Why do I Have so Little Diversification?

00:02 hey everyone so I'll answer a question 00:03 here that uh was recently asked which is 00:06 why do I have so little diversification 00:08 and what's the logic uh behind that uh 00:11 as I've mentioned before I am 00:13 96% Bitcoin 4% stocks bonds US dollar 00:18 cash and then uh the only things that 00:20 are not counted in that um that does 00:22 include my 100% of my 401k from bomgar 00:26 corporation which I earned over the 00:28 course of 11 years uh maxing out the 00:29 matching year and everything that uh is 00:32 included in that number so that 401k is 00:34 100% Bitcoin in uh Fidelity btcs BTC the 00:38 Bitcoin ETF so 100% of my 401ks is in 00:42 Bitcoin and uh in total including the 00:45 the 401K that uh total balance is 96% 00:49 Bitcoin um and then the only things that 00:51 are not counted in that are is a little 00:53 bit of gold like physical yellow metal 00:55 gold uh back that I bought years and 00:57 years ago that is too much of a pain to 01:00 to convert uh cuz I'd have to drive to 01:02 Texas and take a big haircut and it's 01:05 just a mess um and uh then some uh 01:08 financial resources that Rachel manages 01:10 herself because my risk tolerance is so 01:12 incredibly high that uh she manages some 01:15 resources that is effectively serves as 01:17 the emergency Reserve fund just to make 01:19 sure that our kids will still have a 01:20 chance to go to college even if my uh 01:23 you know incredibly high risk tolerance 01:25 does not end up serving us well even 01:27 though clearly I think it will okay so 01:30 why why do I have 96% in Bitcoin uh the 01:33 answer is because I do not like the 01:35 investment profile of virtually any 01:37 other asset right now now if we were 01:39 sitting in 2009 and the world was 01:43 melting down and everything was on sale 01:45 and stocks and bonds were cheap and 01:48 everything just felt like you could you 01:50 know you could basically it was shooting 01:52 fish in a barrel you could buy anything 01:54 and you know you could buy Apple for 01:56 cheap Amazon for cheap Coca-Cola for 01:58 cheap all that sort of stuff I would say 02:01 okay you know there's at least a 02:02 plausible argument where stocks would 02:05 make sense but I don't believe that is 02:07 the world we live in if you look at uh 02:09 the stock market the S&P 500 uh seven 02:12 companies out of 500 are basically 02:15 carrying the entire gains for the S&P 02:17 500 and if you want to try to play the 02:20 stock market you better either be really 02:22 good at guessing 7 out of 500 which 02:25 basically your chances of that are you 02:26 know barely above 1% or uh in those you 02:30 know stocks also all have insane 02:32 valuations already so it's not like you 02:34 can just pick the winners because you're 02:35 picking the most uh expensive stocks uh 02:38 or you can uh you know do a diversified 02:41 portfolio of the S&P 500 but the S&P 500 02:45 is is just bumping all-time highs it's 02:47 just compared to earnings and revenue 02:49 it's incredibly expensive uh real estate 02:52 on the other hand uh has all of the 02:53 problems with you know the the the best 02:56 way to make money in real estate is with 02:57 a bunch of Leverage basically super 02:59 cheap debt uh that you buy real estate 03:01 with well debt is not super cheap right 03:03 now debt is extremely expensive with the 03:06 federal funds rate at 03:08 5.25% which means if you're borrowing 03:10 money you're probably borrowing it at 8% 03:12 or 9% or just not cheap so the reason 03:15 I'm 96% Bitcoin is I just don't like any 03:19 of my other options right now um so I 03:22 don't like real estate it's got 03:23 maintenance costs you have to pay uh 03:25 property taxes it's got extremely high 03:29 um cost of capital right now meaning the 03:31 interest rates you have to pay to get 03:32 money unless you pay cash and if you pay 03:35 cash generally you know buying stuff 03:37 with cash in real estate is not how you 03:39 get a good return typically the way you 03:41 get a good return is by borrowing a ton 03:42 of money and I don't really like 03:43 borrowing money anyway um so anyway I 03:46 don't like real estate I think gold is 03:48 going to be demonetized by Bitcoin 03:50 meaning I don't want to put my money in 03:53 Gold because I think it's going to 03:55 eventually start trending down as 03:57 Bitcoin replaces it as the new uh 04:00 monetary base for central banks and 04:02 things like that uh so gold is out 04:04 silver has never made any sense as an 04:06 investment I have no idea why people are 04:09 investing in silver uh Silver's been 04:11 demonetized a long time ago I think 04:13 silver makes just no sense other than 04:16 its industrial use and you know why 04:18 would you if you're investing in silver 04:20 why wouldn't you invest in bronze and 04:22 tin and copper and I mean it just makes 04:24 no sense I'm not a Commodities investor 04:26 um so so I don't like real estate I 04:29 don't like gold I don't like silver I 