Episode 37: Max Arb

Max Arb

In this episode, I talk with Max Arb – @max_arbitrage.

Max is anonymous on Twitter and is a doctor that has built, sold, and still runs several successful medical practices.

We talk about generational wealth transfer of businesses, how to manage investment allocations, Via Negativa, balance sheet vs. income statement, and cognitive biases.

I hope you enjoy this conversation with Max as much as I did…

 

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Have comments about the show, or ideas for things you’d like Taylor and Jason to discuss in future episodes? We’d love to hear from you at info@mutinyfund.com.

 

Transcript Episode 37:

 

Taylor Pearson:

Hello and welcome. This is the Mutiny Investing Podcast. This podcast features long-form conversations on topics relating to investing, markets, risk, volatility, and complex systems.

Disclaimer:

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Jason Buck:

So, right before we hit record, I had an admonition for you that a lot of times, even though I come from a family that has surgeons in it and everything, that most of the time, I don’t understand what a lot of the medical terminology is or nomenclature. I even brought up when somebody tells me they’re anesthesiologist, I always think an esthetician. I think they do facials. But part of that is you are referencing too is, yeah, there’s a big barrier to entry, and what I think is kind of fascinating, and I know you probably are thinking the same way as I do is that every business, every sideline of business, every avenue of business has all of these barriers to entry is that create moats around it with all of their preferred nomenclature, and the nomenclature can be the same word used in different context, depending on what business you’re talking about.

But as you’re also an excellent businessman, don’t you think it’s like once you just learn those moats and that nomenclature, at the end of the day, it’s always profit minus expense, I mean, sorry, revenue minus profit, I mean, revenue minus expenses equals profit. Look, I can’t even say it right now.

Max Arb::

Yeah. No, no, no. Yeah, but that’s because until last year you weren’t supposed to have profit. I mean, so again. Now, all profit, profit’s very serious thing now. People are talking about in solemn tones, like, “Oh my god, you got to start actually making money.” But yeah, look, that’s why you see MBAs infiltrating every aspect of society, and now it’s changed. You don’t have to be an MBA to do this, but that’s the whole thing with Steve Jobs. When he was first replaced by that CEO from Pepsi and he took a walk, and he was like, “Oh, you want to sell sugary drinks or you want to change the world, whatever,” but the fact that even Steve Jobs recognized in that time period that we can bring somebody from Pepsi to run Apple. To me, that was a big statement because that’s coming from somebody who’s an entrepreneur who built something. This is not some, like a finance guy handing off the baton to somebody else. He understood that’s the case.

So, I think that’s definitely true. The problem is, and we’ll probably get into this is nomenclature is just a small problem. The biggest problem is wrangling people and dealing with human beings. So, when you get into these fine tuned industries and that’s pretty much any industry, actually. If you go to an HVAC, if you don’t understand how HVAC repair people think and the kind of stuff that you have to know to figure it out, you’re kind of screwed. All the words are not going to save you. You need to know where they’re fly fishing on the weekend. If you don’t know where that is, you’re going to have a hard time.

So, I think that’s true of medicine. That’s true finance. That’s true of law. If you don’t understand how the individuals think, what incentivizes them, what it is that they’re trying to do outside of just making money because that part’s easy. Everybody knows people want to make money. If you don’t figure that out, then it becomes difficult, and I’ve seen people enter medicine. This story goes back to the ’90s. You saw that Clinton started this HMO process where they consolidated hospitals and medical practices, and they fell apart because they couldn’t wrangle the doctors for the most part, and then eventually private practices came out again, and now we’re going through that same thing. So, in a long-winded answer, yes. I think nomenclature helps, but you got to really get one step beyond that to go deep, I think.

Jason Buck:

Well, part of that is, and just for the context of the audience, you’re an MD that has a private practice or multiple private practices. You even sold private practices. So, I always actually, I never think of you as an MD. I always think you of an entrepreneur and a business person. We talk about that nomenclature and you said it’s really people, but I’ve been thinking about this a lot lately is how do you focus on finding that right ops person, right, when you’re the visionary and then trying to find somebody that’s the person that can really implement it. Both things are incredibly important, but they’re too sometimes diametrically opposed people in that sense. So, it’s like how do you find the right ops person to pair with your visionary leadership.

Max Arb:

Well, I mean, sometimes what I do is I split up operations and sales as two different parts of the brain, essentially. There’s a group that needs to… The operations team needs to make sure things are moving through, and that sometimes cause resources, meaning the operations person is the person who if they’re doing their right job will be asking you for things like I need computers, I need this, I need that. They’re studying money to make sure… A lot of times, the operations person that’s really good is good at getting things done, but they’re not necessarily able to grow. So, when you say operations, I don’t think of it just in terms of that. I think of it in terms of somebody needs to grow the practice and the business, and somebody needs to maintain the expenses at a level that makes the growth worthwhile. This is almost like the opposite of VC thinking. You’re not just trying to scale the top number because in this case, the bottom number is what ends up in your pocket.

So, the operations thing is very, very challenging. I tell people, this is the thing is if somebody’s really good at operations, the first question is why do they want to work for you.

Jason Buck:

Right.

Max Arb:

Why is somebody working for you for operations to manage some brick and mortar for 100 grand or 150 grand or even 200 grand, whatever, if they’re that great? Now, if they are that great and they figure out that they’re that great, even if they were to work for you, you need to be able to retain them. The other thing I’ve seen is somebody gets a great operator who knows everything, runs everything for five years, then they leave ship, and you’re like, “Okay, now what?” So, part of that challenge I think is you cannot just let things roam on their own without watching. I think there’s this dream people have of small businesses. You build a small business, you hire a bunch of people, you plug them in there, now you screw around all the time, and money just hits your bank account while you’re sleeping, passive income.

It’s like whatever the inverse of passive income is, that’s what this is. Even if you hire somebody else to do this stuff, you have to basically monitor them, you have to teach them, and eventually over long periods of time, I’ve seen this with other people that are older than me, in their sixties, they have found a way through several years, sometimes decades of replacing themselves. But as a general rule of thumb, your average 28-year-old, 35-year-old CEO of a small company that hires a manager to replace them, it’s not going to probably go that well, unless you’re giving them a lot of equity or you’re giving a lot of options or something, and then you’re getting somebody really that’s able to do it. And by the way, medical practices, restaurants, anything that’s brick and mortar that by definition has some cap on its physical limits, those are very difficult businesses in the 21st century to manage because everybody who’s young wants to be in tech. Everybody wants to work from home. Who the hell wants to show up literally and check into a physical location?

So, your question’s great. The simple answer is I haven’t figured it out yet. I really haven’t. I’ve tried. I’ve got different people that do different tasks, and then I give them more responsibilities, I scale it up a little bit. Sometimes they fall through, I have to go back in and fix certain things. But I have thought through the framework which is that you do need to split this, in my mind, operations and growth. Revenue up and expenses down are two different tasks. And a lot of times the person that’s good at one is terrible at the other and vice versa. Don’t ever let a salesperson determine your expense.

Jason Buck:

Exactly.

Max Arb:

You’ll spend so much money on garbage you don’t need, on swag and who knows whatever.

Jason Buck:

Dinners.

Max Arb:

Dinners.

Jason Buck:

D&Es. What are your hacks as far as sourcing operators. So, maybe you have operators in your pipeline, and then when you do find that person that you really agree with, there’s almost a three-step process. All right, you got to source great operators. Then when they’re coming in the door, you have to vet them. But then are you willing to give up equity in your company before you even work with this person? And then once you start working with them and you think you have an A player, how do you retain them? Is it equity? Is it other intangibles that people don’t realize?

Max Arb:

Okay, recruitment, what I tell everybody is pick an industry, ideally not a Berkshire Hathaway industry that’s dying. I mean, I’m talking about the original Berkshire Hathaway. Pick something that’s reasonable that you think is going to be around, and if you narrow that out in itself, meaning, get rid of the industries that are the bottom 10, 20%, things that everybody’s like, “Oh man, I don’t know what’s going to happen.” If you focus on the other ones and then you just pick something there which is got profit at some point, or if you just network, that’s the best way to get anything. In other words, you can put job listings, you can go to LinkedIn, all this stuff. Look, if you know a lot of people, that is more valuable than anything.

            So, and I don’t think knowing people comes from going to these generic conference things. I think that’s how you can actually get the card and the contact. I think you go to dinners with people. My favorite thing to do is to go to dinners. Before COVID, I did a lot of that because that’s when you can sit down with somebody at the end of the day, as a general rule of thumb, when people are eating dinner and the sun is set and there’s drinks and even if there’s not drinks, people are more relaxed. You can start to get into people’s mindsets, and then get into it. I recruit people through a network, probably know several hundreds of doctors and probably know thousands of people in the medical industry in New York city, and so that’s how I pull the people in.

            Do I give up equity? I personally don’t give up equity at all. When I read books about business managers and stuff, they’re like, “Try not to create a union. Try not to let a union grow in your company.” Try not to give equity away. I think it like, that was that guy who wrote that book, Felix Dennis, Felix Dennis?

Jason Buck:

Yeah, Felix Dennis, yeah.

Max Arb:

Felix Dennis, so right now, all this stuff in there, some of that stuff sounds really bad, but it’s true to some extent. A general rule of thumb, you really don’t want to be giving equity away in your company unless you have some type of… You have to think this stuff through is what I’m saying. It’s like people sometimes lightly give it away. When a VC forces you as a small startup to give away 80% equity, that’s one thing. But if you’re opening a small brick and mortar thing or small business online, that’s the last thing you want. They have somebody else involved in. So, you should try to limit that as much as possible.

            How do you keep it? Well, the thing I try to find are people that are interested in more things than just money because if you just find people that are only interested money, you’re always constrained by cash, and there’s always going to be bigger businesses. Especially in Manhattan, there’s a ton of jobs in the city that can make people mid-six digits, seven digits. I’m not saying that everybody can access them, but it’s not like somebody who’s really talented doesn’t have opportunities. So, I try to find people that are interested in that actual industry, like what they’re doing, are networked in that system, actually have some pride in what they’re doing. And also people from medical practice, it’s pretty simple. Most medical practices in America, their customer service is garbage. It’s just garbage. It’s like you go there, they treat you like a DMV, but you don’t get a DMV-like bill. You get a mortgage type of bill. So, you’re paying thousands of dollars for getting treated like crap.

            So, the simple thing is find people who actually care about fixing that problem, which by the way, there’s a lot of people. There’s a ton of people. You find anybody who’s, for example, has kids, who’s older, who’s dealt with a pediatrician. If you’re a pediatrician, you will know talking to parents, how bad it is trying to get decent care, and if you can fix that problem, and find other human beings that are interested in those problems, now you’ve got that kind… You need religion and everything in life, basically. Either you need religion or you need lots of money. You got to create a faith-based kind of system.

            And ideally, if you believe in the narrative, I recommend you believe in the narrative, it’s a lot easier but you can fake the narrative. I mean, people do. That’s what a lot of business people do. They just go, they flip from place to place, going, “My mission for the next few years is solving carbon,” and then like three years later, “I want to make the best energy drink known.” That’s fine too. But I think ideally when you’re doing what I’m doing, small business for years or decades, people who know me know that I mean it seriously. I want better customer service. I want to be able to go to a place that I would want to go to and get medical care at a reasonable price and be treated normally. I can find enough people amongst the population to do that.

            I will tell you point blank, anybody ever bought in my organization that doesn’t believe in that stuff, they’re gone in like three months. But for those people, it’s a waste of time that we’re doing. Those people are like, “Why do I have to be nice to every single patient that comes in when one out of eight of them is a total asshole?” And I’m like, “Well, that’s part and parcel of being in a practice or being in a business which deals with the entirety of humans,” because remember, medical practices, even more so than banks, we deal with everybody. You have people that come in that are billionaires that are super rational, scientifically-minded individuals on one end, academics, you have people that are completely homeless, some people have psychotic breaks, and they’re trying to deal with you. So, you got to be able to deal with that whole thing.

            So, that’s what I would say to people is create networks, meet people, find a real mission, not a nonsensical one, but something that’s reasonable, and focus on it, and then you start building this… It’s like a solar system thing. You have to act like the sun and solely get these planets into orbit. It won’t happen overnight, I can tell you that. It’s like a multi-decade, multi-year, multi-decade thing. It’s a whole life’s work to do this. You know that, I’m sure because you do [inaudible 00:13:29].

Jason Buck:

Yeah. Well, I always love talking to you because you’re so pragmatic and you always talk about obvious things, and that’s what I think always is like a zone of genius is when somebody states the obvious, but nobody’s really done it before. I’m always like, “Oh my god, why didn’t I think of that? It’s so obvious.” But there’s a certain zone of genius to figure out the obvious. Part of the pragmatism is you always talk about things with extreme amount of realism is like, “Yeah, we’re building cults.” Right?

Max Arb:

Of course, yeah.

Jason Buck:

And so, as you’re building, you’re hoping somebody buys into that cult. But also like you said, you don’t want to give them equity, but then also do you provide profit share, percentage profit share to have that incentivization on that side?

Max Arb:

No.

Jason Buck:

No?

Max Arb:

I don’t, but I will tell you one of the things you have to keep in mind is the medical system is very regulated. So, depending on what state you’re in, it’s not really even doable in the way that it’s traditionally do. Now, there’s larger companies, publicly traded companies in the space. So, it’s not like doesn’t exist, but you’re really getting yourself into kind of gray areas with all stuff. So, I don’t. Now, if I were in a freely regulated system, would I maybe do that? Perhaps. I’ll tell you what the problem is in medicine. The problem is the mission, the cult I’m talking about is actually somewhat real, and what I mean by that is literally somebody may come in and have cancer and they got to get diagnosed. And so, the issue is the commission that you would give to somebody to grow the revenue, for example, would be a salesperson, and I hate to say it, but most salespeople are not quite as concerned about quality as they are about sales.

            That’s exactly why the operations team, it’s almost like the counterweight to the sales group. I always joke the sales guy wants quantity or the saleswoman wants quantity, and the operations team needs quality. And by the way, in my organizations, the front desk reception technicians, the people that push through the patients through the process, and as they push through all little steps they have to go through, they’re constantly at odds with the salesperson who’s out in the field, meeting other doctors, and getting… There’s always points of friction. Sales guy’s like, “We got to get this patient into this thing. This doctor is saying, ‘We need it. It’s urgent.’ My team is saying, ‘Oh no, we can’t really do that. We have all these other people lined up. Somebody’s going to get bumped. There’s going to be blood.’”

