ISMS 18: Dave Collum – What Makes Your Investments Good or Bad

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risk but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives to join me go to my worst investment ever.com and sign up for my free weekly become a better investor newsletter where I share how to reduce risk and create grow and protect your wealth. Fellow risk takers this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guest, Dave Collum. And I just want to welcome Dave back on the show. Dave, welcome.

Dave Collum 00:42
We're thrilled to be back so soon to you is more material always.

Andrew Stotz 00:47
Yeah, our conversation was so fascinating. I felt like there's some things to follow up on and things that we can discuss. And I think that there's value, you know, what we've just were talking about before we turn on the microphone was the state of the the media, in the world and particularly in the US and you know, there's conversations that aren't allowed to happen. And here we can have them. So let me just remind the listeners about Dave, Dave Cullen is a professor of organic chemistry, who developed an interest in markets which in turn led to an interest in geopolitics. Enjoy the human folly of it all. That's what he thinks. He says, I have a natural predilection to be contrarian, which makes me a denier on all, almost all hot topics. Well, in fact, for those listening, you can hear Dave's story in Episode 660. And also his views about the UK, US and what the US should do about Ukraine. Also, you can read his 2022 year and review I'll have a link in that in the show notes. While we talked about some interesting ideas for this discussion, good and bad investments, Trump indictments, politically bad things happening in the US out of balance valuations, geopolitical developments and the dollar as a reserve currency. They take it away.

Dave Collum 02:10
Well, that's it. That's a wide open field. He just left me. So today, apparently they indicted they arrested Trump. I don't know. Did they put him in handcuffs? I just picked up shards of information, but

Andrew Stotz 02:25
I didn't see them. And I saw him way, the picture of him waving, but I didn't see him in handcuffs.

Dave Collum 02:30
I do not. I do not see how you possibly indict a former president and an front runner candidate on such ridiculously simple charges. So if you want to tell me that everything he did, he's guilty of I would still say Yeah, but he's a presidential candidate. next president. So you know, in the meanwhile, the Democrats are saying, you know, no man is above the law. And boy, does that get my anger going? I have this urge to say, okay, okay, let's let's, let's start working backwards. Let's start with Biden. We know that for example, he's gotten multimillion dollar payouts from China. So I'd slap a treason charge on him right out the chute. There's also a tax evasion charge in there probably that ought to be investigated. His son oughta probably be thrown in jail for a host of things. Hunter, quite possibly the rest of the Biden family. If you want to keep working back from there, we hit Obama and hard to identify. But he bombed seven countries of which none of them attacked us. So I could imagine that if the world were completely fair, and the United States was not the world's only superpower, that there might be a crime against humanity buried in a few of those bombings. Last year, for example, the absurdity of the bombings last year, we bombed Syria. And it was explained by the authorities that we bombed Syria to send a message to Tehran. It's like, okay, let me see if I got this right. We bombed one country to send a message to another country, in what universe? Is that not a crime against humanity? It's just baffling to me. So. So here, we had a liberal president who bombed seven Muslim countries. So that strikes me as a problem he's worth like $100 million now so there's certainly pay oh all over the place. But hard to identify not as not as blatant as not as easily found as some of the others working backwards when he hit bush. So I'd hit him with a crime against humanity on Iraq since they fabricated the case to go to war with Iraq. They're probably things I'm forgetting about but let us just say I bought a farm the first time reluctantly and not the second I'm working backwards as Father, I'm a reasonably supportive guy, but I gotta go to Clinton first, working backwards and hitting Clinton. He is accused of being a rapist. He's accused of running a crime syndicate the Clinton Foundation. He's accused of somehow being involved in over 116 mysterious deaths. And so if I were, if he was a Gambino and, and the FBI said, look, we got to get this guy. I think there'd be a lot to work with. And I think they'd easily be able they wouldn't have to use a tax evasion. case against him to get him. Now I'm sure that for example, his 160 mysterious deaths are not all formally tied to him. But I bet you don't know how to 60 mysteriously dead people. I certainly don't. Then you go back before it and the Clinton Foundation. That is the Gambino crime family right there. I think the bucks. Yeah, go back to George Bush Senior and he looks pretty clean, although I think it's just because they did a better job. I think the Gulf War was actually a setup, but I sit down took the bait that we threw to him and he attacked Kuwait. That was our State Department given the nod on that, apparently,

Andrew Stotz 06:29
I want to go back to me, Bush senior's success at hiding, it has to do with his experience in the CIA, which is covering it.