04:30 don't like stocks right now because it 04:32 feels like they're all the the 04:34 valuations are just insane I don't like 04:37 bonds um I've never really liked bonds 04:39 just as an investment vehicle investing 04:42 in I don't like having debt myself and 04:45 investing in other people's debt has 04:48 never seemed like a good idea to me 04:49 either so not a fan of bonds uh 04:52 certainly sitting in any sort of 04:54 currency that someone else can print 04:56 more of that makes no sense and so the 04:60 the challenge you come to with regard to 05:03 you know a a portfolio is the problem is 05:06 okay if you're going to diversify 05:08 diversify into what you have to 05:10 diversify into something now the safest 05:13 thing generally is like the S&P 500 05:15 which is the standard in 500 which is 05:17 the 500 largest publicly traded stocks 05:20 in the United States so you know the 05:23 easy thing is just an S&P 500 Index Fund 05:26 like spy I think spy is the biggest one 05:29 although I think Vanguard has a really 05:30 large one as well but again the S&P 500 05:33 strikes me as very very very not on sale 05:36 right now in fact I think people who are 05:39 buying the S&P 500 right now are going 05:42 to end up having as soon as we get a 05:43 recession they're going to end up 05:45 waiting somewhere between 5 years and 05:46 seven years for their investment in the 05:48 S&P 500 just to get back to the price it 05:51 is today so I'm like well why on Earth 05:53 would I do that why why you know would I 05:56 ever invest in stocks when I think it's 05:59 going to take 5 to 7 years to get back 06:02 to where they are today in a major 06:04 recession so I don't like stocks don't 06:06 like bonds don't like real estate don't 06:09 like gold don't like silver um you know 06:12 Emerging Markets have the same problems 06:14 with stocks and bonds of like you know 06:16 they're not cheap either and so anyway 06:19 you you end up very quickly in a 06:22 position where it's like wait well what 06:24 else would I invest in in fact a a 06:27 better question than why am I 96% bit 06:30 coin is why am I even 4% everything else 06:33 like because the other 4% is in you know 06:36 a mixed back basket of you know I don't 06:39 know 60 40 stocks bonds or maybe a 70 30 06:42 stocks bonds or whatever it is but it's 06:44 it's whatever any random financial 06:46 adviser would tell you to buy and then 06:47 of course they take 1% of your money 06:49 every year in order to babysit your 06:51 money for you for for you which is you 06:54 know whether you're losing money or 06:55 gaining money they get their 1% no 06:57 matter what which that whole deal is you 06:59 know 07:00 uh you know ultimately strikes me as a 07:03 scam of Epic Proportions just like uh 07:05 higher education most of higher 07:07 education uh strikes me as a scam of e 07:09 Epic Proportions right now so anyway you 07:11 add it all up and I'm like why am I 96% 07:14 of liquid assets in Bitcoin well the 07:17 only thing I don't have in Bitcoin is 07:19 I've you know invested substantially in 07:21 Prosper on the island of Raton but again 07:23 that's a private investment and the laws 07:25 of the united states require you to have 07:28 a net worth above a million 07:30 excluding your house so for private 07:32 Investments you are not allowed to 07:34 invest in private companies unless your 07:36 net worth is more than a million dollars 07:39 that means your assets ex exceed your 07:41 liabilities by more than a million 07:43 dollars and you are not allowed to count 07:46 the equity in your house toward that $1 07:48 million and that is the laws of the 07:50 Security and Exchange Commission the SEC 07:52 so I have invested substantially in 07:55 Prosper on the island of Raton but the 07:57 reason I don't talk about that on 07:58 Facebook is again the bar is you have to 08:01 be a millionaire to invest in any 08:03 private company in the United States um 08:05 there there's a few caveats where uh 08:08 non-m millionaires can invest in private 08:09 companies but it's typically very 08:12 difficult with lots of restrictions and 08:14 the laws are so unfavorable that very 08:16 few companies uh do the type of 08:19 offerings that would allow uh non- 08:21 accredited investors so accredited means 08:24 you have more than a $1 million net 08:25 worth a non accredited means you have 08:28 less than a $1 million net worth and in 08:30 both cases that's uh that you are not 08:32 allowed to count your house your primary 08:35 residence where you live toward your net 08:37 worth in that calculation so anyway so 08:39 if somebody said well you know what's 08:41 the best investment in the world right 08:42 now I would say well there's two Prosper 08:44 on the island of Raton where I am 08:46 president reporting to the CEO uh the 08:49 CEO is Eric briman he's the founder CEO 08:51 and chairman I think that's a fantastic 08:53 investment but again you have to be a 08:54 millionaire to even be legally allowed 08:56 to under SEC rules