            If I start giving out these types of incentives, the salespeople could… If I want to grow my practice on a street, if you’re completely unscrupulous, you could just make a monster machine. There’s plenty of them in New York and LA and Miami. I know a lot of medical practice, it’s huge. I don’t want that because, again, goes back to what I was trying to create was a real cult of let me build something where I’m actually proud of in the sense that if my parents went there or I want there, I would feel like I’m getting a good shot. Now, do I want to go to a practice where the volume is coming in primarily to a sales guy that’s getting a commission? Probably not. That’s not really the ideal situation for that thing.

            It could be done ethically, by the way. I’m not a believer in black and white thinking. There’s ways to do it. You can find people to make that work. But I’ll tell you another thing, which I tell myself all the time, which is a lot of the money that I’m taking out of this practice, and I’ve been lucky for like 15 years of doing this, I’m also not going out buying Lamborghinis. I’m not taking that money and I’m not doing the kind of crazy things with the money. So, sometimes I think that goes back to what you were saying before. How do you get people to believe? Because they see the way I live my life. They see that they know me well enough to know that the goal here is not for me to buy the biggest boat in the harbor and not to show people all this stuff. I’m not trying to do any of that stuff.

            So, some of it just comes down to who you are as a person and making sure that that meshes with other people. So, and the operations, are there bonuses? Yes. And there’s targets and then there’s ways that they hit those, but the bonuses are not always, they’re not necessarily driven by volume. A lot of that’s driven by quality of service, feedback I get from other doctor’s offices, feedbacks I get from patients and stuff. For most people, I would say, yes, you’re going to have to incentivize the sales and revenue staff. That’s how you’re really going to grow it. But I would also say, and you know this, as a general rule of thumb, you probably shouldn’t build a company if you don’t have some of that in you, or you don’t have a partner who has some of that in you, meaning one of the two people has to have some ability to drive some of that sales in itself.

            So, in my case, for example, the other reason I don’t incentivize my people is I do a lot of these things myself as well, meaning I don’t pay people to… If my manager decides not to show up, I have no problem showing up and doing their job for the day if I have to do that. And if the sales guy’s like, “I don’t want to do this anymore,” the sales manager’s like, “I don’t want…” Fine. I will call people. I will set up dinners. I’ll go myself. Okay. That’s kind of one of the practical things in life that if you can demonstrate to other people, that also I think is a huge… Look, you get free lunches. People love free lunches. This is another thing people love. If you were, Jason, to hire a hundred employees and two people don’t show up one day, the janitor doesn’t come clean the place, and you happen to just show up for 30 minutes and go through the task of doing that, people will see that crap and remember it, eight years later, like, “Oh yeah, that guy gets his hands…”

            Those are things that I think are helpful, but for medical practice, I’ll tell anybody, as a general rule of thumb, if you’re going to highly incentivized medical practice, that’s not necessarily what society, that’s not the goal here. And okay, one more thing to add to that. The irony of that is if you do what I’m doing, your practice will actually grow really fast because other doctors know that, meaning other doctors know that when you send to these hospital systems, the massive private equity conglomerate, the publicly traded, I mean, we’re not completely naive. We know what’s going on in those places. We know that it’s like a volume generating place to generate revenue, and that deep down, the doctors are kind of checked out because they have to do what they need to do to survive in that system so when they get that service as well, it also, they want to send back.

            So, it’s kind of like a, it’s marketing tool as well to not do things extra. If you’re a doctor who needs something from me and I can’t do it, some private large groups just find a way to do it. Maybe it’s not being done at the best way that it could possibly be done. That frustrates you. If I say, “No, I cannot do it,” that’s another good thing you can do in life which I think you’ve done before too. Make sure you’re telling people you could do what you’re really going to do and not promising them things that you can’t do just to get the business because it won’t stick around long.

Jason Buck:

Well, and as you know, any of those doctors that then recommend any of your practices, then they know it doesn’t reflect poorly on them. It only reflects positively. And that’s all we care about in life is that reputational risk is like you want somebody to just come through with what they say and surprise and delight that client, so then they look upon you favorably for giving that recommendation. You hinted that earlier, but just to be clear to people about the obvious is correct me if I’m wrong, you had epiphany once at Danny Meyer’s Union Square Cafe on his detailed level of hospitality, and you’re like, “Why can’t we have this level of hospitality in medical practices?” And it sounds so obvious once again, but it’s unbelievably missing across the board.

            I always love texting you when I had bad experiences. I think a few months ago, I texted you. I was at my dentist and just the girl doing my imaging, she could have said please and thank you. It wouldn’t have been any different than bite down, turn your head to the left. It was all commandments versus please and thank you, and I’m like wasn’t that hard, and my dentist, thankfully I know him pretty well, he’s a co-owner of the business, so I brought it up to him. But I was also texting you because I was like, you always say is it’s not that hard. So, part of it, I always wonder, I remember a long time ago, I to own restaurants and I love talking to restaurateur and chefs, and I remember asking Nick Deconis about this one day. I was like, “Why do we invest the least with whoever is working the host or hostess stand in a restaurant.” Right? That’s your first point of contact, and we always hire like an 18-year-old that has no clue what they’re doing and we don’t train them at all.

            So, like you were saying, your front office staff is like if that’s your first point of contact, do you think about it as basically this is five-star hotel concierge level service, and literally what most people have deemed their lowest value employee or their least costing employee is that front desk person. But that person should almost be your highest value employee, your highest costing employee because that’s your frontline person of contact, and that’s what puts a good or a bad taste in people’s mouth, both when they’re coming and when they’re leaving. I remember a restaurateur taught me when I was really young. He’s like, “I have the best bread in the world and the best dessert and coffee in the world because the first impression and the last impression are all that matters.”

Max Arb:

Yeah. I mean, listen, what you’re saying is completely correct. I think this is a deeper societal issue. What’s going on, I think, and you see it in Twitter, which is not great because that’s a microcosm of reality, but general rule of thumb, a lot of people are miserable in life. If you really go around and you talk, I’m not saying my close circle of friends which I’ve edited. But if you look at people at minimum wage jobs, you look at people making 40, 50, $60,000 a year and struggling to make payments to survive in a lot of this country, people are often fairly miserable at work. You don’t meet a lot of people who say on Sunday night, “Man, I’m excited. Work week’s starting again.” You never hear that. It’s like no.

            So, part of this whole concept I think is that people are treated as widgets. It’s part of the MB-fication of society is looking at numbers in terms of spreadsheets, looking at Microsoft Excel, and looking at the entire human population as an analytical database of widgets that you move around to do what you need to do to make money to get a house in the Hamptons. That’s not going to make everybody happy, and so part of this whole simple process of going to the Union Square and these places, and I know people in the restaurant industry. It’s just like the people there, a lot of them actually are selected not because they’re bullshitting being nice to you. It’s just they happen to be the type of people that are actually in that mood to begin with. You have to do that to begin with, meaning you kind of have to… You can’t just train somebody to have a great attitude and be happy about life. You cannot train happiness. That’s kind of something that comes from within to some extent. But what you can do is you can make conditions ripe for happiness.

            So, it goes both ways. I try to find people that have that good, positive attitude about life and pay attention to details, but I also try to make it easy for them to do that by not treating them like widgets, by actually knowing who they are, knowing what’s going on in their families, knowing what their lives are like, trying to figure out where they’ve come from and what their goals are in life to get forward. Most of the front desk receptionists in the world, in the United States at least, it’s a minimum wage job, maybe a little bit more than minimum wage.

            I started in the beginning paying minimum wage just like anybody else, and immediately I was like, “This is the stupidest idea of all time. Why am I paying the minimum wage? I could literally go up 50% or double this, and in the overall scheme of things, it’s not going to change much.” So, that’s the first break I took from every other medical practices. I don’t pay the least amount of money for any of these positions. I don’t always pay the highest because there might be some super high-end concierge practice, but I’m not doing super high-end concierge work. I’m doing regular practice for anybody with insurance company. That is a critical thing. It’s trying to get the right people with the right attitude, but then also making that space for them so they don’t feel like a widget.

            By the way, as a side note, you or I or a lot of people when we were younger did random jobs, and when I did those random jobs, I remember I was treated like garbage. So, I didn’t want to work there. That’s an arbitrage that’s available for just about any business owner is that if you can just make your place a little bit happier, and by the way, tech companies are really smart about this. If you think back to 20 years ago, that’s when you started hearing Google’s doing this, Facebook’s going doing that, they have this cafeteria, they have these kind of… That service industry for employees has changed drastically in the last 20 years. It’s so much better. The little business owner like myself, that’s not easy to do. I don’t have the money to do that. I do have the will, intent, and ability to create atmospheres that can do that, but I think that’s a good idea.

            And you’re right, the hospitality industry itself is a great teacher for a lot of us. I think people sleep on it. When you go to hotels, when you go to restaurants, you can learn a lot about human behavior in those places, and you can extrapolate a lot of that into life. Please and thank you are really, really cheap for the return of investment you get on those two words. The best ROI two words you could ever get probably. And by the way, this is joke of Indian immigrants that come into America that work at restaurants and they can really speak English, and my sister and I growing up as American kids that are Indian, I always joke when we go to Indian restaurants, we’d all say to each other because whatever you would say, they would just say please and thanks for everything. So, it’s like, I’d like the chicken tikka masala. Okay. Thank you, please. I was like, “These guys are really parsimonious. They really narrowed down to ROI words, and they’re just sticking with those.”

            But it is helpful. It’s a free lunch in that sense. It helps to be thoughtful about those things. I think I got into my residency because of that. I’ve had things happen to me multiple times in lives where the numbers on paper were great, blah, blah, blah, all the stupid things that you did, but in the end, none of that matter, There was literally a human interaction with somebody that you treated them kindly one day and not pay it forward. So, as a general rule thumb, I think that’s a good strategy is to minimize asshole-ishness to minimal. Minimal viable asshole, MVA, the least amount you have to be.

Jason Buck:

But also, it puts you in a conundrum in a sense that you can do a lot of background checks and a lot of interview through the process to really find out what somebody’s truly like, but you never know until you’re actually working with them. But then if you have these ongoing checks to make sure they’re upholding your standards, if you’re even using secret shoppers or something, it’s almost a level of distrust when you want to be trusting these employees. How do you navigate around that?

Max Arb:

Well, I mean, it’s a little bit like trust but verify. I mean, look, part of the thing here is you have to be willing to allow your mind to exist in two different places at the same time which thankfully, a mind is able to do if you’re willing to let it. You’re allowed to trust people and also be like, “But before these are things I need to figure out.” Now, one way to look at it is it’s skeptical. If you ever read Talking to Strangers by Malcolm Gladwell, I think in that book, he talk a lot about this thing.

            But another way is do you trust yourself. Do you really trust… I don’t trust myself, and that’s why, for example, my brokerage account that I use for discretionary work is separated from my primary portfolio. It’s not mixed together in an easy way, I can just go, “Eh, inflation’s changing, blah, blah, blah, Ray Dalio said this, [inaudible 00:27:22] going to go over here and move some money around.” I didn’t do that because I don’t trust myself. I separated it out so that in order for me to make the dumb decisions, I have to go through like 20 steps and kick myself at each step until I can do that.

            So, with other people, you have to do that as well, and to your point about interviewing, I read a bunch of books about interviewing people. Literally at the end of all these interviewing books, you know what they all said to me? They all said, “Don’t waste your time.” Essentially, you could do it, go through the steps, but you’re going to end up putting this person in a position they probably have not done before, surrounded by employees they’ve never been surrounded by before, doing work in a manner that might be a little bit nuanced towards the way you want which has never been done before.

            If you’re doing interviews at a very large company and you have a million employees, so let’s say Berkshire Hathaway or Walmart, some huge… And you’re trying to hire 10,000 people. You’re sampling from the population, then you can use statistics and these types of things. If you’re just trying to hire five people, that is probably not going to help.

            You’re going to have to get… I’ll tell people straight up, “You’re going to come to this place. It’s not going to be like a normal job for you. It’s going to be a little bit difficult. We’re going to be hard on you if you piss off patients. If you don’t have a relatively decent attitude about doing stuff, and if you’re not honest about telling us things that are wrong, meaning if you hold mistakes or errors to yourself, a month later, I find out from you, ‘Oh, by the way, this is going on, you should really fix this,’ and then I find out you’ve known about it for like a year, that’s not right. We’re not the right place. You have to point out the errors to us. You get money for that. Not, not exactly, but you get favor in the status of the company by figuring out what things are wrong.”

            So, by telling them, that I’ll tell them, “You’re going to be tried out for 60 to 90 days in this position, and you tell us how it’s going, and we’ll see how it’s going, and we have to keep on monitoring it.” But I don’t think interviews and all these assessments work that well when you’re an individual picking a few people, which by the way, it’s the same as relationships. You can create a huge Excel sheet to find your spouse. It’s not going to help you. It’s going to really fuck you up badly. It’s like doing a value screen on a stock market in 2022 with price to earnings ratio, like, “That has not all been arbitraged the way…” I mean, there might be some, some stuff you find, but you’re likely putting yourself into a trap by doing that.

            So, I recommend the direct method. You get the individuals in, you try them out. Sometimes, by the way, I’m wrong. Sometimes you’re literally hiring somebody to do a role at another company that did that role, and they’re just laddering over to your company, and it’s pretty straightforward how that’s going to work.

            But I’ll also tell you, which I should probably disclose, I’ve also laid off a lot of people. I mean, that’s the truth. People come into my organization, they don’t work out, and I let them go. I’ve probably let go as many people or more than I’ve hired if I really add it all up over time. When I say let go, it’s usually in the first 30 to 60 days because I still believe in that mission of if the person is going to be miserable on the medical practice setting and they’re not going to make it easy for the patient to get done what they want to do, that they just don’t work out at my place. Go work at the hospital or somewhere else. They don’t care there. You can be angry at all of us there. They’ll just fit right in. So, I think that’s partly, you have to have some thick, emotional skin to do that because it’s not fun to tell people that stuff, but that’s the difficult part, but that’s how you make a better organization I think to some extent is evolution.

Jason Buck:

No, you’re right. It’s incredibly difficult. We are complex schizophrenics, and you have to almost compartmentalize a lot of your emotions a lot of times. I do want to highlight, you never told me that before, but separating in Harry Browne terms your permanent portfolio from your variable portfolio, making it hard to get into your variable is brilliant because most people combine the two, like you said, and it’s easy to kind of oh, I’ll pay myself back later and tell those little lies to yourself that cascade into [inaudible 00:31:01].

Max Arb:

Never. Never-

Jason Buck:

… cascade into disaster.

