The Ticket to Financial Freedom – Alexander Green

The Ticket to Financial Freedom – Alexander Green

The Ticket to Financial Freedom – Alexander Green

Anyone can invest these days … but you have to have a strong stomach. Alex Green has dedicated 35 years to helping people weather financial storms, make sound investment choices and live out their dreams. Green joins host Charles Mizrahi to discuss his investing strategy, the value of cryptocurrencies and the importance of following others’ advice on the way to financial freedom.

Topics Discussed:

  • An Introduction to Alex Green (00:00:00)
  • The Gone Fishin’ Portfolio (00:01:45)
  • Liberty Through Wealth (00:05:04)
  • Word to the Wise (00:09:38)
  • Winning the Parental Lottery (00:11:51)
  • Young Capitalists (00:18:26)
  • The Value of Cryptocurrencies (00:21:36)
  • The Average Investor (00:32:34)
  • Following Others’ Advice (00:41:23)
  • Our Biggest Bounce-Backs (00:50:05)
  • The Essence of Alex’s Strategy (00:54:43)

Guest Bio:

Alex Green has spent the majority of his career guiding Main Street Americans toward financial independence. After working on Wall Street for 16 years, he branched out into financial publishing. Today, he is the chief investment strategist for The Oxford Club. Green’s financial newsletters have garnered over 600,000 subscribers and showcase his ceaseless passion for figuring out the challenges of the market.

In addition, Green recently released the revised and expanded second edition of his New York Times best seller: The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get on With Your Life.

Resources Mentioned:

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Read Transcript

ALEX GREEN: It’s so much easier to learn from other people’s experiences. I tell my readers: “You don’t have to make dumb mistakes because I’ve made all of them already. I can warn you. I can keep you from making stupid mistakes. You’ll never be done making mistakes, but you don’t have to make the stupid ones.”

CHARLES MIZRAHI: My guest today is Alex Green. Alex is the senior editor of The Oxford Communiqué, which has been ranked as one of the top investment newsletters by The Hulbert Financial Digest for more than a decade. He’s also the chief investment strategist for The Oxford Club — the world’s largest financial fellowship. He has previously worked as an investment adviser, research analyst and portfolio manager on Wall Street for 16 years.

CHARLES MIZRAHI: After developing his extensive knowledge and achieving financial independence, he retired at the age of 43.

CHARLES MIZRAHI: Alex’s research is read by more than 600,000 subscribers who receive his newsletter. He is so widely read and followed because he has a stellar track record and he knows what he’s talking about. Alex recently released the revised and expanded second edition of: The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get on With Your Lifea New York Times best-seller. The foreword is written by talk show host Bill O’Reilly, who has been a reader of Alex’s for years.

CHARLES MIZRAHI: I recently sat down with Alex to talk about where he sees the price of Bitcoin heading and why most investors don’t do as well as they should.

CHARLES MIZRAHI: Alex, thanks so much for being on the show. I greatly appreciate it. It’s been a pleasure speaking with you last week, and I’m really looking forward to this interview today.

ALEX GREEN: You too, Charles. Thanks for having me.

CHARLES MIZRAHI: I read this book and you have a lot of really good stuff. The book is called: The Gone Fishin’ Portfolio: Get Wise, Get Wealthy…and Get on With Your Life.

CHARLES MIZRAHI: This is your second edition. Your first edition came out in 2008.

ALEX GREEN: Correct.

CHARLES MIZRAHI: And it was a New York Times best seller?

ALEX GREEN: Yes.

CHARLES MIZRAHI: Wow! And I guess there’s demand for this book now, right?

ALEX GREEN: Well, I wanted to update the performance of the portfolio with a couple small changes and flesh out the strategy a little more. So, probably a quarter to a third of the book is all new material.

CHARLES MIZRAHI: Outstanding. Something that struck me about the front here — and I’m just going to hold this up for the viewers on YouTube — [it has] a new foreword by Bill O’Reilly. How the heck did you and Bill O’Reilly connect — especially on an investing book?

ALEX GREEN: Bill O’Reilly has been a longtime subscriber to my investment letter: The Oxford Communiqué. He had me on The O’Reilly Factor — back when he was hosting that show — and quoted me a few times [on] things I’d written in my letter.

ALEX GREEN: A couple years ago, we reached out to Bill. I sent him an email and said, “Hey Bill! I know you’re still a subscriber, and would you have any interest in endorsing my letter?” And he said, “Absolutely. Thanks for thinking of me. Have your people call my people.” That was two years ago.

ALEX GREEN: Since then, we’ve had a great relationship. He’s hosted a number of webinars where he’s interviewed me, and we’ve talked about our various strategies. It’s been good for us and good for him, too. So, it’s a great relationship we have.

CHARLES MIZRAHI: Outstanding. So, what struck me about this book — and we can definitely get into it a little later — [is that] Bill O’Reilly has a sizable net worth. The average American doesn’t have Bill O’Reilly’s net worth. Why would a guy like him be attracted to you? And why is Main Street America attracted to your investment approach?

ALEX GREEN: If I had to answer that question in two words [I would say]: It works. The investment philosophy that everything is built on is battle-tested and has resulted in good profits in both the expansions and contractions — bull markets and bear markets.

ALEX GREEN: Of course, you don’t have to be a high-net-worth individual like Bill O’Reilly to be an investor these days. There’s no account minimum investment for most brokerage firms and mutual funds. There are no commissions on stock trades, ETF trades and so on. So, it’s never been easier for the average, everyday person to become an investor and own a fractional interest in many of the best businesses and fastest growing companies in the world.

ALEX GREEN: Bill knows that. He’s like me. He’s an unrepentant capitalist. And he’s trying to spread the word that if you’re willing to work, save and invest, you can earn higher returns in the stock market. Of course, the question is: What do you invest in? And that’s what I write.

CHARLES MIZRAHI: Alex, you told me that 600,000 people subscribe to one of your newsletters in The Oxford Club, correct?

ALEX GREEN: Right. Liberty Through Wealth is a is a free e-letter, and I recommend anybody listening — who doesn’t already get it — to go to LibertyThroughWealth.com and sign up. In that e-letter, I talk about everything that’s happening in the world of politics, business, interest rates, currencies, economics, market activities, individual stocks and so forth.

