Episode #518: Jared Dillian on the Keys to Live a Stress-Free Financial Life

Guest: Jared Dillian is the editor of The Daily Dirtnap, a daily market newsletter for investment professionals.

Recorded: 1/17/2024  |  Run-Time: 49:41 

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Summary:  Jared’s back on the podcast to talk about his book titled, No Worries: How to live a stress-free financial life, which just released yesterday. Jared talks about the 80/20 rule applied to personal finance, his “no worries” approach to investing, which he calls the awesome portfolio, and I bet you’ll be surprised by which asset has performed best since 2000.

We also get Jared’s take on the market today. He touches on inflation, private equity, the bond market and more.

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Sponsor: YCharts enables financial advisors to make smarter investment decisions and better communicate with clients. To start your free trial and be sure to mention “MEB ” for 20% off your subscription, click here (New clients only).

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Links from the Episode:

• 1.20 – Welcome Jared back to the show; Episode #344: Jared Dillian
• 5:02 – Unpacking the concept “we get to choose how much money we have”
• 6:56 – Applying the 80/20 rule to personal finance
• 10:14 – Clarifying acronyms from ‘No Worries: How To Live A Stress Free Financial Life‘
• 14:57 – Considering the implications of young people accruing debt
• 18:11 – Different investment strategies & the Awesome Portfolio
• 34:41 – Jared’s take on inflation and higher interest rates
• 36:58 – Assessing the current state of the market
• 43:26 – Concerns about Tony Robbins book
• 45:53 – Integrating AI into the process of writing
• Learn more about Jared: The Daily Dirtnap, Jared Dillian Money

 

Transcript:

Welcome Message:

Welcome to The Meb Faber Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer:

Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb:

What’s up, everybody? We got a super fun episode with a three-time returning guest, Jared Dillian, editor of The Daily DirtNap, a daily market newsletter for investment professionals. Jared’s back on the podcast to talk about his new book titled No Worries: How to Live A Stress-free Financial Life, which just released yesterday. Jared talks about the 80/20 rule applied to personal finance, his no worries approach to investing, which he calls the Awesome Portfolio. I bet you’ll be surprised by which asset has performed best since 2000. We also get Jared’s take on the market today. He touches on inflation, private equity, the bond market and more. Please enjoy this episode with Jared Dillian. Jared, my friend, welcome back to the show.

Jared:

Thanks for having me a third time.

Meb:

We find you back in South Carolina.

Jared:

Yep. 44 degrees in Myrtle Beach today. It’s a little chilly here today, but yep, in my studio, in my office in Myrtle Beach.

Meb:

Well, we got a new book out. The name is called No Worries: How to Live a Stress-free Financial Life. You having a party? There you go, we can both show ours. I got mine here too. You can see there’s one on the bookcase right behind the bat for posterity. Having a party, DJ Stochastic as I like to call you, what’s the story with the book? I read it. I loved it. What was the inspiration? This isn’t your first book.

Jared:

No, this is my fourth book. First of all, let me just say that my first book was a memoir. My second book was a novel. My third book was an essay collection. This is trade nonfiction. My next book is going to be a collection of short stories.

Meb:

Romantic comedy? You’re going to try to hit every genre?

Jared:

Yeah. Literally, I think I’m the only writer ever to do this, and I’m not kidding, but I got the inspiration back in 2018. I’ve always been super interested in personal finance. I think I’ve done well personally with personal finance, and I wanted to build a business around helping other people. One of the first things we did with that was I started a radio show. I actually had a show on terrestrial radio. It went for two years. It was five nights a week, two hours. People called in, and the show was a failure. We went bankrupt. But if you sit in a room for two hours a night and just talk about your ideas about personal finance, you come to some interesting conclusions. With the calls that I was getting, what I was hearing from people was that they were stressed out about money.

So I started to think about the whole personal finance industry, which consists of Dave Ramsey and Suze Orman and Robert Kiyosaki and a bunch of other knuckleheads, they tell people to do things which actually increases their financial stress. If you go into the bookstore in Barnes & Noble and you look at the shelf, you have books like 10 Easy Ways to Become a Millionaire and How to Become a Millionaire and stuff like that. It’s not really about that. It’s about being happy. It’s about being comfortable and satisfied and living a stress-free financial life. This book is the culmination really, of all the ideas that I had when I was talking on the radio for two years.

Meb:

I wonder how much of this is evolutionary ingrained versus learned culturally. Some of the discussion about some of these new GLP-1 drugs is it says it reduces some of the food noise in people’s head where it’s almost like a voice that’s been quieted. I feel like everyone, the vast majority of people have this money voice, and it could be from their childhood, it could be, who knows, genetic in some sense? But they’re replaying a lot of these scripts that they’ve had for their entire life about thrift. So many emotions wrapped up, “Should I feel guilty about buying this? How do I think about it?”