Max Arb:

Never. Yeah, that never happens, right? It never happens if you say [inaudible 00:31:06]-

Jason Buck:

But I was wondering, and I was going to ask and you answered it right away. I’m sure you just fire fast too. But like, look, this isn’t a fit. Let’s go on about our merry ways. I’m I don’t know if you do a trial basis at all to start, but then also, I was reading the other day and I can’t believe I never heard this before, if you are firing a long term employee or you do need to lay off people, it was that hero’s sendoff was really the way to do it. Be direct and to the point, but almost clap them up, give them their flowers and give them the hero’s sendoff. And I was like, oh, that’s a much better way of handling it. I was just curious if you ever even thought about it that way.

Max Arb:

Yeah. I think that is a way to handle it. That said, in my case, what happens is the people who make it past the first few months or so, they’ll tend to survive. The layoffs I’m talking about tend to be very, very early. Because again, what I look for is a combination of cultural fit and mindset, which I know it sounds cheesy to say this, but again, I really do focus on people who are relatively genuinely happy. First of all, on a one to 10, I am not a nine or 10 and relatively happy. I’m more on the Larry David miserable side of things. Okay? I’m more like a two or a three. It’s just that I have a sense of humor about it, and I don’t want to be surrounded by people like that.

            I’m the pessimist in the group that’s always finding the errors and stuff, and then I keep them to myself, and then I slowly squeeze them out in the most optimistic way so that the team can hear them and get back. But I’ve learned over time that those are the people that I want to be around. And over time, those are the people that make me feel better. So that thing you’re talking about, the hero’s sendoff, it’s the right way to do stuff. One thing I’ve seen people do over time, and you’ve been doing business for a long time, you want to end relationships with people in a way that, 20 years later, if you have to bring them back, you can. Not because you’re planning specifically to bring them back, but as a general rule of thumb, if you can’t close out relationships in a proper manner, over time, you’re just generating chaos and entropy around yourself.

            It’s not a good strategy in life, I think. I also would say, you can’t ask these types of questions and [inaudible 00:33:00] but if you’re a young guy or a young woman and you’ve been dating a lot of people, and your attitude with everything is to ghost people, that’s probably not going to work out for you. I think that it’s fine for people to do that, but I think that’s a big sign you can tell from people, is the way they exit situations gracefully. If you can exit situations gracefully, things are probably going to go easy. And I think I’ve seen a lot of people that don’t do that. They literally burn bridges. I see a lot of people leave companies, and then the last thing they do is just… drop an explosion, and they just exit. I’m like, “You don’t have to do that. You don’t have to say all that stuff, you know.” But that’s one thing I would say is helpful, is to try to exit things properly.

Jason Buck:

Yeah. It’s like playing finite versus infinite games. But I wonder though, if we’re on a [inaudible 00:33:43], I’ll give you another admonition. I actually, way back in the day, I applied at Union Square Cafe, and I got weeded out. So I’m wondering if you think you would’ve gotten weeded out too. Because like you, it’s like we could put on our optimistic face as entrepreneurs and everything, but we’re fairly curmudgeonly on the inside. So you think you would’ve got-

Max Arb:

Oh, I’d get fired in a second. No question. I could not be my front desk staff. I cannot do what they’re doing. And part of that is just understanding. See, this is where things get difficult. When you don’t have money and you’re trying to survive, these things become personal because they are personal, because you literally, as a person, cannot get what you need to survive. On a more abstract level though, what you’ll realize is, as an individual, if you’re honest about yourself, you probably can’t work in a lot of roles. I can’t work in a lot of roles. I can’t work for most places because I’m hyperactive. I want things done really quickly. I’m impatient, and I want them to be done immediately. Like when people are like, “Here’s our three year plan,” I’m like, “Good, I’ll be dead in three years. Wonderful.”

            I’m only in my mid forties, but that’s how I think about it. I literally have these long term plans, but I like to do things in… My week, I like to consider as like a month, and a month as like a year. That’s how I always think about stuff. And the service industry and having that mentality as a person is really an innate type of thing, I believe. Like I said, you can train people, but there are just some people that are just incredibly gracious and good host. I’m the type of host, if you come to my place and you stay in my apartment, I’m going to be like, “Here are the keys, here’s the doorman. Do whatever you want, take whatever you want. I can care less. If I’m there, great. We’ll hang out. If I’m not there, I’m not there.”

            I’m more of that kind of straightforward kind of cold, analytical type of person. But that’s exactly why I seek out the warmhearted people. If you’re a warmhearted, happy go lucky type of person, you should probably seek out some cynical, pessimistic people in your life too. Because what’s going to happen is, if you don’t have that balance, psychologically, those different personality types of human beings are all built into our mind. Those are like genetic things that we all have, to some extent. And you can think about it as having a north, south, east and west kind of compass. And many of us are pointed in one direction, very aggressively. And if you want to be neutral and know what’s going on in the world, being aggressively tilted in one direction is not the way to do it, which is why you have to bring other people in.

            So I always tell people, just try to counterbalance yourself. It is funny, because why would a happy go lucky person pick out a pessimist or a cynic or that kind? Oh, guess what? Happy go lucky people… A lot of the time, I’ve met entrepreneurs that are incredible entrepreneurs, and the thing that works for them is they swing at home runs constantly. And they just happen to pick up the bat in 2012 or 2002. So if you’re happy and optimistic in the right time and you got the winds behind your back, you’re going to be flying high. That’s when you need a cynic and somebody to say, “Oh wait a minute. By the way, all the success you had, some of this you might want to pair back. It was a lucky time period you just went through.” If you don’t have that, you could crash. I think you know some of that, because I know you’ve talked about that yourself, and in other podcasts, I think.

Jason Buck:

That’s also why my favorite quote is that, “In a bull market, you want a 20 year old. In a bear market, you want a 60 year old.” And then the idea is, we’d like to build portfolios that have a 20 year old and a 60 year old, that we combine the two. Why not?

Max Arb:

Yes. [inaudible 00:36:58].

Jason Buck:

That’s the way we look at it. One of the other things you said, if you could, it would be an interesting way to see who ghosts people on dating apps or whatever. But I wonder how you think about, if we had those apps around when we were younger, in my early to mid twenties, I don’t think I would’ve handled relationships as well as I can handle them now. Do you think you can learn to deal… Those harder conversations are fine, but maybe when we’re not fully developed in our twenties, we don’t have context or experience, we tend to kind of almost shy away from those tougher relationships. So to me, it’s kind of understandable if somebody at twenties like ghosting people, because they don’t have enough life experience to know that’s not the right way to go through a life yet.

Max Arb:

Well, to be clear, if I was 20 years old and that’s what [inaudible 00:37:37] I would’ve ghosted everybody, and I probably would’ve been an attorney by now. I probably wouldn’t be unemployed. That social media world that exists, which is part of the reason I’m anonymous, is insane. In other words, people have cell phones and in a 24/7 period, you’re videotaping, you’re audio taping. You’re documenting everything. Very problematic way to live life. You can’t make mistakes. Well, you can make mistakes, you just can’t make mistakes on camera. And so I think you’re right, that it’s not… But part of that is two different things. One problem that I think all of us have is controlling the amount of information that goes in. So in other words, a lot of the ghosting happens because the strategy is wide net.

            Let’s cast a wide net and catch as many fish as possible. And that’s part of the process, meaning the reason people can get ghosted to begin with is because there’s other options. If it’s you and one other person on an island, you’re probably not going to ghost that person. You’re either going to get along with them or you’re going to break off in a very angry kind of way, go to your side. So I think some of that is just volume-driven kind of behavior. But the flip side of that is, and joking aside, again, everybody has their own strengths and weaknesses. One of the strengths that I have is I’m not necessarily the person that maintains contact with individuals for the rest of their lives, but I tend to not be comfortable with just shedding off individuals once I’ve spent some time with them.

            Sometimes you have to do that by the way. So I’m not saying… But as a general rule of thumb, as a habit, then you start to have a little bit of a problem there. And I think that’s related to some of this social media sadness or depression, this thing that Jonathan… is it Chait? Or Jonathan Haidt, maybe. There’s two Jonathans. There’s a Jonathan Haidt and a Jonathan Chait. One of them was writing about social media with teens and they’re like, “Instagram is the worst experience for kids.” And I think around 2012 it started to change and stuff. And I think a lot of that is just volume driven. If you try to get too many connections too quickly, you don’t have time to sit down with them. It actually ends up leading to loneliness.

            Meaning, if you have thousands of friends, you’re probably much more lonely than if you have three friends, because those three friends are going to spend time with you and you’re going to get to know them. And so this thing about the ghosting is related to all that, in the sense that yeah, if you go out and you create all these different relationships and stuff and you leave, how does that work for my company? I need a company that’s a long term value proposition where people can stick together for a period of time, so you can build strengths off of each other. So in that sense, it’s helpful. And so I would say to the person, “Yes,” if I was in that age group, I would ghost people too. I would go viral and I’d probably be unemployable. I wouldn’t hire myself in that age group. But then again, there’s another eight billion people to choose from besides me. So that’s a good thing.

Jason Buck:

Well, you’re talking about like volume over quality or quantity over quality. I was wondering, have you ever read Greenburger’s Risk Game?

Max Arb:

No.

Jason Buck:

It’s autobiography. He’s a New York City real estate developer, did time equities, but when he was growing up, his dad had… They were literary agents for European writers and everything. So he was basically like running his dad’s literary agency when he was like 13 or 14, negotiating contracts. Eventually he started buying up buildings and co-oping them in New York City during the seventies. It’s a book you would love. But one of the things that you were talking about that made me think of it is in it, he has a lot of older mentors, so to speak, or just peer group that are older real estate developers, lawyers in the real estate game or business owners, et cetera. And so I’m going to kind of try…

            There’s several threads I want to pull out in New York City, is like you’re always trying to talk me into moving there. I often think about moving there, but maybe that’s one of them is, do you find it easier? Because I know for a fact that you have a lot of super old people that you like to hang out with, because of that experience. And what’s that value of that experience for you?

Max Arb:

So two things, you’re the only person I’ve ever told to move to New York City. That’s one. I always tell people, “Don’t come here.” But the thing is, I like talking to you because you and I have interests that are… they’re intellectual, but artistically driven as well. So we have a lot of parallel mindsets, which a lot of people don’t know, because you’re interested in music and art and other things, architecture, different types of deals just like I am. There’s a superficial version of us on Twitter, and then there’s these deeper threads that we get into.

            Yeah. That movie Rushmore was the first time I think… I think I’ve seen it somewhere else, where this whole concept of an 80 year old hanging out with a 40 year old, hanging out with a 10 year old fascinates me, because the thing is, it’s very easy to get along with people your age, because everybody nods their head and agrees with you about everything you say. Boomers suck, everything. And to me, and you’ll see this in my personality on Twitter, I don’t have a problem arguing with people about stupid things. It’s totally fine. People take it so seriously. And I think that’s an American cultural thing, which I understand. There’s good reasons for it. You don’t want a society like this forever. You don’t want everything to be an Egyptian bazaar, like every single conversation you had, every sentence is difficult.

            But I like talking to people with different mindsets because that, to me, is signal. That’s information. That’s surprise. That’s things I do not know. That’s ways that are my blind spots. And older people in general, I found, especially really wealthy, successful older people, not all of them, but a very large percentage of them don’t actually have kids that give a crap about what they do, which makes sense, because if you had money your whole life as a child, why would you care about money? It’s like water. It’s like that whole David Foster Wallace, a fish doesn’t know what water is, because it’s swimming water.

            So rich kids with trust funds whose parents own these multi billion dollar, multi hundred million dollar businesses, sometimes they have nothing to do with the business. They have no interest in it. Meanwhile I’m like… And it doesn’t just have to be money either, by the way. I have plenty of older friends that have other interests in things that they did in the sixties and seventies and whatever. But it’s just learning about society through different times. And that gives you advantages against your peers. That’s not why I do it. I do it because it’s fun, but clearly, it’s a huge advantage. The simple answer to New York City living is, if you live your life in New York City in your apartment, then you’re probably missing that on a lot of what’s going on.

            The city is not architecture. The city is not buildings. The city is not cement or even the activities that you can do. It’s a network of individuals. That’s what it is. It’s a network of individuals, and there’s eight to 10 million people, maybe 20 million metropolitan. Most people know a thousand people, at most, usually a hundred. If you’re a 40 something man, you know one or two people, and you’re trying to make that zero as fast as possible. But generally speaking, most people don’t know a huge network of people. So in the city of 10 million people, if your peer group is like 1,000 people, it’s like 10,000 clusters of individuals, or groups you can say.

            And so where that becomes really helpful is you can surf all these different types of groups of people. I can spend time with people that are in electronic music that go to Brooklyn Club. I can spend time with attorneys that work at high end corporate practices. I can spend time with an artist who just paints for a living. I do that all the time, every week. And so that is really the advantage, is the diversity. And it’s not the diversity of this is their genetic phenotype, because that’s like the childish version of diversity. That’s fun. That’s fine. It’s great to have different types of restaurants and different types of food, but there’s a deeper level, which is just, there’s different types of interest.

            So that’s why I think you would do great here. You like lots of different things, and so I think you would enjoy. If you’re the type of person who’s got like two things you like, if you’re a Warren Buffett who wants to eat a ham and cheese sandwich every day, not only do you not need New York City, I’m not even sure if you need life, because at that version, when I read The Snowball-

Jason Buck:

He’s living in the Metaverse, right? I mean-

Max Arb:

Yeah. Right, right. I read Snowball and about this guy’s life and I respect it for everything he did. I like the fact that he can pick analytically and create this… But reading his book, I’m like, I don’t know what you’re trying to do. Are you enjoying it? I think he is enjoying it, but there’s a lot of me that’s just like, you’re just living in the same suburban house that everybody’s lived in, but you’ve… I guess he gets to have the rockstar parties. He gets to have that Omaha, Nebraska thing every… That’s a good point. If he didn’t have that Buffett Lollapalooza, or whatever they call that thing, I wonder if you’d be kind of like, what am I doing here? Why did I make all this money? Because it’s not-

Jason Buck:

Well, one of the best kept secrets, though, is he just recently sold it. It was like a 14 million house in the Laguna Beach. I think he sold it for like 11 million. By the way, he took a little bit a bath on it.

Max Arb:

I saw that.

Jason Buck:

But everybody forgets to talk about that. They always talk about, he’s had the same house since he was like, whatever. He’s got multiple homes.

