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