What’s cool is your book really takes that tact of, how can I reduce that noise? We’ll go through some of your hot takes ’cause there’s a few in here. I figured we’d start off with a kickoff question, which was, you say at one point we get to choose how much money we have. What do you mean by that? Because I feel like if you were to ask people if that’s something that is necessarily a choice, most would say not necessarily. So what do you mean by that?

Jared:

You know what? I’m glad you brought that up. I believe that statement to my core. I believe that we all get to choose how much money we have. Money is a choice. You can choose to make as much money as you want or as little money as you want. If you decide you’re going to be a teacher, you’re going to be an educator. Being a teacher doesn’t pay very well. It’s a great job. A lot of social currency. People love teachers. But if you decide that, you are choosing to make less money on purpose, okay? There’s nothing dishonorable about that path. It’s a very honorable profession. We need teachers, we need good teachers, but you know going into it that it doesn’t pay well and you are choosing to make less money on purpose. If money was important to you, you would do something different. You would choose a career that pays more or you would start a business or you would do passive income or you would do something but you would choose to make more.

Even me, I make a decent amount of money. I have this newsletter. The newsletter business is great. Okay. I’m choosing the amount of money I have. I could manage money for sure. I could start a hedge fund. I’m perfectly qualified to do that, or I could go work at a bank and be a strategist. I could double my income. There’s a lot of things I could do to make more money. The money that I make is my choice. I am happy doing what I’m doing. I am choosing how much money I make. Jeff Bezos chose how much money he made. Mother Theresa chose how much money she made. We all choose how much money we make. It’s a choice.

Meb:

80/20 rule applied to personal finance, and then you talk about three big decisions that people make. Feel free to take that any way you want, but I feel like starting at the big picture is useful for a lot of people.

Jared:

We have a culture in America of believing that it’s the little things that count. It’s the small details. It’s the little things that count. There was a speech 10 years ago, 12 years ago from a Navy Admiral. His name was McRaven. I think he spoke the Texas A&M graduation, and he gave this speech about making your bed. Like if you make your bed in the morning, then the rest of your day is going to be terrific. He even did a book. This speech went viral, and he wrote a book. Make Your Bed was the name of the book, and people believe this stuff. People believe that it’s the small things that you do that count.

No, it’s not. It’s the big things. So in the personal finance space, you have somebody like Suze Orman who says, “If you just don’t buy coffee, you can have a comfortable retirement.” So okay, let’s unpack that for a second. I actually buy coffee every morning from Dunkin’ Donuts. I get an iced coffee. It’s $3.80 cents. Okay? If I do that 225 days a year, that’s $900. If I do that for 40 years, that’s $36,000. If I invest that in the S&P 500, I have like 150,000. So if I give up drinking coffee and invest all that money, I’ll have 150,000 bucks.

Meb:

Right.

Jared:

But that is a lifetime of misery because people need coffee. You are putting yourself in a state of discomfort every morning for the rest of your life for some goal that’s 40 years out in the future. People can’t do it. Alternatively, instead of getting a 3,000 square foot house, you can get a 2,500 square foot house, pay a $100,000 dollars less. Over the course of 30 years, you’ll pay 120,000 less in interest just from one decision instead of a million decisions. So you just get one thing right instead of a million things right.

The other thing is that people can give up large luxuries. If you get a house that’s smaller, you’re not sitting in the house like, “This house sucks. I hate my life. This is terrible.” You don’t even notice. You don’t care. But if you’re giving up coffee in the morning and you do that for 40 years, that is miserable. People cannot give up small luxuries. So any program that asks people to give up small luxuries on a daily basis, never going to work.

Meb:

On top of that, you eliminate, like we were talking about as far as no worries, is the one decision clearing out the baggage and clutter of 1,000 decisions. Not only that, the amount of daily dopamine happiness from a lot of these little decisions creates a lot of just day-to-day goodwill. I love the ceremony or the ritual of having coffee or going to the coffee shop with friends and never thinking about it. The biggest takeaway I have from your book, and I told you this when we were hanging out in Las Vegas, I said, “I think about this almost literally every time the tip screen comes up is, Meb, don’t be a cheap bastard.” Now you have a different acronym that you use in the book. Can you tell the listeners what the acronym was?

Jared:

There’s two types of people: There’s CFs and high rollers, and CF stands for cheap fuck. You can be a cheap fuck or you can be a high roller. I don’t get into detail on tipping in the book, but the difference between being an average tipper and a good tipper is usually two bucks. If you go out to lunch by yourself and it comes out to 25 bucks, the difference between a $7 tip and a $5 tip is two bucks. If you tip $7, you’re a hero. If you tip $5, you’re a chump. It’s a $2 difference. So sure, if you go out to lunch every day, 365 days a year and you save two bucks, that’s 720 bucks. If you do that over 40 years, it’s $30,000 and you invest that in the S&P 500 and you can have $120,000. Yes, you can do that if you are a cheap every time you go out to launch your entire life, but you’re a jerk.

Meb:

Yeah. The story from the book, and I’m not going to give away too many of the stories so the listeners can go buy it, but this one really hit home was that, tell us about the barbershop.