Dave Collum 06:39
Yeah, yeah. And also protecting him from anyone else who would try to uncover his tracks. And so, you know, I'm a Reagan fan. So he did a whole bunch of things. But you know, it's this point, now, you're starting to get into the sort of brass knuckles of geopolitics. And the stuff doesn't look as surreal as the stuff now. I would have to say that the current administration looks the bleakest in that. And their ties with Ukraine are profound. And we're, we're we're pushing the US to the cusp of world war three, potentially, we commit an act of war against Germany by bomb in the pipeline. So in ourselves, you can indict Trump, and hush money to get stormy Daniels to shut up, which there's not even evidence that it's illegal. But even if it was, on a scale of one to 10, it's about a point to even if you hate Trump, it should be a point to and if you're incapable of seeing that, then you just you hate Trump so much. It's blinding you, because I would like to think the Republicans wouldn't indict a front runner Democrat candidate to I would be just as appalled at that. And so. So that's the world we're in. And it seems like it's someone said, someone referred to it as it looked like I was Doug Murray, said this looks like horribly, horribly, the end of empire. And I would agree with that, actually, January 6, what a disaster that is.

Andrew Stotz 08:21
Yeah, let's, let's so the first charge, let's say against Trump that we can say the first not charge against Trump. But the first argument is that well, it's unprecedented. And it's ridiculously small charge compared to the crimes that prior presidents have done. And therefore, it's ridiculous. On that side of things. The other part of it that's kind of interesting, coming from outside of the US, I asked a friend here in Thailand, is it? Do you think that someone who is been convicted of a felony, he's allowed to run for president in the US? Are they allowed to run for president in Thailand? And the answer is, if you've been convicted of a felony in Thailand, you're not allowed to run as prime minister. And, but that's not the case in the US. And I asked my friend, why do you think that is? And I think my explanation is that our founding fathers in the US were smart enough to understand that the politicians will do anything to knock out their opponent, and therefore, even a charge of a felony does not override the popular votes of an individual. And that is another angle that you know, makes me think about how the political system is just being broken in America these days.

Dave Collum 09:42
And here's the problem. I'm well aware that both parties are filled with skanky prostitutes. But this looks like the left to me. I can't, I've challenged myself to find the show. Meanwhile, the right wing is behaving badly. And I just can't, I can't get close to what the left is doing. And it makes me wonder. It makes me wonder if if the sinister forces that are causing them to do this really have nothing to do with the left at all, and have something to do with, you know, sort of the New World Order sort of stuff. And I, I hate to go there, but it just, it feels like there's some, there's some underlying power that's trying to bring down the US as a superpower, which, personally, I understand why there's countries, the ones we bombed, for example, we'd love to bring down the US. So we talked about bringing down Russia, you know, so it seems pretty straightforward to me that the US would, would be in the sights of somebody, and I just everything just looks wrong, you know, the pull out of Afghanistan looks like a catastrophe. You know, picking on Russia looks like a catastrophe to me, forcing the Ukrainian war forward. And if you don't think we forced the Ukrainian war, the listener that is, you haven't read enough. That was clearly a NATO driven NATO motivated NATO instigated war. And I've written a lot of pages on it. And I think I could given time convince somebody, not necessarily anybody but somebody that we're sending weapons to the wrong side, that it's that absurd. And zolecki is the guy who should go,