Max Arb:

But you know he never goes there. That guy probably went there twice, and he had this Wonderbread ham and cheese sandwich in that place. You know what I’m saying? This is a joke about the tech world, sometimes I read these pieces. We want to find a way to live forever. I’m like, you haven’t even lived a day. You know copy and pasting propaganda means that I’ve have existed forever, over and over again. I sometimes wonder, I’m like, what exactly are you trying to do? Like 7,465 years in your life, are you going to go up to a woman and ask her out? Because if that’s it, you can just do that now. You don’t have to live forever to do that. But that’s why I think for you, why I always push you about the New York thing, is just you get a lot of variety of weird, weird, weird people.

Jason Buck:

Well, I’ve been thinking about it a lot more lately, but related to the tech thing, I don’t know if I ever sent you, there was an article years ago in Vanity Fair about how Trevor Trina in San Francisco was basically teaching all the tech bros how to work in society, right? Like how to be a gentleman or like a dilettante, how to dress, how to eat, how to go to parties, how to network, all those things. It’s kind of fascinating. There was an older woman in his same neighborhood in Pack Heights too.

            She was lamenting, back in the day, work was a four letter word, and these people had a lot of interest outside of just work. Right? They sailed, they raced cars, they were daredevils. They did all these other things. You could have an interesting conversation with them and they were very gentlemanly. And now she’s like, “I can’t even talk to these guys, and they’re just wearing a hoodie. I just don’t know what to do.” And it was just-

Max Arb:

She’s in San Francisco, you said-

Jason Buck:

Yeah. She’s all like-

Max Arb:

She just [inaudible 00:47:30].

Jason Buck:

Yeah, it was on San Francisco. I’ll send it to you. But it’s an interesting one. I do want to press you a little bit though, on this New York City, because I’ve been thinking about it again a lot lately, and that, like you said, there’s a connectivity there and it’s so easy to meet up for coffee or dinner or drinks or lunch. That’s the easiest place in the world to do it, and so it makes it a lot easier to make those connections and to keep up those connections. But at the same time, you and I both love to do that, but we’re not extroverts. We’re introverts. Because when I say I’m going to press you is, I know during COVID, you were happy to deny all of those invitations.

Max Arb:

Yeah. COVID was great. I mean, look, I’ll be honest. Yes, correct, correct. I would not call myself necessarily an introvert as much. What happened is in my twenties, I went out a lot more, and I don’t go out as much as I get older, which is pretty normal, I think, [inaudible 00:48:14]. That’s one part of it. So that for you, that’s a tactical thing. If you’re in the finance industry, you like different types of interests. That’s the one thing that it is. The main thing is that it really comes down to this car commuting issue that I really don’t think… I think Americans really have their heads stuck in the sand about this. There’s nothing wrong with cars. It’s fine. They’re great. You can get to places. They’re efficient in that sense, but this is not a very natural way to live life.

            I see people come to New York all the time and will walk with them for two months and they struggle to walk two months, people that are in decent shape a lot the time too. And when I live my life here, the way it works is if I want to just walk out of the house, not get in my car, not have a plan, not need a place to go, not be driving around, to just walk out and do something small, I could go do that. See something different for a second. Go sit somewhere, come back. So I might step in and out of my apartment six, seven times in a day. Whereas I noticed when I lived in the suburbs… And by the way, you could still do this in California. There’s beautiful place in California. Get your car and drive. It’s just the ease. It’s so much easier.

Jason Buck:

Right.

Max Arb:

If I want to step out for 15 minutes to just go walk to this block, to see some new piece of graffiti that I heard about, or to go to this cafe that I don’t know anything about and want to try something, I can go there, try it out, and then you get distracted, and you don’t have a car. So because you’re distracted, you don’t have to think about, I’ve got this two ton, whatever nonsensical thing I got to carry, lug around me, you just go and do whatever you want to do. And at that point, what happens for me, is I’m an adventuring type of person. I don’t like to have predictability in life. I don’t like to have this same thing happen constantly over and over again. And that in that way, it’s really amazing, is that you can always switch it up.

            The time where New York City is the most miserable is January and February, because it’s so cold, you can’t do stuff. That’s the time, for every day that ticks like the ratio of amount of time I spend looking at Miami real estate just starts to go up and up. So somewhere around February 10th, I’ve got like 79 tabs of just Miami apartments, and I’m just like, “That’s it. We got to get the hell out of here. This is a terrible…” And then you start to come around the bend. But I think that’s really what it is, is about this accidental things happening. And if America had options like Europe and Asia, where like in Europe, you could have a town of 200,000 people that where people walk.

Jason Buck:

Right.

Max Arb:

That’s not crazy. In the US, you can’t do that. You can’t go to most cities in the US. And I think you are the one who told me that Charleston has a very large walkable area. And I think if most of this country shifted more towards walking, that might make things better. And I think people might be happier too. Next time you come to New York, I think, instead of going out to dinner, if you come out, especially even at daytime, you can hang, we should just walk on the West Side highway. Because you can talk to people, and then you can see things. So the context changes, and then you can actually see how you diverge from somebody else and the way you think about things. And see, I got another pitch to get you back again.

Jason Buck:

Yeah. Well, as you just referenced, as much as you send me about New York, I’m always sending you Miami, but like you said, I loved living in Charleston because it was the most walkable city in America, the most European style city. Lately, I’ve been looking a lot at Porto, Portugal, which about 200,000-250,000 people, but one of the most livable, walkable cities in the world. But I say all this, not to talk about our Zillow searches; the idea is to come back to the idea of, it used to always… I rebel against any sort of truisms or when everybody says, “This is how you should run your business.” I tend to rebel against that. But one of the ones that I always did was, everybody’s like, business is all about the people, right?

            It’s all about the people you hire and everything. And when it comes from somebody like Gary Vee, I’m like, “Whatever, Gary.” He’s just all about people. But he is kind of right. As much as we go into all these systemized processes, you and I know a ton of e-com and SaaS people, and you can automate a lot of those processes, but if you want to scale and grow a business, it comes down to people. And like you were just saying, walking out your door, the serendipity of New York and the connections to multiple clusters, it makes that… I almost starting to think that maybe it’s a superpower to really build and scale an organization, because it does come down to people. So you need more interactions with people.

Max Arb:

Yeah. I mean, look, ultimately, I will say most people… New York City’s not a good place for most people. If you want to come here and just get a regular job, I think you’re missing out on some of this stuff. I think for business creation, this place is incredible, because you just meet a lot of different individuals. I think for getting street smarts, it’s incredible. And this thing you’re saying, is these debates about where to live are insane, because you have to figure out who you are as an individual.

Jason Buck:

Right.

Max Arb:

What my parents want and what I want is very different, which is fine. I actually don’t judge other people for living in the places they do, whether it’s a small town or rural or other place, just on the basis of the location. A lot of the times, that’s what matches them. I will judge you if you’re somebody who clearly should be in a large city, that’s living in a small town, or if you’re living in a large city and you’re probably happier in a rural space, I’ll be the first person to tell you, “Yeah, this doesn’t make any sense. What are you doing to yourself?”

            I met friends that lived in Manhattan that spent five grand a year to live in a one bedroom apartment, don’t go out, don’t meet anybody, don’t want to do anything. And I’m like, “You know you can do everything you’re doing anywhere. You don’t have to spend five grand a month in a 500, 600, 700 square foot apartment to do that.” So I think knowing who you are as a person is probably the most critical thing anybody can do in the world, is figure out who you are. And if you don’t know, ask your friends, and start narrowing down, like, okay.

            The work from home debate, by the way, if you notice, which I think it’s going back to what you said earlier. First of all, it implies everybody should be kind of the same, which is not going to really work, but the other crazy thing about it, is it’s scary and sad to me that the generation right now, they just think about your home as a place to work. It’s like, no, I didn’t move to New York to work from New York. I came to New York to have fun in New York, to enjoy my life, to have happiness. And wherever you live or whatever you do, I would hope it’s not just about, let me occupy this one GPS location so I can log into my terminal console and press buttons so I can eat my ham and cheese sandwiches.

            I mean, that’s a very narrow definition of living. And I think that’s what’s happening to people sometimes, is they’re like, “Let me just pull up in my little apartment somewhere, connect to the internet and log in.” I think for a lot of people that might be lonely. You got to go, I think a little… I think you’re an introvert, but deep down, I see the podcast and the people you talk to and stuff. You do like talking to people. You may not want to talk to every single person, but there’s a certain subset of intellectuals that you like and individuals that you like to talk to. It’s pretty clear from listening to you, that you enjoy it.

            And you have a lot of great interviews, by the way. I just saw for second about the Hugh Henry interview, which is just one of the funniest things I’ve watch in a long time, but in any case, yeah. The-

Jason Buck:

Flattery definitely worked for me. So I want to go back to business in a way, too, even though I think everything we’re talking about is always business, in a way. You sold a decent sized practice years ago. And I tend to think about a lot of times, most of my thoughts go always back to this kind of trade offs or feedback loops between balance sheet and income statement. So I’m curious, after you have a big sale like that, and it jumps up your net worth, so you’re increasing that balance sheet of your assets and liabilities, but then you have a business now that’s taking care of your income statement.

            And I’m just curious, you probably think differently than I do, as you usually do. How do you kind of manage those through your life? Or how do you think about also investing after you get that lump sum, versus, and then building another business? Are you shiny object syndrome? Those kinds of things is like, how do you manage on a daily basis, that transfer from balance sheet to income statement? Oh, so example, did you see the Sir Steven Wilkinson interview with Grant Williams on his gold tier? Do you have Grant Williams’ gold tier yet?

Max Arb:

No.

Jason Buck:

Oh my God. I forgot. I wanted to reach out to you because you we have a little group text chat about Tony Dieden in that interview Grant Williams did. And I actually think maybe the Sir Steven Wilkinson might be even better. And it’s two parts in six hours. But one of the things he said, we go back to the simplicity, right? Screw all the nomenclature. What’s the simplicity? He’s like, “You make money, you use that money to buy assets, that makes more money. And you just keep repeating the process.” So thinking about that income statement and balance sheet, and I’m curious, after you have that big win, what do you do, and how do you balance out the two of those on more like a daily basis?

Max Arb:

So technically what I did in that particular practice was I sold the assets to management company who leased backed the assets to me and their management services. And that one is a little weird in the sense I stayed on, I still own the practice itself, but there was an exit liquidity that came from that. A couple things, first is, there’s the data, which I always look at first. I first look at the base case, and the base case is when you get a lump sum, you should invest it all in the markets, essentially. That’s what the math shows you over and over again, that if you pick any period of time… Okay. If you’re 76 years old and you need the money in two years, maybe not, but you know what I’m saying. As a general rule of thumb, you invest it. That’s the way you go.

            Now, that’s the base. But I also know the base case of myself. And what I know about myself is if you gave me a ton of money and I put it all on the market, even if it’s 60/40, even if it’s in some type of portfolio that you guys have structured, which is a little bit more resilient, actually it’s a lot more resilient, especially people are probably seeing now. But if you look at something like that, how are you going to feel if shit hits the fan that six months where you start to see the number… In other words, how do you react to number goes down?

            And if a big number goes down, me very sad. Okay? So that’s the thing you got to know. And by the way, when people are in their twenties, that’s why they get blown out by financial crises, because they haven’t crashed before. Sometimes a financial advisor will say, “Well, how do you feel if you lost 30% off that?” I guess I’ll be fine. Like, no, when it happens, it’s a little bit of a different situation. Okay? First you’ll-

Jason Buck:

Yeah. I think it’s-

Max Arb:

… feel, not see.

Jason Buck:

Sorry, and I don’t want to interrupt your flow, but this is perfect. I think it was like Jason Zwag, I want to say, I need to find out exactly who said this. It’s the idea of, like you said, what would you do if this is a negative 30% [inaudible 00:57:54]? That’s showing somebody a picture of a snake and seeing how they react, versus throwing a live snake in their lap. It’s two very different things, right?

Max Arb:

Yes, yes. And by the way, in this normal sense scenario, typically when these things happen, things are bad around you. It’s not just you. Your family members are going to get hurt. Your friends might get hurt. Everybody in your community might get hurt. God forbid you’re the type of person that still looks at news. I mean, I’ve never really looked at news outside of whatever garbage is on Twitter. That will make you even more depressed. And by the way, if you’re a thin skinned person or a sensitive person, you have to create another layer of [inaudible 00:58:30]. That’s one thing I’m not. I’m not a thin skinned person, meaning if people start saying all sorts of negative thing, that by itself doesn’t freak me out. But if the number itself starts to drop right after I put it in, that is not going to be good.

            So part of it has to do with, are you willing to lose a little bit over a long period of time, like the movie Office Space? In other words, are you comfortable getting whittled away at pennies over a period of time? Which is probably not rational, and in the long run, it’s probably dumb. Or would you rather deal with the volatility that nature has to present you? And by the way, this is literally the relationship that humans have with nature from the beginning of time, is about volatility. How do you deal with volatility? Well, we can have a farm and I can be a farmer and there’s volatility. And then somebody’s like, “You know last year, your crops, you almost starved to death. How about I buy it from you, pocket all the change, absorb the volatility, and you just take some meager amount after the fact?”

            Right? In other words, they’re selling the volatility to you. And so when you have an exit, what you got to do is calculate what is that versus what you have in total? How big is that, relatively speaking, as a percentage? People think in absolute terms. Absolute terms are useless for these types of things, because if you spend $3,000 a month, your life is different than if you spend $30,000 a month. And so you got to really think of these things in terms of… I think of these things in terms of months of spend, and ratios. How many months of spend was this exit? How much was this as a ratio of what I had before?

            And then you do what I do, which is, I have a plan. In the next two years, I’m going to slowly… And this is my target that I want to reach after two years, I’m going to slowly dice up this money and put it in a little bit over time, over a period of time until it kind of balances off to where it is. And then the cool thing about that is, your portfolio does, if you have multiple slices of things that you know, over the multi decade period, will go up over time, you get a chance now to buy things at the lows. Because every month there’s something different that’s offered to you at sale. You buy a little bit more of that. And then you might even be in a position, which is nice, is that you never have to sell to rebalance, because your inputs are going into balance.

            If you put everything in at once, which I have seen people do, I think in that environment, you need to be more actively aware of what’s going on. Because in those situations, you actually might have to actively rebalance your portfolio. Otherwise, you really… And by the way, active rebalancing sounds good on paper, but you and I both know, that’s the most painful thing to do in a crash, is literally selling the balance to buy more stocks. Again, you got to know who you are as a person. And I know as a person that if I were to put a bunch of money in the market and it all dropped 20%, that I would not deal with that very well. I’d be very angry about it, and I’d kick myself.