CHARLES MIZRAHI: You’ve been at this for a long time, Alex. You had a background on Wall Street — which we’ll get into in just a few minutes — and you’re an investment adviser. You’ve been writing your newsletters for more than a decade. Forget about what investors do right. What does the average guy do wrong?

ALEX GREEN: Well, I really don’t blame the average investor for muddling through. It’s a shame that we live in a country where the majority of high schools don’t even teach basic financial literacy.

ALEX GREEN: As a result, people graduate from high school, and they don’t know how to calculate compound interest, what a 401(k) is, what it means to have an adjustable-rate mortgage or why we even have a stock market — which they think of as some sort of casino or something.

ALEX GREEN: The first problem that most investors face is just a basic lack of knowledge. I always say that there’s a big difference between ignorance and intelligence. I don’t care how intelligent we are, we’re all ignorant of various things. If I had to fix my car engine, I’d be totally ignorant of what it would take to do so. Many smart people are ignorant of investment basics.

ALEX GREEN: So, Liberty Through Wealth is one area where I try to make sure that everybody understands that we have these incredible capital markets where businesses come to raise money through either stock or bond offerings. Investors who want to put their money to work in a place where they’ll get a higher rate of return… That’s when people come together — people who need money and people who have money to invest or lend.

ALEX GREEN: Beyond that, people don’t have any sort of structure to what they’re doing. They don’t have a philosophy of investing. They don’t have a strategy. They don’t have criteria for what it is they buy or criteria for when they sell. So, they jump in and out — maybe making a profit here and taking a loss there at the end of the year. A lot of times, they are just spinning their wheels. They haven’t earned much return at all. And most of them are certainly not beating the market.

ALEX GREEN: I’m just trying to show people that there is no one secret to investing. There’s a system. The principles of wealth creation are well understood. But that doesn’t mean most people understand them. So, I’m trying to make them clear to people and then give specific investment advice so they can capitalize on those principles.

CHARLES MIZRAHI: If I asked you what their No. 1 mistake was, what would you say? Do they trade too much? Do they go after the latest trend? Do they follow dumb things? What do they do wrong?

ALEX GREEN: The first thing most people don’t do right is they don’t live within their means. You need to maximize your income and minimize your outgo while living your life. I don’t think extreme frugality is the way to become an investor.

ALEX GREEN: First of all, most people are not saving anything. Those who are saving… Did you realize that there are less people invested in the stock market now than there were back before the financial crisis in 2009? So, most people are not even invested in stocks.

ALEX GREEN: The ones who are invested in stocks — like you mentioned — are chasing hot trends. I had a woman come to me and say, “I own Verizon, and I’m trying to decide whether to keep it or get rid of it.” And I said, “Well, how long have you owned it?” She goes, “Hmm, about eight days now.”

ALEX GREEN: Let me just say: If that’s what you’re doing, that’s not what I do. I’m not a day trader. A day trader is like coin flipping. I don’t do that. I do have trading services, but they’re based on the near-term earnings prospects of the companies we buy.

ALEX GREEN: I think there’s lots of ways that [show] people don’t have an underlying philosophy of investing or a coherent strategy. If they buy Apple at 10 a.m. and sell it at 2:00 p.m., what are they really doing? Again, it’s just a lack of knowledge, direction and coherence.

CHARLES MIZRAHI: If you could give them one piece of advice, what would that be?

ALEX GREEN: I would probably give them more than one piece. I wouldn’t be making a living if I gave one piece of advice.

ALEX GREEN: But I can answer the question. What is the most important thing? The most important thing has actually been revealed by Larry Fink in BlackRock’s annual report last year. He says more and more investors have realized that it is portfolio construction — not security selection — that’s responsible for most of your returns.

ALEX GREEN: So, what does he mean by that? He means that everyone would like to think they own the Amazon, Netflix or Facebook that pays for their retirement.

ALEX GREEN: That doesn’t usually happen. What you really have to do is construct a portfolio. You have to asset-allocate and construct a portfolio. That’s what provides financial independence over time. The route to the highest probability of success is to have an asset-allocated portfolio.

ALEX GREEN: So, portfolio construction is No. 1. As it happens, that’s the very subject of The Gone Fishin’ Portfolio.

CHARLES MIZRAHI: Let’s get into your book for just a minute.

CHARLES MIZRAHI: One thing I do — and I think it’s because I also wrote a book: Getting Started in Value Investing — is I always look to whom the author dedicated the book. I know what kind of labor it takes to write a book. I wouldn’t write another book. You’d have to pay me a lot of money. It is just so much work and tears at your gut. It takes on a life of its own. I don’t know if that happened to you. Since I wrote my book, I don’t think I’ve read it. It’s so tedious because you want to get everything right.

CHARLES MIZRAHI: When I see someone write a dedication, it means a lot. It means a lot because it really tells you what the author is thinking. My book, for example, is dedicated to my grandfather. I wrote that he was a man who added value to everything he touched. Your book is dedicated to: “The most inspiring and best man I’ve ever known: My father, H. Braxton Green.”

CHARLES MIZRAHI: Tell me about that.

ALEX GREEN: Warren Buffett is famous for saying that some people win the ovarian lottery and some don’t. Most of the listeners here are lucky that they were born in the West — the secular west.

ALEX GREEN: We weren’t born in some repressive regime in Pakistan, Iran or someplace like that. We were born in the modern times. And if you happened to be born into a family where you had nurturing parents who really cared about your upbringing, then you won the ovarian lottery. I knocked it out of the park. I had the good sense to pick the right parents.

ALEX GREEN: And let me just say: My father is the best man I’ve ever known. [He lived] without ever saying, “You should do this,” or “You should do that.” He lived his life in a way that I wanted to emulate.

ALEX GREEN: I will never be able to live up to the image that he’s created in my eyes.

ALEX GREEN: First of all, he’s a fantastic father. He was one of four boys. He was always the Cub Scout leader, basketball coach or baseball coach. He took us out and taught us how to play every sport, camp and hike. Aside from all that, he was a gentleman. If he went to someplace socially, he would never argue with somebody or start talking about politics. He was always about good humor and good food. He could eat out and talk about that meal for six weeks — or six months!