invest in that and so 08:60 I don't spend time talking about that on 09:02 Facebook because um again I know you 09:04 know a relatively small number of people 09:06 listening are millionaires and therefore 09:08 they don't even qualify to invest in 09:10 prosperous so um you know the vast 09:12 majority of my net worth is prosperous 09:14 stock and the remainder is 96% Bitcoin 09:17 and again so it's like well if somebody 09:19 said well you got to you got to 09:21 rebalance your portfolio one way or the 09:23 other I would say well the only thing 09:25 the only two assets I like right now are 09:27 prosperous stock and Bitcoin like you 09:30 know those are the only two assets I 09:31 like right now so and you know there's 09:33 other private companies that I'm a fan 09:35 of as well but um Prosper is certainly 09:38 the most prominent right now um and the 09:40 most promising and the most like you 09:42 know probability of reaching you know 09:44 billion multi-billion dollar valuations 09:47 or decillion dollar valuations or centab 09:50 billion dollar valuations or I don't 09:51 know maybe Prosper will be a trillion 09:53 dollar company one day I don't know um 09:55 but again the short take is there's just 09:57 not a lot right now that I think makes 09:59 sense to invest in again for me 10:01 personally it comes down to prospera and 10:04 Bitcoin and again because Prosper is not 10:06 an option for most of the people 10:08 watching this that leaves Bitcoin which 10:10 is available to everyone to invest in so 10:13 again why do I even own 4% that's not 10:16 Bitcoin uh the answer is because I don't 10:19 want to in an emergency you know have a 10:21 major expense come up and for some 10:23 reason Bitcoin is going through some you 10:26 know ridiculous downturn that makes no 10:27 sense and I'm stuck liquidating a bunch 10:29 of Bitcoin at a price that's you know 10:32 abysmally low I just want to avoid that 10:34 so I consider that 4% to be the little 10:37 bit of breathing room that keeps me from 10:39 getting forced out of Bitcoin at a low 10:41 price if the price of Bitcoin becomes 10:43 low at the same time as I have some 10:46 major new expense that I've got to cover 10:48 that I need to get liquidity somewhere 10:51 so that 4% gives me just a little bit of 10:53 liquidity a little bit of breathing room 10:55 if I need to make some major expense and 10:57 I want to do that without having to 10:59 liquidate any Bitcoin because I don't 11:01 like the price that Bitcoin is being 11:03 liquidated at now right now if somebody 11:05 said well Bitcoin will never drop below 11:07 50,000 a coin well then I would go ahead 11:09 and put the other 4% in because you know 11:12 I'm completely comfortable with that 11:13 Paradigm but you know I don't I don't 11:15 know I mean Bitcoin can do you know 11:17 crazy things in the very near term in a 11:20 matter of hours or days again long term 11:22 weeks months it doesn't matter but uh 11:25 but having 4% non-bitcoin gives me just 11:27 a little bit of breathing room to make 11:29 sure I'm not never going to have to 11:30 liquidate a bunch of Bitcoin for a price 11:32 that I don't feel good about so so 11:34 anyway so that's my thinking I am not 11:36 Diversified and I've given that a lot of 11:38 thought and the vast majority of high 11:41 net worth people I know are not 11:42 Diversified they uh you know 11:45 diversification is not the path to 11:47 getting rich almost everybody I know who 11:49 got uh to be wealthy and of which I know 11:52 a lot of very wealthy people just that 11:55 I've met in the course of things um and 11:58 you know those people almost always got 12:01 there by making a very high conviction 12:03 bet on something big typically a company 12:06 they built or some investment that they 12:09 you know that they had control of or 12:11 direct involvement in or had a unique 12:13 perspective or understanding and uh and 12:16 that's how they got high net worth and 12:18 uh you know they didn't get there with a 12:20 diversified portfolio so anyway so 12:22 bottom line why am I so not Diversified 12:25 the answer is because I don't like my 12:26 other investment options and as far as 12:29 publicly traded stuff that anybody can 12:31 invest in the only thing in the publicly 12:33 traded realm that average people can buy 12:36 is Bitcoin that is the number one thing 12:39 I feel good about and that I have a deep 12:41 conviction about and I just don't have a 12:43 deep conviction and I just don't feel 12:45 good about all the other options which 12:47 is why I'm not advocating for them on 12:49 Facebook uh as always this is not 12:51 Financial advice I am not a licensed 12:53 Finance Tax or um you know Securities or 12:57 anything else consultant these are just 12:59 my own personal opinions based on what I 13:01 do based on how I'm feeling about the 13:03 world and how I think things are likely 13:05 to play out and hope it's helpful to you 13:08 but that's my thought process and where 13:10 I am have a great night thanks