            And I generally try to do things in life where I’m not kicking myself in the past. I want to make mistakes that match who I am as a person, where I’m saying, “Ah, that’s totally you. That’s exactly the kind of dumb thing you would’ve done. That’s fine.” In this case, it’s like, okay, that’s you, but what’s also you is creating a box around yourself to not do dumb things, like separating my portfolio. So it is me to panic, but it’s also me to plan for that. And therefore, I’ve created these little things. Which I’ve done with everything, my basic expenses, my discretionary expenses, walled off from each other, so that they’re completely unrelated to each other. Different banks, different everything.

            The basic portfolio and this discretionary, totally separated. And similarly with this thing, you get the money that comes in, it’s totally separated from a regular portfolio, goes in solely over time until everything kind of… And by the way, one last thing I should say, part of investing is learning how to deal with volatility swings of dollar amounts. And people don’t understand this when you’re 25. When you’re 25, you have $20,000, $100,00. You’re adding 20,000-

Max Arb:

When you’re 25, you have $20,000 or $100,000, you’re adding 20,000, 50,000 a year, 5,000, whatever it is, that’s very different than when you get older and now your portfolio is multiples of years of savings. You see some retirees who are 60, 70 years old right now, the way the market, if the market drops 3%, this person may lose the equivalent of three years of their lifetime income in a day.

            Psychologically, that’s brutal for just about anybody. And so a lot of that is related to what I’m saying, is that you need to kind of think about these things in a larger context of, “How many years of saving can I lose tomorrow and sleep a normal night of sleep?” And then only try to push yourself to that limit. You want other people to screw you over. You don’t want yourself to screw yourself over. That’s ideally what …

Jason Buck:

No, you’re great about it’s regret minimization, right? And the interesting thing is actually everything you’re hinting on is sequencing risk or what now is called ergodicity, and that’s what you’re saying. At different stages in your life, you have different parameters on how much of volatility you can absorb.

            And like you said, it’s the ability to absorb volatility maybe with your permanent style of portfolio, so that way you don’t do stupid things. Because the stupid things are going to be much more detrimental to you than an actual portfolio construction. And then actually what you were saying is like, even though it sounds like the math works for just invest a lump sum and you’ll be fine long term, all of that stuff is not taking into account sequencing risk or ergodicity.

            So you’re actually right to DCA that lump sum in over time. Because like you said, you don’t know what sequence you’re jumping into. You’re jumping into that midstream. And even though people show you different tranches over multi-decade periods, it’s like, do you really want to make multi-decades or are you going to be just mad at yourself for the next decade, right, and do something stupid?

            And then not to blow up your spot, but you get to like the end degree with this stuff where you’ll have sales in your spreadsheet for your daily and monthly expenses that then you’ll tie an income stream to cover that, won’t you, or an asset class.

Max Arb:

Yeah. Yeah. Yeah, of course. Well, I mean, I shouldn’t say of course because I guess [inaudible 01:03:59] Yeah, of course, dude. Everybody does. A lot of people don’t even have … Part of it just goes back to thinking about what are you doing in life at a practical level? What are you trying to save all this money for? You got to know what you want that money for to begin with.

            In the beginning though, it’s simple. You just got to get money to pay for rent. You got to pay money for utility bills. You got to … Eventually over time you start building assets and stuff, then you got to figure out what are you really trying to do with this in the long run? What’s your plan here? And then if you start figuring out and you start line iteming it, just like you do with your business, you realize it’s just basic stuff.

            You have to have a place to live, you have your food, you have all this stuff. And then you start thinking through those buckets and you realize like, “Wait a minute. First of all, a lot of our lives in the Western world are completely nonsensical,” meaning the only thing you need to survive is essentially food. People think housing is a right, which I understand.

            But also a million years, people didn’t really seem to have houses for most of humanity, and many animals don’t have houses. And we’re animals. Clearly housing is not part of … You don’t need that actually, technically. We need that now psychologically, which makes sense. But if you start really whittling it down, one day you can say to yourself, “What’s the bare bone minimum I could technically survive on if I was psychologically so tough that I could handle anything?”

            And it just really comes down to what’s the minimum amount of calories you need, how much does that add up to, and you multiply that out. If you add that number up, it’s going to be so small over a lifetime that every single person who spends their time thinking about investments and asset allocation will be wasting your time. Step one is, most of what we’re doing is individuals. If you’re even using the word asset in your lifetime, you probably actually don’t need money in the way that you think you do.

            Once you’ve called it an asset, you’ve already created some type of … Now you’re playing in an artificial game. If I’m going to play the artificial game, I need to first figure who am I. What are the problems I … Why is my food expenditure so high? Okay, because I like going out to dinner with lots of people. That’s the thing that I like to do. I like to maintain that.

            So then you start thinking through the portfolio that way. And you start thinking, “What’s the bare bones portfolio so when shits the fan, I could tell my family if I stop working one day,” which I never will probably, unless I can’t, you say to them, “Okay, now this happens, so now we’re all going to have to go into what I call war mode.”? You got to step everything back down.

            I think about that in advance, so that I say to my wife and my whole family, everybody’s like, “If these types of things happen, this is the way our life is going to change. Are you guys cool with that or not?” If you’re cool with that, when it happens, we’re going to deal with it. We’ll scream at each other for however long it takes to get the power grid back on and then we’ll go on with life.

            But if you don’t have these mindsets of like, “This could happen,” or, “That could happen,” or, “That could happen,” then you’ve complicated a lot of stuff. The first thing is, and you know this because you’re managing all this portfolio, is like the interest rate from bonds and the real return you’re getting to safety “return,” which obviously is not really safe in any way, but the word matches to United States treasury bonds for now, you’re not getting anything in return for that stuff.

            It’s like, you could get something if there’s deflation, for example. You can get 1% or 2%, which is like -7%, whatever it is this year. So then you got to start thinking that through a little bit deeper. It’s like, “Wait a minute. I could take 90% S&P risk and 10% bond risk,” which is what Warren Buffet had once suggested to individuals to just do 90% of that. But then you might say, “Well, I don’t really need to reach that far out necessarily, because what I need is not that extreme. I would rather sleep better over the next 10 years on the path over there.”

            Once you start splicing these things out, then you start to realize you might not have to take as much risk as you thought before. And the way my portfolio works is, if the market start to go on a terror, whatever, I have more optionality. I can do more things potentially if I wanted to. Those are discretionary things. Those are things that I can do on a discretionary basis if I want to. I don’t have to. If the market does shitty, I still have the basic things that I need to do to survive and live kind of the bare bone existence I want to live without complaining about it, without having issues with it.

            These kind of calculators which says, “What is your monthly expense?” that’s not a good way to do things. You want to know that as a general rule of thumb, but that’s not the full picture. The full picture to me, what is your monthly expense and what could your lifestyle be? In other words, not just what’s going on today, but let’s say nature throws you a bunch of different variables that happen, what’s the range you’re willing to handle? And the wider volatility you can handle, the more resilient you’re going to be as a person.

            I have friends who are Ukrainian. I have a friend who owns two apartments in Kiev. And the first thing he said after the war started the day after was like, “I got to find two new tenants to rent. I think these guys are leaving,” and I was like, “I don’t know if that’s a problem.” But that gives you an example of somebody who comes from that environment has a much wider, broader range of thinking than I do.

            My first range is like, “Oh my God, you got to get the hell out of there.” His range is like, “Nah, it’s going to be fine.” Worse come, worse go. People come, people go. Look in the 1940s in London. People [inaudible 01:08:47] London, and they walked and went to get their groceries, and this building is gone, that building is gone, and lots part of the world that still happens. Are you mentally psychologically prepared for that or not? And this is one way of me doing it.

            It’s not just about the action of what to do with your money, it’s also the thinking, to broaden my mind and say, “Man, it’s great you can do that.” Maybe you don’t have to go to Santorini that summer, even though on Twitter they told me every day to go Santorini. You can skip it this time and you can go to some really ripped up place that’s a lot cheaper because your portfolio tells you that’s where you belong this year.

            And I learned over time that, that’s true, meaning you could go to Santorini, stay in the nicest place, and you could … Let’s say you were with somebody you don’t like, talking of a friend of mine a long time ago, like 15 years ago, went there with somebody that he didn’t like and they fought the whole time. Or you can go to some crappy place with somebody you like, and you can love it. It’s that whole thing of thinking about life as a whole and not just the number.

Jason Buck:

Or as you and I know, you can go for a blowout four day weekend in Santorini or you can rent a place for four months and it’s going to cost you the same, whether-

Max Arb:

Yeah, that’s true. That’s very true.

Jason Buck:

… But also, you do have that. And by the way, why is … You nailed it. Santorini is hot on IG right now. Why is Santorini-

Max Arb:

Santorini and the Amalfi Coast are trending on Twitter in insane levels right now. And I think it’s pretty easy. I could be wrong, but I do think that COVID in 2020 psychologically screwed up a lot of people. A lot of people couldn’t go anywhere, vacations got all messed up. And then 2021, last year was almost like a period of somewhat post kind of restorative chaos. We weren’t complete out of it.

            It seems like this summer is the first summer where things are starting to feel relatively normal for a lot of people again. And so I think that those places were always tourist places, and so I think there’s this rebound compressed thing where people are like, “If I didn’t just have a child, I could see myself being like, ‘That’s it. You got to go to the Mediterranean. That place is beautiful. And this is the time.’”

            But it is funny, because the other day I was like … I just keep on following these accounts, which I can’t do anymore because I have 5,000 follows and that’s your limit. Now I’m living in this hellish version of Twitter where every time I want to follow somebody new, I got to delete somebody.

Jason Buck:

… Oh, man.

Max Arb:

Right? But now I’m swapping human beings out with pictures of Santorini. And so basically I’m like, after talking to you for an hour, I’ll tell you what I really think about humans, which is that they’re subservient to a nice, beautiful picture of [inaudible 01:11:09] on the Mediterranean. But-

Jason Buck:

Sorry, you’re not my top 5,000, but these beautiful pictures out the window-

Max Arb:

… Like, you can’t compete with this [inaudible 01:11:20]. Are you crazy? If you lose some weight maybe you can compete with this [inaudible 01:11:23], but not the way you are now.

Jason Buck:

Man, I can’t remember where I was watching or listening or reading the other day. Somebody was saying like, I think they were talking about interpersonal relationships with her wife and husband, and she was like, “My husband has the entirety of human knowledge and entertainment in that phone developed by the people that drip out dopamine and serotonin to him. There’s no way I can compete with that phone in a conversation. That phone’s going to win every time. It’s all of humanity in one phone compared to just one person.”

            But what you started to touch on, I think you said it better than I did, what I was really thinking about. You said once you start even saying asset, you’re playing an artificial game. Right? And so this is what I was really hitting on is like, there’s this dichotomy, right? As cash strap, bootstrapping entrepreneurs, we value cash and income more than almost anything else, and profit and free cash flow more than anything, right?

            But then if you actually then, in life, if you want to play this artificial game, we both know we have to build up assets, right? That’s like converting this cash flow into assets that provide more cash flow, right?

            And so as we start to know this net worth game is an artificial game, but it is the construct in the modern world that we live under. So that’s what I’m wondering, it’s like … And so it almost flips a switch. It’s a totally different person that thinks about building assets as a different person than a cash strap or bootstrapping entrepreneur.

            And at the same time, you and I have talked a lot about the ideas of renting versus buying, et cetera. And then in this artificial construct, it does behoove you sometimes to take on loans at very low rates to maybe purchase a house. But sometimes if you come from the bootstrapping entrepreneur world, you think all debt’s bad.

            But no, if you have this dichotomy of like, “There’s the real world of cash and income and free cash flow, and then there’s this other artificial world of building up assets, taking on debt and credit … ” I’m just curious, how do you manage kind of just shifting your mind back and forth between those two worlds?

Max Arb:

The rational thing to do for the last 15 years prior to this last 24 months is to take on debt and build businesses or do productive things with it, or even if you get a house, totally rational thing to do. It goes, again, back to how you are as an individual. On a personal level, and this constrains me in business, it won’t allow me to make as much money as some other people. It’s like, I don’t generally like to take on debt that much.

            And the reason I don’t like to take on debt that much is I don’t like to owe money. I like to have money owed to me. I don’t like to owe money to other people, or other institutions, if I can avoid it. Why? It’s not a rational reason at all. It’s a totally irrational psychological construct that was created out of bullshit, that was probably built into me because I came to America as an immigrant.

            And in those types of countries, people generally don’t use financing as much. And on a deeper level, this exists in society as the ethos in America already. In other words, people in America take on debt all the time. But there’s a general distrust and anger towards the banking establishment as a whole, and I think some of that’s related to all this stuff. The way to do it is, have I taken on debt? Yes. I will take on debt, especially …

            I don’t know real estate guys that will take on a hundred million of personal guaranteed debt across a portfolio of properties all within a 10 mile radius, so they’re all linked exactly to the same thing. And I’m not talking about a 27 year old, because that’s totally normal. That’s a totally normal thing. That’s fine. I’m talking about-

Jason Buck:

You are talking about real estate developers and investors, which are not known.

Max Arb:

… Right. Right. Right. And so, I think, again, it goes back to, what is it you want, and how much do you need? And what is the way to get there backwards? That’s something I did when I was like 15 or 16 years old, and I’ve updated that since then, which is like, this is the kind of lifestyle I want.

            And the numbers that I thought when I was young were completely wrong, but it’s the concept of, “This is roughly what I want in order to live the life that I want. And working backwards from those numbers, this is what I have to do roughly to get there. This is what I need,” and which I just described earlier is essentially almost nothing, and that’s kind of the bottom threshold for it.

            And then I just solely work my way to the upper threshold as much as possible without taking on so much risk that it makes it difficult for me to sleep at night and difficult to live with the volatility that I’m presented with. And some of that does involve a lot of Microsoft Excel. It literally involves going through these projections. They’re going to give you this debt. Okay. Well, what’s the debt service ratio? Okay, it looks great right now. What does it look like if it’s …

            Any Excel sheet I’ve ever been given from any single person in the business, the first thing I do is break the model. The first thing I try to do is, what’s the least amount of crap I have to do to make this a joke of a Excel model, which is usually very easy because most of the time the performers are crazy? But once you start messing with these little models, you start to realize, “Oh, things are not so as solid as they really seem.”

            And so I’ll do a lot of that. I’ll break the model. How much can the revenue drop? The scary thing is I’ll meet people all the time. They’ll be like, “Well, this is what the ratio is right now. Hey, the rent will never drop. It’s like 2007, 2008 and 2009. Real estate price will never drop, or interest rate will never reset, so I’ll get an interest-only loan.” Get an interest-only loan knowing for full well that the interest rate could reset 10 times what you paid for.