Andrew Stotz 11:30
Yeah, and if we look at the history of the Americans support of people like Solinsky, and let's just take Saddam Hussein, who was a friend of America for many years, and then all of a sudden, the tables turn. And I would say that my prediction is that Zelinsky end in this thing is not going to be a pleasant one, unfortunately, right. And also, when you look at the, the situation going on outside of the US where I am, and you look at Asia as an example, I think you're you know, the US is losing support and faith, I think, to some extent, and you know, what was interesting about the Trump years, Dave, that I found fascinating is when Trump took on Zhi Jing ping, which I didn't like, the whole way that that went down, where he's trying to basically stop the trade and all of that, you know, and he had his opinion about how to make things more fair. I wasn't in favor of the way that went. But I sent a message to some of my Chinese friends in China, on my, on their WeChat, which we use in China and use in China quite a bit. And what was surprising to me is the amount of support that the Chinese had for Trump, I didn't expect that any of my Chinese friends would be supporting that. But what they saw was a person who stood up to Xi Jinping. And that was a fascinating thing. So as I look at what faith do, Chinese people have in Biden, and when you know that it's not Biden, it's people behind the scenes that are somehow setting the whole agenda. It gets even more murky than you think about, okay, the pull out of Afghanistan was the last, let's say, military presence in, let's say, the Middle East to the, you know, to the east. And if you look at what's happening in, you know, with India's relationship with Russia growing and, you know, just, I would say neutral with the US, I would say the US is really losing political and, you know, philosophical support. And that's the biggest thing that I think is being lost right now. What are your thoughts about kind of the shifts that are happening, you know, geopolitically are in that sense?

Dave Collum 13:41
I have sort of two minds of Trump's relationship with Xi Jinping. I read a couple of books about it. Not that that helps me on my MICHAEL PILLSBURY, the, the 100 year, the 100 year marathon, I think it was calm, okay. And I, I get the feeling, on the one hand that Xi Jinping, psychoanalyze Trump and said, Okay, we can turn his narcissism against him in a very big way, so we can play him like a fish. On the other hand, another lobe of my brain says the whole thing could have been kabuki theater. Like when we agreed with Russia, with the Soviet Union to pull missiles out of Turkey. We apparently told them said, look, here's what's likely to happen, it's going to leak to the press, and then there's going to be a shitstorm and we're going to deny it, but we promise we'll pull them out. And that was okay with the Soviet Union, because that's how diplomacy works. It's a lot of diplomacy done by handshake. And a lot of this like, Look, if you lie to me once, that's it, so better not do it. And MEARSHEIMER is very good on this point. So it's conceivable that, you know that Trump and Xi Jinping sat down and Trump said, Look, I gotta go I gotta, you know, pretend to be a supporter, the American man and I got to bring some stuff back and you're just gonna have to live with it. But overall, we're cool. So I don't think I didn't see Trump going and Xi Jinping in a way that was particularly disturbing. He just we had them on shore some jobs, I think, if he Jinping probably knew that, right, yep. Said, Okay, we've owned these guys so long, you know, okay, well give Trump and he I think he liked playing Trump. So I think he wanted to give Trump enough slack to do what he had to do.

Andrew Stotz 15:32
And the book you refer to is called the 100 year marathon, China's secret strategy to replace America's two global superpower, as you mentioned, by Michael Pillsbury, and I'll have a link to that in the show notes. I haven't read that particular one. It looks fascinating. I did read. What's his name of George Friedman? I think Friedman from Stratfor. Yeah. And that was the 100 year, the American Century, basically saying that the US is LEED was so strong in things like education and things like the Navy, and the ability to launch a Navy from the Atlantic and the Pacific. Just let America in a dominant position. I start to wonder I start to question that nowadays. But you know that I think that was also very well argued.

Dave Collum 16:23
Well, the other thing is one of Friedman's employees, Peter Zeit, as I Han has been out there, Hawking his book about demographics. And there's things I really don't agree with him on, but I think he is embedded in a super confident presentation, like ridiculously confident presentation, are some really interesting ideas about the importance of American projecting military power, and how it opened up global globalization. And without it, the high seas would be Barbary pirates, and, and there's no other. There's no other country that can project the kind of power needed to keep the seas open for trade, and kind of caused me to pull back a little on my Monroe Doctrine thinking that said, look, let's just pull back and leave Europe, Europe and Asia to Asia. And then Zion. Again, as much I had some allergic reaction, it was to his work and to his presentation, there were important points being made.

Andrew Stotz 17:26
Yeah, I can't remember it was you, I guess it was probably in our prior discussion that turned me on to that. I've been listening to it on audio, and I'll have a link to it in the show notes. But from an audio perspective, he's definitely he's definitely into his presentation, you know, and

Dave Collum 17:40
yeah, he really loves it. He really is. There's not, there's no lack of self awareness.