ALEX GREEN: When the peaches were ripe — he’d have peaches shipped to him from Georgia every fall — he’d call me up and say, “The peaches are in. I set some aside for you.”

ALEX GREEN: He’s just that kind of guy. He has a joy for living and a perspective that family is important. Whatever’s second… I don’t know what it is because it’s so far behind family.

ALEX GREEN: But anyway, [he is] a great man with a great sense of humor and personality. If you knew him, believe me… If you talked to this guy for 10 minutes, you would love him.

ALEX GREEN: You can say I’m biased because I’m his son, but he’s just that kind of person. When he walks into a room, he makes everybody laugh. He makes everybody have a good time. He’s not at all interested in impressing anyone with his achievements or how smart he is. He just wants to know you, make sure you’re having a good time and make sure you have a good laugh. He’s just a great guy.

ALEX GREEN: So, that’s why the book was dedicated to him. This was something I mentioned to you in our brief chat last week. That was the last change I made to the book because the dedication originally read: “This book is dedicated to the memory of my father, H. Braxton Green.

ALEX GREEN: When I was finishing up the book, my dad was in hospice care. He was 91 years old and wasn’t eating. He was sleeping most of the day. He had maybe two weeks to live, and he was on thirteen medications. After withdrawing all those medications, he made this amazing recovery where he started getting out of bed and having an appetite. Then, he was going around the house with a walker.

ALEX GREEN: Now, he’s going around the house with no walker. Now, he wants me to come over for the playoffs. “What’s for dessert?” It’s really kind of mind boggling. So, at the very last minute, I dedicated it to him — the human being and not the memory. I’m very pleased that I can tell you that today.

CHARLES MIZRAHI: Wow. I hope he has many, many more years of health and happiness.

ALEX GREEN: Thank you, Charles!

CHARLES MIZRAHI: He’s successful to have a son who says those things about his father. He’s a successful man right off the bat. That’s fantastic.

ALEX GREEN: Thank you. I can only hope one of my kids will say that about me someday. But he’s giving a high bar to cover.

CHARLES MIZRAHI: So, how have you taken some of the things your father taught you? And I think you told me you have a few children, right?

ALEX GREEN: I have a daughter who’s 23 and a son who’s 17.

CHARLES MIZRAHI: How did you take the lessons you learned from your dad and translate them to your kids?

ALEX GREEN: I’m not sure that I have. I try to live up to what he’s been to me. I’ve been totally dedicated to my kids. I’ve taken them on trips. I’ve gone to all their sports activities. I try to be a part of everything they do.

ALEX GREEN: My dad was a modestly successful businessman. He had a small insurance agency. So, it wasn’t about teaching me to be successful or to invest. He didn’t do any of that. He only gave me one piece of advice — if you could call it that — during my 20s when I was living in Orlando. He said, “Well, if you’re going to stay there, I have a suggestion. It’s a waste of money to rent. If you’re going to stay there, just buy a house and build equity, rather that renting.” That’s the only piece of financial advice my dad ever gave me. And I did that.

ALEX GREEN: But I’ll tell you this brief story. It tells you a bit about how my mind works. He told me to buy a house when I was 22 years old. Ok, great. [I had] two problems. A: I didn’t have any money for a down payment. B: I had no credit. So, nobody was going to lend me money. Even if they did, I didn’t have a down payment.

ALEX GREEN: And this was back in the early ’80s when mortgage rates were 16%. It was crazy. No one could afford to buy anything. I was in a bookstore one day and purchased this book called: Nothing Down, how to Buy Real Estate with Little or No Money Down.

CHARLES MIZRAHI: It was Robert Allen who wrote the book.

ALEX GREEN: Right! Robert Allen’s book.

CHARLES MIZRAHI: It was 1982. I remember that.

ALEX GREEN: I bought my house in 1982, so we’re exactly on the same page, Charles.

ALEX GREEN: So, in the book, I’ve read that if you don’t have any money to put down, and you don’t have credit, what you need to do is arrange a contract for deed — have an attorney create it. This means that, rather than having a typical closing — where you have bank financing — the seller provides the financing.

ALEX GREEN: And so, I told the seller of this little townhouse that I didn’t have the money for a down payment, and I didn’t have credit to borrow money. But I would pay their mortgage and offer them the full price of the house. So, I’d have his mortgage plus a second mortgage for what would have been the down payment.

ALEX GREEN: I said to them: “Look, if I go one month without making the payment on time, you can come in, take the house, keep all the money I gave you and I’ll pay for any legal costs and sign the list in the contract.” They had complete security — except no down payment.

ALEX GREEN: And so, I had a three-bedroom townhouse. I immediately moved two friends in. I had a payment of $700 a month — which was all I could afford. But I had two buddies who paid $250 each, so I was living in the master bedroom and building equity for the extra $200 a month. They were paying two-thirds of the utilities alongside me.

ALEX GREEN: So, I became a young capitalist at 22. Everybody’s complaining that it’s impossible to buy a house with interest rates sky high, no credit and no down payment. No, it’s not impossible. You just have to think about it and be creative. I ended up selling that townhouse for nice profit and using the money to buy my next place. You never know.

CHARLES MIZRAHI: Outstanding. In 1983, I had just started trading on the floor of the New York Futures Exchange. After the trading day, I got into the elevator to go to the clearing-house — where we cleared our trades — and it had a nice lounge there. I remember getting off the elevator and seeing the receptionist read that book.

CHARLES MIZRAHI: I was 20 or 21 years old at the time. I turned to my friend and said, “We’re close to the top of the real estate market when the receptionist is reading a book on how to buy real estate for nothing down.” You were lucky because you were in Orlando. I remember reading that and saying, “I’m in New York. There is no way any seller is going to give me anything.”

ALEX GREEN: One of the things Robert Allen pointed out in his book was that you were only going to be successful if you had what he called a “don’t-wanter.” The guy who sold me the place was a merchant marine. He was leaving town. He didn’t want to have to make a payment on that and then pay to live someplace else. He just wanted to bail.

ALEX GREEN: That’s the requirement. If you’re going to buy something with no money down, the person who has the house really has to want to get rid of it.

CHARLES MIZRAHI: In New York, at the time, there were 100 people standing behind that seller — wanting to buy.