            A lot of doctors come for me for investment advice, because I’m probably the only doc in the entire group that reads financial stuff, literally reads the boring financial stuff. And they’re like, “Well, where’s the interest rates going to be in 10 years?” I’m like, “I don’t know. Somewhere between -2% and 15%,” and they’re like, “That’s a ridiculous range,” and I said, “Well, I’ll tell you right now I can think of ways that could both happen.”

            Blow up the Suez Canal and the Panama Canal. I’m not saying to do that by the way anybody. I’m just saying theoretically if somebody does something like that and the supply chain gets wrecked, some type of strain of COVID is changing, something gets wrecked, which by the way I should add to this thing, it’s easy to come up with ways to destroy the model, so you don’t want to have that as your only way of thinking.

            You can also think of ways where things just get a lot better over time, where the resiliency of distributed working through the internet essentially means theoretically what we’ve created in the long run could be a huge productivity bonus. Because nobody wants to hear this, but the truth is the work from home … You know what the work from home end is. The end for work from home is recalibration of differentials of salaries in Western world versus developing emerging markets.

            That’s what it’s going to be, most likely. No manager in the world is like, “Let me hire you remotely. I’ve never met you. I don’t know who you are. I’ve never had a beer with you. I haven’t told you all the problems with my relationship, so you have no blackmail on me. Oh, let me keep you around forever even though I can get somebody for tenth of the price.” That’s not going to happen.

            I think if you start thinking in those long-winded, like the 15% versus the negative 2% range, meaning a really broad range, you’re less surprised then. You don’t have to know exactly what it’s going to be. You just try to stretch out. If you’re always one or two layers in both directions beyond what the other people think, you’re going to be the least surprised person in the room, and you’re already going to know what you need to do.

            It’s like what happened to me COVID in general. I’m usually not as caught off guard. I mean, the day that COVID hit, it caught, I think, everybody off guard, meaning I didn’t know the date, but I did know that maybe one day there was a pandemic, blah, blah, blah, blah, blah. And I think that’s helpful too.

Jason Buck:

Well, that’s why I always think that it would be great if value investors or people that run a value investing fund, if more of them had been business operators or owned a business, that’d be great, because you and I have like a mutual hatred for the DCF. In real estate they call it proforma. I like to call it unicorn horns and fairy dust, because there’s no way it’s going to line up to that Excel.

            But then at the same time, the flip side of what you said though was like, there can be like Buffet style, just optimism in America. As long as you know you’re taking a shortfall mean reversion trade, that’s fine. You can position it accordingly and know there’s going to be a vast dispersion of returns that are not tied to your DCF model, because that’s what you’re saying.

Max Arb:

I think that’s half correct. I think the part where I disagree is I think Warren Buffet is often listed as … And I think you actually agree with this. I’m just saying it to say. But we always think about him in terms of the intellectual analytical process that he goes through. I think that if you really think about his quality with human beings, he’s just incredible.

            How many billionaires can speak at that age amassing that much money in essentially what a lot of people would consider superficially to be kind of a bullshit industry? In the sense he’s not like Rockefeller who built out all this stuff for us. As far as the average person thinks, he’s just a guy in a room with a bunch of paperwork, who’s siphoning money from the world. He’s just a toll booth operator essentially if you look at it from that perspective.

            But when you hear him speak, I love hearing him speak. I love hearing him speak. Munger is almost a counter to him in some ways. I like hearing Munger speak even more sometimes. But I think he’s great with that. And also his ability to understand people is incredible. If you hear him talk on his things, he always refers to his CEOs by first name. He always talks about the business in terms of this guy is doing that, that person is doing that, this lady is doing this. She’s great.

            I think he knows people actually way, way, way better than most of us give him credit for. And I think it took me 15 years to realize that. The whole time I was like, “Oh, you got to go into the screens and start pulling stuff out.” It’s like, no. I mean, the operation thing is funny because you look up something like a net-net, and you’re like, “Oh, net-net, that’s money in the bank.” It’s like, “Wait a minute. It’s money in a bank if you have login access to the bank account and you can wire that money to yourself.”

            If somebody else has access to that bank account, that is not money in your bank, that is money in their bank. And the reason it’s a net-net is because the market knows that person is probably going to take that money. You’re not going to be able to get to it. And by the time you get to court, it’ll be [inaudible 01:21:01].

            I also think that value investing has less meaning today than it did in the past, and the reason I say that is because the old school version of buying assets for less than what state they’re worth, in the original version of this, Benjamin Graham himself, those were simpler systems to manage. Somebody’s got X amount of copper, I’m going to buy for this amount and sell it.

            And then you start going up to more complex versions of it until you get to the point where you get to even Warren buffet. Talk about something like Coca-Cola. Coca-Cola is not really a traditional value investment. To me, all it is it’s an investment at a price that he thinks is a good price. That’s not value investment. That’s a little bit of a different thing. Yeah, afterwards we can put price to earnings multiple, price to books multiple and all that stuff.

            But if you were to take the whole set of assets in that multiple range and give them to Warren buffet, he’s not just buying everything from that entire value investing portfolio. He’s picking and choosing things. And if you look at what he’s picking and choosing, he’s picking things with the strong brand names. And the funniest part of what he does is a lot of what he’s picking as strong brand names have complete just not … It’s just psychological juju.

            I drink Coca-Cola, Diet Coke and Coke Zero. Coke Zero is a garbage product. I love it. It’s my favorite drink. But it literally looks like bubbly oil. And I drink it instead of water. And the point I’m trying to make is everybody talks about, I’m like, “Okay, there’s all this …” No. What he did was he found an addictive product at a good price. He knows it’s addictive, because he drinks it. Every one of us is addicted to it. And he got it at a good price and bought it.

            I think now, I think it’s a little bit more complicated. I think now it’s like, are you going to find a lot of diamonds in the rough? Are you going to find a lot of secretive things? Monster Energy, I think, is the one that comes to mind where the two things that I think of, a lot of people might be like, “Man, Monster Energy and Domino’s were right in front of all of us the whole time.”

            And I was thinking that like two years ago, I’m like, “Man, I really miss those.” I’m like, “You don’t miss it. You hate Monster Energy and you hate Domino’s.” By the way, I hope we’re not sponsored by anyone, because if we are, we’re completely toasted. [inaudible 01:23:09] I’ve destroyed like every major brand.

Jason Buck:

No, I’ve made actually this fight many times before with all my foodie friends. [inaudible 01:23:18] Domino’s is the shit. I don’t care what anybody says. But I-

Max Arb:

I will try it. No, no, actually, I will believe you on that, because all I’ve had is the regular Domino’s, and that was back in the day, and the truth is like it’s probably good. Pizza is generally good. But the new value investment world, I think, is complicated for that. Now, I think of things like [inaudible 01:23:37] doing or you’ve done, where I think what’s maybe even more important than value investing and picking the right stocks.

            I think now because we have a universe of options available at just investing, I think now what you got to think about is one level up. I’m always thinking like, “Okay, they gave us a chance to buy this stock, or that stock or this bond.” I mean, anybody can buy real estate for long period of time. You’ve got these trend following strategies that have a lot of data behind them that goes back for a long period of time.

            You’ve got global assets that you can look at in many different ways. You’ve got all these different site stuff kind of things that didn’t exist before. And you also got the way that they come together, meaning how do you actually sort them up? Are you going to rebalance? When are you going to rebalance? These things start to get really boring for the average investor or something, but I think that’s where your time should be spent today probably.

            You don’t want to spend time investing in something generally that people have been perfecting for 50 to 100 years. If somebody tells you there’s gold on the beach, and you get out there and there’s 8,000 dudes, which it’ll probably only be dudes in this case, like old guys with hats, with metal, with gold, you missed it. It’s too late for that type of thing. I think deep down a lot of us wish to pick stocks.

            I don’t think picking stocks for most people anymore is … I’m not saying for the person who’s a professional hedge fund man, a professional investor. Fine. I think for most individuals, you’re probably picking out something that’s been [inaudible 01:25:02].

            You really need to find a different way to think about stuff, which by the way is one of the reasons I love you and Taylor, is that when I met you guys, I was already thinking in that direction, but I was like, “How do I do this on my own? There’s no way to easily do this on my own.”

            And I think you guys have figured it out. I don’t know that there’s anybody else still that … I mean, you probably know better than I do. I don’t think there’s anybody else that’s still thinking in these context.

Jason Buck:

… No, it goes back to what we were talking about, regret minimization. To me, it’s like, if I can hold all the world’s asset classes and rebalance frequently, I’m minimizing regret, right? And I’m also minimizing variance and draw down. But I’m also more importantly, just minimizing regret, I’m minimizing luck. And most people don’t realize how much of their investments are built around luck.

            And people love to get lucky because then they sound like heroes. So all of them are hero trades and I’m just trying to avoid that whole complex. But I also think you kind of nailed it with Buffet in a sense like you and I both studied in-depth what he’s done. He’s made tons of mistakes, and people don’t really bring those up. But like you’re saying, what he’s really doing, he’s a people person that understands people.

            Yes, he has an unbelievable business mind, but he’s just looking for durable companies that then have a CEO that can be a prudent caretaker. And then so he’s judging it based on his gut feel on this person, if they’re a prudent care caretaker within this rubric of a durable business and those are the bets he’s making. Right? And then over time, there’s going to be a lot of mistakes there, and there’s going to be a lot of wins. But then as you know, the most important thing is he’s done it for over six, seven decades now. Who else has that kind of staying power?

Max Arb:

Yeah. I mean, and if you extrapolate from him, go to the large CEOs of the big tech companies or a lot of these things, I always think that, that’s a secretive thing that’s hiding under them. Meaning, Mark Zuckerberg may come off to a lot of us as a very strange individual from the outside. There’s no way in my mind that he could have built that business without some level of pulling people together from day one and building some type of vision.

            And sometimes with tech CEOs the problem is that their first group of people they have to appeal to are engineers and technicians, and so therefore they might seem awkward to us. But amongst that group, they really do understand the people. This almost goes back to what I was saying in the beginning, is like the critical thing in life, I think, for anybody is to create a good network of humans and to branch out from that, and to understand how valuable humans are as an individual.

            They’re more important than anything else. The only asset that matters for the entire human race are other humans. Because before all this stuff existed, we’re the ones who created all this stuff. That’s your safety rate. That’s not the United States treasury bond, it’s the people. United States could dissolve in 50 years, the people could still exist. We could still have good fundamental philosophies about rule of law and other things without having the traditional structure we have today.

            And you can still have a great environment to create life. And by the way, remember that Buffet had the lady who had the Furniture Mark, the Nebraska Furniture Mart. It’s like, I remember reading that too. And I remember reading the whole thing and I’m like, he probably looked into her eyes and knew pretty quickly what he wanted to do. He knew something that a lot of us would be thinking in all these other layers.

            He saw through all that nonsense and said, “I’m going to go straight to this.” He also happens to have … I’m sure you know this too. I think he also is the only guy I can think of that’s famous that had a wife and then had a housekeeper. I think it’s his wife. Moved his other wife to San Francisco. And there was like no blowback at all from any of this stuff. Like so minimal, right? Even that alone tells me that his people skill must be off the charts.

            Nobody normally can pull that off. And it sounds like there’s some friction. And they brought him in for [inaudible 01:28:28] too, which was also a whole thing created by a lot of bad … And a lot of stuff there was created by bad personalities and bad people. And he was the person that they brought in, again, same reason, because he knew how to filter. I think that’s part of the reason they brought him, is that they think that he has that magical ability.

            If you think about it, it goes in everything. Coaches in sports, which I’m not a big fan of sports anymore, but that’s what they do as well, I think. I think there’s a lot. And when you’re a small business owner, that’s your most critical skill. Because if you don’t have good people skills, you better have a big bank account. And it’s definitely much cheaper to have better people skills than to be trying to get money.

            You need one of the two, and one of them is very hard to get. And the other one, the people skill thing, I think is something you can iterate and work on every single day. But yeah, I think even with you, now that I think about it, your business and your fund, a lot of that growth of it, I would have to guess, is because of a lot of the relationships you’ve created with the individuals over time.

            It’s not necessarily the back test, and all the data, and all that stuff that it sells that sells itself. If somebody just posted your deck into some type of crypto blockchain and was like, “You want to put all your money in it,” I think I’d be like … It’s the people that are involved and the trustworthiness and all that stuff, that’s the thing that really ultimately matters more than, I think, anything else.

Jason Buck:

Yeah. Primarily it’s the reputation like Taylor built up with his audience well over a decade. And then part of it too, is like you’re saying, is even on the allocation side with our sub managers, it’s like I had to create relationships with all these hedge fund managers or else we’re below their threshold for mins and everything, for minimums.

            And so it’s like those relationships I develop over time, I get them to come around to what our thesis is and what we’re trying to build. They get that buy-in and then they’ll take a smaller allocation from us. Because like you said, it’s just people at the end of the day. But I love that you pointed out the Nebraska Furniture Mark, because essentially that’s what we’re both saying is like Buffet’s a gun slinger.

            All the value guys are trying to study all their DCFs and everything, but he was a gun slinger and people don’t really acknowledge that fact. Granted, he had an amazing amount of context, and like you said, he had the ability to judge people. But there’s a lot of gun sling in there. And you brought up Munger too, but this is kind of one of my bug bears.

            And I’m glad to see recently on Twitter, I’m starting to see it pop up, where people are starting to question this whole cognitive biases thing. Because my question from the beginning has always been, if everything is a cognitive bias, are we just terrible at everything? Are we good at anything? And then I’m more in the Daniel Kahneman camp. Even though he spent his whole life studying cognitive bias, he’s like, I’m still fallible to all of them. Why are we even talking about cognitive biases?

Max Arb:

Well, I think the thing is that there’s two yous always. There’s the you that’s moving around right now like a mouse, and then there’s a you, like us as a human, that almost is a computer in some way. It’s almost like a touring processor which is something that can sit separate from itself and create structures.

            In other words, I could be a mouse in a maze, but I can also create my own maze. That’s a very critical thing that’s very unique about human beings, is that we can create fairly complex sets and staging for ourselves. You can have biases, figure out what those biases are and then you can create bumpers for yourself. That’s exactly what my portfolio is separating. Listen, if I put both of the portfolios together, it’ll make money during good times. When things start to get weird, there’s a very good chance I can make bad decisions.