Andrew Stotz 17:47
And, you know, it leads to another question about logic. And reason is that sometimes, um, we can be on the trail of a lot of interesting connections, correlations, maybe in some cases, causation in some cases. And we can build a lot of confidence in our view, and then find out that, you know, in fact, we were very wrong.

Dave Collum 18:11
And I know, it's scary. Actually. I've talked to my brother about that. And I said, I say, Ned, what, what would happen if we talked about all these narratives, there's just dozens of them at this point that make the world look like a sick place. So what would happen if I suddenly found that they were all wrong, you know, that the Vegas shootings we're not, we're not some crazy sovereign state thing that that 911 was, was really was just a bunch Arabs, flying planes and stuff like that. And, and I would rattle my cage, because I've spent a lot of time trying to get my brains around these ideas. So I'm well aware that some of it's wrong in it, certainly in detail. So the number of layers of the onion and these stories, you know, if you got the answer key, you'd go Oh, my God, I did not know that. Right. I did not realize that. There's no question that we can't, from our perspective, get it right. But that's different than getting it wrong. There's a big gray zone in between the two.

Andrew Stotz 19:19
And, you know, let's now look forward about politics in the US. I mean, as a lot of people outside of the US are investing in the US and looking at the US market and looking at the rule of law in the US. And, you know, they're looking at the political environment and think, you know, what's gonna happen with where does this thing with Trump leave the Republican Party? Does that mean he's assured to be the front runner, and if Biden can't literally get up to a podium to present and you know, lead the party, which I think is very possible by the time we get to the election, who's going to lead from the Democrat party in what direction is America going in? I mean, it's just like it as I look at it, having left it 30 years ago, it's just seems like it's destroying itself. Is there any? You know, is there any hope for where America is going?

Dave Collum 20:12
Well, if the Democrats put up Biden they deserve absolutely every sack of garbage that comes their way. Because he's just not equipped to be president. He just doesn't have a full deck left. And if they think that's the right move for the country, which they certainly don't, then if they're wanting to do something that bad for their own personal needs, rather than for the good of the country, then they deserve to be a party for the history books. At that point, I just had the amount of scorn, I would heap on the DNC, and I'm starting to get a little anxious over people who would vote for him. I just I, I wouldn't vote for Hillary no matter what, because I thought she was a criminal from head to toe criminal. It didn't matter who she ran against. Now, if I couldn't vote for the person she ran against, I had that vote, you know, there's all sorts of alternate nothing could get me to pull the lever for Hillary. And Biden should be in that boat for a lot of people because he's just not equipped to be president United States. And, and, and, and so I have this feeling he will not be the candidate. I think that they're, I think they're buying time to find someone to come in who's not Kamala Harris. I think Kamala Harris is their nightmare, not not Biden. And, and I think they'll probably they ought to be able to find somebody, the guy I could vote for from the left would be something like Bobby Kennedy, but never let him get near the White House. Not in a million years. Is he getting near the White House?

Andrew Stotz 21:54
Yeah. His, you know, announcement of his potential, his interest is checking out whether there is interest out there and whether he should run. And I know, there's a lot of people that, you know, including myself that you know, appreciate what he's done. But the problem that I faced there with him as a potential candidate is sit. There's nobody from the Democrat party that's going to vote for this Democrat.

Dave Collum 22:17
No one from the Democratic structure, right? There might be people who would vote for him, but there's no one, he won't get the DNC backing. So he'll have to pull off an upset of the magnitude of Trump. And so I think the Republican bench looks much deeper. Right? So Trump could mock it up by running, he might be a dominant candidate, I don't know. But it certainly, if he's, I'm not convinced he's running, I think he may very well be trying to steer the party's politics. And that as long as he stays in the limelight, he's able to do that. So you might be trying to keep trumping omics and Maga and stuff, front and center. But you could also make the candidate sign off on it.

