying attention). This means their kids will have an opportunity to learn skills related to shooting games, fighting games, MMORPG games and more (we’re sure millions of other types of games will be created – especially as VR rolls out). If people are willing to watch twitch for millions of hours per year, you’re aiming for the top 10% or so that are taking gaming seriously – as a potential career to make money on twitch or win tournaments.

Take a simple example like an MMORPG game or a war type game. Instead of creating extremely easy simulations (like playing the game from start to finish), you can create situational game play. For example practicing micro management on entry level fighters. This  would not be comparable to a standard CPU as you can stack the game against the player and force them to micromanage the units/fleet. You can also change the terrain, the spacing and the damage levels of each character. Over the long-term, “fundamentals” will evolve just like any sport (correct way to shoot a ball or swing a golf club). You can create game situations and sell the packet as a set for training. On top of this? You can do virtual consulting for errors made and how to fix them (or create personalized tasks to fix them).  As a final note here, some of these items exist generally. If you’re up for the task you can emulate accuracy/player movement of certain professional or near professional level players to code in their play style. 

Betting Against Degeneracy – Not Wise: It’s an interesting concept but appears to be logical as well. Many say that investing in drug companies or degenerative platforms like Only Fans is bad. The reality? This is likely where a lot of money will be made. A. Lot. 

Therefore you don’t want to bet against degenerate enabling products. Before the choir comes in and says “You’re helping the problem”… That is verifiably false. When you invest in a company the firm does not make any money. If you buy the S&P 500 for example, you’re not giving the S&P 500 money. You are saying that you believe the S&P 500 will be worth more in the future. You’d be surprised at how many people believe that investing in a stock means you’re “helping them”. Again. You’re not. An investor is simply saying he/she thinks the value will be higher in the future so they are willing to own part of the equity. (note: if you were the first check or part of a fund raise then you would be creating a new “problem”)

Degenerate platforms will likely be normalized in 5-10 years. Take music for example. Back in the 50s/60s if you told adults that Nicki Minaj/Kim Kardashian would make porn/being a slut “Cool” they would have laughed in your face. And. Here we are. Similarly, in the future it will be entirely normal to see people in their 40s and 50s smoking marijuana and frequently using LSD/mushrooms etc. On a historical note, look at the tattoo industry. Before they became common, it was also associated with degeneracy.

Note, we realize that intelligent people can use these substances to their advantage. And. We also realize Americans have no self control so they will be abused anyway (luckily it’s practically impossible to die from marijuana overdose).

Areas we would *not* bet against include: 1) escort/prostitution normalization such as only fans, 2) recreational drug use like marijuana, LSD and mushrooms and 3) the natural mental health issues caused by overdose of drugs and other degenerate activities. Similar to any growing industries there will be times where certain segments balloon in valuation and eventually bust due to exuberance. That said, the long-term view is that it will be up and to the right. Amazon, Netflix etc. all had days where the stock would be down 15-20% (even more), however, the trend was the same. It was just a buying opportunity. 

Big Tax Mistake: With record amounts of printing (and more to come), your portfolio should become more liquid and easy to conceal. For example, you’re better off buying that $700K place versus the $1M home as you will appear to be “lesser off” on paper. When taxes come in it is going to be a blanket belief based on obscure bench marks. If you don’t believe this just look at the tax brackets we already have in the United States. Is $400K a year a top 1% person in Los Angeles? Does it make sense that he pays more in tax than the guy making $400K in Wyoming or Utah? It does not. This is just a simple way to enforce a tax and they will do the same based on what they can see on paper. 

For fun we’ll make some predictions, it wouldn’t be fun without it. Our best guess is the targeted people will be $10M+ in net worth. We’d go ahead and guess that someone in the $1-5M net worth range will be entirely fine. When you go to $5-10M you may have to do some moving around… At $10M there will be some sort of impact (due to what you hold/own). 