            Also, if things start to go really well, there’s very likely that my discretionary portfolio might be like, “Look at your dumb portfolio sitting over here. Pull a little bit more over in here. You’re crushing it. This guy is an idiot.” And so part of that bias thing is how do you … For example, I don’t like to talk to salespeople on their first pitch. I want to have something in writing, because then I can dissect it, figure out what’s going on in there.

            Of course, if you send me a relatively attractive looking person, and I don’t mean this in sex, like male or female, whatever, it doesn’t matter, [inaudible 01:32:24] the right thing, it’s like, “Yeah, I’m going to buy it.” This one sale person is like, “You really should let me come talk to you. I think you’ll really like what I have.” I’m like, “I already know I’m going to like what you have, because I spoke to you on the phone. And I like everything you have to sell me. I’ll take it all at whatever price I can’t afford.”

            You have to create these types of structures around yourself. I mean, even simple things. I might get irritated by my wife sometimes, irritated by somebody else. I had to create a structure in my mind to say, “Oh, when that happens, step one, take a deep breath, walk away. Shut your mouth, walk away. Take some time off, let the anger in your stupid brain start to subside.” I’ve even gotten to the point where I know how long it takes. It roughly takes me 10 to 15 minutes to-

Max Arb:

… to the point where I know how long it takes. It roughly takes me 10 to 15 minutes to cool off from some nonsense. So I’ve learned that 15 minutes, you take your own personal time out, you let it erode. Now the neuromodulator is out of your brain. Now your neurons are back a little bit more to square one. Now you can logically work your way through this process.

            By the way, there is one thing we didn’t discuss about DCFs. The good thing about a DCF is you can pick something like for 10 years there’s this amount of growth, and then after 10 years there’s this. And by the time the 10 years comes, you can already be on your third job. So it’s great in that sense. I mean, you get a prediction for the future and then you get the money now and then you go on somewhere else.

            Like somebody said to me to go, should I do some smart, really smarts? Should I go, kids go to Harvard. It’s like, should I go to hedge fund or venture capital? That’s a no brainer. You don’t want to go into hedge funds. Hedge funds, people are bothering you every single day. Yeah. The market goes up. What’s going on? The market goes down. What’s going on? I said, do a venture capital. You spend stories for a long period of time. 10 years later, if it doesn’t work out, that’s fine. The whole, even if it does work out, it doesn’t work out. It’s not going to be because of you a lot of the time. I mean, part of it will be, but a lot of it’s just going to be the market, the venture capital system blew up. It wasn’t my fault. And your LP’s will come back, they’re like, yeah that’s life, what are going to do?

            Who is to say it’s granted, every single company was losing money. The entire time I was on my watch. But ultimately it’s the 2022 reset, I was listening to Zach Weinberg on his podcast the other day. He is like, it’s easier right now to cut staff. Because if you’re a tech founder right now, you’ve got excuses. You just got, like right now, if you want to restructure your company, do it now. Even if you don’t have to restructure your company, if you ever wanted to do it, do it now, you’ve got a whole layer of nonsense in society, above you to hide under and make these changes right now, all you can.

            So I think that is a benefit of some of these kind of models. But I think as a general rule thumb, if you could predict what was going to happen more than 10 years from now, you’re going to have a couple hundred billion, probably minimum [inaudible 01:35:00] because even Bezos is like, I planned three years in advance. So you’re really on a different level if you’re doing that. And I don’t think you are, and I know nobody is. Yeah.

Jason Buck:

Yeah. Well, I’d love that you and I share this idea almost of it’s a form of via negativa is like, we just try to, we know where our faults lie and we just try to buffer those faults and make it like impossible to almost deal with. It’s almost like having candy in the house. I don’t have herculean and willpower control. I just don’t want the candy in my house. Right. Or I always talk about, long before atomic habits came out. Like I try to do one pushup or one pull up a day. I know if I just start with one, I’ll do more. But it’s like you’re saying, it’s putting up these barriers to ourselves more than thinking about, well, I’m just going to go out here and have a positive approach to life. I’m like, I’m going to change my entire lifestyle today. It just doesn’t work like that.

            So part of that is I wonder is like, we talked about this idea of balance sheet and income statement. And right now, you have your savings that you’re managing everything, but even with your business, now, I’m sure you’re taking some of it out, because you want to live a better lifestyle. You just had a kid, but you’re plowing a lot of it back into the business to raise this asset. But at the same time, as a visionary entrepreneur, everybody’s going to have shiny object syndrome. So what keeps you on track with your practice? They’re going to know, yes, I’m building this asset. I do have income from it. If I just keep doing this for decades at a time, I’m going to be just fine. So where do you find that outlet for your shiny object syndrome or your visionariness. Is it through music on the side? How do you keep yourself from not falling into those traps and having almost the buffers in that system to make sure you just stay the course. Because that’s the hardest thing for all of us is just to stay there. Like we said, Buffett spent six, seven decades doing the same thing. If we do anything for decades and decades and decades at a time you’re bound to be successful.

Max Arb:

Yeah, that’s true. I mean I came to New York when I was in my mid twenties and when I lived in the Midwest, things were a lot simpler I think because when I say simpler, what I really mean is there are less options for doing things. If you’re living in the town I lived in the Midwest, you’re unlikely to be able to go out at three in the morning until six in the morning and get into trouble with God knows who and doing what right. So when I came here I was young and I was still stupid and I was a medical resident and I tried to keep up with people in the city and go out and stuff. And that taught me a lot because one of the things I learned by going out was I met people who had really massive amounts of wealth.

            I went out here literally making 8, 9, $10 an hour. Cause I was working 80 hours a week as a resident, making 45 grand a year, living in a studio with rats, miserable. Okay. In terms of the lifestyle of what I would have. Now going to parties where this person, I meet him week before and the person’s got a $30,000 bill at a club or something and you’re like, whoa. Now I watched those individuals. Which goes back to why I like to have friends that are older and I saw how they all dealt with it. And I don’t remember ever meeting anybody in that group that had a ton of money that found any necessary piece from that situation. It was always a little bit like the land masses on the planet. It’s always shifting whether you see it or not. There’s always some shift going on.

            So one of the things I learned watching the hedonic adoption, the treadmill from these guys is, it generally was not working out great in the sense that yeah, on the surface, they’re great. But I knew these people after the surface, I knew these people on Sunday, Monday when the weekends over and I knew them during the week when they were living their day to day life and they’re miserable trying to get more and more money more and more. So the first thing I think I just realized naturally watching people, is this doesn’t seem to work. I like most kids, I had a picture of Lamborghini on the wall and I was eight years old and I’m like, got to do this. And then like, you look at this guy says, Lamborghini, he’s got like eight Baywatch babes.

            I mean, this is the life, then you get older you’re just part of the thing I realized was think I read something a long time ago about people probably 20 years ago, people adapt to income six months. And then I started noticing myself that when I went from a medical resident making 40, 50 grand a year to making six figures, decent six figures that like within six months of that, I already kind of didn’t notice that I was making any more money. So I was lucky in the first six months of graduating to be like, oh yeah, that whole thing is true on a personal level. So then I just basically started to realize, it really comes down to one thing, which is that if you care a lot about what other people think of you as an individual, you’re kind of host, you’re going to be on this [inaudible 01:39:01] treadmill, unless you just happen to find that weird group of minimalists of which there’s always that one hippie that literally goes to Burning Man comes back and their house looks like Burning Man. And this person really is living that Burning Man lives. There’s that one person.

            But outside of that, you’re going to meet other people and you’re going to meet other people in your income range a lot of times. Cause that’s just how things work and you’re going to see them do this and that they’re going to get a plane, they’re going to get a boat. You’re going to do all this stuff. And you’re going to start to have some feelings of jealousy maybe, or you’re going to start to feel envy or I’m going to do this and that. And then I started realizing, I don’t think any of that stuff matters. I really don’t. I think it matters for a few months. And I think it matters a lot for a few months. I think after the hangover is done, what ends up generally happening is you kind of get to a point where you’re like, it doesn’t really matter anymore.

            I don’t know why that’s the case. If I could buy stuff that made me happy for 50 years, this is buy a bunch of stuff. I wouldn’t even think twice. If I could buy something that would live, that’s why I buy music equipment because music equipment is like, you buy a guitar and then you just play the guitar for 50 years. Nobody wants to hear you play the guitar, which is fine. You can play it by yourself even better. But that’s what I think is really critical to realize in life. And I think the reason we all want this stuff is, cause I think it’s probably part of the mating ritual.

            I think that sometime in your teens and your young years, especially for most, anywhere most people have a traditional lifestyle, getting some type of mate are finding some type mate you feel like that competitive urge that you see amongst primates and stuff. I’ve got to beat this person that’s got this and this and this, the irony of it is, if you do have the money to buy a lot of that stuff, you might actually find you don’t want any of that stuff. And so I think for me, a lot of it was just that. My dad used to tell me this stuff and I used to tell my dad, he has no clue what he’s talking about, he’s just a maniac. He’s an immigrant. He doesn’t understand. He needs to get all these things. It’s not cool to drive around at a Ford. Nobody wants to see that they want to see you with a nice Porsche. And then later realizing there’s probably some truth to that. It’s like a little bit overcome.

            So now what I’ve realized is I’m not anti-luxury. I’m just more methodical about it. More realizing that the luxuries that I get need to be long term luxuries that I care about that if nobody else could see, I would still want this thing, because it’s functional, there’s a utility or I just find it beautiful. And I don’t care that what anybody else thinks about it. So I think that’s a critical thing. Cause when winter comes around here, everybody has the same two or three brands of winter coats. [inaudible 01:41:25].

Jason Buck:

The moose trial is the newest version of Canada Goose, right. Or whatever. [inaudible 01:41:28].

Max Arb:

Exactly. That’s what I’ve got. So exactly. So I used to see that in my building all the time is the Canada Goose. It’s Canada Goose season.I told him, said, I’m not getting a Canada Goose. I need to wait. I need to wait for the next brand. And be ahead on that curve to get it. But the point is, I realize watching everybody have it that have them, that it’s really hard to avoid that kind of thing. I don’t know what it is about it, but like, I’ll see a bunch of people every winter with Canada Goose jackets and I’ll think maybe I should get Canada Goose. Literally once every year I’ll press, no, you already told yourself you’re not going to fall for the [inaudible 01:42:02] traps. You’re going to make complex traps. You don’t do the basic stuff. Don’t do the basic stuff. So that’s part of the way that I did it. And then I’ll go one more level one last thing. So if you get older and you get more money, but you also find is I do find happiness, doing things for other people. So I have learned over time that when I talk about going out to dinners, one of the best things to do is to just go out to dinner and pay for people’s bills.

Jason Buck:

Yeah.

Max Arb:

I don’t know how to describe it to people. And a lot of people are like, this is crazy is a bad idea. But the feeling you get from that over a period of time, if you’re that type of person that enjoys other people’s company, it’s pretty astronomical versus what that’s worth in terms of physical kind of goods and whatever. I don’t know why it’s something about eating together with human beings and pay their bills. But you got to watch out, I think you said via negativa, you have to watch out for the traps. Yeah. What I call the siren song, you got to watch for that.

Jason Buck:

But even outside-

Max Arb:

And by the way, go ahead.

Jason Buck:

Go ahead. I was going to say, even outside the money traps also, I was also thinking about there’s… I think money traps are easy for us to kind of put buffers around and especially with our lifestyle and everything we built, those are kind of in a way taken care of. I’m more concerned about, with you running your practices, now you’ve gotten so good they’re well-oiled machine. So what is the outlet for creativity? So you don’t start applying that creativity for a business and start getting your staff to do all sorts of stupid things that don’t make sense, keep that a well-oiled machine and then compartmentalize that. So then outside of that, this is why I assume you find with music is that’s your outlet for creativity or your aphorisms on Twitter, because it’s more about just your personality is going to maybe fuck up the business because that’s the internal battle now it’s not actually wealth or status games anymore. It’s how do I not fuck this up myself?

Max Arb:

That’s a great point. I mean, general rule of thumb, part of this whole mindfulness thing, which there’s a lot of nonsense about. It was how can you maximize effort with the least amount of movement? Kind of the Bruce Lee kind of concept. I think that’s a very critical concept because I think deep down at the core of nature and of organisms, that’s what everything’s trying to do is trying to minimize energy consumption to get what it wants. So that is one of those problems. I will find myself often going through this thought, oh maybe I should do this. Maybe I should do that. Now the way that I deal with that is I don’t ever bring this stuff up to anybody in my company right away. I’ll usually sit on these ideas, I’ll write them down. I don’t really write things down like most people do. I just store them in my brain and I’ll return to the buffer later and be like, what about that thing is not a good time to do it.

Jason Buck:

Does that make you feel lonely though?

Max Arb:

Yeah. I mean, of course running a business, look, my attitude about philosophical things is more of a comical thing is just like, if you don’t feel lonely at some point, you’re just not examining yourself. You are alone, everybody’s alone. And also who cares? What do you want me to do? If we all merge our minds together, then that collective group will be alone. If you get 20 people that are all in it together, somebody who’s in a deep cult, well guess what? Now your cult’s just alone together. So one thing I can say, that’s helpful, I think you already know this and you do this as a business owner, you probably need to find and meet other business owners earlier on if you can.

            Very, very, very important. I can’t emphasize that enough. You got to have other business owners that you know, because running a business, especially in the US, where most people don’t run a business, I’m saying some old school countries, literally every other person’s a shopkeeper or something. So everybody has that volatility mindset. But if you live in a place like this, where most people have paychecks and you go into business world, but you don’t have, or you’re not used to that, your mind is going to explode in either direction. One day you’re going to be like, I am the richest man alive. I’m going to the moon. I can buy everything. At this run rate, I am I’m set. And literally, as soon as you think that like 27 minutes later, you’re like, I will be fighting for… It’s like Michael Scott, I declare bankruptcy.

            You could go through that volatility phase. So you got to meet other people. And so they can tell you no, that’s okay. Which by the way, as another thing is, if you become a business owner and you get used to volatility, investing becomes a lot easier because all of a sudden, a 3% up or down moving in the stock market, is like nothing. You’re like, nah, that’s whatever. It’s literally yesterday I find out that I’m making this stuff as hypothetical. A business owner is like this, somebody calls you, which you don’t want to get a phone call randomly sometimes. And you get a phone call that this’ll be something random like, oh yeah. Did you hear what happened to this? It’s like, what? Oh, your biggest customer, the owner just had an affair with his secretary. He’s getting divorced. He’s [inaudible 01:46:33] with all the money and disappeared. It’ll be something crazy like that. And you’re just like, what, I didn’t really expect that.