Andrew Stotz 23:08
Yeah, I mean, you could argue that his strategy, knowing that he's got these indictments coming in, you know, all kinds of pressures, that he kind of had to announce that he's running for president for the political cover that that gives him. And that when the ultimate time comes, for him to step down and hand it over to someone else, is a very real possibility, I think, you know, and being the, the, the kind of seen as the puppet master behind the scenes. So it's an interesting one, which raises another question. You know, it's not uncommon in third world countries and countries that are not very democratic, that there's a person behind the scenes pulling the strings, it's financing the whole thing. And the Prime Minister of the country is just a figurehead and not a particularly bright guy, but he's going to implement the policies of that person behind him who's funding him to get there. And it leaves you when you look at Biden, it's very clear that it's impossible for him at this point, to set any particular strategy and follow it and lead the White House and the executive branch in following that. So who is pulling the strings behind the scenes in this government? I mean, there's, you know, you could say there's technocrats like Blinken and the State Department have, you know, a constant war agenda. Is it the CIA? Is it the military like who's running America?

Dave Collum 24:35
You're missing the obvious. Xi Jinping. Right. He owns Biden. He could destroy Biden in a heartbeat. Every single deal that Hunter caught while in China was recorded every conversation of every American to ever do anything in China's recorded. Presumably Joe has stuck his foot in his face. In a remarkable handful of times so far of those bank transactions that are said to be sketchy, from the first to they tally $6 million of payments from China to the US. And so, so you are now in the situation where we've got a president is hopelessly compromised by at least two countries, Ukraine and China. And then the question is, when he makes a decision, that seems absurd. How do you know that it's in any way intended to be in the interests of the United States?

Andrew Stotz 25:33
And to counter that, you know, when we look at the, in the Congress, it's just it's a war footing with China. If you look at the executive branch, and you look at the State Department, I think it's a war footing with China. If you look at the Department of Defense and their strategy that they announced online, they make it very clear that China is the number one adversary. And so on the one hand, I see your point, have the potential to control the behaviors of Biden. But on the other hand, if he's not doing a very good job of keeping America off China, you know, if Xi Jinping can control the situation, he's not doing a very good job, because it just seems like it just gets more and more down that warpath. What are your thoughts about that?

Dave Collum 26:17
Well, again, it could be professional wrestling, right? I are media. So I don't know. I did a poll the other day. Transgender athletes and women's sports. If you watch the media, you would swear this was a hotly debated issue. Right. This was a front and center issue. My poll said, do you support a yes or no, no waffling just yes or no. 98% said, No, this is a non issue, except for the fact that media is making an issue. So I have utterly given up on believing that the media is anything but a pack of pathological liars with the exception of the indie group, the independent media. And so so when the free market fails, whether it's the economic free market, or the free market of ideas, the black market shows up. And can right now you and podcasters of other types and bloggers on substack. They are the black market of ideas. When so. So I could imagine that the entire China drumbeat has no reality to it. But I don't know what it's about it. I just don't have a clue.

Andrew Stotz 27:41
Let's shift on to a couple of other interesting topics. You know, you and I talked before this about the idea of kind of what's your good and bad investments in process and kind of your views on that maybe you could tell us a little bit about your thinking about what makes your good or bad investments. And you know, what is it what is process have to do with that?

Dave Collum 28:04
Well, I should probably do a thumbnail sketch of my 40 years of investing my first big internet writing was actually in oh nine and it was entitled 30 years of investing from the cheap seats. And I did this big sort of look at it. But so in 1980, when I started investing, it was nothing but bonds. And it was because interest rates are humongous, right? You could get a great return. And I didn't know what I was doing. But I just knew that, you know, money markets, fixed income, which is amazing and equities. It sucks so badly. So I was going into recency bias, but it turns out that bonds did great. The 87 crash in equities. Afterwards, I found myself sitting in the faculty lounge with an old guy who said Dave, you really ought to be buying equities. And so I looked into it. And so now he's right. And so I actually went in and flipped equities and 87 postcrash. That wasn't a good timing that it was the crash is what got me talking about it. I hadn't thought about it. And so I was in equities. Until and then or in the early to mid 90s I got enthusiastic as your typical Boomer starting to accrue some wealth and was very bullish. So the bubble had started because they had me by the short hairs. And the bubble had a grip on me. And so I had a contact with a traveling salesman through pharma who would I'd have lunch with him and he tells me what all the CEOs and stuff were telling him. And it was a great source. I mean, he had good information. And the more he traveled, the more all of the CEOs wanted him lunch with him. So it was really he is a conduit and he gave me some ideas One of which was a small company called LDS. And that was a small company in Mississippi. That's all bandwidth that turned into WorldCom. And did really well and started acquiring everything under the sun. By bytes, I'd say mid 98, early 98, I started to get a little queasy about the markets because I'd read enough saying, wait a minute, this is now starting to get out of control. And I've read enough books now. And so in, curiously, the in the beginning of July 98, I emptied half my equities. And, and, and then we went right into the Asian crisis when I was feeling like I have genius half more on. And I said, Look, if this comes back, I'm getting rid of the other half, because there really was something wrong. And so I came back. And by mid 99, I had dumped everything. And, I had shown that in the world of seemingly great investments. I'd made 700% I welcome 700% on Dell, four or 500% on Warner Lambert, a company called tomra, which recycles bottles was this thing I kind of stumbled into a Norwegian company. Everything worked great. So I thought I was a genius. And I emptied them all. So I was the guy who got out of Worldcom and time and pretty close to the top. And then I got into gold. So