ALEX GREEN: Oh, yeah?

CHARLES MIZRAHI: Yeah. We weren’t good at that. At the time, I saw everyone. And I remember the whole talk after the trading day — where we yelled and screamed open outcry system, trading futures for six hours-plus [while] standing on our feet. We went into the traders’ lounge to have coffee and some drinks — not alcohol, just regular drinks — and everyone was talking about the real estate they were buying.

CHARLES MIZRAHI: I said, “I don’t know much, but [I know] that not everyone is going to make money.” Markets don’t work that way. And I remembered the same thing in 2005.

CHARLES MIZRAHI: In the summer of 2005, we went to our summer home in Jersey. I took my kids’ bikes to the repair shop. I was changing the tires because they had flats. The owner of the store, after I started talking to him, gave me his card and said, “If you want to buy a house or anything, here’s my card.” He was moonlighting as a real estate agent! And I wrote an article about that in my newsletter in 2005. “I can’t call the exact top, but we’re getting close to it.”

ALEX GREEN: It wasn’t long before it all came crashing down.

CHARLES MIZRAHI: I’m seeing that now. And you have really good insight into this because of your subscriber base. I’ve found that the great thing about a subscriber base is it tells you so much information. Your research team is out there in the fields — among all 50 states and internationally. So, you’re getting information first hand on a weekly basis. I know my subscribers write to me on a weekly basis. I’m sure yours do the same.

CHARLES MIZRAHI: And now, I’m seeing a lot about Bitcoin. Are you seeing the same thing?

ALEX GREEN: Oh, yeah. I’m not a Bitcoin fan. Not only am I getting a lot of letters that ask about Bitcoin, but then we have someone on staff who’s constantly searching for words that investors search for. And as you can imagine, Bitcoin, cryptocurrency and blockchain come up over and over again. I can talk a little bit about Bitcoin if you’re interested in my thoughts. I don’t recommend Bitcoin, but I’ll give you my thoughts on it — if you’re interested.

CHARLES MIZRAHI: Right off the bat, since you said that, my thoughts and your thoughts will coincide. I just can’t see how electricity plus a computer equals a currency. First, I don’t understand that. Second, I have a very simple Mizrahi rule for investing: If you don’t understand the investment, you can value it. If you can’t value it, you have no business buying it.

ALEX GREEN: Yeah. Charles, I’m with you 100%. It’s easy enough to lose money investing in things you fully understand. To invest in things that you don’t understand… Or, in this case, you wonder how anyone can understand them. I get it. Blockchain is a revolutionary development, and it’s here to stay. I realize that cryptocurrencies are going to be a part of our future.

ALEX GREEN: I asked the Bitcoin fans, “What is it about this one particular currency?” They all offer privacy. They all have strictly limited issuance. Twenty-one million coins is all Bitcoin can put out. They are all unregulated by government — at least so far. Let’s face it: Bitcoin is the preferred currency if you’re an arms dealer, drug trafficker, human trafficker, heavy-weapons dealer or drug cartel member.

ALEX GREEN: Anyway, it’s used for a lot of unsavory activities. But why Bitcoin? All the other currencies do the same thing. They all say, “Well, it’s the first!” And I say, “Yeah, it’s the first, and it has dominant market share” — just like Motorola had with cell phones, BlackBerry had with smartphones, America Online had with online access and Netscape had with Web browsers. Just being the first is not enough. As you said, Bitcoin has no fundamental value. Everything’s got a market value, which is what someone’s going to pay for it. Then it also has a fair value — a value that you can reach independently…

CHARLES MIZRAHI: [It’s] intrinsic value.

ALEX GREEN: Right! There is no intrinsic value to cryptocurrency.

CHARLES MIZRAHI: Yeah, I don’t get it. And I’ve tried — since 2015 — to figure it out. I have asked so many people —who are much smarter than me and know a lot more about Bitcoin, electricity, mining and everything — one question: What is the intrinsic value of Bitcoin?

CHARLES MIZRAHI: Is $50,000 a good price or an expensive price? Is $1,000 a good price? Just give me the intrinsic value and how you figured it out. I have heard that it’s worth zillions of dollars. So, why aren’t you selling everything, mortgaging your children and buying Bitcoin?

CHARLES MIZRAHI: And then you ask them, “Where’s your money?” My money’s in the bank — in dollars. I’m just not getting how anyone is buying it and saying, “I’m buying something with an intrinsic value of X, and the price is selling way below that intrinsic value — hence my profit opportunity.”

ALEX GREEN: Charles, we’ve seen this before. During the dot-com bubble in the late ’90s, you had companies selling at stratospheric valuations. Not only did they not have earnings, but they also didn’t have sales. They were valuing a company by web hits, eyeballs and future sales and earnings. Of course, these companies went bankrupt before they had any earnings — and a lot of them before they even had any sales.

ALEX GREEN: We saw it with the with the real estate bubble that you talked about. You started saying it was overvalued in 2005, but it wasn’t until 2008 when the whole thing came tumbling down. People said, “Real estate always goes up. They’re not making any more land…” Blah, blah, blah. “The Internet changes everything.”

ALEX GREEN: You’re hearing the same kind of talk around cryptocurrencies — Bitcoin in particular.

ALEX GREEN: People aren’t buying it because it’s undervalued. They’re buying because it went up yesterday, last week and the month before that. And they think it’s going to be higher tomorrow and next month. That’s all the rationale that’s going into it.

ALEX GREEN: I know that some smart people — like Elon Musk and others — have put some substantial money into it. Although, I will say that Elon Musk hasn’t put $1.5 billion of his own money into it. He’s put Tesla’s money into it. Whether that’s a smart move for Tesla shareholders remains to be seen.

ALEX GREEN: But anyway, I’m not a Bitcoin advocate. If you’re out there listening — and you’re trading bitcoin — good. But if I were you, I would get out while the getting is good.

CHARLES MIZRAHI: That’s something I think most investors don’t get. When I originally asked you about the No. 1 thing that I think could change, it was a sea change with investors. For me, it was when I read Graham and Dodd’s Security Analysis, and then Graham’s book on intelligent investing. It’s this one thing: Stocks are pieces of a business.