            And so it’s just really crazy amounts of volatility that you’re getting at all the time. I think the first five years of doing that, my brain was essentially exploding because every single day, every minute I could think of an infinite number of permutations of things that could potentially happen good or bad. I couldn’t keep up with it. I had my internal Twitter thread running at a speed, a thousand X of that. And just, this could happen [inaudible 01:47:06]. And then having to talk myself down and be like, okay, there’s a thousand ideas pick one. So one thing I always say is, as a general rule of thumb, I don’t have a lot of tabs open.

            I try to, it’s a thing I’ve trained myself. Don’t open. If I have 300 tabs open, okay, if I’m doing research, that’s one thing. But general rule of thumb, trying to keep things minimal. And it’s much better to… Like that Bruce Lee, thing about focus, when he does that one finger punch it’s much better to maximize your focus on one thing really hard and just slam down on that thing than to get distracted by a bunch of things. And I think that’s what you meant by the shiny object syndrome.

Jason Buck:

Yeah. We don’t realize that we need to squeeze the blood out of that turnip. Cause we get bored. You’re like no hammer that pinpoint for decades on end. And that’s how you get somewhere. We’re like, no, we need to broaden. It’s like, no, you haven’t squeezed all the juice out of that yet. And honestly, I think I made a mistake when you’re talking about is, even internally at our company on a slack channel, even with my partners, we made a sausage factory channel, which was for all my crazy ideas, but it’s sausage factory. Don’t take them seriously. This is how the sausage is made. Right.

            But that was actually a mistake because you got to realize if you have true cognitive diversity and everything, you have to know the other people on that channel may not, that might scare them. So you’re saying, it’s better for you and I to be outsiders of that business. And as business owners, really having somebody that you can bounce those ideas off of that where they don’t take them seriously right. Where you can just get a sounding board, but it’s almost like a tennis ball.

Max Arb:

Don’t tell your employees.

Jason Buck:

Cause that’s too much burden on them.

Max Arb:

Yeah. And what ends up happening is there’s different levels of ability to discard ideas and concepts to remind right. And there’s different ownership levels. I’m shocked when people tell me they’re proud of their ideas or they’re disappointed. I’ve never thought twice about any of my ideas. I’ve never, literally any idea I’ve ever come up with, I’ll try to incept into an employee, get them to propose it and get it passed and then give them the credit. I don’t really care because I’m used to that kind of thought process of just thoughts come and go. I don’t connect them to the individuals that make them all the time. I forget that a lot of people don’t think that way. A lot of people connect a lot of weight to the thought itself, which by the way, the first time I realized this was like 2011 or 12 or whenever Uber started.

            A friend of mine, we’re drinking, this is crazy I had the idea of Uber. I said, motherfucker, everybody had the idea of Uber. Everybody had the idea of Uber. I said, I had that idea every single time I pulled a cab, I had the idea. So the ideas to me are not that important as the execution idea is and what happens is if you start jumping a bunch of ideas into different people’s minds, some people start to feel like, oh God, we’re going to have to do this and we’re going to have to do this. And I’ve already got to do this. And how am I going to do all this stuff? Meanwhile, you’re just like flipping stuff out like my Twitter feed, where it’s just like, you’re saying nonsensical things you forget about them. You’re like, whatever, move on. And then I’ve always thought that the way to generate a good idea is to come up with a thousand bad ideas.

            You come up with a bunch of bad ideas and you pick the least worst out of them, which is how evolution works. And then you run on that type of thing. But I think generally it’s good to sandbox these types of things just to not scare people into thinking that. Because people also make this weird statement like that person’s all over the place or that person has… He is not focused, which is a very bad thing in a company, because in a company you have limited resources. And so you do have to be focused, but hate to bring up Buffett and Munger again, they’ve heard about all this crap. They said many, many times beware of the middle, literally they said beware of the middle-aged guy, who’s created a business that works. That starts to do mergers and acquisitions, buying other things that unrelated.

            I must have read that thing a thousand times. I’m like, how exact is this that they’re talking about literally, who are they talking about? They’re like, you know how like musicians often die at the age of 28? Like there’s 20 of them that have died, I don’t know if you’ve heard of that. But there’s 20, like a lot of famous musicians died. It’s like somehow those guys must have experienced so many middle-aged guys that had great businesses and got distracted. So like deep in my brain I’ve absorbed that over and over again. Whenever I get a new idea, I’m like, I should do this. It’s like, no, no, no. You’re not smart enough to do that. You were barely smart enough to do this. Do you even remember how scared you were when you started this? You were telling yourself you’re going to go bankrupt.

            My wife sometimes reminds me these things. You’re like telling yourself, you’re not going to be able to do this. Now you’re confident because the winds have shifted behind you and you’ve been riding your windsurf on this beautiful wind, interest rates are falling, everything’s been wonderful for you. And now you’re all of a sudden, and by the way, every once in a while I will try to make a little step out into some other crap. A hundred percent of the time I get slapped down immediately. It’s like, I’m not saying it’s not doable, but the ease at which it happens is not even it’s more difficult than the first one because, and the second one, you not only have the fact that you have something else you’ve worked on and you have experience with you have the arrogance and confidence from that, that’s spilling over into this new thing.

            In the first one you’ve got fear. See the first one, you’ve always like every franchise I’ve ever known, you build it and Shake Shack is an exception, but you build one Shake Shack you invest $2 million, second one you invest $1 million. Third one, even as 300 grand, fourth, fifth, six, seven, eighth a night losing a million dollars. Now you go to California or someplace where people really like blue skies and they give you a lot of money. And now you have 97% of your business are losing money and three are making a lot of money and that’s the thing. But I’ve seen this many times with gyms, with food places, the first one ends up being the major EBIDA producer a lot of the times. And I think that’s not because you were smarter then, it’s probably because you were less distracted, more focused, more fearful and really just focused on that one thing, putting all your leverage in that one place, as opposed to being distracted.

            I could see you being hilarious on a slack channel at this stuff because I don’t think see, you’re good at hiding something from the public that people don’t know, which is that you’re a very well read individual. And I don’t mean well read in the superficial way of just the airport books that all of us, Safety Ends is a good book a ton people make fun of, but I mean you’ve read a lot of classics, you’ve got a very, I think it’s you and this other guy, [inaudible 01:53:00] that follows me that I think he might be the [inaudible 01:53:04] three people. I think of like that the library of books they’ve read behind them that you don’t actually realize is way deeper. But I noticed that you keep that suppressed, but I’m sure deep down that’s generating constant I’m sure that [inaudible 01:53:17]

Jason Buck:

It’s both the way you and I both grew up. It’s like you don’t express that publicly or else your friends [inaudible 01:53:23]

Max Arb:

Never talking about-

Jason Buck:

So that’s a great-

Max Arb:

Should we go to this bar? Heiddeger once an [inaudible 01:53:32] do you read Schopenhauer about bars? You know, it’s like-

Jason Buck:

That’s what unfortunately comes out of those podcasts. But yeah, it was ingrained in me from public school that I never talk about those things, but this is a perfect segue in the sense, by the way, I can’t imagine if you and I put out our 10 to 20 business ideas a day, like out publicly people would be like, these guys are out of their minds, but that’s what’s going on internally all the time. But what you talked about too is like, what I can’t stand is usually when anybody becomes wealthy, like you just said, they start to think they’re a cross domain genius, right. And they can do anything and they can apply their genius to anything. And they don’t realize how lucky they got or how smart they were just to focus on one thing. But we started this with older mentors and what we talked about is, you have all these boomers that are running these great businesses, right.

            But we need to have this generational wealth transfer. And as you alluded to earlier, their kids aren’t interested. So you and I have started to have this conversation. It’s like, what do we do about this? When people are basically just discarding businesses for pennies on the dollar, but just, Taylor wrote a great piece called reality has a surprising amount of detail. The hard part is now we’re those 60 year olds were talking about that are skeptics and curmudgeons is like, we look at any business and go, man, there are so many moving parts to this, I’m not sure if I bought this, I could keep this running at the same pace it’s running at before. Same with real estate or any of these things people think are easy passive income that we started with is like, yeah we want to take advantage of this generational wealth transfer. And these people willing to give up these great businesses, but now I’m not so certain that we’re the right people to run them. So like what do you do in that conundrum?

Max Arb:

I mean, I think that as a general rule of thumb, the best business for most individuals, not always general rule of thumb, best business for most individuals in terms of explosive growth is the first one that they do that starts in other words, if you have an explosive growth company and then you go off into another kind of thing after that, it becomes a little bit more difficult. So you and I, in a sense, like we’ve done a lot of different things like over a period of time. So we’re a little bit more tapped out, but if I’m younger, I’m totally, if I’m in my twenties, knowing that everybody’s interested in working from home, online businesses, tech, I would probably do the opposite of that. I would probably go into brick and mortar because I know for a fact that human connections are just part of basic evolutionary patterns and that the prices are cheap now.

            Those businesses are available. I mean, I jokingly say this all the time after telling you that I shouldn’t later into any other business. I’m always like, I need to own a car service and I need to own a grocery store because if I own a car service, a grocery store and pay off my mortgage or buy a house in cash, that’s it that’s like I, everything I ever need is basically resolved one way or another amongst this group of people that manage the businesses for me. But I do think that those boomer businesses have a lot of potential. I think that there’s an insane amount of untapped wealth in the small business market that exists. If you’re somebody that has even a small amount of capital and you scour and you got to deal with agents, which is difficult unless, you know specific network of businesses, but I do think that for the right person, with the right energy set and financing, building a small business, especially something that’s not tech, today’s probably easier than it’s ever been because the digital portions of it, the legal portions of it are easier is you can get more help online now, you can set formation of a business up in a day.

            And I think the tech space ironically now is actually going to be more difficult because I think what’s happening in the tech space is we’re 20 plus years into it now. And the one thing, a lot of business owners and entrepreneurs do not realize a lot of young people do not realize is the tech leaders we have in America today are exceptional business leaders in a way that people do not realize because those are that new group of tech people, these are not the old school business people that came from, you can’t just walk around with charisma and swing together a bunch of deals on sales. There was a time period where in our, and they still exist, if you’re a charismatic person, you can have an auto dealership and you can make a ton of money selling cars, for example, or doing a lot of things, real estate…

            In the tech world. These are technical geniuses who actually have read books to learn how to get smart and how to manipulate people. Literally what you’re talking about earlier, I remember reading a Mark Zuckerberg email about acquiring Instagram, that in the email lays out very clearly essentially why this is not a monopolistic acquisition. He wrote the email for the future, because he knew it would come up later and I read the email and I was just like, oh yeah of course, the guy went to Harvard. He reads a lot. He knows what happened in the past and now he’s learning from it. So the fact that today’s set of entrepreneurs, especially people in tech and part of the reason I think tech people are so bright is not just because of this stem thing. It’s also because they sit in front of the computers all the time. Anybody who sits in front of a computer all the time and is curious, is getting smart at a ridiculous rate versus what it used to be in the past because they’re compounding knowledge 12 to 15 hours a day potentially. And so these people have read about these past ways of running business.

            And you see all these little optimizing type of accounts buy my course to sell on Amazon, buy my course to do this and stuff like I’m joking aside, what’s happening is the general society is getting smarter about these businesses. There’s more people that know how to buy self storage, whether or not you like self storage guy or not. People know how to do that better now. So if you’re the local guy and you think you’re just going to open a self storage facility and do it the simple, old way, well, you might be competing with somebody who’s got whole book of tips and things that they’ve learned that they’ve skipped from not making all these mistakes. So as humans learn from their mistakes over time and we codify these things into language, put them on their hand, make them searchable for all of us. Arbitrage is becoming more and more difficult. That is a whole joke of the max arbitrage thing. It’s just like, we’re just going to keep on going until there’s like one penny left and all of us is going to fight over.

            This is the last thing we figured out we can possibly get. And so that is one of the things where, if you’re young and you’re energetic though, these brick and mortar things are still going to be easier than tech because in tech, have you ever looked on flippa.com or any these sites where you can buy, sell websites? The people who sell the websites now, they’re all, everybody’s optimized to their niche. In other words, first you’re selling on a multiple of monthly recurring revenue. Now we are at a point where if you go on there, it’s like many of these people have gained their statistics for the sale. It’s almost like they know the sale date and what they’re going to sell first. And then they back in a business into that number. And then you get it afterwards, which I think is hilarious, because it’s you create the incentives and these things will follow.

            But I think the thing you said about baby members is true for us. I mean, if you’re in your mid forties, fifties, sixties might be difficult to get into that mindset of building one of these business. These are very time, exhausting energy, exhausting businesses. But I think if you’re young, you really should be scooping around for all these types of things, you could consolidate I mean, you could make a million dollars here in cashflow from laundromats in New York city without having a lot of money to put down payments on simply from the fact that these people don’t have exits and they’re not bankable. Some of them, a lot of this money is cash and you have to figure out all those problems and work backwards. But if you go to look at them, guess what you’re going to be. The only person buying one. I went to go look at a laundromat once a long time ago when I got on my tangents. And literally the guy told me I was the only person that looked at that business in the whole year. So that’s why I think that it’s worth looking [inaudible 02:00:33] with these types of niches. I think it’s telling us we’re about to get kicked off.

Jason Buck:

Oh really?

Max Arb:

Well, something about 45 seconds. I don’t know. I don’t know.

Jason Buck:

I don’t know. Is there two hour limit on this? Well, if we are about to get kicked off, I highly recommend everybody follow you on Twitter. It’s Max Arb:. And I think you’re truly one of the unique thought provoking people on Twitter. I love it all the time. You’re going to laugh at me but I always have a panic attack before we start these things. I’m like, there’s going to be dead air. What are we going to talk about? And I know with you, there’s no chance.

Max Arb:

No, [inaudible 02:01:04] there’s no question. There’s always going to be somebody talking and you know what they say, the person who talks the most says the least. So thank you for giving me the time to say very little. Appreciate it.

Jason Buck:

Appreciate you. Thanks man.

Taylor Pearson:

Thanks for listening. If you enjoyed today’s show, we’d appreciate it. If you would share this show with friends and leave us a review on iTunes, as it helps more listeners, find the show and join our amazing community. To those of you who already shared or left a review, thank you very sincerely. It does mean a lot to us. If you’d like more information about Mutiny fund, you can go to mutinyfund.com for any thoughts on how we can improve this show or questions about anything we’ve talked about here on the podcast today, drop us a message via email I’m taylor@mutinyfund.com. And Jason is jason@mutinyfund.com or you can reach us on Twitter. I’m at @TaylorPearsonMe and Jason is at @JasonMutiny to hear about new episodes or get our monthly newsletter with reading recommendations, sign up mutinyfund.com/newsletter.