Jared:

I was living in Hoboken, and there was a barbershop in Hoboken. To this day, it was the best barbershop I ever went to. All the barbers were drag queens, like professional drag queens. They were legit, and they would go perform in the West Village. They had their pictures up on the wall. One of them looked like Cher, one of them looked like Liza Minnelli. This was 19… no, it was 2001 and things were cheaper back then. Haircuts were 14 bucks, and I used to tip $4, which was like a 30% tip. I went in the back room with the guy one time, and I looked at the appointment book and next to some of the names it said CF. I was like, “What is CF?” They said, “Cheap fuck.” I looked next to my name to see if there was a CF there and there wasn’t. But I was thinking to myself, I’m like, “What’s the difference between somebody who’s a good tipper and a bad tipper? Is it $1.00, $2? That’s all it takes, and somebody thinks you’re a cheap fuck?”

Meb:

Yeah, and then on the flip side, I was looking at some of these big decisions the other day, and you live in the world in South Carolina of giant trucks, these just rumbling SUVs and pickup trucks that cost $80,000. If you look at line items for average investor, the amount that individuals put in, and this is one I think Dave Ramsey gets right, the amount of money people sink into their trucks and cars when they don’t have it to spend, forget about it. You got a million bucks, whatever, you buy a truck, God bless you. But the people that don’t have any money and pay a grand every month for their pickup truck, it seems to me like that you could probably get by with a Kia just fine.

Jared:

Yeah, and the funny thing is about trucks is that people won’t think twice about spending $80,000 on a truck, but they wouldn’t spend $80,000 on a Maserati. So if you wouldn’t spend 80,000 on a Maserati, don’t spend 80,000 on a truck. There’s people in this town, their car payment is bigger than their house payment. That’s absolutely true. These trucks are luxury cars. They’re absolutely luxury cars. You see the commercials where they’re dumping cinder blocks into them and logs and stuff like that, and they’re driving in mountains and mud and stuff. Nobody does that. They just drive them on the road. It’s a luxury car. So get a Toyota, get a Honda, get a Hyundai. Spend 25, 30, $35,000 on a car, finance it for five years.

Meb:

That’s going to be a nice one too, man. I thought you were going to say get a five or 10 grand beater. All right. Well, let’s talk about, I feel like we’ll get into investments in a little bit, but as people think about personal finance, the big one in this cycle, a lot of the noise has certainly been around the state of secondary education, universities, student debt, all these sort of things. This ends up being a pretty big cost for a lot of people. As you mentioned earlier as you were talking about this concept of you decide how much money you make going into college, doing a liberal arts education and coming out with 200K debt and then having very few job prospects was a decision. Now you might’ve made it when you’re a young impressionable 17-year-old, but still, a decision. How do you talk to people about that. For the younger cohort that’s listening or even parents that are guiding their kids into this area, what’s your take on how to think about it?

Jared:

Well, it’s a long discussion, but I’ll dig into it a little bit. You have to think about what the purpose of a college education is. What is the purpose? Is the purpose to get you a job or is the purpose to make you an enlightened person or is it both? It’s both. The universities tend to not do a very good job of preparing people for jobs, and they do a better job of making people enlightened people. A lot has been said about how some majors are good for getting a job and some majors are useless and stuff like that, and you have people who spend 200,000 on a college education and their waiting tables. That happens all the time. We have an undersupply of people without college degrees, and we have an oversupply of people with college degrees. I went to a beer distributor in Wisconsin, this is five years ago, and they had college graduates working in sales making 55,000 a year, and they had high school dropouts driving trucks making 110,000 a year.

It’s just pure economics. We have a mismatch in supply and demand of people with and without college degrees. I’m not saying don’t go to college. I’m not Mike Rowe, Dirty Jobs. I’m not going to say, “Don’t go to college. It’s a waste of money,” because it’s absolutely not. But you just have to make it work within your budget. In the book, I break it down between three tiers of schools. If you get into a top-tier school like a Harvard or something like that, then it doesn’t really matter what it costs, you should go. It doesn’t matter how much debt you have, you should go because the connections that you’re going to make are going to last a lifetime. You’re going to know some very rich and powerful people. You’re going to be in good shape. For a second tier school, like a state school or something like that. You should not graduate with more than $40,000 in debt, okay? The thinking there is you should be able to pay it off in five years.

If you graduate and you’re making 60,000 a year, you can pay 8,000 a year and pay it off in five years. If you go to a third tier school, if you go to a crummy school, then you can’t have any debt at all. You cannot have any debt because you’re just not going to have the earnings power to support it. That happens a lot in this country with law schools. It used to be back in the ’80s when I was a kid, if you were a doctor or a lawyer, that was the golden ticket. We have minted so many lawyers in the last 30 or 40 years, we have an oversupply of lawyers. It has driven down wages. Unless you go to one of the top 10 law schools, there’s a pretty good chance you’re going to be making $40,000 a year as a lawyer. You’re not going to be able to survive and you’re going to have 300,000 in debt. There are lawyers in Myrtle Beach that are on food stamps. That’s absolutely true. I know that for a fact.