Assuming this is right (unlikely we hit it exactly) here are some ways to reduce your tax foot print. If you’re at $10M+ you should go to your accountant/tax person. 1) for real estate you want to stay below $1M or so in terms of the value of the asset/home in an ideal situation. There are too many $1M homes on the coast and in Hawaii to justify a sudden spike in pricing there. Especially since the money printer pushed valuations up another 10% sending many homes in the 700-800 range closer to that $1M mark. 2) for stocks and bonds you’re going to want to have two separate accounts. One can be your regular trading account and the other is going to be a roth/after tax “retirement” account. Within these accounts you want to try and keep them balanced. If you’re already worth $4-5M it doesn’t matter if you can click sell tomorrow since you likely have a high income anyway. 3) for digital assets/commodities, keep as much possible in physical form. This means physical bars of gold/silver, holding the actual keys to your crypto assets while keeping anything on a “hot” wallet at a minimum (no smartphones, no exchanges). You can have a few bucks here and there on there, but it’s just for your own fun/entertainment if you’re interested in trading them (or need to liquidate quickly). 4) take a hard look at assets that go up in value with limited liability/risk. This primarily refers to collectables. Instead of finding items that may or may not go up in value, just buy the best and most popular item and hold it for the long-term. To make a baseball example, a Mickey Mantle rookie card or an original version of the first Spiderman are unlikely going to die off (in terms of value). Before moving on here, avoid buying something you are actually in love with. You’re better off owning something from a logical perspective and holding it for the long-term. This means you will be able to sell it in the future (mental game).

We’ll use a $4M net worth individual to paint the picture. Anyone reading this blog (that takes it seriously) can reach a $4M net worth figure. If you are in this situation a good set up would be as follows: 1) $750K home, 2) $1.25M in individual trading account, 3) $1.25M in post tax retirement account and 4) $750K in alternative assets say you have $500K in crypto and $250K in rare collectables such as art/comics. Notice, we’re against owning a bunch of rental properties going forward as we view them as easily taxable. If you already have them, feel free to keep them or sell them (as usual risk is relative to your view s of the future). 

Decrease Your Potential Liability: This goes without saying but if you’re well off do whatever you can to hide the amount of money you have. As a simple example, even if you can pay for your $750K home in cash, you’re better off putting down $700K and taking out a $50K mortgage. Why? On the initial screen it will appear that you don’t own the home, the bank does. No one will view an individual with a mortgage as rich (highly unlikely anyone screens mortgages across the entire USA). 

Other ways to disguise your wealth is by spreading it across multiple assets. If you run two small companies or three, you can put assets into all three and they will appear to be less valuable. This is the beauty of online businesses. If you sell unrelated items, say a fitness company and a clothing company, they diversify your income and your verifiable net worth. Trust funds are also extremely helpful for tax purposes but if you’re in this category the chances are 99/100 that you’re already making the changes we listed above. 

In terms of passing on inheritance when you die, there isn’t much you can do. Our best guess is that the tax structures will change and will only impact the richest of the rich. For this we’d anticipate a change in tax for someone who is attempting to pass down around $50M+. These are simply guesses and unless you have kids, there is no reason to worry about it.

Summarizing the Changes: Back 20 or so years ago, if you went to a typical wealth management office you’d get the same answer: the clients are real estate, small business or in some cases Wall Street. In the future, call it 2040 or so, the answer will be a bit different: small internet business and technology. Those two areas are the future and there is no reason to fight the trend. While you’ll always find exceptions to the rule, the trend is clear as day at this point. 

The second major item here is that taxes and individual autonomy will increase. This just means more degeneracy for the individuals who lack self control and major profits for the individuals who take advantage of new tech. Not only that but the competition will be busy doing drugs and hanging out on Only Fans while you’ll receive an education from the best and the brightest for a lower cost (say good bye to advice from unsuccessful people who haven’t made it in life!). 

Third is that you should take asset allocation more seriously from a visibility perspective. Visibility means easy to see and tax. Things that are hard to tax are physical (gold, art. collectibles), digital (crypto) and physical currency (fiat). Items that are easy to tax include transfers of wealth, real estate and W-2 income.

On that note, avoiding big mistakes is a surefire way to stay ahead in life. Just remember, the rules constantly evolve.