CHARLES MIZRAHI: Once you think about a stock as a piece of a business, that’s a game-changer. You’re no longer looking at wiggles and jiggles on a chart. You’re looking at Nike — the sneakers you wear. You’re looking at Wal-Mart and Costco — where you shop. You are now a partner in that business. And once you think of the business as a partnership with Jeff Bezos, for example, you start thinking of things about profit, markup and sales instead of support, resistance, moving out etc.

ALEX GREEN: Right. And that’s exactly my point about Bitcoin! You and I know that a stock is not undervalued because it used to be $50, and now it’s $30. It’s undervalued based on an independent analysis that you’ve made about what the business is worth.

ALEX GREEN: And what is that business worth? It depends on sales, earnings, market share, the direction of sales and earnings, how defendable the profit margins are, how well the company’s managed, how much of a debt load it has and if it’s strong enough to make it through a tough period.

ALEX GREEN: There are all sorts of factors that can give you an independent valuation. If it’s trading for a lot less than that independent valuation, then you would say it’s a buy. If it’s trading for a lot more than that valuation, you’d say, “I wouldn’t buy this,” or “I would sell it.” So, that’s really the difference between what we’re doing and what people who are just using the momentum with these cryptocurrencies are doing.

ALEX GREEN: Dogecoin is up something like twentyfold in 2021. It’s a joke. The scary thing about it is that this can’t happen in a period where we don’t have ultra-low interest rates, and there’s no attractiveness to cash or bonds. And the stock market is up almost 90% in the last 11 months. There’s a sort of euphoria going on. Just throw your dart out there, and you’ll hit something. It’s a crazy way to invest.

ALEX GREEN: I’ve got a feeling that a lot of these people are going to learn the hard way. It’s so much easier to learn from other people’s experiences. I tell my readers: “You don’t have to make dumb mistakes because I’ve made all of them already. I can warn you. I can keep you from making stupid mistakes. You’ll never be done making mistakes, but you don’t have to make the stupid ones.”

ALEX GREEN: I think people will look back… And just like we laugh at the dotcom and real estate bubbles, we’re going to laugh at the cryptocurrency bubble. Dogecoin is up twentyfold in less than eight weeks. It’s just a joke. People are going to get badly burned. But that’s how some people learn. I prefer not to.

CHARLES MIZRAHI: You know what? I think these kinds of booms happen every seven to 10 years — in a big way. The problem with a bubble is you don’t know how far it can expand. So, the problem is you’re always early — if you’re smart. You get out and look foolish for the next year or two — sometimes even longer.

CHARLES MIZRAHI: I remember tech stocks in ’98 and ’99. It just looked silly. I remember Warren Buffett on the cover of Barron’s at the end of 1999. The title was: “What’s Wrong, Warren?”

CHARLES MIZRAHI: The article said he was going to have a lot to explain to his shareholders at the May 2000 meeting because he missed the tech boom. By the time the meeting came, he looked like a genius. He sidestepped it by not investing. He said, “I don’t understand it.”

CHARLES MIZRAHI: The average folk look at price, and they don’t understand or appreciate that it’s attached to a value. When it becomes too detached from that value, it blows up.

ALEX GREEN: Here are two quotes, Charles. Oscar Wilde said, “Nowadays, people know the price of everything, but the value of nothing.” But I really like Warren Buffett’s remark: “Price is what you pay. Value is what you get.” So, some of these people who know exactly what they paid for their cryptocurrency — whether it’s Bitcoin or something else — the value of what they bought has yet to be determined.

ALEX GREEN: I’m not saying it’s not going to go to $100,000 before it goes to $10,000. I think that there’s investing, trading, speculating and gambling. I would call cryptocurrency a gamble. You can go to the roulette wheel at Bellagio and put your money on 27. And you know what? You might win big. Or, you can put on red, and you might win. Is that speculation? No. I think that’s just gambling. That’s what I say cryptocurrencies are. We’ll see how it turns out.

ALEX GREEN: You pointed out how people thought Warren Buffett just didn’t get it about the Internet. He didn’t understand technology. He didn’t understand that the Internet was the future. We should remind viewers who weren’t following the markets then: The Nasdaq dropped 70%. The leading index of Internet stocks dropped 95%. To look back and hear people say, “Warren Buffett just didn’t get it…” He got it.

CHARLES MIZRAHI: The ironic thing was that on the day the Nasdaq made its high in 2000, Berkshire Hathaway made a low. I think March 14, 2000 was the crossover. That’s where, if you sold Nasdaq at the high and bought Berkshire, your next five or 10 years would have been a heck of a lot better.

CHARLES MIZRAHI: Let’s get back to the average investor. These animal spirits even get into the hedge fund and institutional worlds. They get these animal spirits watching things go up. I forgot who said it, but the hardest thing is watching your dumb brother-in-law or neighbor make more money than you by doing something stupid.

ALEX GREEN: It happens. I had the same experience as you did. I was out of the Internet stocks — for the most part — in late 1999.

ALEX GREEN: I would go play tennis every morning with this group of investors that would sit around the table between sets and talk about their Internet investments. And they’d look at me — and they already knew I had gotten out — and say, “Hey Alex, how are your Internet stocks doing?” And they’d all laugh. They did that every week.

ALEX GREEN: I was a professional money manager at the time. To have people who knew very little about investing laughing about the fact that I didn’t own those stocks was a little hard to take. Then, of course, the big bust came. I got out there one morning, and they were all talking. They saw me walk up, and no one said anything. And I said, “Hey guys, how are your Internet stocks doing?” Well, if you could hear what they said about me — and for some reason, the horse I rode in on — it was kind of amusing.

ALEX GREEN: But people got caught up in these things, and the fact that they were right for a few weeks or months convinced them that they were right, generally. That’s not always the case.

CHARLES MIZRAHI: I’m seeing that now — in the past several years of this bull market. I always remember this back from my early, early days when I was a floor trader: Don’t confuse brains for a bull market.

ALEX GREEN: Right.

CHARLES MIZRAHI: I sometimes see myself. I look at my portfolio and the stocks that I’ve recommended in my newsletter — Alpha Investor — and I say, “Boy, I’m really smart.” And then I catch myself. Wait a second. It’s a bull market. You don’t have to be that smart.