Meb:

Most people I feel like over the years have followed you, and you talk a lot about markets and investing. I feel like occupy is a huge percentage of people’s brain. How do you counsel people to start to think about that in a no worries way? We may have touched on this briefly in prior conversations, but let’s hear your 2024 take and book take on it.

Jared:

First, what is the conventional wisdom around investing for most people? We’ve had the indexing revolution. Back in 1997 when I started to invest, indexing was 1% of assets under management. Now it’s 56% of assets under management. Most people when they start investing, they go to Vanguard. They get the Vanguard Total Market Index Fund or the S&P 500 Index Fund, and they put all their money in that. It’s not the answer, and I’ll tell you why. So if you invest in an index, you get the returns of the index, which are terrific, nothing beats the S&P 500 return, but you also get the volatility of the index. So over history, we’ve had 40 or 50 corrections. We’ve had 20 or 25 bear markets. We’ve had four or five great bear markets of 50% drawdowns or more? If you invest over a lifetime, you are going to have a number of bear markets and some big bear markets.

What people don’t really think about when they start doing this is that they’re going to be emotionally tested by these bear markets. It is going to mess with their emotions. If you look at the marketing at of Vanguard, if you looked at their ads, they say just hold on, just hold on. Keep dollar crossed averaging, just hold on. In 2008 we had a 57% drawdown. You cannot expect somebody to hold on during a 57% drawdown. You can’t. It’s unreasonable. Look, even if they could, would you really want to ride that out? You would be miserable. Think of how miserable everyone was in 2008. So even if you had the ability to hang on the dollar cost average, once every couple of years, you’re going to hate yourself. The solution to that is obviously the Awesome Portfolio.

Meb:

For the listeners who don’t know, give us the construction of this portfolio.

Jared:

So the Awesome Portfolio is 20% stocks, 20% bonds, 20% cash, 20% gold and 20% real estate. Okay? This portfolio since 1971, and it starts in 1971 because that’s when you could own gold, has returned 8.1% a year. So basically, 1% less than the S&P 500. It has half the volatility of an 80/20 portfolio, and the biggest drawdown it has ever taken in a year is 12%. That’s the worst year you’ve had in the last 53 years is 12%. That’s much, much better. My philosophy on investing is, it doesn’t really matter what you invest in, what matters is that you stay invested. The number one way that people make money in this country is on their houses.

That’s the number one way that people build wealth because they suck at investing, but what can they do? They can pay a mortgage for 30 years and build equity in their house. Their house does not have a ticker. It does not trade on an exchange. They do not watch the value go up and down so they can just buy it, hold it and forget about it. It doesn’t matter what you invest in as long as you stay invested. If you can’t stay invested because of volatility and you crap out, you roll a seven and you sell your stocks, you stop compounding. So you have to stay invested and keep compounding, and that’s the purpose of the Awesome Portfolio because it immunizes you from that volatility and you can keep compounding.

Meb:

Well, you touched on a lot of pretty important points that I agree with you on here. The housing one, people always talk about, “I bought this house for a 100K, it’s now 500K. Look how much money I made.” Then you have the people on the other side that talk about how expensive housing is and all the costs and you shouldn’t do it. But the big forcing function is that the decision to have saved and invested in the first place. So the money comes out, you bucket this as something totally different than putting money into E-Trade or Vanguard or Robinhood, and that’s one of the reasons I think people are so successful with the housing side. I guarantee you there’s not an investor and advisor that says, “Jared, what’s 20% in stocks? That is way too low.” What do you say to these people?

Jared:

If you look at the last 24 years, going back to 2000, if you look at the Awesome Portfolio, the top performing asset is actually gold, and the second performing asset is actually real estate. Stocks are third since 2000. Now we might be playing games with the starting point and stuff like that, but seriously, since 2000 stocks are a third in that list. Look, stocks have returned 9% over the last 100 years, so everybody thinks they’re going to return 9% over the next 100 years. Well, the conditions that led to the prior performance might not be present for the future performance. So what are some of those conditions? Why has the U.S. done so well relative to other countries? Well, rule of law, property rights, basically, a system of taxation where people have unlimited upside, like entrepreneurial spirit. These are all the reasons why the U.S. market is outperformed.

If any of those things disappear, if we become like Europe in the 1980s, then stock market returns are going to go down. There is no guarantee they’re going to return 9% forever. It’s not a rule. There is no rule saying that is going to happen. I’m not a bear. I’m not saying the stock market is going to crash. I’m just saying if you look at a mutual fund prospectus, it says past performance is no indication of future results. We don’t know. We don’t know what’s going to happen in the future. We don’t know what the stock market’s going to do for the next 100 years, and because I don’t know, I have to diversify into other stuff. That is the whole purpose of diversification is when you don’t know with certainty what’s going to happen.