Andrew Stotz 31:33
for the listener out there, remember it was 1999 2000 We had the tech boom, Bubble bubble. So you're getting out just before that.

Dave Collum 31:44
So I had at least at least maybe two years I can't remember so long ago, but at least one year where I made over 100% on my assets at risk. Okay, and to show you what a bubble it was, as I was 50% leverage on top of that, so you can do some quick math as to how much that was right. And, and if I'm leveraging long tech stocks, then we are in a bubble. So those were brilliant investments in terms of return and horrible investments in terms of process, I had not a clue what I was doing. And, and, and so then I went to cash completely. And then I went into gold. And the most brilliant investment was I white knuckled gold for two years, when the NASA kept going up for a while and then it started going down. But gold went down for another two years. And what kept me in the gold. I'm not quite sure I thought inflation was a risk. I was worried about inflation I went into I wanted to get into commodities in Oh, one ish, but I couldn't figure out how to do it. And there really wasn't, there weren't simple ways to do it for amateurs complete amateurs and sigh. I talked to Clyde Harrison, who was Jimmy Rogers partner, and the Rogers raw materials fund. And I came out of it a little creeped out. I didn't like it. I didn't like the fact that was basically just an options driven fund. And I now understand why but at the time, it just felt sketchy. I talked to the market maker, one of the eight market makers in it and I didn't feel better. So I didn't do it. But instead I just went after a whole pile of energy mutual funds of fidelity. So I wrote those all the way up through the knots. And so curiously as gold went from 256 up to 1900 at one point, and the energy soared so the decade following the tech was really my best relative decade relative to the world where while the world was getting pounded by two nasty bear markets, I compounded 13% a year. And that's that was extraordinary. And it's because I had just cash and gold and some gold equities that ended up sucking in the end. And then and then the biggest mistake I made terms of outcome, but not the biggest mistake I made in terms of process was that I was very tepid buyer at the bottom of oh nine. And the reason was really tepid. I mean, I bought almost nothing. And the reason was is because every event in history that had looked that bleep there was way more damage left to come. And so you simply do not do to the economy, what the Fed did to the economy. What I didn't see and what best I can tell no one on the planet saw coming. So this is why the process was fine. Was 30 trillion hours of stimulus. Right and I just if you told me that, you know when Bear Stearns got bailed for 30 billion it suck the oxygen out of the room and 30 Billions nothing now right they do that on a weekend now and So there's just no way of seeing it coming, in my opinion. And there's people who will do revisionist history and how we I saw the rally coming. What I saw was, you know, started in 1929 to 3031, then, you know, that kept bouncing, and I said, we're going down. We're going down destructively hard before this is over. And somehow the Fed saved it. And they did. They had sex with barnyard animals, they did everything imaginable, and I missed it. So I did some, like 4% annualized over the teams. And while everyone else was getting pretty well off, and, and I'm still heavily in gold, and I'm heavily heavy in cash, in 2020, what could prove to be the bottom, but you never know, I started going into energy, but I didn't size it. But it was a good idea. Excellent, got kicked out of the Dow and I go, Oh, that's interesting. Jesse Felder pointed out that, that during my greatest moment of owning energy, it was 16%, the s&p and it was it was I got I got knocked out of it, believe it or not against my will by my retirement account. So save me some money. But it was 2%, the s&p and I said, Energy Fuels the world. And it's 2% of the s&p. So I go, that's another buy signal, right. So in 2020, I start buying energy, but I didn't size it huge. So it was enough to feel pretty good about it. But it was not, it was not huge, I still have a lot of cash.

