The Prof G Pod with Scott Galloway
00:13:18 · Scott Galloway
One is options in a company slowly that's doing really well. And the other is entrepreneurship. And by virtue of doing that, you kind of have to concentrate early. And that is you sort of, you don't have a lot of financial capital early, so you're sort of going all in. To get to a point in a company where you get awarded a lot of options on equity generally means you're working very hard there and you're very good. And you get to a senior level fairly fast and you aggregate options and the market timing is good and you make a bunch of money. Know, if you joined Nike in 2010, and you sold all your, you know, you invested a bunch of options and you were good and became a VP, and in 2022, you exercised your options and you sold them, you made a shit ton of money. If you joined in 2000 and you saw the stock go up, it's now Nike's back to where it was in 2013. Can you imagine how disappointing that is? Anyway, a lot of that's luck in corporations, But you, generally speaking early on, you have to concentrate. You go, you wildly concentrate on a house. If you have $50,000 in net worth and you buy a $400,000 home, you're highly concentrated in real estate. Once you have anything resembling an asset base, once you have anything, call it, you know, 6 figures and above, you want to think about starting to diversify. And there was a study done in the eighties that said you kind of get risk free return. That if you can find a bunch of distinct cash flows, Ray Dalio says that at Bridgewater, all they tried to do is find 12 unique good investments that were distinct cash flows that weren't that correlated to each other. And that was the key to above market returns in terms of him being risk adjusted. I really screwed up. Probably my biggest mistake in terms of wealth creation has been a lack of diversification. I've always raised to believe that I was a baller and individual performance could overcome anything. And the reality is market dynamics trump individual performance. And I've been rich three times, which means I've lost it twice. I lost it in the .com implosion because I was all tech, mostly in my startups. And I lost it again in 2008 after clawing back after seven years, because again, see above, was mostly are all in tech. Now I try not to put more than 3% of my assets in any one stock.
00:15:36 · Scott Galloway
The place I've violated is I own a lot of real estate, but I own it in different regions. I don't have a lot of leverage on it. You can survive a lack of or less diversification without a lot of leverage. If you don't have leverage, it's the way you get caught, the way dumb people go broke, excuse me, the way smart people go broke is through leverage. And that is real estate goes up and down and you may have had real estate in Florida, which ended up being an amazing investment. But in 2008, if you borrowed 80% against your condo and you weren't renting it out, you had to give it back to the bank because it declined. It got caught in value by half or 60%. Now it came ripping back and it's probably up three or five X since then. But with leverage, you couldn't hold on. And without leverage, you can hold on. Anyways, I do have a lot of real estate, but I do it in different regions. I do think diversification is really important. If you're kind of over the age of 40, have some assets, you do really want to think hard about diversifying. And it's not only just the S and P. You think, I'm diversified. I'm an SPY. Actually 40% of the S and P isn't just 10 stocks. So that's not diversification. So I suggest diversifying by asset type, real estate, bonds, stocks. And also where people miss is geography. Now the last kind of seventeen, eighteen years have been an American disco party. And that is nothing has performed like The US because of tech and AI. I still think you need to own some stocks in Asia or own some low cost index funds in Asia and in Europe. That's how you stay rich. And that is diversification is your Kevlar. You can get shot in the chest. And I've been shot in the chest a couple times with companies I started that went out of business, and it has been fatal for me financially. Whereas now when the markets go down... The markets were down, I think, in 2022 pretty substantially or 2023. It hurts, but I get shot in the chest, but I'm wearing Kevlar and I kinda am on the ground and then I can get up again. That's your Kevlar's diversification. So again, but the learning here is diversification not only across asset classes, but also across geographies. You probably give up some upside. It's great to be lucky. You'll hear about people who went, you know, all in Nvidia, good for them.
00:17:55 · Scott Galloway
But what you don't hear about is just a nightmare when you spend too much of your, you spend everything on tech because that's the future and tech was the future. But that doesn't mean it goes through Amazon and Cisco lost 90 plus percent of their value from 1999 to 2001. Can you imagine the mental strain? Oh, Amazon's going to the moon. I'm putting in all $100,000 in my 04/2001 k in Amazon and you wake up and it's worth $7,000 So, low cost index funds diversified across asset classes and across geographies. Appreciate the question.
00:18:28 · Scott Galloway
[00:18:28] S0: We'll be right back after a quick break. Support for the show comes from BetterHelp. You've heard me say before how useful talk therapy can be when working through a hard problem and that BetterHelp has been a great option for a lot of people. But at the end of the day, the best way to know if BetterHelp is a good fit for you is to check it out yourself. More than 6,000,000 people have used BetterHelp globally. The consistent feedback from real users makes it easy to see why many people continue to choose the platform. BetterHelp reports on average live therapy sessions rating 4.9 out of five based on over 1,700,000 client session reviews. BetterHelp therapists have at least three years and a thousand hours of hands on experience. They also hold all required education, training, and certifications across a range of mental health specialties. And they make it easy to get started. You just have to answer a few questions, then get matched with a therapist based on your needs. And you can switch therapists at any time if it's not the right fit. See the reviews, see what stands out, and see if BetterHelp is right for you. Visit betterhelp.com/propg. That's Better, h e l p, dot com slash Prop G.
00:19:37 · S3
[00:19:37] S3: Are you tired of hearing about business, tech, and finance from the Bros? We are the Tiger Sisters, a top business podcast with the Vox Media Podcast Network. Tiger Sisters releases every Monday, and we decode money, power, and love. And who doesn't love all those things? We are the Internet's Wall Street and Silicon Valley big sisters. Tune in every Monday for late night sister talk meets boardroom strategy. Check out Tiger Sisters on YouTube, Spotify, or wherever you get your podcasts. Welcome to the Tiger fam.
00:20:08 · Scott Galloway, Scott Galloway
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