Meb:

I have a hard time restraining myself when I hear things that are a little aggressive and both Suze and Dave repeat this quote that U.S. stocks do 12% a year. I’m like, “Look, guys, either A, you know the reality and you’re misleading, or B, you have simply averaged the yearly returns in the past, which are 12%.” But we all know that’s not the compound returns people see in their bank account, which are 10, or if you’re rounding up, it’s nine and change. The difference is because of the volatility. The simple answer for listeners is if you do a 100% year in stocks and a -50, you’re back at your starting point. You have zero return. But the average return of 100 and -50, of course, is 25. So that’s the difference. So telling people they’re going to get 12, it’s like nails on a chalkboard for me.

Then you have a lot of the individual investors today, that are like, “No, I expect 15%,” but that’s sign of the cycle. When you have a period when U.S. stocks go nowhere for 10, 20, 30, 40 years, that’s a possibility that people won’t believe that. If you look around elsewhere in the world, it tends to be certainly the psychological makeup versus the U.S., which is to the moon, baby. Part of that is you got a quote that says the U.S. is a country of crazy gamblers there’s an old Ed Seykota quote, the famous old trend follower, “Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money,” which I thought was a pretty interesting one. How do you counsel people on this no worries world to avoid Instagram frauds, MLMs, timeshares, WallStreetBets, Robinhood, all the nonsense. We don’t do a great job of personal finance education in this country, so how do you talk to people about something as mellow and thoughtful is the Awesome Portfolio versus all these just glistening shiny objects that promise much higher returns?

Jared:

I call it fly paper for idiots.

Meb:

That’s good. I like that.

Jared:

I don’t specifically talk about meme stocks or MLMs or stuff like that in the book, but I think it should be pretty clear from the prose that anything that promises you or a super normal return is probably too good to be true. In the book I’m talking about really boring stuff, stocks, bonds, cold cash, real estate. Even in the book I say real estate, which a lot of people get rich off of, generally returns about 4% a year in the U.S. It just barely beats inflation. It was funny, I was talking on the phone with somebody the other day. They were telling me about a structured note. They were getting 16% interest and if oil goes below 48, it knocks out. I told the guy, I’m like, “Look, I used to sit back-to-back with the guys that did those structured notes, and you’re getting your face ripped off.

Meb:

Wow. Yeah, yeah, there’s so much of that in our world for sure. Going back to the Awesome Portfolio for just a moment, you have another quote that’s like, “The purpose of volatility is to make people make stupid decisions.” The challenge I think that so many people focus on when their asset allocation portfolios is they’re optimizing solely on the compounded returns or trying to, whether they mean to or not, but the actual path. When I think about things like your book, in my mind, it’s like no one is ever going to be sad 10, 20, 30 years from now if their portfolio did 8% instead of 9. They’re not going to look back on their gravestone and be like, “You know what? I could have done 9% and I only did 8.”

But the amount of people that strived for 9 or 10 or 15 and got taken out of the game because the volatility was nuts and crazy and the drawdowns, the likelihood of them not making it to the eight or nine is far greater than the amount of people that would be sad about the eight or nine. So when I think of your book, I think of two things: One is on the don’t be a cheap fuck, so I turn that dial up. All these little decisions, don’t worry about them. Err on the side of more. On the portfolio stuff is like err almost on more side of being a little more conservative and just getting all the other stuff and then not worrying about it. Just put that sucker on autopilot.

Jared:

Yep. The goal is to not think about money practically at all during the course of the day. You should be spending less than 1% of your time thinking about money like I went out to lunch, I got a chicken pesto sandwich. I paid for it with a credit card. I tipped 40% and didn’t think about it and went back to work, not thinking about money right now. I just don’t think about it. If you’re one of these people, if you have a lot of debt, if you have credit card debt and car loans and all this stuff, you’re going to be always beginning to be thinking about how to make that payment. You’re going to be laying up at night thinking about how to make the payment. If you’re in some program of austerity where you’re cutting expenses and cutting expenses, you’re going to be thinking about that all the time.

If you load up your portfolio with crypto and growth stocks and stuff like that, it’s going to cause you just a huge amount of volatility and you’re going to be thinking about it all the time. I just don’t want to think about money. There’s better things in my life to think about. Money stress is the worst kind of stress because it compounds every other kind of stress. If you have other stress in your life, if you have miscreant kids that are causing trouble or if you have a bad marriage or if you have a dying mother, if you have money stress on top of that, it just makes everything worse, and the money stress is avoidable. It’s totally avoidable. It’s all about how you structure your life. You don’t have to experience money stress if you don’t want to. People do it to themselves.

Meb:

Do you think there’s an element of people wanting to do it to themselves or do most people have good intentions? They like, “Look, no, I want to make the right decisions,” they just can’t help it. I feel like looking at some friends that make some decisions with money and you shake your head, but I’m like, “Do they secretly want to gamble here? Do they want the drama of doing something they know they’re not supposed to do and get punished?” It’s a curious way to think about it.