Andrew Stotz 36:36
If you have some advice for people that are, let's say, professionals, whether they're engineers, or professors or doing, you know, professional job, and they some people in that space, when they look at finance, they think I don't want to deal with it. I don't know anything about it, or they just go to an advisor and stuff. But there's plenty of them that are that want to become a little bit more active in what they're doing. I kind of went the route of studying finance, you know, kind of foray and working in finance as my route to kind of learn, but I'm curious, what advice would you give a young professor, a young engineer, a young professional that didn't study it, and wants to be active?

Dave Collum 37:19
Somebody asked me that not too many days ago, for books. And I said, well, most of the books I read that helped me investing are not about investing. And so I read a lot of books about history, and if I'm reading about investing in it'll be about sort of historical components of some James Grant Booker, Edward Chancellor's recent book is very, very good. Morgan Housel his book was actually pretty good. And but I read about neuro psychology and medieval history and it's amazing how things that you thought were unrelated all sudden pop up in the hour, they blew that back then didn't they that sort of thing. My fear going forward. And I was thinking about this today. The investors should be wary of bad cops. And to me a bad comp, we've been through a 40 year run that I think is over. And the problem is if you look back 10 years, you're going to get draw the wrong conclusion than if you look back 40 years. So again, 40 years ago, we started a demographic run to die for with the boomers entering the workforce and China bringing cheap labor and Russia bringing cheap resources and, and interest rates dropping from 16 to zero, which is Buffett's favorite, favorite bull market indicator. And, and, and what that produced is an astonishing stat, which I never see anyone quote. Is it the valuations which really should just flop around, right? They really shouldn't go, they shouldn't trend, right? The valuations over those 40 years, annualized went up 3% a year. And so you had a 3% of your talent for 40 years now. I like to ask the question, what happens if that reverts? And there's no reason to think it won't, because it always does. So there will be low valuations and high valuations. What happens if over the next 40 years, we go negative 3% A year valuation drop? Right. And, and that will be that's a net 6% Flip. And it'll be an incredible headwind. It will be insurmountable, trying to get past that headwind and it'd be like trying to sail up wind. And now on top of all that. On top of all that we've got an economy that really looks crappy to me. And I'll Robert Gordon's book, there's a recommendation. It's about wealth creation. I can't remember search Gordon's book right there. And given the name of it. Let's see, Robert Gordon. It's a brilliant book, actually. And I reached out to him, I said, your book is still just timeless

Andrew Stotz 40:23
The Rise and Fall of American growth?

Dave Collum 40:26
Yeah, that would be, it would be it. Yeah. It's just, it's just this beautiful description. And he talks about how basically, the Industrial Revolution went from 1870 to 1940. growth was fantastic. He points out some interesting details. He distinguishes between primary inventions, which are like running water, electricity, things like that. And secondary inventions, which would be dishwashers and appliances, and you know, things that stand on the shoulder. So the internet would be a primary invention, right? That's right. And he says that the best decade and US history for secondary inventions was the 1930s. You know, really wow. And any, he says that by 19. From 1972, back to the present, it's been incredibly flat, the actual growth in the economy, if you look at if you look at it through the right lens, and he says there's a brief bump between 95 and 2005, which would be the digital bump. And that would be the period where computers really roared down to the scene and the Internet showed up and things. Things got digitized. And then and then it stalls out again, and you can say, oh, no, that's not true yet is because I've been all week fighting all sorts of login problems. And I don't know about all your listeners. But if I have to do a double verification that doesn't seem to want to work for me one more time, I'm gonna smash my computer, right? There's things that should not be on the internet. They just they should be done the way they did in the old days. And so I'm not convinced that the digital world has created the efficiency, not at people in fact, Gordon was a Gordon or someone else said the digital world is his. His has been great create a great wealth, but just don't expect to find it in productivity. And, and the point being is that we spent a lot of time flopping around it. Facebook went away today, what would you miss? Twitter? What would you miss? We'd actually be more productive because wouldn't be hanging out on Twitter. They're just so many parts of the world. Amazon. Here's the answer. Amazon's not a pioneering company. The pioneering company was Sears Roebuck, right? Sears Roebuck, they put out a catalogue at the turn of the century. And they mailed it out. And you could order 10s of 1000s of things from it. And, and a couple weeks later would show up on a train. And instead of buying nails from a barrel in a country store, you could order prefab houses and parts for your tractor and all sorts of stuff. That's just Amazon. And Amazon. Yes, it's faster and it's bigger, but the Pioneer with Sears Roebuck. So let's,