ALEX GREEN: You’re smart. I would say that I’m not as smart as my someone who’s looked at my net worth might say. But I have made the right decisions, at least. I have saved. I have invested in great stocks. I have held them long term. I have cut my losses when things weren’t working out. I have minimized my costs. I have tax-managed my portfolio to keep the IRS at bay — to the extent that I can. I’ve gotten the big questions right.

ALEX GREEN: Then, I look back and go, “I should have bought this,” or “Why didn’t I sell that?” You’re always going to look back and say you wish you’d done things differently. But as long as you get the big questions answered correctly, you’re going to be fine. That’s something the average investor should know.

CHARLES MIZRAHI: That’s something I have on my desk and in my planner every day. I usually write a quote that I look at for the whole month. For this past month, I wrote down Charlie Munger. He’s Warren Buffett’s partner and one of the smartest guys on the planet. He said, “Avoiding stupidity is easier than seeking brilliance.”

ALEX GREEN: There’s a lot to that.

CHARLES MIZRAHI: Just don’t make stupid mistakes. If you buy a well-managed business with rock-star CEO in an industry with a tailwind — and you buy it at a bargain price, sit on your butt and hold it — it’s pretty hard not to make money.

ALEX GREEN: Warren Buffett said that investing is not a game where the guy with a 150 IQ beats the guy with the one 120 IQ. It’s not the guy who has the biggest brain. More often than not, it’s the guy or gal who has the strongest stomach. If you can deal with the inevitable downtimes… There will be another bear market ahead of us and another bull market beyond that.

ALEX GREEN: The question is: How do you deal with it? Are you prepared going in? Will you take the right actions going through? That will determine more than your genius — which most of us don’t have. [That’ll determine] how your investments perform.

CHARLES MIZRAHI: I think that’s one thing that there’s not much time spent talking about. I know you do. And I certainly do in my newsletter. I talk about temperament in so many different ways. Many people should never get invested in the stock market because they don’t have the right temperament. They don’t know how to deal with losses. They flip out. They freak out. And when things go well, they get overly-enthused and do the wrong thing at the wrong time.

CHARLES MIZRAHI: I put my father in that category when he was alive several years back. In 2007 or 2008, there was one stock: Fairfax Financial — run by Prem Watsa. He was the Warren Buffett of the north. They had the American share. They were selling here in the United States. I bought that and did really well over the years.

CHARLES MIZRAHI: In their 10-K, Prem wrote that he invested in swaps that, should the real estate market go down, he would make a bloody fortune.

CHARLES MIZRAHI: So, while all the blank was hitting the fan, Fairfax was going down in price when it should have been going up! He made over $1 billion on those swaps. My dad called me up — I think it was the summer of ’08, and the market bottomed out in the in the first quarter of ’09 — and said, “Get me out of Fairfax!” I said, “Pop, I’m buying. This is a joke! It’s a dollar bill trading for $0.50.” But he said, “Get me out at any price.”

CHARLES MIZRAHI: I got him out at any price. Years later, he always reminded me that it was my idea to do it.

ALEX GREEN: There’s an old saying where you want to make friends of your clients — not clients of your friends and family. No one wants to go to Thanksgiving dinner and hear about the investment that didn’t pan out.

CHARLES MIZRAHI: He definitely had the wrong temperament. And then we had a great relationship afterwards. I said, “Look, if I’m going to manage your money, I need you not to look at it. And if you look at it, never let me know.”

CHARLES MIZRAHI: So, he used to look at it and never let me know about it until once in a while when something would happen. I’d say, “Dad, remember our deal!” Thank God. Over time, we bought Google at about $150 to $200 a share. We just never sold a share. And with Berkshire Hathaway we bought just a couple. Thank God the portfolio did well with very little involvement from me. It was just about making a couple good decisions 10 years ago, and that was it.

ALEX GREEN: I used to be in the money management business, and I was in the industry long before anybody had Internet access. It used to be that people would start calling it after statements went out. Now, everybody’s watching their stocks bounce around in real time on the Internet.

ALEX GREEN: But the statements would go out, and people would be horrified that they had lost tens of thousands — or, in the case of larger accounts, hundreds of thousands of dollars in a single quarter or month. For instance: The stock market crash of ’87.

ALEX GREEN: What people didn’t seem to realize was that they put in their minds the highest marks that their accounts ever reached. That’s how they calculated how much money… It’s not that their portfolios went up and up and then came down. They lost all this money, and they imagined that the temporary paper losses were real, actual losses.

ALEX GREEN: I told them: “We can make them actual losses, but I wouldn’t recommend that. I would recommend that you buy while things are cheap.” And they said, “Buy? Are you kidding me? And throw good money after bad?”

ALEX GREEN: That’s why I was happy to leave the business. The people who would take my advice and follow it would make money. I was making money. They were making money. But some people — every time there was a break in the market — wanted to go to cash. At the end of the year, they’d call you up and say, “This account isn’t doing that well.” And I’d say, “Yeah. I tried to talk you out of it when the market was down.” But he said no. So, it’s tough.

ALEX GREEN: It’s not that these people are dumb. They’re emotional, and they feel like they want to do something. When people see the market going up, they think there’s no limit to how high it can go. Then they see it’s going down, and [they think] there’s no limit to how low it could go. [They think], “I’ll get in later — when things look better.” Like they always do at the market bottom — right, Charles?

CHARLES MIZRAHI: And they ring a bell to let you know when to get back in, right? It’s that easy.

ALEX GREEN: I took my knocks in the early days as well.

ALEX GREEN: When I started as a stock broker in 1985, I was so upset that my firm’s strong buy recommendations weren’t doing well. I couldn’t understand why these people — who seemed so smart, knew so much jargon and knew every detail about what was going on — [were] sharing ideas that weren’t all that great.

ALEX GREEN: I was a subscriber to The Wall Street Journal. I was constantly reading about Warren Buffett, Peter Lynch and John Templeton, so I just decided to forget about my firm’s recommendations and do the same sorts of things those guys were doing.

ALEX GREEN: And they all said the same thing. You know Buffett’s a value guy. Lynch was a growth guy. Templeton, when he was alive, was a global guy. They all said the same thing. They didn’t know what the economy was going to do. They didn’t know what the stock market was going to do. But they knew how to identify a business that was selling for less than what it was worth and hold onto it until the market recognized that value. That’s what they all had in common. So, I just started following their path.