Jared:

It’s the subconscious desire for self-sabotage is what it is. I know a guy who has a lot of debt or actually, he paid most of it off, but he used to have a lot of debt. The reason he did it was he wanted the debt as motivation to work harder. So he would spend a bunch of money, run up a lot of debt, and then he would work harder to pay it off, and that’s how he lived his life. Other people when they invest and they’re buying crypto or stuff like that, they just want the action. It’s just gambling. They want the action.

Really, my approach to the capital markets, I’m not a gambler at all. We were in Vegas. I did not gamble the whole time in Vegas the whole time. Sometimes I walk up to a craps table with a couple 100 bucks and I get cleaned out and I walk away. I’m like I don’t have that itch. I don’t have that desire, so I approach it completely differently. When I trade, I’m not looking for action. I don’t like the action. The action is a byproduct of what I’m trying to do.

Meb:

Well, it’s spoken right to my heart as a quant and a rules-based person, I certainly identify with that sentiment. I think that the stress and anxiety of the markets also compounded on top of everything that goes with the personal finances, one of the things that’s nice about your Awesome Portfolio too is, and we talk a lot about this with traditional portfolios, I’d say your average financial advisor is five times leveraged the U.S. stock market. Their own money is probably invested mostly in U.S. stocks ’cause most portfolios are, if anything, U.S. stocks and bonds, and the stock volatility swamps the bond volatility. So even at 60/40, you’re really basically all in on U.S. stocks. Second is their clients are invested in U.S. stocks, so their revenue is directly U.S. stocks. When the market goes down, their revenue goes down if they’re fee-based, on and on, but the portfolio is so correlated to the business cycle. So when everything’s hitting the fan, 2008, 2009, COVID, your portfolio does very poorly. Theoretically, you would actually want it to do the opposite, your human capital versus-

Jared:

I actually have a word for that.

Meb:

What?

Jared:

I call it the life hedge.

Meb:

I think the Awesome Portfolio very much by it being balanced, it has a lot of those components because you think about it’s like, “All right, the stress of an ’08, ’09, and on top of that, my portfolio is down 50%. What the hell?” Obviously, if you can zoom out, and this is one of the reasons I think target date funds tend to have a pretty decent success rate as people bucket it a little bit differently, they’re like, “All right, that’s my retirement. It’s putting it in there and I’m forgetting about it,” versus more traditional brokerage account. Anything in the book in particular you really want to talk about that we glossed over? ‘Cause I got a whole bunch of other questions we can get into.

Jared:

No, keep going with your questions. Yeah.

Meb:

Is there anything that as you wrote it, ’cause the process, like you mentioned, talking on the radio, putting together the newsletter, The Daily DirtNap listeners, if you’re not familiar, one of my favorites, and writing a book, sometimes putting the pen to paper causes you to change your mind or think through something a little bit differently. As you wrote this, was there anything you reevaluated, you’re like, “You know what? I actually don’t believe that,” or, “Maybe it’s something that I’ve really evolved on.” Is there anything that comes to mind?

Jared:

So first of all, I wrote 2/3 of this book in two weeks. I actually wrote it really fast. It was winter break in 2021, and I was taking a break from school. I had just written the proposal and I said, “Well, I’m just going to start writing the book,” so I wrote 2/3 of it in two weeks. The one thing that I regret about the book, I wrote it when interest rates were low and it was really before inflation took off. You know the process of publishing a book, it’s very long. It goes through editing and all this crap, and it just takes forever. So I wish I had done that six months later, and I got to talk about inflation a little bit and higher interest rates, but oh, well.

Meb:

So the main question I had in the middle of this is I was thinking about this last night, if someone hires, was it a cat astrologist? No, a cat psychic that you’ve hired, this is a benefit of having some discretionary money and not sweating the small expenses that you can hire a cat astrologist, does the astrologist talk to you or to the cat?

Jared:

So it’s a cat psychic.

Meb:

Psychic, that’s what I meant. Sorry.

Jared:

She talks to the cat. So I talk to her and she talks to the cat. Yes, I have hired a cat psychic. Actually, it’s animal telepathy is what it is. She talks to animals. So I have talked to all my cats.

Meb:

Well, everybody talks to their animals. Do you notice any differences? Does the cat seem better off or largely unperturbed?

Jared:

It has made a significant difference in our house.

Meb:

Wow.

Jared:

Things are a lot smoother. Yeah. Yeah.

Meb:

I love that. I could use that. I need a psychic. Well, let’s talk about the investing world a little bit. You spend all day every day thinking about this often when the pen hits the paper. The big change in the last year or two has certainly been all of a sudden, all these older folks have yield for the first time in forever. Everyone does, but I feel like the retiree set that thinks about fixed income all of a sudden has got 5% when they used to have zero, and that’s a pretty meaningful shift. What do you think about in markets in general? Is it just T-bills and chill? Are you seeing opportunities? What are you worried about? What’s going on in that world?