Andrew Stotz 43:21
I think that's a great place to wrap up. One of the things that you're highlighting is the importance of understanding that the returns in the stock market are a function of two things. Let's say the first part of the return is what you're getting for the earnings of a company and what that earnings is paying in dividends. And the second part that you're getting when you're investing in the stock market is the premium that people are willing to pay for those earnings. I call that the dream factor. And I do a whole analysis on that because that's all future driven. And when we look at a long term period of time, very long, 100 years we see that basically the dream factor washes out it goes out

Dave Collum 44:06
yeah add McQuarrie decades many Khari add McQuarrie you want to look up at Macquarie's papers I came up with I have two sets of definitions. One of them seemed to stick the definition of a bull market is something that you have a big position in the definition of a bubble something something that went way up that you have no position and and the other is overvaluation is appreciation pulled forward, which is a savings cobbling up the savings aphorism. And so if you're overvalued now, and I have 100%, overvalued my valuation metrics, I use about 25 I have about 100% over historical fair value. Be careful because everyone likes to use recent decades to consider what valuation should be. We love After orbit in 94, our valuations took off and didn't look back. And that's a big part of where the 3% compounding came from was 1994. And so the question then is if we're 100%, overvalued, we got to find a way to give that back. At some point, by some mechanism, somehow it's got to happen. And the question is when and if we're 100%, overvalued, we don't give it back, then our returns are going to be half what historical returns are. Because you're paying twice as much for a stream of revenue was at a whim?

Andrew Stotz 45:36
Yeah, I think this is a great way to for Everybody listen up. We're going to wrap up this episode now. But what I really want to do is highlight a few things that Dave has talked about. Since the 90s. We've had the headwind of interest rates falling. Since then, we've had our head of China, tell he felt the tailwind supporting the market. And we've had the tailwind of the Chinese labor force entering the market driving down costs. And we have the falling of oil prices, which I suspect, as you've kind of alluded to is, is related to Russia starting to enter the oil and energy market, and also just general pumping that was going on. And these things cause market valuations to go high. And now we've had it for such a long time that we are in for potential reckoning, anything you would add to that.

Dave Collum 46:38
Yeah. There are three periods in US history where if you, if you owned it the high, there's a chart I made, I made a plot of this, someone wants it, I'll send it to him. If you own it, the high like in the 1906 high. If you inflation adjust, and you'll look at just capital gains. You then obviously have a wretched bear market, you come back, you return to that original high, you go up for a while, and then eventually you make it back to the same high. And those periods in which you treaded water, not what you not only went from the high to recover, but you went back to the high for the last time. And let's pray. It's the last time those three periods lasted 40 to 75 years. So if you are an owner at the high, you might be able to trade your way around it. But I guarantee you, no one made money on the Nikkei. The Nikkei has been just a wipeout in recent years. And so. So I think we're looking at a generational bear market. This is there's going to be a bear market where you and I are all men and, and, and, and it's the bowl, the bowl in earnest will start up again. But I don't think we're talking, you know, a year of downswing and then back to the races. I think it's a game overnight, in a very, very big way. And this happens, right, this happens. I think it's time.

Andrew Stotz 48:09
So that's a great warning for all of us. You know, we talked about trying to reduce risk, you know, and we have a lot of excitement that the feds going to save the day and all that. But I think they brings us back to the reality that we have had fantastic times for decades. And it's time to pay attention and think about a different way of looking at things. And that's a wrap on another great discussion to help us create, grow and protect our wealth fellow risk takers, this is your worst podcast hosts saying Thanks to Dave for joining us and sharing your thoughts. And I'll see you all on the other side.