ALEX GREEN: As you might expect, that worked. My firm’s recommendations didn’t, and their ideas did. So, that’s what I stuck with.

ALEX GREEN: I’ve [put] that into my writing now. I start from that basic premise. I’m not going to tell you what the future holds because I don’t know and neither does anyone else. I’m not ashamed to say that. I often say that the day you ask yourself, “No one can tell me what the economy and the market are going to do, so how should I run my money?” is the day you become a sophisticated investor.

ALEX GREEN: To the extent that [some people] are saying, “I see the market doing this. I see the economy doing this. This sector is going to out-perform that sector. And within that sector, this stock will out-perform that stock…” Those people are so far from where they should be — as far as having a disciplined approach to investing. It’s no wonder they struggle!

ALEX GREEN: I wish I could help them all. I really do. I don’t even want them to pay a dime. I wish I could just help them. But people have so many misconceptions, emotional responses and hot tips from their golf pro or barber that it’s hard to get them all straightened out. I’m happy that I’ve helped a lot of people.

ALEX GREEN: Charles, you’ve probably had this experience. When someone comes up to me at a conference and shows me their statement, shakes my hand and says, “Thank you. You have made me a millionaire,” that’s the best feeling. It’s great that I make a lot of money as a financial writer because I’m actually doing what I love to do — which is trying to figure out the challenge of the markets. The fact that you can help so many people reach financial independence, live the lives of their dreams, and make choices about how they want to live, what they want to do and who they can help… That’s just the best feeling. It’s what drives me.

ALEX GREEN: I’ve been doing this for over 35 years, and I don’t have to work if I don’t want to. But I love what I do. I’m constantly challenged and stimulated by what’s happening in the markets. I’m driven by the idea that I can help other people too if they could just follow a system that’s based on proven investment principles and that has worked in good times and bad. That’s what I consider my mission.

CHARLES MIZRAHI: Outstanding. I just want to touch on one point you brought up. Even if you’re buying a stock — a piece of a business — and it’s a company that you like because you do business with them… I’m using an example: Costco. Everyone can understand Costco. Everyone can understand McDonald’s. You don’t have to be a genius to figure those businesses out. If you buy a business that’s financially stable with a great CEO that’s in an industry that’s continuing to grow, even if you pay a high price over time, you’re still going to do well.

CHARLES MIZRAHI: Over the years, they showed that if you bought Coca-Cola from 1999 to the present, every time it made an all-time high. That means even if you bought it the worst possible time, you’d still be up millions of dollars on that one share.

CHARLES MIZRAHI: But you don’t have to time the market. Just buy financially sound companies. You never want to go back to go. If you buy a company with shaky financials — even if it has a great story — it could still go bust.

CHARLES MIZRAHI: But if you buy a business that’s financially sound — even if you’re wrong about a whole bunch of factors or your timing is off — it’s like being on the Queen Mary versus a rowboat. You’re going to get to the other side. It might be slower, but you’re going to get the right side.

ALEX GREEN: Right. If you have patience and discipline, it’s going to happen. In fact, I’ve seen lots of studies that show the difference between the best and the worst market timers in the world. The best market timer bought into the S&P 500 every year, but he bought it at the low point each year. The worst market timer bought the S&P 500 at the highest point each year.

ALEX GREEN: Well, it turns out that over decades, instead of earning the 10% annual return, the best market timer — who bought on the very lowest day of the year — earned about 11.5% on their money. And the worst timer — who bought on the highest point every year — earned about 8.5% on their money.

ALEX GREEN: Compared to being in bonds, cash, real estate or even gold — except for those periods when it spurts higher — you do better by being the worst market timer. Provided that your market timing doesn’t involve actually selling out of stocks. That kind of market timing — where you try to be in for the rallies and out for the corrections — could cost you more than any other mistake you could make.

ALEX GREEN: But the people who bought great companies, had patience and discipline and held on did very well.

CHARLES MIZRAHI: Investing is simple but not easy. The simple part is figuring it all out. The part that’s not easy is having the right temperament. If you don’t have the right emotional makeup, buy a Treasury bill. You have to realize that if you don’t have the right temperament, you’re not going to get rewarded in the same way as the person who has the right temperament. That’s just the way it works.

ALEX GREEN: There’s a guy by the name of Morgan Housel who wrote a book called: The Psychology of Money. He said that if he had to name what he thought would lead to the greatest success, he said it would be having an Asperger’s-like detachment from what’s happening in the market.

ALEX GREEN: That’s a great way of looking at it. I actually take it a little further than that. I’m actually one of those weirdos who — when things are collapsing like they did in the first quarter last year — gets excited.

ALEX GREEN: I start wondering: “Who is throwing the baby out with the bathwater?” I get more and more excited. I’m actually thrilled because I have this conviction — and it sounds like you do too, Charles — that ultimately things are going to return to normal, and prices are going to go up.

ALEX GREEN: You can look at a long-term graph of the market. Where are the best buying opportunities? Everybody would circle the downtimes.

ALEX GREEN: But then, as someone who actually handled hundreds of people’s money as a money manager, I was doing my best just to keep them hanging on. Buying something while the prices were down was out of the question. Could I get them to hold off? That was the hard part.

ALEX GREEN: So, being unemotional in your actions and rational in your thoughts — as far as investing goes — is a great starting point for everything you’re going to build.

CHARLES MIZRAHI: You can’t have cheap equity prices and good news. They just don’t work together. You have to have bad news, and then you’ll have good equity prices.

ALEX GREEN: I would sit down with my clients and say, “In the future, we’re going to have a sell-off. When we have a sell-off, we’re going to see the best buying opportunities.” And people would say in the abstract: “Oh, absolutely. If prices sold off, I would step up and be a buyer.”

ALEX GREEN: Here’s the thing they never get: It’s always a different reason. The bear market of 1990 was because Saddam Hussein invaded Kuwait, and there was going be a huge war in the Middle East. No one wanted to buy anything. There was the tech wreck in the mid ’90s. There was the collapse of long term capital. There was the dot-com bust. There was 9/11. There was the housing bust. There was the pandemic.