Jared:

I’m a trader. I trade. I built a medium-sized short position in stocks over the last couple of weeks. I had a big position in two-year notes, liquidated that yesterday. So here’s the thing. So back three or four months ago when interest rates were on the highs, I had strong conviction that short-term rates would come down. I didn’t know so much about long-term rates, but I had strong conviction that short-term rates would come down. My reasoning was basically the correct reasoning, not necessarily because we were going into a recession, but because core PCE was 2% and Fed funds was 5.5%. We had extremely restrictive monetary policy, so they would take some of those rate hikes back. That was my thinking. Then there was some fed chatter about it, and the whole yield curve moved, and that turned out to be a good trade. I think yields have bottomed in the short term. Just today we had a strong retail sales number, which is always strong, and I think tens are probably going to head up to 4 1/2% or so. So I think things are going to get choppy over the next couple of weeks.

Meb:

The weird part in my mind about bonds has been the short end moved up so much, but if you look at historical spreads relative to T-bills, many of the riskier bond markets are what we consider to be not in a normal spread. A lot of them are still flat to negative yielding curve for almost everything, really. It feels like at some point as these things normalize, either the short end the yield’s got to come down or the long end up. But I was saying this on Twitter the other day, and I feel like I’m comfortable with the answer now, but I’d love to hear your take on it.

Because as much as we talked about assets declining and how people deal with it, some bonds are down or bond ETFs, bond indices are in a 10, 20, 30, 40, 50% decline. I said if U.S. stocks were in a 50% decline, people would be losing their mind. Twitter is probably just be apocalyptic. But in the bond world, it feels like people, I don’t know, bucket it different or think about it different, ’cause I don’t see anyone going totally insane about 30-year bonds being down, getting cut in half. Is it because they just look at the yield number? What do you think?

Jared:

I think it’s mostly because they don’t have exposure. Also, keep in mind the people you see on Twitter are not the people with exposure. Everybody on Twitter is under 40, and they don’t have any exposure to bonds, so they’re like degenerates trying to pick a bottom in TLT on a trade. You know what I mean? But if you talk to your mom, if you talk to your dad, if you talk to anyone over 60 or 65, that’s been super painful. It’s been incredibly painful. So 2022 was a funny kind of year because stocks were down about 20, 25%, which is a plain vanilla bear market. It’s not exceptional in the grand scheme of things. But when you look at that stocks and bonds together were down so much, it actually was one of the worst investing years ever. It was really terrible. There was no place to hide.

Meb:

That was a year that you got a nice bounce this year, not this year, last year. Man, 2024 already. I can’t say it yet, 2024. I was laughing ’cause Jared’s a great follower on Twitter, listeners. One of his tweets, and this is dailydirtnap, it was back in my day there were so much toilet paper and eggs, we used to throw them at the houses of our enemies. That was a hard turn from what we’re talking about, but I was looking for something else and I found that one. I had to bring it up because I definitely did both of those and definitely got caught doing one of those, a very formative moment. But what is inflation like in South Carolina? Do you think this beast has been tamed and is going to chill out at 2%, or is this something that’s going to be sticky? How are you feeling it?

Jared:

I think inflation has been tamed in the short term, but a lot of people have talked about this idea that even though the rate of inflation has come down significantly, the level of prices is still much higher than they were a couple of years ago. So people get reminded of this every time they go to the grocery store. They fill up a cart full of stuff, and it’s 250 bucks and they’re like, “Holy shit, this used to be 150 bucks.” As long as they have memory of that, they will psychologically continue to think that we have terrible inflation. It’s not the rate of inflation, it’s the level of prices that people are complaining about. There’s really not a whole lot you can do about that other than to raise interest rates to 15% and engineer a depression. That would get price levels down, but we can’t really put the toothpaste back in the tube. We can’t bring prices down back to levels to where they were before.

The consequence of that is if people believe there is inflation, they will act in such a way that causes inflation. Okay? So just a dumb example, let’s say you’re going to go to Lowe’s and you’re going to buy a bag of fertilizer. So a bag of fertilizer costs 10 bucks. Well, you go into Lowe’s and the bag of fertilizer is 20 bucks, and you’re like, “Shit, the price of fertilizer went up. I better buy 10 bags of fertilizer and keep them at home in case the price goes up even more next time I come back.” Basically, what people are doing is they’re accelerating consumption. You know what I mean? It accelerates consumption, it speeds up the economy. So the only solution to this is to break that inflationary psychology, and the only way you can do that is with a really, really bad recession. It’s the only way that breaks that inflationary psychology. That’s essentially what we did in 1981, what Volcker did, raising interest rates to 14% and it broke the psychology, and then we had disinflation for 40 years.

Meb:

There’s another somebody publishing a book with the title, The Holy Grail. Anytime you say the word the holy grail, I feel like you better mean it or you’re probably really selling something. Particularly in our world, if you use the word holy grail, you better bring the heat because that’s a pretty loaded phrase. Do you think this is going to be like a giant red arrow marking the top? You want to tell listeners what I’m talking about?

Jared:

Yeah. Can I say who this is?

Meb:

Yeah, of course.

