SaaS Interviews with CEOs, Startups, Founders
EP 572: 400,000 Books Sold Teach How to Take $1000 to $1.5m with Author Phil Town
16 Feb 2017
Chapter 1: What is the main topic discussed in this episode?
This is The Top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base.
Chapter 2: What qualifies Phil Town to discuss investing?
You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per top. Five and six million. He is hell-bent on global domination. We just broke our 100,000 unit sold mark. And I'm your host, Nathan Latka. OK, Top Tribe, this week's winner of the 100 bucks is Jose Avila.
He is a 17 year old that doesn't want to go to college and he wants to start his own business. For your chance to win 100 bucks just like Jose every Monday morning, simply subscribe to this podcast on iTunes right now and then text the word Nathan to 33444 to prove that you did it. Nathan Lackey here. Morning, folks. It's mid-February. I hope you're doing well, hitting all your New Year's goals.
And tomorrow, we've got a great guest for you. Sean, who talks about... Sean Moss-Polt has a very interesting business. It's intrusive. In fact, I sell my personal Nathan Lackey's financial data to him live on the podcast. His company is called Bitmark.
Chapter 3: How did Phil Town turn $1,000 into $1.5 million?
You won't want to miss that tomorrow. Good morning, folks. Nathan Latke here.
Chapter 4: What is Phil's investment philosophy?
Our guest today is none other than Phil Town. He is a two-time New York Times bestselling author, hedge fund manager, and founder of Rule One Investing. He teaches individuals how to take control of their financial future so they don't have to rely on fund managers or financial advisors. Phil, are you ready to take us to the top? I'm ready. Let's go, Nathan. All right. Very good.
I'm glad you're on today. I'm looking forward to this. The question anyone always asks when I have an author on is they go, Nathan, just make sure the author is actually eating their own dog food. So at the risk of offending you, what makes you qualified to talk about this?
Chapter 5: How does Phil manage outside capital for his hedge fund?
Well, you know, by New York Wall Street standards, I'm completely unqualified to talk about this, actually. I was a river guide when I started investing, and that would put me off into the netherworld for Wall Street people. And secondly, almost the entire rest of the world invests using the concepts of modern portfolio theory, which dominate all training for fund advisors.
It's what dominates the thinking at the SEC. And in that theory, it says that you can't beat the market. So I'm completely out there in space as far as New York Wall Street is concerned. But I'm anchored to the rest of the world by some of the greatest investors in the world who I'm following and I've been following for 30 years, including...
Ben Graham, who sort of developed the ideas of value investing back in the 30s and 40s, when he made about 22% per year through the Depression and World War II, with what amounts to, in today's dollars, a billion-dollar fund. And also Warren Buffett, who is his number one disciple, and Charlie Munger, who together run Berkshire Hathaway's investing.
So I think I've got some really good people that I'm following that Wall Street hates as badly as they...
Chapter 6: What are Phil's thoughts on modern portfolio theory?
I hate the idea that someone would actually do better on their own than putting their money in a fund with those Wall Street guys.
And folks, what Phil specifically did is he turned a grand into 1.45 million bucks in five years. Phil, how'd you do it?
What I did was was follow these basic principles of picking really good companies when they're on sale. So the first thing you have to do is believe that they ever that they ever actually go on sale. And second, I learned to use other people's money as well and build up that that fund that I was I was just developing on my own and then.
gradually built it up with other people's capital, which is the same path that Warren Buffett went down. I mean, when he started, he started with $10,000 and went out and raised money from other people and then invested it. And that's, that's essentially what they do on wall street.
Um, but the crazy thing is that, you know, I basically found out I could do it myself and that's, that's what allowed me to do all that.
Where were you, where are you at Phil?
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Chapter 7: What should you do if you don't want to be an active investor?
How much outside capital have you raised in your, in your hedge fund to date?
So this is all capital coming in from investors and we're under 100 million. So we're not very large by those standards. But what we've started doing recently is simply manage money through separately managed accounts. There's been some really amazing changes on the Internet that allow brokerages to manage money.
the sale and purchase of stock through a thousand accounts all at once, which didn't exist just a few years ago. So what that allows me to do is basically manage other people's money as well that don't have the kind of qualified investing capital that you need for a hedge fund. So we're just cranking that up.
And it's really, really been eyeopening as we're going into this sort of new world of investing that's full of companies like Betterment and so on, you know.
When you reach out to these investors to potentially, you know, raise capital from them, what is your minimum contribution? Is it 50, 100?
Um, no, we're, we're at, yeah, well, I say no. Yeah. We're at 50,000 right now and we're trying to get it lower. Um, so we're hopeful that we can get this down to the people who really need, um, help managing their money and whose choices really are almost none.
Um, and the way that wall street works is that if you have under a hundred thousand dollars, almost no one's interested in managing your account. Um, I don't know if you know this, but Merrill Lynch put out a note years ago, just saying, look, if,
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Chapter 8: What are the four rules Phil follows for investing?
don't bother with people that have less than a hundred thousand. It's not worth the trouble. So really the people that need it the most are getting the least amount of attention from people who know what they're doing and investing. So we're trying to bridge that gap.
So Phil, how do you beat those? So you have Merrill Lynch up at more than a hundred grand, you know, in your account, and then you have the other side of that and you're kind of in the middle. How do you beat a company like Wealthfront where if the minimum investment of 500 bucks is
you're going to basically track the s p they're going to do some direct indexing and tax loss harvesting to get you an extra one or two percentage points after tax per year i mean how do you beat those kinds of software companies
Well, the first thing to understand is that they run those computer-driven, we call them robo-advisors, using modern portfolio theory math. And modern portfolio theory math is what happened to the country in 2008. It's the same math that created the giant meltdown in mortgage bonds. It's math that Charlie Munger and Warren Buffett both just roll their eyes at because it's such nonsense.
And yet it's the only math there is. And so everybody just keeps going. And the basics of what you find when you move your money over to a robo-advisor is that they're going to pretend that they can use volatility as a reference point for risk. And then they're going to build a portfolio around the level of risk that you say you're willing to take.
And what you'll notice when you get involved with these kinds of advisors, either robo advisors or actual advisors, mostly, is they hand you a little questionnaire and they say, you know, basically, please tell us how much risk you want to take and how much return you want to get, which is crazy.
I mean, everybody who would fill this out would say, well, I want almost no risk and I want a very high rate of return, but they don't give you that as a possible question. So They pretend that they can build these sort of low risk or high risk portfolios and adjust them for how much money you want to make when it's absolute fantasy. They can't do it.
So if you invest in those guys, what you're going to get is, as you say, about whatever the index is. And unfortunately, for the vast majority of people in this country, that's not going to cut it. A five percent return or a four percent return, whatever the index is going to do over the next 20 years. is going to leave an enormous piece of America struggling to survive in retirement.
So where do they put their money then?
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