ALEX GREEN: Each time, people say, “Well, I thought something bad might happen, but not this!” Each time, it’s something different. And the next time the market goes down — maybe it’ll be cyber attackers — they’ll say, “Well, I never thought this would happen, so I’m not going to buy in this instance.” That’s what they’ll say.

ALEX GREEN: What surprised me was that the very same people who didn’t buy during the crash of ’87 wouldn’t buy during the bear market in ’19. Over and over again, they told themselves: “Not now. I’ll wait until things get better.” As if, when things got better, the prices were going to be better. Of course, they weren’t going to be.

CHARLES MIZRAHI: You know what? You’re spot on. It’s always going to be slightly different. And if you look for a reason not to do it, you’ll always find one. The market always accommodates you with something. You can always hang your hat on something.

CHARLES MIZRAHI: I think one of the best examples I saw over the past 40 years of doing this was the COVID bear market — where the market just cascaded down. At around 33 days, it lost a third of its value — or some crazy number like that. It was the shortest bear market in history. You blinked, and that thing was down by a third. One third of the capitalization of the New York Stock Exchange disappeared. I looked and just kept saying, “My gosh, this problem is going to be solved.”

CHARLES MIZRAHI: I was in New York, and it was really terrible. We were having a really terrible time. Friends and people that we knew and were very close to were dying. We were picking the Javits Center and turning it into a hospital. And I said, “Well, in five years, this will not be a problem. In three years, it’s not going to be that big of a problem.” I told my subscribers to stay put. This would pass. And for those people that sold because they freaked out, they missed out on one of the greatest upward moves in history.

ALEX GREEN: Right. If you think back to a year ago — when everything was coming apart at the seams — we had a lot of bad information. The virus came out of China, and the reports were that the mortality rate of people over 70 was 13%. That was much higher than it turned out to be! We also thought it was much more transmissible. Remember when you were supposed to wear plastic gloves in the grocery store to pick up food items with packaging?

CHARLES MIZRAHI: How about when people passed by you in the street? The air droplets could hover for 20 or 30 seconds. Forget about gravity not working.

ALEX GREEN: And then the COVID experts told us it ordinarily took 10 years [to develop] a vaccine. We were looking at two years at least.

ALEX GREEN: I don’t know if you know this, but Moderna — which was a recommendation in my insider alert service — created the vaccine within two days of China posting the virus’ genome online.

ALEX GREEN: So, it was actually ready in two days. It had to go through the gold standard of double-blind, atomized placebo trials. Nine months later, it got approved.

ALEX GREEN: This goes back to something I’ve been saying for years. Do you think, in the future, we’re going to wait 10 years for a vaccine? We know what can be done, if we need to do it. We’re going to get so many new medical advances, pharmaceuticals and new medical devices to come out of this. Science has moved forward so rapidly — genetics, new pharmaceuticals and vaccines.

ALEX GREEN: The bounce-back came from the fact that people were overly pessimistic. They thought the mortality rate was much higher. They thought the virus was much more transmissible. They thought the vaccine was going to be years away.

ALEX GREEN: You’ve probably read the book, The Wisdom of Crowds. Are you familiar with that book?

CHARLES MIZRAHI: Yeah, sure!

ALEX GREEN: It talks about how, when the space shuttle Challenger blew up in 1986, initially, all the contractors, shuttles and shares immediately dived. But by the end of the day, the only stock that was down substantially was Morton Thiokol — which was the [company] that made the O rings that were responsible for the engine blowing up.

ALEX GREEN: How could all these people — who were not scientists or researchers… No investigation had even begun. It was because of the wisdom of crowds. People realized that, most likely, Morton Thiokol was to blame.

ALEX GREEN: And investors realized — when looking at the vaccine without being geneticists, molecular scientists or researchers — that it was not as bad as it looked and was going to get better sooner than [they thought].

ALEX GREEN: The rebound came, and everyone thought it was a bear market rally.

ALEX GREEN: Here we are 11 months later and the market’s up almost 90% from there. I call it the triumph of the rational optimists. I count myself as one of them.

CHARLES MIZRAHI: Beautiful. All right, Alex. The name of the book is: The Gone Fishin’ Portfolio: Get wise, Get Wealthy…and Get on With Your Life. Fantastic. I wish you lots of luck. This book recently came out again, and it’s available on Amazon. It’s the second edition — revised and expanded — with a new foreword by Bill O’Reilly. There’s really nothing new here, in a sense. You just updated a few things. The approach is still the same. Just be rational, and buy intelligently. That doesn’t go out of style.

ALEX GREEN: The essence of the strategy is: You can’t know for certain what the economy or markets are going to do. So, the strategy is to invest in 10 different non-correlated asset classes, which are represented by 10 Vanguard funds or ETFs. And so, you flesh out the asset allocation, as I describe in the book.

ALEX GREEN: Then, once a year, you rebalance. The rest of the time, you’re encouraged to go fishing — which means spending your time traveling, playing golf, hanging out with your grandkids or whatever it is you like to do.

ALEX GREEN: I don’t suggest that this is the be-all and end-all of investing. But it’s the foundation you build on. That way, you know your serious money is being handled in a serious way — using a strategy that won the Nobel Prize in economics. Harry Markowitz won the Nobel Prize for his paper about mean portfolio optimization through mean variance analysis. This means: Invest in non-correlated assets so that when some assets are zigging, others are zagging. That reduces the volatility while still giving you good long-term returns.

ALEX GREEN: So, that’s the essence.

CHARLES MIZRAHI: That’s it. Just do what Charlie Munger says: “Don’t do something. Just stand there.” You don’t have to do much. Alex Greene from The Oxford Club and The Oxford Communiqué. Fantastic. I’ll put a link in my description for your newsletter. It’s well worth it. You have a free e-zine that anyone can sign up for. Just put down your email address, and get Alex’s 35 to 40 years of wisdom. He’s got a fantastic track record and good old-fashioned insight into how things work.

CHARLES MIZRAHI: Alex, thanks so much for being on the show. I greatly appreciate it.

ALEX GREEN: Charles, thank you so much for having me. I enjoyed being here.

CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show! Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see a video of the interview on The Charles Mizrahi Show channel on YouTube.

 

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