Jared:

Okay. So it was your tweet that I saw that I put in my newsletter. Tony Robbins is publishing a book on private equity, and it’s called The Holy Grail. The timing of this couldn’t be better. Private equity is peaking. You are reading a lot of stories about how returns have gone down and the risk-free rate has gone up, and LPs are pushing back. If you look at the stocks, they’re all down about 10, 15% in the last few weeks. If you’ve been reading my newsletter, I actually think we’ve reached the top in private equity, and it’s based on sentiment. I don’t know what the bottom is going to look like, but I think it has a potential to be really bad. Let’s just put it that way.

Meb:

I haven’t read the book, so reserving judgment. A lot of people love Tony, so God bless him. He does a lot of good donating for food, et cetera. That having been said, you cannot listen to a Tony Robbins interview without him name-dropping in the first 30 seconds. I challenge you, listeners. Go find a podcast that Tony Robbins has done where he is not talking about how he’s a coach to Tom Brady, Paul Tudor Jones, yada yada. So this book is focused on these private equity titans, and he talks at least in the intro about how they all outperform the U.S. stock market by five percentage points per year. My take is always you can actually replicate private equity with public stocks. So much of the private equity industry over the past 10, 15 years has seen the valuation multiples go up. So if you’re private equity, you used to be able to buy companies for five times enterprise value to EBITDA. That’s like 12 or 14 now.

So, so much of the alpha that used to be private equity was simply you were buying companies for really cheap with so much competition, obviously because of the fees that multiple… there’s been competition for, it has gone way up to where it’s equal or higher than public securities. So I’m really curious. I’ll keep an open mind as to what he recommends in the book. I have no idea how he’s going to actually expect people to get exposure to private equity. Maybe it’s through Vanguard’s private equity fund. I doubt it, but with a title like Holy Grail, you’re certainly inviting some scrutiny. Have you had the chance to incorporate any AI yet into your writings? You have such a very distinct voice I imagine it’s challenging, but has that been a part of your process yet at all?

Jared:

Back in September, I actually had ChatGPT write a page of The DirtNap. It was hilarious. It was hilarious.

Meb:

Was it decent or what?

Jared:

Yeah, I used it. I put it in the newsletter. Then at the end I was like, “Yeah, that was written by ChatGPT,” and people thought it was the funniest thing they ever said.

Meb:

How many letters have you written in total, do you know?

Jared:

I would say about 3000.

Meb:

3000. I imagine you could train on just your letters alone and come up with a pretty decent Jared 3000 bot, and if you get the prompts right, could probably come up with a pretty decent set to work with. Well, maybe 2024, any interns listening that want to build Jared AI bot, let me know ’cause I’d be curious to see what it would say. We’ve played around and toyed with it. I have a lot of friends that have really gone deep in that world and incorporate it in their daily life. I’ve yet to really figure out how to blend it in yet, but I’m open to the idea. Listeners, if you got any good ideas for me, send them over. Anything else on your mind that we left out that you’re hot to talk about?

Jared:

This book has the potential to change the world. It really does. If this book goes, I don’t want to say viral, viral is another word used or bestseller, but if this book sells well and gets into the hands of young people in particular, if it gets into the hands of people in their 20s, this has the potential to radically change how we think about money, our approach to money and our relationship with money. The goal is to have a healthy relationship with money, and I would say 80% of people don’t. 80% of people don’t. I would say only about 20% have a healthy relationship with money.

Meb:

So much of it, I can remember all the scripts from childhood. My father grew up extremely poor, and then over the course of his life was comfortable. But watching him, the very real physical pain, I once remember, I got a water bed as a kid. So for the listeners who are young, a water bed is where literally the mattress is made, you fill it up with water. It’s the most preposterous idea. I loved that thing more than anything in the world. I would totally sleep on a water bed today.

You could heat it up, it was warm, you roll around. It’s a very womb-like feeling, I imagine. We had planned on buying it. We’d already selected it, went to the store, but the 20 minutes of stress that it entailed, that was a very real visceral pain on actually making the commitment to buy that damn thing seared in my brain for many, many years. So see how people run through these scripts and ideas they take with them for not just their own personal experiences, but that of their parents or grandparents or neighbors and all the other, trauma’s the wrong word, but baggage.

Jared:

It’s actually the right word. It’s the right word.

Meb:

Yeah-

Jared:

Yeah.

Meb:

… trauma, how they think about it. So many people use the cheapness on the day-to-day as a badge of honor too. I know Ramit talks a little bit about that, which I think is a hard… because it blends in with the identity and the fire world too. Jared, where do people find you? Where do they go? The book No Worries you can find on Amazon and everywhere else books are sold, Daily DirtNap. What’s the best place?

Jared:

dailydirtnap.com if you want to check out the newsletter. If you mention the podcast, I’ll give you a discount. You can also go to jareddillianmoney.com, which is my personal finance website, and I have a whole bunch of products and things to read related to the book that are there.

Meb:

Ooh, this is a nicely done website. Very cool. Jared, my friend, it was a blessing. Thanks so much for joining us today.

Jared:

Thanks, Meb.

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